Equititrust Ltd (In Liq) (Receiver Appointed) (Receivers and Managers Appointed) v Equititrust Ltd

Federal Court of Australia|2016-03-15|Before: Mr JA, Foster J

Counsel for the Plaintiff: Mr C Withers

Solicitor for the Plaintiff: Squire Patton Boggs

Counsel for the Fifth and Sixth Defendants: Mr JA Arnott

ORDERS NSD 2028 of 2013 IN THE MATTER OF EQUITITRUST LIMITED (ACN 061 383 944) (IN LIQUIDATION) (RECEIVER APPOINTED) (RECEIVERS AND MANAGERS APPOINTED) BETWEEN: EQUITITRUST LIMITED (IN LIQUIDATION) (RECEIVER APPOINTED) (RECEIVERS AND MANAGERS APPOINTED) IN ITS CAPACITY AS RESPONSIBLE ENTITY OF THE EQUITITRUST INCOME FUND (ACN 061 383 944) Plaintiff

AND: EQUITITRUST LIMITED (IN LIQUIDATION) (RECEIVER APPOINTED) (RECEIVERS AND MANAGERS APPOINTED) IN ITS OWN CAPACITY (ACN 061 383 944) First Defendant

MARK MCIVOR Second Defendant

WAYNE MCIVOR (and others named in the Schedule) Third Defendant

JUDGE: FOSTER J DATE OF ORDER: 15 MARCH 2016

Pursuant to r 40.02(b) of the Federal Court Rules 2011, the costs of the plaintiff payable by the fifth and sixth defendants pursuant to orders of the Court made on 27 June 2014 and on 18 August 2014 by Foster J and by Jacobson J respectively be awarded in a lump sum instead of being taxed, the lump sum being $141,100.70 (inclusive of fees and disbursements but exclusive of GST).
The fifth and sixth defendants forthwith pay the said amount of $141,100.70 to the plaintiff.
The fifth and sixth defendants pay the plaintiff's costs of and incidental to the plaintiff's claim for a lump sum costs order and for an order that its costs be payable forthwith. Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

FOSTER J: 1 On 27 June 2014, I dismissed an Interlocutory Application filed by the fifth and sixth defendants (the auditors) (Equititrust Limited (In Liq) (Receiver Appointed) (Receivers and Managers Appointed) v Equititrust Limited (In Liq) (Receiver Appointed) (Receivers and Managers Appointed) [2014] FCA 692, (2014) 13 ABC(NS) 191) by which those defendants sought to set aside three Examination Summonses issued by the Court pursuant to s 596B of the Corporations Act 2001 (Cth). Those Summonses had been served upon three individuals who were intimately involved in conducting the audit of the Equititrust Income Fund (EIF) for each of the years 2002 to 2010. The plaintiff was the responsible entity for the EIF. In the alternative, the auditors sought an order staying those Examination Summonses indefinitely while this proceeding remained on foot. 2 On the same day, I ordered the auditors to pay the plaintiff's and its liquidators' costs of and incidental to the said Interlocutory Application. 3 The auditors sought leave to appeal from my judgment. 4 On 18 August 2014, Jacobson J refused leave to appeal and ordered the auditors to pay the plaintiff's costs of their Application for Leave to Appeal from my judgment. 5 By Interlocutory Application filed on 15 December 2014, the plaintiff sought a number of orders. Relevant for present purposes are the orders which the plaintiff sought in respect of costs. Those orders were that the two orders for costs to which I have referred be payable forthwith and an order that they be paid on a lump sum basis. 6 By these Reasons for Judgment, I determine the plaintiff's applications in respect of costs. 7 Shortly before the hearing before me, the auditors relented in respect of their opposition to the plaintiff's application that its costs be payable immediately. As a result, the only issue that remained was whether the plaintiff's costs should be paid on a lump sum basis. As to this, the auditors submitted that: (a) The Court should not make a lump sum costs order in the present case because the amount claimed is excessive and the amount likely to be recovered by the plaintiff after a taxation of its costs will be substantially less than the amount currently claimed. For this reason, so it was submitted, the plaintiff should be compelled to tax its costs. (b) Alternatively, if, contrary to the auditors' submission, the Court were minded to make a lump sum costs order, it should be for an amount which is considerably less than the amount claimed.

Relevant Legal Principles 8 I intend to approach the plaintiff's application for a lump sum costs order by applying the following principles: (a) Rule 40.02(b) of the Federal Court Rules 2011 (FCR) provides for the award of a lump sum costs order in appropriate circumstances. That rule gives to the Court a broad discretion which should be exercised whenever the circumstances warrant (see Dunstan v Human Rights and Equal Opportunity Commission (No 3) [2006] FCA 916 at [23] per Mansfield J; Black & Decker Inc v GMCA Pty Ltd (No 4) [2008] FCA 1737 at [3] per Heerey J; and Playcorp Group of Companies Pty Ltd v Peter Bodum A/S (No 2) [2010] FCA 455 (Bodum) at [3] per Middleton J). (b) The Court should not be slow to exercise the relevant discretion in an appropriate case. (c) Any exercise of the discretion to make a lump sum costs order should reflect the overarching principle embodied in s 37M and s 37N of the Federal Court of Australia Act 1976 (Cth). The discretion should be exercised logically, fairly and reasonably (see Beach Petroleum NL v Johnson (No 2) (1995) 57 FCR 119 at 120F and 123C per von Doussa J; Ginos Engineers Pty Ltd v Autodesk Australia Pty Ltd (2008) 249 ALR 371 (Ginos) at 377 [22] per Finn J; and Sony Entertainment (Australia) Ltd v Smith (2005) 215 ALR 788 at 813 [198] and [199] per Jacobson J). (d) The rule permitting the fixing of costs in a lump sum serves to avoid the expense, delay and aggravation involved in a formal taxation of costs and associated litigation. In particular, in cases where the incurring of additional costs in taxing bills would result in an additional burden on the successful party, there is strong reason for making a lump sum costs order. A relevant factor in favour of a lump sum costs order will often be that the party against whom the order is sought is experiencing financial difficulties with the consequence that the prospects of the successful party recovering its costs of taxation are poor (Bitek Pty Ltd v IConnect Pty Ltd (2012) 290 ALR 288 at 291-292 [15] per Kenny J). The power to make a lump sum costs order is expressed in general terms and is not limited to complex and protracted litigation but also extends to very simple cases (Bodum at [3]-[4] per Middleton J; and Ginos at 377 [22] per Finn J). (e) The approach to be taken by the Court in deciding whether to make such an order and in arriving at the quantum thereof should be a broad brush approach. It is one of estimation or assessment and not of arithmetic. The Court should avoid, in effect, carrying out a taxation under the guise of performing a lump sum costs assessment. As submitted on behalf of the plaintiff in the present case, it is inconsistent both with the power to make a lump sum costs order and the clear objective in making a lump sum costs order that the costs in issue be subjected to the kind of detailed scrutiny often applied in taxations. Nonetheless, the Court must ensure that its approach is, as I have already mentioned, "…logical, fair and reasonable". For this reason, the Court must be satisfied that it has sufficient information to enable it to make a logical, fair and reasonable estimate of the amount of the relevant costs. (f) As explained by Sackville J in Seven Network Limited v News Limited [2007] FCA 2059 at [29]-[30]: 29 It is necessary for the Court to have sufficient information to enable it to make a logical, fair and reasonable estimate. In this respect, as the parties agreed, Telstra bears the onus of establishing that its claim to a gross sum satisfies the applicable test. In practice, this may involve the parties adducing evidence from expert costs assessors addressing whether the costs claimed by the successful party were 'necessary or proper for the attainment of justice or for maintaining or defending the rights of a party' (O 62 r 19) or, in more general terms, whether the amounts sought would have been recoverable on a taxation of costs. 30 Care should be taken, however, to ensure that the process does not take on too many of the characteristics of a taxation of costs. There is a danger, perhaps reflected to a limited extent in some of the evidence adduced on this application, that the parties will descend too far into the minutiae of the rules governing a taxation and will spend disproportionate time analysing the application of specific items in Schedule 2 to the costs claimed by the successful party. The process should direct attention primarily to issues of principle that explain the differences in the positions taken by each party in relation to the assessment of recoverable costs. For the most part, the reports and oral evidence of the experts in this matter concentrated on the more general issues. (g) The evidence of an expert costs assessor is both relevant to and probative of whether a lump sum costs order ought to be made and the quantum of any such order.

The Evidence 9 In support of its application the plaintiff read and relied upon an affidavit sworn by its solicitor, Amanda Kim Banton, on 11 December 2014. 10 Ms Banton is an experienced litigation solicitor. She has represented many clients with significant litigation in this Court. 11 In her affidavit, Ms Banton said that: (a) Initially, Ms Banton's firm maintained separate files for the Main Proceeding (this proceeding NSD 2028 of 2013) and the Examination Proceedings in Queensland. On 15 August 2014, she caused a separate file to be opened specifically for the purpose of recording time in respect of the auditors' application to set aside or stay indefinitely the Examination Summonses. (b) She caused a paralegal under her supervision to create a spreadsheet which catalogued all of the time recorded narratives and amounts in respect of the auditors' application before me and the subsequent application for leave to appeal from my judgment. (c) Where it was difficult to separate work undertaken on behalf of the plaintiff into precise categories, she used her best judgment to apportion the costs appropriately. (d) As at the date of swearing her affidavit, the total of the tax invoices for professional fees plus disbursements rendered by Ms Banton's firm to the plaintiff in relation to: (i) The auditors' application to set aside the Examination Summonses was $157,932.29 (inclusive of GST); and (ii) The application for leave to appeal from my judgment was $63,797.38 (inclusive of GST). (e) The total amount of fees and disbursements incurred in respect of the application before me (viz $157,932.29 (inclusive of GST)) comprised professional fees of $77,056.10 (inclusive of GST) and disbursements of $80,876.19 (inclusive of GST). (f) The total amount of professional fees and disbursements incurred in respect of the application for leave to appeal from my judgment (viz $63,797.38) comprised professional fees of $37,451.70 (inclusive of GST) and disbursements of $26,345.68 (inclusive of GST). (g) Exhibited to Ms Banton's affidavit were all the tax invoices rendered by the plaintiff's Counsel relevant to both applications together with other tax invoices in respect of disbursements relevantly incurred by the plaintiff's lawyers. (h) Lawyers under Ms Banton's instruction and Counsel briefed by her were required to do a significant amount of work in order to deal with the auditors' application before me and subsequently the application for leave to appeal from my judgment. Ms Banton explained the history of the proceeding in the Court and briefly described the work that was required to be done including attendances at a number of directions hearings. I consider that this evidence fairly and accurately records the relevant steps in the litigation and the particular significance of those steps. 12 Ms Banton also gave a brief account of the work that was required to be done in respect of each of the relevant hearings. 13 No objection was taken to Ms Banton's affidavit. No application was made to cross-examine Ms Banton. I accept her evidence. In particular, I accept her evidence to the effect that, where certain time recordings did not ex facie make clear whether the work referred to exclusively related to the auditors' applications, she has used her best judgment to apportion a fair amount to the costs of those applications. 14 Nonetheless, Ms Banton's evidence was criticised in a selective fashion by Counsel for the auditors in an endeavour to demonstrate that the plaintiff had failed to discharge its onus in respect of its application for a lump sum costs order. 15 As the hearing before me progressed, both the plaintiff and the auditors submitted landscape oriented summaries of the opposing positions adopted in respect of quantum. 16 The total amount of costs actually incurred by the plaintiff in respect of both applications inclusive of GST was $221,729.67. In the end, of that amount, the plaintiff claimed $166,297.25. The amount claimed was, therefore, very close to 75% of the plaintiff's actual costs. 17 On the other side of the ledger, the auditors suggested that, were the Court satisfied that a lump sum costs order should be made, the order should be in the range of $85,884 to $98,026. 18 In support of their arguments, the auditors read and relied upon the affidavit of Peta Leslie Solomon affirmed on 29 January 2015. Ms Solomon is a legal costs consultant with considerable experience. 19 At par 8 of her affidavit, Ms Solomon said: I have been instructed by Allens, solicitors for the fifth and sixth respondents in this proceeding, to provide a preliminary independent analysis of the Applicant's costs as set out in the Banton Affidavit. Annexed to this affidavit and marked "PLS-1" is a true copy of my preliminary observations in respect of those costs. The opinions expressed in the report are mine. At present, I am unable to provide more than a preliminary view regarding the Applicant's costs as I have not been provided with the underlying correspondence and file notes to support the costs claims. 20 The instructions provided to Ms Solomon by the auditors' lawyers were not the subject of evidence before me. 21 In her report, Ms Solomon made the following points: (a) There were considerable difficulties in properly ascertaining the costs exclusively referable to the auditors' applications. According to Ms Solomon, entries referable to those matters were intermingled with other work concerning the plaintiff. (b) Ms Banton's spreadsheet definitely includes some claims which should have been excluded as not being exclusively referable to the auditors' applications. (c) Ms Banton's hourly rate exceeds the scale applicable to a lawyer of her standing under the FCR. In addition, on occasion, too many lawyers were involved in particular tasks. (d) Some portions of fees rendered by Counsel should be regarded as unreasonable. In this regard, Ms Solomon relied upon the National Guide to Counsel Fees promulgated by the Court. (e) In considering the costs generally, Ms Solomon had regard to what she described as the narrow compass of the matter, the limited affidavit evidence filed and the scope and breadth of the submissions made. 22 After making the general remarks to which I have referred at [21] above, Ms Solomon then endeavoured to pull apart the fees and disbursements claims by reference to her general remarks. However, it is apparent from even the most cursory review of Ms Solomon's work that she was not in a position to make a reasonable estimate of the costs involved. She conceded as much at par 8 of her affidavit. Notwithstanding this, she expressed the opinion that, if an itemised bill were prepared and submitted for taxation, it is likely that the costs which would be claimable would be substantially below the costs reflected in the spreadsheets exhibited to Ms Banton's affidavit. I do not think that Ms Solomon was sufficiently informed to express that opinion. 23 Ms Solomon then propounded the range which she considered might be supportable on the material presented to her. These are the figures which I have extracted at [17] above.

Consideration 24 The parties made submissions to the Court both in writing and orally. 25 As I have already mentioned, the auditors submitted that the plaintiff had simply failed to discharge its onus of establishing that this is an appropriate case for a lump sum costs order. The auditors submitted that the evidence of Ms Solomon demonstrated that the amount claimed was excessive and that, should the matter be left to taxation in the ordinary way, the amount recoverable by the plaintiff in respect of its costs was likely to be considerably less than the amount claimed at the present time. As a reluctant fallback position, the auditors submitted that, should the Court be minded to make a lump sum costs order, it should be in the range indicated by Ms Solomon. This position was adopted "reluctantly" because, as was obvious, Ms Solomon's views were preliminary and based upon inadequate information. They could not rationally be used to provide a basis for fixing the amount of any lump sum costs order. 26 The plaintiff, on the other hand, submitted that it had well and truly satisfied the relevant onus and should be awarded an amount of the order claimed by it. It submitted that the making of a lump sum costs order at the present time would avoid unnecessary and protracted disputation in respect of the taxation of its costs and also avoid any substantial delay in the recovery of those costs from the auditors. The plaintiff submitted that the present case was squarely within the relevant principles which I have summarised at [8] above. 27 During his oral submissions, Counsel for the auditors drew my attention to a number of specific matters which he argued amply demonstrated that the plaintiff's present claim was excessive. However, for the most part, these attacks may fairly be described as trivial and as relating to relatively small sums of money. There was one exception to this: A specific claim for $23,000 in respect of Senior Counsels' fees, so it was said, clearly related to the plaintiff's application for judicial advice in the Supreme Court of New South Wales and was, for that reason, not recoverable under the present costs orders. 28 A particular submission was also made to the effect that an adjournment of the hearing of the auditors' application had been made necessary because the plaintiff wished to seek judicial advice in respect of this proceeding and that, somehow, this had led to a waste of costs. 29 As to the latter, I consider that, when due regard is paid to all the circumstances, the adjournment in question did not cause any waste of costs. As to the former, while it may be a little difficult to ascertain precisely how much rendered on the particular tax invoice was exclusively related to the auditors' application to set aside the Examination Summonses, at least some of the work in question was so related. 30 The plaintiff has discounted the amount of fees and disbursements actually incurred by it in order to make an appropriate allowance for matters such as those to which I have referred at [27]-[29] above. I propose to discount that amount further. 31 The history of this litigation to date tells me that, were I to force the plaintiff to tax its costs, the taxation itself would be prolonged and expensive. I am satisfied that this is a case where the Court should exercise its discretion in favour of a lump sum costs order principally in order to save all parties the cost and aggravation of a prolonged taxation in respect of the costs orders made to date. 32 During argument, Counsel for the plaintiff said that his client would "give up" GST. I do not know what was intended by that remark. However, I shall, as a result, make a lump sum order for costs which is expressed to be exclusive of GST. 33 I am satisfied that an order in the amount of $141,100.70 (exclusive of GST) is an appropriate amount to order by way of lump sum costs. That amount is 70% of the amount of $201,572.43 which is the total amount of fees and disbursements incurred by the plaintiff exclusive of GST. I consider that a discount of 30% off the amount of costs actually incurred by the plaintiff is a reasonable discount in all of the circumstances. 34 I therefore propose to make a lump sum costs order in that amount. 35 The plaintiff claimed interest in respect of its orders for costs pending taxation or a lump sum costs order. No submissions were advanced in support of that claim and I reject it. 36 The plaintiff should also have its costs of the argument before me. I will therefore order that the auditors pay the plaintiff's costs of and incidental to its application for a lump sum costs order and for an order that its costs be payable forthwith. 37 Finally, as there was no opposition to this, I propose to order that the said amount be immediately recoverable. I certify that the preceding thirty-seven (37) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Foster.

SCHEDULE OF PARTIES NSD 2028 of 2013 Defendants Fourth Defendant: THOMAS HANEY Fifth Defendant: KPMG (A FIRM) Sixth Defendant: PAUL STEER

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