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[2013] VSC 669
Supreme Court of Victoria
2013-12-05
WOOD AsJ
Original judgment source is linked above.
GROSS COSTS ASSESSMENT - Costs of taxation- interpretation of Rule 63.36 Supreme Court (General Civil Procedures) Rules 2005
1 These proceedings commenced in the Federal Court of Australia in Queensland. They were transferred to the Supreme Court of Victoria on 3 November 2011 by Logan J, pursuant to the Jurisdiction of Courts (Cross Vesting) Act 1987 (Cth). On 14 September 2012, Croft J made orders that the plaintiffs pay the defendants' gross costs on an indemnity basis for the whole of the proceedings, "save to the extent that costs orders have already been made by the Federal Court of Australia". A separate order of 27 January 2012 in relation to an anti-suit application payable by the second plaintiff only, is also to be quantified.
2 The order of 14 September 2012 made it clear that the costs were to be "assessed" on the basis of the defendants' retainer agreements (as opposed to scale). To the order, Croft J added the words "calculated by reference to the retainer between each of the defendants and their respective legal advisers". Croft J was persuaded to make an order for a gross sum to be assessed, in preference to a taxation of costs conducted in the usual manner. The order was made for a gross sum pursuant to Rule 63.07(2)(c) of the Supreme Court (General Civil Procedure) Rules 2005 ("the Rules").
63.07 Taxed or other costs provision
(1) Subject to this Order, where by or under these Rules or any order of the Court costs are to be paid to a party, that party shall be entitled to taxed costs.
(2) Where the Court orders that costs be paid to a party, the Court may then or thereafter order that as to the whole or any part of the costs specified in the order, instead of taxed costs, that party shall be entitled to -
(a) a portion specified in the order of taxed costs;
(b) taxed costs from or up to a stage of the proceeding specified in the order;
(c) a gross sum specified in the order instead of taxed costs;
(d) a sum in respect of costs to be determined in such manner as the Court directs.
4 A referral was made on the Court's own motion to an Associate Judge pursuant to Order 77.05 of the Rules for a quantification of the gross sum. Orders were made by Croft J for expert reports in relation to the appropriate gross sums and a timetable was set for their provision to the Court and the parties.
5 The judgment of Croft J was appealed to the Court of Appeal, but the plaintiffs did not press an application for a stay of the orders even though the Court was advised at a mention of this matter on 7 February 2013 that such an application had been filed the previous day. The defendants were entitled to seek the fruits of their judgment, however the uncertainty of the outcome of the appeal potentially restricted the transparency with which costs could be dealt given the continuing issues of privilege and confidentiality. The plaintiffs' legal representatives sought to inspect confidential documents accessed by the experts. The relevant summons, returnable on 29 May 2013, was resolved with the parties reaching an agreement about this aspect.
6 The four defendants were not all represented by the same solicitors. The first three defendants ("Prudentia parties") instructed one firm of solicitors (Herbert Smith Freehills) and the fourth defendant ("Joyce") instructed another firm (Norton Rose Fulbright Australia). However, all defendants utilised the same costs expert (Elizabeth Mary Harris) who swore a number of affidavits in relation to these defendants' costs. The plaintiffs engaged their own expert (Alyson Wendy Ashe) in relation to the costs of both the Prudentia parties and Joyce.
7 The order of Croft J of 14 September 2012 set a time table for the defendants' evidence to be filed by 8 November 2012. The plaintiffs were to file and serve any evidence in answer by 18 January 2013. These dates were not met and extensions had to be granted. This amended timetable was met when the plaintiffs filed their evidence by 26 April 2013.
8 Since that time, and outside the parameters of any timetable set by the Court, the parties embarked on their own quests to supplement the sanctioned material with more affidavits. These further documents are described below. The choice for the Court was to either exclude this material and permit the contents to be given by way of viva voce evidence and submissions, or to approve their status. The latter course was adopted on the basis that the parties wished to rely on further affidavits and in the hope that the hearing time would be accommodated in the two days set aside. The matter ultimately ran for four days with the third and fourth days not completed until October 2013.
9 Croft J determined that a gross sum was the appropriate method for quantification of costs in this case. Selected passages that appear in paragraphs 10 to 12 that follow are worth noting.
10 Von Doussa J in Beach Petroleum NL & Anor v Johnson & Ors (No 2)[1] stated:
... before exercising the power to fix a gross fee, the Court should be confident that the approach taken to the estimate of costs is logical, fair and reasonable. On the one hand the Court must be astute to prevent prejudice to the respondents by overestimating the costs and on the other hand must be astute not to cause an injustice to the successful party by an arbitrary "fail safe" discount on the costs submitted to the Court.
11 On the question of a failsafe discount, however, there is nothing wrong with the concept. It is the arbitrary application of such a discount that is problematic. Von Doussa J went on to state "...even though there is no statutory obligation on a judge to discount figures provided by the successful party on a "fail safe" basis, it is acknowledged in Leary v Leary[2] that there may well be occasions on which a judge will make such a discount."
12 Croft J in Sunland Waterfront (BVI) Ltd & Anor v Prudentia Investments Pty Ltd & Ors (No 3)[3] summarised the object of the Rule as follows:
(i) The purpose of the subrule is to avoid the expense, delay and aggravation involved in protracted litigation arising out of taxation: Beach Petroleum v Johnson (No 2), at 120, per von Doussa J, applying Leary v Leary [1987] 1 All ER 261; Harrison v Schipp [2002] NSWCA 213; (2002) 54 NSWLR 738, at 742 [21] per Giles JA.
(ii) An order that costs be assessed as a gross sum does not envisage that any process similar to that involved in taxation should take place. On the contrary, the Court applies a much broader brush than would be used on a taxation of costs pursuant to O 62: Beach Petroleum v Johnson (No 2), at 120, 124, per von Doussa J; Harrison v Schipp, at 743 [22], per Giles JA.
(iii) The Court should be confident that the approach taken to the estimate of costs is logical, fair and reasonable. The Court should be astute to avoid both overestimating the recoverable costs and underestimating the appropriate amount, for example by applying an arbitrary discount to the amounts claimed: Beach Petroleum v Johnson (No 2), at 123, per von Doussa J.
(iv) Although the power to assess a gross sum for costs involves the exercise of a discretion, it is necessary to bear in mind fundamental principles applicable to an assessment of costs on a party and party basis. These include the principles contained in O 62 r 19 (embodying the 'necessary or proper' test) and those stated in Stanley v Phillips [1966] HCA 24; ) [1966] HCA 24; (1966) 115 CLR 470, at 478, per Barwick CJ (on a party and party taxation the emphasis is upon obtaining adequate representation to enable justice to be done, not upon the propriety of steps taken to ensure maximum success in the cause): Auspine Ltd v Australian Newsprint Mills Ltd [1999] FCA 673; (1999) 93 FCR 1, at 4-5 [12]-[15], per O'Loughlin J; Charlick Trading Pty Ltd v Australian National Railways Commission [2001] FCA 629, at [6]-[8], per Mansfield J.
(v) Although the methodology permitted by O 62 r 4(2)(c) initially involves a broader approach than on a normal taxation, the provisions of O 62 and Sch 2 provide assistance in fixing an appropriate gross sum: Charlick Trading Pty Ltd v ANRC, at [10], per Mansfield J."
13 Croft J came to the conclusion that costs assessed as a gross sum, calculated on the basis of the hourly rates in the retainer agreement, would be a satisfactory approach.
14 From paragraph 85 of Croft J's judgment of 14 September 2012, it is apparent that in an attempt to persuade him not to order a taxation, submissions were made by the defendants that it would take four to six weeks to prepare the report, and that if a taxation occurred, the time from the commencement of drawing the bill until the conclusion of the taxation would take seven to twelve months. In reality, it took twelve weeks to prepare the report, with a supplementary report provided some sixteen weeks after that. The report by the plaintiffs in response to the first report took sixteen weeks. In total there were nine affidavits filed by the experts instead of two.
15 The gross sum hearing was scheduled for a date nine months after the decision of Croft J and yet, despite the generous lead time, there was an unsuccessful adjournment application on the basis of the defendants seeking to rely on further material produced two weeks prior to the hearing. The initial estimate of one day given to Croft J was not accurate as the matter ultimately ran for four days, the last of which was thirteen months after the order of Croft J. A written judgment is required to be produced by an Associate Judge. This would not have been necessary on a taxation by a Costs Registrar.
16 With the benefit of hindsight it may have been more expeditious to tax the defendants' entitlement in the usual manner. I have no accurate basis to comment on the relative costs involved. However, the costs of Joyce alone in this gross sum exercise were quantified in the affidavit of Whitney Kay Bishop (sworn 28 October 2013) at around $250,000 at the conclusion of the hearing. Croft J was provided with evidence that a taxation for Joyce alone would cost between $155,000 and $215,000[5] and that the cost for the expert for a report and one day hearing, if gross costs were ordered, would be $71,550. Croft J therefore accepted the submissions that taxation would cost more than a gross sum exercise but the gross sum costs well exceeded the estimate for a taxation process. If the costs of the plaintiffs and Prudentia parties are in this range as well then this will have been a very expensive exercise for the parties. Taxation would have been a faster and less expensive option.
17 The point can be made that care needs to be taken when electing for a gross sum exercise in preference to taxation. Care also needs to be taken by those who advance submissions to judges in relation to the accuracy of the estimates of the two processes. The inaccuracy of the estimates given by the defendants in this matter in fact became the basis for further dispute and founded a costs argument advanced by the plaintiffs in relation to the cost burden of the gross cost exercise at the end of the hearing. This is dealt with at paragraphs 146 and 147 below.
18 Sundberg J expressed a note of caution in relation to gross costs in W M Wrigley JR Company v Cadbury Schweppes Pty Ltd when he stated:
...I should not exercise the power to order a lump sum under Order 62 rule 4(c) because I am not satisfied that I can do so fairly between the parties, and with sufficient confidence that I would be arriving at an appropriate sum on a logical and reasonable basis, rather than selecting figures at random on the basis of an arbitrary preference for one expert's view over another's.[6]
19 On behalf the Prudentia parties, Ms Harris swore an affidavit on 21 December 2012 exhibiting her first report (exhibit "EMH 04") in which she deposed to a figure of $4,161,231.78. A second affidavit, sworn 16 April 2013 supplementing the first one, was also produced. This affidavit revised the figure to be in a range from $4,187,388 to $4,196,988. A third affidavit sworn 4 June 2013 (exhibiting a report dated 24 May 2013) was then produced in response to the affidavit of Ms Ashe which is referred to in the next paragraph. It revised the range to between $4,123,076 and $4,132,676. Bronwyn Lisa Lincoln, a solicitor, also swore an affidavit on 16 May 2013 (dated 2012 in error) in relation to file maintenance and the 'Dubai Phenomenon'. This became a significant issue and is explained further below.
20 On behalf of the plaintiffs, in relation to the Prudentia parties (and in response to the first two affidavits of Ms Harris), Ms Ashe swore an affidavit on 26 April 2013 exhibiting her first report (exhibit "AA-02") in which she deposed to a figure of $3,548,730.08. A second affidavit of Ms Ashe was sworn 5 June 2013 revising the figure to $3,557,384.
21 On behalf of Joyce, Ms Harris swore an affidavit on 13 December 2012. Exhibit "EMH 6" was her first report and it concludes with the sum of $2,832,005. A second affidavit of Ms Harris, sworn on 23 May 2013, was in response to the affidavit of Ms Ashe referred to in the next paragraph. In the second affidavit Ms Harris revised her figure to $2,840,993.00. The affidavit of Whitney Kay Bishop sworn 28 October 2013, in relation to costs of the gross sum exercise, was filed at the conclusion of the hearing but this was only relevant to costs incurred after September 2012, and therefore has no bearing on the gross sum to be assessed.
22 On behalf of the plaintiffs in relation to Joyce, and in response to the first affidavit of Ms Harris, Ms Ashe swore her first affidavit on 26 April 2013 proposing a figure of $2,387,450.67. A further affidavit of 4 June 2013 deposed to $2,390,679.
23 There is obviously a difference of opinion between the two experts as to the appropriate gross costs sum in relation to both the Prudentia parties and Joyce. There needs to be a proper basis to prefer one over the other, or to arrive at a figure that neither of them favour. The approach of the experts in some areas of this matter is characterised in some instances by its descent to minutiae. I do not intend to dissect and analyse each argument in this judgment. This is consistent with the approach adopted by von Doussa J in Beach Petroleum where he dealt with detailed arguments by applying a broad brush that is consistent with the philosophy of a gross sum exercise. His Honour said:[7]
24. On the party and party costs the various broad adjustments and deductions suggested by Mr Rice produce a range of overall figures from about $5.5 million to $5.8 million. Again, the gross fee fixed must be assessed broadly. I consider that if the gross fee for indemnity costs is reduced by a further 30%, an appropriate figure for party and party costs will be achieved, namely $5,683,559.
25. These broad discounts have been arrived at having regard separately to the various categories of disbursement and solicitors' costs. In some areas I do not think any deduction would be appropriate, in others I consider there is a risk of error which requires reduction in the amounts sought, and in some areas I think items should be excluded altogether. The discounts I propose have regard to all these matters.
24 Later authorities have approved this approach. Some cases have arrived at rounded figures for gross sums and some have precise figures which have been arrived at by the application of broad percentages. For example, as demonstrated in the passage quoted above, in Beach Petroleum v Johnson (No 2)[8] a precise figure was arrived at but with the application of a broad percentage. In Datadot Technology Ltd v Alpha Microtech Pty Ltd[9] a round figure of $130,000 was allowed. In Williams Advanced Materials Inc v Target Technology Company LLC[10] a precise amount was allowed but a 65% figure was involved in that calculation. In Nine Films and Television Pty Ltd v Ninox Television Ltd[11] a round figure of $650,000 was arrived at. In Sony Entertainment (Australia) Ltd v Smith[12] a precise figure was allowed but with the application of a 40% recovery.
26 The logical approach is not to analyse the reports in accordance with the great detail in them but rather to concentrate on the significant points of difference. The difference between the experts in the Joyce matter is $435,966 and in the Prudentia matter in the range of $566,209 and $575,809.
27 The approach of the experts in the hearing before Sackville J in Seven Network itself is also worth recounting because counsel for Joyce attached significance to some of this comment when making final submissions on 28 October 2013 in relation to the approach taken by Ms Ashe on behalf of the plaintiffs :
13 By agreement between the parties, Ms Ashe and Ms Harris gave concurrent evidence. Each expert made an opening statement explaining her reasoning and dealing with issues raised in the three reports. Registrar Tesoriero and I asked questions during and after the opening statements. Thereafter Mr Castle put some questions to Ms Harris and Mr Sheahan questioned Ms Ashe. Finally, Ms Ashe and Ms Harris each made brief closing statements.
14 No issue arises as to the credit of either of the expert witnesses. In my view, Ms Ashe displayed a tendency to argue the case on behalf of Telstra, rather than confine herself to her area of expertise. Ms Harris, by contrast, was careful to acknowledge the limitations of the tasks she performed and the uncertainties of the taxation process. Overall, however, the expert evidence was helpful in isolating the points of difference and in explaining the respective approaches to the assessment of costs taken by Ms Ashe and Ms Harris.
28 On 3 June 2013 in preparation for the hearing on 6 June 2013, my Associate wrote to the parties in the following terms:
"His Honour would like the parties to consider and discuss between themselves prior to Thursday the best method of proceeding with the expert evidence.
For example, consideration could be given to whether "hot tubbing" is appropriate or a variation on that process. The parties should be in a position to indicate on Thursday their views as to the most appropriate method to proceed.
One possible option that could be employed is that the initial focus could be on the area of disagreement which has the greatest gap in monetary value attached. The process is split between the costs of the Prudentia parties and the costs of Joyce. For example, the process could start with the costs of the Prudentia parties.
Both experts are sworn in, the defendants' expert explains the area of disagreement, is questioned by the plaintiffs' expert and then the defendants' expert then summarises their position. The roles are then reversed on the same issue and the process repeated. Then counsel can cross examine and re examine them in relation to that issue in the usual way.
The next most significant issue is selected (where the greatest gap in monetary terms exists) and the process is repeated until the least significant issue is dealt with last.
The process is then repeated for the Joyce costs."
29 The parties agreed to this approach to the evidence of the experts and agreed to commence with the Prudentia parties. It was also agreed that there should be two figures arrived at in respect to both groups of defendants, namely, a sum that flowed from the indemnity costs order to be paid by both plaintiffs pursuant to the order of Croft J on 14 September 2012 and a sum to be paid by the second plaintiff only in respect of the anti-suit application arising from the order made on 27 January 2012. This latter order was not on an indemnity basis.
30 It is unnecessary to outline the issues in the case as they are canvassed in the primary judgment of Croft J (see Sunland Waterfront (BVI) Ltd & Anor v Prudentia Investments Pty Ltd & Ors (No 2)).[15] Some complications in the conduct of the case included issues of taking evidence in Dubai and of an Australian Court sitting in Dubai. These involved the Hague Convention, sovereignty, and negotiations between the Australian Department of Foreign Affairs and Trade and the United Arab Emirates' Justice Minister. Permission for the Court to sit in Dubai was ultimately revoked. There were nineteen interlocutory judgments, late amendments, ongoing discovery and claims of privilege against self incrimination. Evidence in relation to relevant Emirates' law also had to be obtained and adduced.
31 In the first report of Ms Harris (Exhibit "EMH 04") she adopted the 'Ausmaq' method. This was said to be the approach taken in Idoport Pty Ltd v National Australia Bank & Ors[16] and it involves four steps.
32 First, identify the actual costs incurred. Next, exclude work outside the scope of the order. Thirdly, separate the costs from disbursements and exclude unreasonable work. Fourthly, determine the appropriate hourly rate to be applied for professional costs.
33 Counsel fees are then considered by applying steps four and then three. The final step is to calculate the hourly rates, deduct non indemnity costs and add the disbursements other than counsel fees.
34 The total arrived at by Ms Harris in her first report was $4,161,231.78. This included a figure of $40,755.63, which was attributable to the anti-suit order referred to in paragraphs 1 and 29 above. This second component figure should not have been included as it was in fact solely the liability of the second plaintiff. The revised range in the second report of 16 April 2013 was $4,187,388 to $4,196,989 for the liability of both plaintiffs.
35 The first report of Ms Ashe (Exhibit "AA-02") concludes with a figure of $3,548,730.08. Ms Harris responded with a range of $4,123,076 to $4,132,676 in her affidavit of 4 June 2013 and Ms Ashe countered with a figure of $3,557,384 in her affidavit of 5 June 2013. It is uncontroversial to say that there were mathematical errors in the reports of Ms Harris, which were picked up by Ms Ashe, and these were readily conceded in oral evidence by Ms Harris on 6 June 2013. Her final range was $4,123,593 to $4,133,193. This was said by Prudentia to represent 75% to 85% of total costs.
36 There was little utility in the experts descending into the minutiae of various components of their opinions when giving evidence. The parties quite sensibly focused on the monetary gap between the experts and the reasons for any discrepancy.
37 The first two days of hearing were principally devoted to the Prudentia parties and the most significant areas of disagreement. They were identified at the outset as professional costs (with three subcategories - the Dubai phenomenon, the level of information available to the experts and methodology), excluded costs and counsel fees.
38 The definition of indemnity costs is contained in Rule 63.30.1 and is as follows:
(1) Subject to paragraph (2), on a taxation on an indemnity basis all costs shall be allowed except in so far as they are of an unreasonable amount or have been unreasonably incurred.
(2) Any doubt which the Costs Court may have as to whether the costs were unreasonably incurred or were unreasonable in amount shall be resolved in favour of the party to whom the costs are payable.
39 The critical part of the Rule relates to the test to be applied and how any doubt is to be resolved. The plaintiffs advanced an argument at the conclusion of the hearing that this Rule (and therefore that definition of indemnity costs) did not apply to this matter as the gross sum exercise was not a "taxation". If the argument was accepted then they argued that the parties entitled to costs did not have the benefit of the doubt in relation to unreasonable costs. In other words, the test should be one of reasonableness without any resolution of doubt in favour of the receiving party. This argument fails principally on the basis that Rule 63.01(1) defines taxation to include "assessment" of costs and that is the terminology utilised by Croft J in his order for costs on 14 September 2012 when he set up this exercise. The issue is however elaborated on in paragraphs 130 to 134 below. The argument was also put that it is unfair to the plaintiffs for a gross sum exercise to be conducted on an indemnity basis because the onus that fell to the plaintiffs to establish unreasonableness was too difficult to discharge. This is also discussed below.
40 As an alternate argument, the plaintiffs argued that even if the defendants had the benefit of any doubt then the scope and application of that doubt ought to be "logical, fair and reasonable" (per Beach Petroleum and Ventouris Enterprises Pty Ltd v Dib Group Pty Ltd & Anor (No 4).[17] That is, such benefit of the doubt should not be accepted without scrutiny or analysis.
41 As stated, the applicable test is that outlined in Rule 63.30.1. It is of note that Ms Ashe recognises the relevance and impact of the rule in both her first report[18] and in evidence.[19] She expresses reservations about the fairness aspect of it in the context of a gross sum exercise.[20]
42 The plaintiffs also rely on comment from Judd J in Primebroker Securities Ltd v Lomas[21] where His Honour states as follows:
Even though a court may apply a much broader brush when costs are assessed as a gross sum, there must be a proper basis upon which the assessment is made. It is accepted, however, that the extent of the evidence and detail required may vary from case to case, depending on such matters as the magnitude of the costs under consideration, the nature and complexity of the work for which costs are sought, and the complexity of the issues involved in the proceeding.
43 One could add to this statement, "also depending on the level of recovery and test to be applied, that is, whether on an indemnity basis, reasonable basis, or necessary or proper basis". Ordinarily the party obliged to pay the costs on an indemnity basis has the burden to prove work is unreasonable. In a scenario where independent experts are engaged it is incumbent on both to undertake that scrutiny. In other words, it is not for the expert retained by the party entitled to costs to leave it to the expert retained by the paying party to undertake that function. The level to which that scrutiny is undertaken is another matter.
44 One issue that arose was the approach that each expert took in relation to this task. It was a subtle difference on occasions but a more pronounced difference on others. For example, their starting points when determining a percentage of recoverability for professional costs, or whether the impact of certain conclusions reached would only be a possibility or a probability to affect the concluded opinion. The approach of each to the 'Dubai phenomenon' is where this is most clearly demonstrated.
45 The most significant difference in monetary impact between the experts was this so called 'Dubai phenomenon'. In the first report Ms Harris expresses the view[22] that "...where the test of recovery is the indemnity basis, work undertaken in considering the impact of any action taken in the Australian civil proceedings on the Dubai proceedings is recoverable". This statement was largely agreed to by Ms Ashe in her first Prudentia report[23].
46 The reverse is also true in relation to this aspect of the experts opinion. Consideration of what is occurring in the Dubai proceedings is unavoidable, reasonable and relevant to the conduct of the Australian proceedings. Reviewing the events in the court proceedings in Dubai for all defendants is part of the proper costs of the civil litigation in Australia. Although the corporate Prudentia parties were not charged and involved in the United Arab Emirate proceedings their reputation was in issue. Mr Reed (the third defendant) was the subject of the criminal proceedings in Dubai and was tried in absentia. His legal representatives in Australia should be allowed the costs of monitoring the proceedings via lawyers engaged in the United Arab Emirates for any possible inconsistencies in evidence and taking cognizance of scheduling of hearings in the respective countries.
47 Ms Ashe clearly saw the potential for some work performed in Australia, which was solely beneficial to the criminal proceedings in Dubai, to not be recoverable in this proceeding. She was unable to identify any significant work that fell into this category but she remained steadfast that an allowance should be made for it.
48 The accurate identification of any such work is obviously problematic in a gross sum exercise. One can look at the scope of the retainer in the initial documents passing between the lawyer and the client, look at the time sheets and the general description of work, and then utilise filtering software on key words to gain a reasonably accurate impression from the results. The best evidence is represented by primary documents comprising the file notes of phone calls, conferences and letters. The dilemma is that a descent into this detail is antithetical to the gross sum exercise and would merely replicate a taxation.
49 Ms Ashe filtered for the word "Dubai" and stated in oral evidence [24] "...this was an extremely complex case and a very large amount of work was done and a lot of the work which has at first blush and as you've said, when you filter for Dubai you come up with a massive amount. There is some (sic) much work relating to the Dubai phenomenon, as his Honour calls it, which is totally recoverable under the Australian proceedings costs order."
50 At the resumption of the hearing on 25 October 2013, Ms Ashe and her counsel queried whether the transcript had accurately attributed this answer to her, and posited that it might have been Ms Harris. The parties subsequently agreed between themselves, after investigation of the issue, that the transcript accurately attributed this statement to Ms Ashe.
51 It should be noted at this point that there is a difference between the Prudential parties and Joyce in relation to the 'Dubai phenomenon'. Joyce was in situ in Dubai, legally represented and was actively participating in those proceedings. There was therefore two way communication. Mr Reed (the third defendant) and the other Prudentia parties were not actively participating in, or conducting a defence, in proceedings in Dubai. Therefore, there was unlikely to be any work being performed in Australia to assist any defence in Dubai. The work performed in Dubai, and communicated to Australia, is entirely relevant to, and utilised in, the Australian proceedings and is in effect one way traffic of communication. In my view there is little prospect for work in Australia to be assisting a criminal defence in Dubai when there is none being conducted. As noted by Logan J "An accused can be tried in absentia in Dubai. Because Mr Reed left Dubai before the criminal proceedings started, he cannot have a lawyer represent him in those proceedings unless he returns to Dubai and appears in the criminal court". [25]
52 Ms Harris stated in oral evidence that she could not find evidence of work that purely related to defending the Dubai proceedings. She stated that she looked for it but could not find any. The explanation may well be for the reasons outlined above, namely that there was no actual defence conducted and further, there was evidence that a separate file for the Australian proceedings was created.[26]
53 The approach of Ms Ashe seems to be of a general concern that there must be work which should not be allowed. This also highlights the different approaches of the two experts to the indemnity order. Ms Harris did not see her task as scrutinising for work that should not be allowed. Her starting point on an indemnity basis was that all work be allowed, unless there was work found that should be excluded on the basis that there was no doubt about its recoverability. The approach of Ms Ashe was to use the more favourable end (from the plaintiffs' perspective) of the range of percentages of recovery articulated by Ms Harris and then seek justification to reduce it further. Her failure to use 100% as a starting point in line with the definition in Rule 63.30.1 ("all costs shall be allowed") was a cause for criticism.
54 This percentage allowance proposed by each expert varied in relation to recoverable professional costs and can be summarised as follows. The recoverable professional costs were said to be in the 75% to 80% range by Ms Harris who subsequently settled on 80%. Ms Ashe started at 75% and then allowed 68%. The impact represented by the two positions of the experts explains most of the monetary difference between them. Ms Ashe made calculations (at paragraph 48) in her second report dated 5 June 2013. Namely, 12% differential = $389,991 and 7% differential = $227,495.
55 One could query whether utilising the monetary impact as a basis for settling on the percentage was an appropriate approach. On one view, the percentage should be the basis of the opinion and what flows as a result in arithmetical terms should not be a relevant consideration.
56 When giving evidence on the 7 June 2013 Ms Ashe described the process of arriving at 68% (in part) as follows:[27]
"....but in terms of why I chose 68 per cent as opposed to 65, there's a difference between some $224,000 and $330,000 if one takes a 7 per cent or a 12 per cent look at the difference in our approaches and so in my view we're not talking about another half a million dollars. We're talking about something less than 300,000 and it seemed to me that given that the indemnity costs order was one which I was looking at, it was fair to approach it by saying to the court rather than take up a restrictive view and say 65 per cent I would elect 68 per cent and I think that was of much more assistance to the court than picking up another range which may or may not overlap with Ms Harris's view. Because in my report I do say that at first blush one would expect that the figures that she came to in both Joyce and Prudentia matters were very much within the range of a single instance issue case and I've tried to develop the analogy of what one might do if it was not a single issue case, or if it were a case where a cross claim was in fact on foot and as we all know, the cross claim costs are not costs of the proceedings. And here we have another situation of potential work relating to criminal proceedings which are not costs of the Australian proceedings...."
57 Ms Ashe made further references to this percentage and the importance of the Dubai proceedings [28] :
HIS HONOUR: Can I just clarify something, Ms Harris just ask (sic) you about why, you know, when you went 75, 68 or 80, 68, you looked at the dollar value that that represented as a factor in determining the percentage ?
You looked at what dollar value that represented and said, OK, now, I'm going to go to the percentage and you, if I've got this right, you looked at the dollar value and said, yes, that's about right for what might represent these items ?---Yeah, and I looked at the dollar value for 65 per cent and I thought that's a bit low given the need to look at the indemnity costs order. So you, Ms Harris, have said that you have taken off 750,000 and both of us have actually reduced Prudentia quite considerably for many similar reasons. But the overall difference physically (sic) is this figure, 565,000.
58 There was a further reference to this approach when Ms Harris was asking Ms Ashe questions [29] :
WITNESS HARRIS: So as I say, this seems to be the major sticking point between us and it's the treatment of the Dubai criminal proceedings and the extent of work that should be - or the extent of the costs that should be attributed to that. So as I understand it, you're basically saying the difference between 75 per cent and 68 per cent is attributable to that and if it's - perhaps I'll then say, if it's not what is it attributable to?
WITNESS ASHE: Well, I referred at the beginning to those paragraphs in my report where I said in addition to the Dubai issues I was looking at the lack of giving effect to orders, no orders as to costs for example. So within that is - - -
WITNESS HARRIS: But in reality how much are we talking about with that though?
WITNESS ASHE: Not a lot. Not a lot, no. I mean these are things that as an expert I felt constrained to point out to the court and somewhere between the court may wish to adopt one or other of our percentages or may come down in a different light informed by other things. But it's not for us to really resolve that.
WITNESS HARRIS: No. As I say, this is the specific difference between us. So from my perspective the major contributing factor to that 7 per cent difference or that 12 per cent difference is the Dubai criminal proceedings.
WITNESS HARRIS: OK. Sir, I don't have anything else to ask.
59 The fact that the 'Dubai phenomenon' mainly accounted for this discount was uncontroversial.[30] The 'Dubai phenomenon' was clearly the main factor that constituted the difference between the experts and they agreed with each other in this respect as outlined above. Both the third defendant ("Reed") who was one of the Prudentia parties, and the fourth defendant ("Joyce") were the subject of criminal and associated civil proceedings in Dubai, which ran parallel with the Australian proceedings. However, they were different to some extent. Reed was only charged with being an accessory and was tried in absentia. He was not formally represented at the trial proceedings in Dubai.
60 The concern for Ms Ashe is that the solicitors for Prudentia must have undertaken tasks which were solely referrable to the Dubai criminal matter and her adoption of 68% was based in part due to the possibility of that being the case.[31]
61 Her concerns stemmed from a number of factors. The Prudentia parties engaged their lawyers when Joyce was arrested, some five months prior to the letter of demand which was the precursor to these proceedings being commenced two months later. Another concern was the communication between the respective solicitors for the Prudentia parties and Joyce. This however is probably recoverable on an indemnity basis provided it is not clearly unreasonable in extent. The plaintiffs also highlight the failure to identify exclusively Dubai work from the time sheets due to their generic nature. This is said to have the potential to unfairly allow work which would be discovered and excluded on taxation.
62 The affidavit of Ms Lincoln (solicitor for Prudentia parties) deposed at paragraph 5 that they "...opened a litigation file shortly after the commencement of the proceeding by the plaintiffs (in the Federal Court of Australian (sic) Brisbane Registry). Prior to that date, time was recorded on a 'general Dubai file'. The reason for the new file, also stated in the HSF brief, was to maintain a cost centre for the litigation and from that time onwards, only time related to the Australian litigation was recorded on the litigation file."
63 It was clear that there was nothing in the affidavit of Ms Lincoln which gave Ms Ashe comfort to the extent that it would alter her opinion.[32] Ms Ashe also stated that Ms Lincoln did not create all the time sheet entries nor was she necessarily privy to all attendances and that the affidavit provided no answer to the question in her mind that criminal work solely for the benefit of the Dubai proceedings was recorded on that file. It is important to note that the plaintiffs did not seek to cross examine Ms Lincoln about the content.
64 In spite of the lack of evidence about this, Ms Ashe's discount of 7% from the lower end of the range given by Ms Harris remained unaltered.[33]
65 Prudentia's submission takes issue with Ms Ashe's approach of looking at the dollar implication as part of the exercise and coming up with a figure below the range of Ms Harris based on her experience and "trying to show that I was making a differentiation".[34]
66 Other factors have also impacted upon Ms Ashe's opinion. Ms Ashe agrees with the 'Ausmaq' method but queries the absence of an instructor's affidavit which provides the level of comfort she received in other cases. She is also critical of the fact that the opinion of Ms Harris is based upon time records which she characterises as high level documents, the effect being that a lower level of costs recovery is appropriate[35]. This is the 'level of information' subcategory referred to in paragraph 37 above.
67 The absence of an instructor's affidavit was addressed by Ms Harris in evidence as follows[36]:
If you'd been given a brief which had little detail and there was an affidavit which went to a great deal of detail, would the approach have been any different? In other words would you have accepted the affidavit on its face value and not done the cross-checking of the - the checking of documents that you've just described?---No, sir, no, because I don't see that - as I say I've had affidavits like those - - -
Sorry, so you're approach wouldn't have been any different?
68 Ms Harris addressed this further when questioned by counsel for the plaintiffs[37] :
MR LOVELL: Yes. So you might in the course of trying to absorb, or soak up, as much of that information as possible, and going through volumes of documents, form a subjective opinion, which is not as accurate as it could otherwise be?---Yes, but I must say, that's the reason that I prefer to rely on court documents as my primary material, and time records, rather than, as I say, what can be a subjective affidavit of an instructing solicitor. Um, in this particular matter, it was - it is such an unusual matter, that I had 19 interlocutory judgments. So they were an extremely helpful, um, source of information about what was actually happening in the proceedings.
69 Ms Harris expresses the view that this absence was not significant. The brief she was given had comprehensive descriptions of the work and in any event, as an expert, she would still do her own verification and investigation even if there were such an affidavit. She also classified the time records, counsel fee slips and invoices as primary material and stated that conversely, an affidavit can be subjective. Ms Harris also stated she was not hindered by the absence of such an affidavit, or the utilisation of these primary documents. As stated previously, descending to file notes would be inconsistent with a gross sum exercise.
70 In any event on 25 October 2013 the insignificance of the absence of the affidavit was in effect conceded by Ms Ashe. The report of Ms Ashe and her questioning of Ms Harris carried implicit criticism of her methodology based on the absence of an affidavit as a foundation of her considerations, report and ultimately her opinion. Ms Ashe however, also stated her own approach would not have been any different from Ms Harris's and she would have applied the same rigour when scrutinising the content of an affidavit or a letter from her instructor.[38] That is, it was of no consequence to her own approach to the task.
71 This could be construed as an example of Ms Ashe adopting an advocacy mode, as their methods were the same, namely testing the accuracy of their instructions (irrespective of whether they consisted of an affidavit or a letter), scrutiny of court documents, interlocutory judgments, time sheets, and utilising a filtering process. Further, on 25 October 2013 Ms Ashe conceded it was a mere technical point[39] and that Ms Harris received as much information from her letter of instruction as she would have obtained from an affidavit[40] and that the actual letter contained more detail than some affidavits. [41]
72 A position which could be construed as inconsistent with the concessions made as to the importance of the affidavit in this matter was expressed by Ms Ashe in her first report.[42] She describes some gross sum matters in which she was involved in the following terms - "all have had the benefit of extensive, indeed essential affidavits in support". This formed the basis of criticism of the methodology adopted by Ms Harris. In light of the concessions outlined above in paragraphs 70 and 71 above, this part of Ms Ashe's opinion can be characterised as an overstatement at a minimum.
73 Ms Ashe was critical of the extent of redaction of documents, which is said to give weight to possible non-indemnity inclusions. Ms Ashe also views the lack of transparency in the context of the parallel proceedings in Dubai and Australia as leading her to conclude that a lower percentage of recovery is likely. She later had access to the unredacted portion of the initial documentation between the Prudentia parties and their lawyers and expressed satisfaction with the content.[43] This did not lead her to change her opinion even though this originally caused her to doubt that the scope of the retainer was confined to the Australian proceedings.
74 The results of a filtering exercise by Ms Ashe has also led her to a lower percentage of recovery. For example, some of the things she searched for, regarded as significant, and took into account included references to "counter claim", "strategy", "insurance", and "media". Ms Harris took a different approach and had reasons not to exclude such references on the basis that there was a plausible nexus with the proceedings in Australia and a reasonable basis for inclusion. The justification is outlined in paragraphs that follow under the heading "Excluded Costs".
75 The point was also made by Ms Ashe that the onus is on the paying party to demonstrate unreasonableness where there is doubt. Taxation would flush out documents that assist the paying party and enable this to occur. On a gross sum exercise, where higher level time records and redaction are in play, this onus is more difficult to discharge. This may be a basis for criticism of the gross sum process, however, the process is supported by case law and Rules of Court.
76 The insurance coverage issue relates to work performed in dealing with the insurer and the extent of the coverage of the defendants' liability arising from the litigation and in Ms Ashe's opinion this should not be recoverable in the Australian litigation. Ms Harris explained the inclusion as follows where she was questioned by Ms Ashe[44] :
WITNESS HARRIS: Yes, but I've taken the position which we talked about yesterday, that the work relating to both dealing with the insurer in the context where there's no dispute with the insurer that is part and parcel of these proceedings, we have indemnity costs.
Again perhaps it's the fact of the situation that there is an insurer involved in the conduct of these proceedings and presumably with some ability to be involved pursuant to coverage under the insurance policy. So in those circumstances I don't see that there's any difficulty in allowing attendances on Mr Guthrie to obtain information that might be provided to the insurer, but that's part and parcel.
WITNESS ASHE: Is there any information in your brief that makes you certain that there is no issue with the insurer, apart from or over and above the nature of these proceedings?
WITNESS HARRIS: I was instructed in my brief that there is no proceedings on foot with the insurer. I - as I say I initially filtered using various words, but in particular i-n-s-u-r-*, and to confirm that the position that there wasn't work that should specifically be excluded because it was relating to specific issues with the insurer. I'm afraid my review of the information just simply didn't identify that sort of work.
WITNESS ASHE: When reading your brief which said that there was no litigation on foot in relation to insurance, did that statement flag for you the potential that in terms of other proceedings and in particular any criminal proceedings, there could either be litigation on foot or contemplated in terms of a policy not responding to that?
WITNESS HARRIS: I think we discussed this yesterday. I didn't turn my mind specifically to the issue of insurance in respect of some criminal proceedings in relation to Mr Reed given that he hasn't subjected himself to the jurisdiction in Dubai. But certainly the extent of the insurance work was the reason that in my initial filtering back in November that was one of the aspects that I filtered on. And again perhaps I get back to what we talked about yesterday, I don't see it as my role to be positively going to find matters that I should be excluding. I need to be satisfied that the work comes within the scope of the cost order. The insurance aspect was one aspect that I felt that I needed to independently check the instructions that I've been provided with. But as I say nothing in the material disclosed to me that there was some additional aspect of the insurance, certainly not some aspect of insurance in relation to criminal matters that I should be concerned about and my review last night didn't disclose that either.
I don't see it as my role that I should be speculating that that is underlying and there and somehow perhaps has been disguised in the time records.
77 Ms Ashe also took into account the prevalence of the word "insurance" in the filtering process. This is a reference to communication and consideration of the relevant policy covering the risk of misleading and deceptive statements made by the Prudentia parties, which was part of the case in Australia. Ms Harris did not take this into account as there was no evidence that there was an insurance dispute in existence and she formed the view that it was not unreasonable for this to be recoverable on an indemnity basis. This is the correct view.
78 There was significant agreement between the experts about some matters. A number of propositions were put to Ms Ashe in cross examination which she agreed with.[45] Their overall effect was to confirm that all the solicitors in Australia needed to understand everything that was occurring in Dubai.
79 They also both agreed that the cost of media consultants was not recoverable and was to be excluded. This was a considerable sum. Ms Ashe undertook a filtering exercise for the word "media". Ms Harris did not apply any discount for this aspect on the basis that there would have been a valid reason for references to this word in the time records because evidence about media reports was adduced in the litigation. Furthermore, the media consultants were engaged directly by the Prudentia parties so it would be unlikely that there would be liaison between them and the solicitors for the purpose of their engagement. Ms Ashe has taken the prevalence of media references in the filtering exercise into account when coming to her conclusions.
80 Ms Ashe allowed lower amounts of recovery for non-appearance work by junior counsel (72%). Ms Harris gave evidence that there was less reliance on senior counsel in the interlocutory stages in comparison to the plaintiffs. This was conceded by Ms Ashe to be accurate.[46] It was also not disputed that the plaintiffs were generally represented by senior and junior counsel. The discounts applied by Ms Harris are more likely to accurately reflect a reasonable allowance. In broad terms appearance work was allowed at 100% and non-appearance at 90%.
81 Both experts expressed their opinion on the basis of the hourly rates charged and came to the appropriate gross figures to allow to the defendants. On the occasion when Ms Ashe was to ask questions of Ms Harris about her report she took the opportunity to advocate for what was in her own report rather than to ask specific questions about the report of Ms Harris. On some occasions, Ms Ashe slipped into advocacy mode when she asked certain questions which were not relevant to the reports.
82 The basis of the retainer was established in the original retainer letter dated 29 January 2009. The rate for Ms Lincoln, a partner, was described as $610 per hour exclusive of GST. Mr Fahey, an employee solicitor at that stage, was $300 per hour exclusive of GST. Over time, these rates increased to $750.50 in 2012 for Ms Lincoln and $532 for Mr Fahey who by then was a Senior Associate. The initial letter had a schedule with the range for a Senior Associate at $470 to $540, so Mr Fahey's eventual rate on elevation was within the range. From paragraph 2.4 in the brief to Ms Harris (part of Annexure 2 to her affidavit of 21 December 2012) it is apparent that she was advised that when the current litigation commenced, a 5% discount was applied to the rates. Other rates and individuals were also involved, however, these two individuals performed the bulk of the work. The rates are not unreasonable.
83 There is nothing to suggest that there has been any breach of the indemnity principle by the defendants seeking to recover more from the plaintiffs than they are liable to pay their own lawyers. In fact, this would be obvious from the charges and sums excluded from the recovery exercise in the gross sum calculations performed by Ms Harris in respect to both the Prudentia parties and Joyce.
84 At the hearing on 6 June 2013, Ms Ashe asked the following two unrelated questions:
WITNESS ASHE: Ms Harris, could I have your comment in relation to what is well known in costing circles as the indemnity cost principle and how that might affect your opinion in terms of being satisfied or assisting the court in being satisfied that the indemnity cost principle is not being violated in some way?[47]
WITNESS ASHE: And can you tell the court your view as to what would occur if there were no retainers for an indemnity costs order?[48]
85 The first one sought to question whether the Prudentia parties were seeking to recover more costs from the plaintiffs than they were liable to pay their own lawyers. There was nothing in the material or reports to suggest this was a concern and in fact, the exclusions by Ms Harris made it obvious that the legal charges were far higher than the sums being sought from the plaintiffs. It is apparent from paragraph 35 in the first report of Ms Harris ("EMH-04") that total billing up to 14 September 2012 was in the amount of $5,396,310.60. Actual counsel fees were $1,513,469.12 (page 11) and this was reduced to $1,224.190.13 (page 40). Other disbursements were $259,896.96 (page 12) and these were reduced to $247,233.02 (page 40). Both experts had already expressed views about the recoverable figure. There was no appropriate basis for this question to be asked.
86 The second question was of concern as Ms Ashe, who is a costs expert, appears to have failed to appreciate the difference between a retainer and a costs agreement. One can have a retainer without a costs agreement. A retainer can be implied from all the circumstances and it would be difficult to say that there was no retainer in this matter when the solicitors were on record and acting in the litigation and were obtaining instructions from, and appearing for, the Prudentia parties. It was clarified that she meant costs agreement but she appeared to use the terms interchangeably.
87 The reference to the affidavit of Ms Lincoln in paragraphs 62 and 63 above is relevant here. She deposes that only time spent on the Australian litigation was recorded on the file created shortly after the plaintiffs initiated this proceeding.
88 In spite of the affidavit and the fact that Ms Lincoln was not cross examined, Ms Ashe stated at the hearing on 7 June 2013 that it was likely that the content of the affidavit was not correct. This opinion does not appear to have been based on any evidence in this proceeding. The following exchange occurred when Ms Ashe was questioned by Mr Carmichael (counsel for the Prudentia parties)[49] :
But with respect, again it remains important in relation to this issue, to remove ourselves from the subtle and to address ourselves to the facts which are evidence before the court and the fact which is in evidence before the court from the affidavit of Bronwyn Lisa Lincoln of 16 May 2012 is, and I refer to the fifth paragraph of that affidavit, by reference to the Herbert Smith, Freehills retainer by reference to Paragraph 2.4 of the brief to Ms Harris. She says and I read from the last sentence, "Prior to that date", that is prior to the commencement of the proceedings by the plaintiffs in the Federal Court of Australia, "Time was recorded on a general Dubai file. The reason for the new file also stated in the Herbert Smith, Freehills brief was to maintain a costs centre file for the litigation and from that time onwards only time related to the Australian litigation was recorded on the litigation file". You've seen that evidence?---I have. That is - - -
You've had regard - one moment, please?---Yeah.
You've had regard to that evidence?---I do now. I did not have that evidence when I wrote my report.
I understand you did not before, hence the necessity, or so it was thought, of putting that beyond doubt though it was thought to be clear from Paragraph 2.4 of the brief, at least in the terms that Ms Harris understood her brief, that it having been put beyond doubt by the filing of the affidavit do you say you've had regard to it?---The filing of an affidavit, with respect, Mr Carmichael, is not the end of the story and as my report makes clear, my experience is that recording time is a very difficult thing for all people involved in litigation and the likelihood is that these distinctions of ten minutes, quarter of an hour with counsel getting advice about one aspect, or a telephone call, it's in the day to day running of legal practice which taxing officers and His Honour and the people in this room should be aware.
But the likelihood to which you refer, the likelihood I assume that must be premised on a proved fact, is what fact in answer to the clear assertion of fact by Ms Lincoln, last sentence of the last paragraph of her affidavit and I read the last line, "Only time related to the Australian litigation was recorded on the litigation file". What fact can you point to beyond possibility, beyond subtle speculations, answers that fact?---The material that is before us all is not such that I'm able to point to any fact which disproves what Ms Lincoln has filed. Her affidavit which is filed and has not been forensically tested and, for example, a forensic test would be producing the detailed file note of a conference and we're not necessarily speaking of 1530. I think that was - we'd like to move past that. Generally and if we have a conference, a particular one, the file note may elucidate that other matters were dealt with and this is not something that His Honour is even able to contemplate.
HIS HONOUR: So as I understand what you've said prior to Mr Carmichael's last question was that the likelihood based on your experience is that Ms Lincoln's affidavit is inaccurate?---Sadly, yes, Your Honour.
89 This issue was traversed again on 25 October 2013 where Ms Ashe was not prepared to attach any weight to the affidavit based on her own experience. As discussed above at paragraphs 62 and 63, in the face of an affidavit which was not tested under cross examination, this reservation can be put no higher than a possibility that other work was recorded in this file. The stance by Ms Ashe was unsupported by any evidence in this case. Again, she adopted the role of an advocate when she stated that the affidavit was deficient as it failed to say what happened to the general file, or whether work was recorded on another file.[50] These would be matters for cross-examination by counsel, if cross examination occurred. Interestingly, there was a time sheet reference exhibited to Ms Ashe's own affidavit sworn 5 June 2013 at item 254 (part of exhibit "AAP 10") that states "review civil claim on Dubai criminal file". This could be interpreted to suggest that there was a separate criminal file, which is consistent with the content of the affidavit of Ms Lincoln. It also should have given Ms Ashe greater confidence in the accuracy of the affidavit and less ground for scepticism.
90 When cross examined about another item (1530 also being part of "AAP 10") exhibited to her 5 June 2013 affidavit, Ms Ashe stated that it was possible that the word "strategy" in the time sheet reference to "discuss counterclaim and strategy" was referring to Dubai proceedings, even though there was no reference to Dubai in the note, and in the face of the uncontested affidavit of Ms Lincoln about the maintenance of separate files. This confirmed in my mind that her approach was to be inclined to look to exclude items rather than include items where there was no evidence that work fell within the unreasonable category. It is a subtle difference in approach but consistent with a narrow interpretation of the indemnity test. She conceded this was not her best example.
91 Another example of this approach can be found in relation to references to "counter claim" in the filtering exercise. No counterclaim was brought by the Prudentia parties but it was considered by their legal team. This was a factor in the reduction of the percentage of recoverable costs by Ms Ashe. On 7 June 3013 the following exchange occurs. The question is put by Mr Carmichael (counsel for the Prudentia parties) as follows[51]:
Is it an item that you took into account when you were coming up with your discount?---It is an item which appears in my filtered sheet and it appears because I filtered for the word counterclaim and I did that because it was a proposed counterclaim. There is no cross claim or counterclaim in these proceedings and if there had been that would have needed to be the subject of a separate costs order if the costs of the counterclaim were to be part of the costs of the proceedings. That's my understanding of the - - -
So a proposed - sorry, discussion about a proposed counterclaim, your position is that that's not caught by an indemnity costs order?---I believe it would be, that was why I conducted this and I've referred to counterclaim - -
Sorry, it would be within the ambit of an indemnity costs order or it wouldn't be?---No, Your Honour it wouldn't.
It wouldn't be?---No, not as costs of the proceedings unless there was a - - -
So somebody contemplating whether they will or won't bring a counterclaim you say is not contemplated or within the ambit of an indemnity costs order?---Again this is rather like the question of when you call a witness or you bring someone from overseas and you don't call them. It's the very grey area. So that would be a forensic task that taxation may tease out. But as I said all these filters previously were indicative only of the sorts of things which may affect my percentage.
So you think it would be unreasonable for them to be allowed any money at all in respect to contemplating a counterclaim within the confines of indemnity costs order?---It would be arguably the case that would occur before a taxing officer and again there could be a discretion exercised that the taxing officer in the circumstances might consider it was recoverable.
I guess what I'm asking (sic) what your opinion is. Do you think it's reasonable or unreasonable?---It's more likely to be unreasonable.
Unreasonable, all right?---More likely. And that item probably would have been part of the filtering that I did for the word strategy, which is again an important one and - - -
MR CARMICHAEL: Before we come that?---Yes, before we come to that I probably should not go to that extent at this point, yes.
Is your answer to His Honour's question about a counterclaim and whether it is reasonable or not reasonable for a party subject to a claim to have regard to a counterclaim as an indemnifiable entitlement. Is that answer qualified in any respect by the relevance of the facts
- by the facts of the possible counterclaim?---Well as the counterclaim has not been filed and is not part of the documents in my brief I can't say that.
But if the facts of the counterclaim it becomes clear arose from subject matter that was already pleaded in the litigation, would that fact be relevant to the answer to the question asked by His Honour which is whether it would be relevant?---It could have relevance, yes.
And it would have relevance because the subject matter of the counterclaim being subject matter already in the litigation would be a fact lending substance to the reasonableness of the claim for indemnity - for attendances, even in relation to a possible counterclaim?---Yes, but could I go further saying these are part of the subtleties that inform my 68 per cent. I have endeavoured to not go too far south and to - - -
Where is south, forgive me?---South is 65, 50, 40 whatever...."
92 This exemplifies an application of a narrow interpretation of the indemnity test where work that would be recoverable has been discounted for within the recoverable percentage figure forming the basis for calculations.
93 By contrast, Ms Harris did not exclude insurance, strategy or counterclaim and there is good reason for this. She accepted that there could have been some liaison with media consultants but did not exclude it in her considerations. An exclusion representing some allowance for liaison could be justified if it were probable.
94 The redaction in time records was a concern to Ms Ashe as it led to the impression of a lack of transparency. In reality, it amounted to less than 2% of time records. The redaction possibly occurred for reasons other than a nexus with non-recoverable work. As outlined above at paragraph 5, there were a number of legitimate reasons for redaction. In any event, the redacted items amount to a sum of around $30,000 only.[52]
95 Overall, the approach of Ms Harris is also preferred on the basis that she displayed a greater appreciation of the operation of the indemnity test. She also excluded a number of items which were arguably recoverable but chose a conservative approach[53] and readily conceded mathematical errors.[54] Ms Ashe adopted a less balanced position on occasions as outlined above and a narrow application of the indemnity test.
96 Taking everything into account a rounded figure of $4,000,000 is allowed as a figure that neither over estimates nor underestimates and achieves an appropriate level of fairness to both parties. A further $39,000 is allowed for the anti-suit order on the same basis.
97 For the sake of completeness, in her first report Ms Ashe relies on an unreported New South Wales District Court case (Sittchichai Laksanabechnarong v F Net Pty Ltd per McLoughlin DCJ 16 September 2011) in relation to the impact in an inter partes assessment of costs of the failure to comply with disclosure obligations to your own client. In her second report she refers to Ventouris Enterprises Pty Ltd v Dib Group Pty Ltd (No 4).[55] However, this latter case deals with recoverability of counsel fees in a party and party taxation where the agreement was void as it contained an uplift fee in a case for damages which rendered the agreement void under the applicable Act. This is not the case here.
98 In her third report Ms Harris makes reference to the effect of a failure to disclose in an inter partes assessment of costs. Ms Harris relies on Catto v Hampton[56] ("Catto") which is a Supreme Court Full Court decision from South Australia. In that case the Court did not allow an argument by the party with the liability to pay inter partes costs that there was no valid costs agreement when considering the recovery of costs on a time basis in circumstances where the costs had already been paid.
99 In my view reductions to legal costs for non-compliance form part of consumer protection legislation and have application in reviews of costs under that legislation. Here there is no review initiated by the client under the Legal Profession Act 2004 (Vic)("the Act"). The plaintiffs are seeking to take advantage of a section that is not applicable to them. Section 3.4.44A (2) of the Act makes it clear that where there is a costs agreement in existence the Costs Court has a discretion to not tax in accordance with the agreement in the event of material non-compliance. The Costs Court however, is not required to initiate an inquiry as to whether disclosure complies with applicable legislative requirements. The onus must therefore be on the client to raise these matters before non-disclosure has any potential impact. There is no obligation on the Court to initiate such an inquiry, even on a review initiated by the client. This underscores the fact that it is the client's right in a review under that Act. It is not the obligation of a Court dealing with an inter partes taxation or gross sum exercise to perform a de facto review under the Act and reduce the costs recoverable from the party liable. An application to set aside a costs agreement can be made to the Victorian Civil and Administrative Tribunal by the party liable. Again, a de facto application by a party liable to pay costs who is not the client is not appropriate. In any event Catto makes it clear that where costs are already paid to legal representatives by a client who is a party favoured by a costs order, it is not open to the party liable to argue the costs are not 'payable' by the client and thereby seek to avoid their liability under a court order.
100 Counsel for Joyce advised the Court on 6 June 2013 that all costs had been paid as follows[57]:
MR HOPKINS: I can say from the bar table that I'm instructed that the costs have been paid in respect of the Joyce matter.
101 Counsel for the Prudentia parties advised the Court on 7 June 2013 as follows[58]:
MR CARMICHAEL: Herbert Smith, all Herbert Smith Freehills costs are invoiced. A number of the invoiced accounts have been paid. There are some outstanding accounts which have been paid by instalment. There is an unequivocal commitment by the client to make payment and there is some money in trust for further payments.
102 On 28 October 2013 a letter was produced by the solicitors for the Prudentia parties which confirmed, to the satisfaction of the plaintiffs, that all outstanding costs had been paid.
103 Coincidently, I have referred to Catto in an earlier unreported decision in Kuek v Devflan Pty Ltd & Anor as follows:[59]
The principal question is whether the indemnity costs to which the defendants are entitled are the amounts which they actually expended in defending the plaintiffs' claims, or are only those amounts which their respective solicitors could have enforced in an action against them, ie, the amounts which they were legally obliged to pay.
At paragraph [37] His Honour stated that
....in analogous circumstances litigants have been held to be entitled to recover costs already paid in connection with litigation, even though their solicitors could not have enforced the claim for those costs. The cases involving uncertified solicitors provide an example.
What followed at paragraphs [38 ] to [40] in the judgment were examples of such cases.
Underlying part of the plaintiff's submissions was a contention that every party ordered to pay another party's costs is entitled to pursue an argument (and seek all relevant documents for the purposes of the pursuit of that argument) that there may have been non-compliance with disclosure obligations under (in this case) the Legal Practice Act 1996. The argument would then run that the party ordered to pay costs is entitled to rely on a failure to give information by the lawyers for his opponent to his opponent in reduction of the opponent's liability to his lawyers - and thereby bring the indemnity principle into play. Wood AsJ rejected this proposition. His Honour was correct to do so. A taxation of costs ordered to be paid by another party is not an occasion for an inquiry into what (if any) failures there have been in relation to disclosure requirements and what the "seriousness" of any such breach might be. The flexible and reasonable application of the indemnity principle, as the authorities show, does not permit such an approach.
104 In relation to the costs of the application for a gross sum there is a divergence of opinion between the experts. Ms Ashe takes issue with this in her first report.[60] Ms Harris relies on Rule 63.36 of the Rules in her third report. The costs of the assessment under the gross sum are discussed under a separate heading below at paragraphs 146 to 150.
105 The first report of Ms Harris (13 December 2012) arrived at a figure of $2,832,005. The first report of Ms Ashe (26 April 2013) reached a figure of $2,387,450.67. The second report of Ms Harris (23 May 2013) revised her figure upwards to $2,840,993, and corrected it to $2,826,646 on 7 June 2013. The second report of Ms Ashe (4 June 2013) revised her figure upwards to $2,390,679.
106 In the first report Ms Harris estimated the percentage of recovery for professional costs at 90% on an indemnity basis, being the midpoint of her range of 85% to 95%. In her first report Ms Ashe applies a figure of 75% for professional costs. Ms Ashe allows a range of recovery across the various counsel at 80%, 85%, 90% and 95%. Her figure of 75% for professional costs would be a very low recovery rate for any taxation on an indemnity basis. Her justification is again on the basis of the absence of an affidavit by the solicitor (a feature of other cases she has been involved in), the fact that high level documents such as time sheets were utilised, and the extent of redaction in documents. As with Prudentia the extent of redaction was below 2%.
107 Ms Ashe refers to elements of a 'Rolls Royce' approach. The stakes were high in this matter for Joyce and higher than for the Prudentia parties as Reed was tried in absentia and the implications went more to corporate reputation and potential disqualification as a director. The case in relation to Joyce had received extensive media coverage. Allegations of fraud and damage to reputation were involved. Criminal and civil proceedings in Dubai were on foot concurrent with this case. Joyce was facing serious penalties and was subsequently imprisoned for 10 years with a $25,000,000 fine (since overturned on appeal). At the time that this litigation ran before Croft J in 2012 the importance of winning the case in Australia was paramount. Cognizance and consideration of the evidence and state of the Dubai proceeding was relevant and reasonable.
108 Ms Harris has excluded the costs associated with Federal Court events to which there was no entitlement or to which there existed doubt about entitlement. She has scrutinised the costs against the usual criteria which usually form a basis of reduction even on an indemnity basis. Nothing of significant concern was identified so she adopted a 90% recovery on the assumption of a likelihood there may be some element of unreasonable work not identified by her, and that the experience is that recovery of 85% to 95% is usual on an indemnity basis upon taxation. This completed steps one to three of the Ausmaq method.
109 In relation to step four of the Ausmaq method, Ms Harris scrutinises the rates for the practitioners and expresses the view that $500 per hour for partner (increasing to $540 after October 2010), $400 for Senior Associate (increasing to $432 after October 2010) and $220 for junior lawyer were not unreasonable. I agree. The current Federal Court scale allows "up to" $550 per hour and the new Supreme Court scale has $360 per hour, with a discretion to increase, as the standard basis of recovery. On an indemnity basis, in this type of case, the rates are reasonable.
110 Fees for the three Senior Counsel utilised vary between $ 681.82 to $1,500 per hour. Junior counsel increased from $400 in 2010 to $454.55 per hour in 2012. Again, the new Supreme Court scale, on a standard basis of recovery, provides for up to $750 per hour for Senior Counsel and $500 per hour for junior counsel in 2013.
111 Ms Harris contends that even the fees of one of the Senior Counsel at $1,500 per hour would be allowed on an indemnity basis given the nature of the litigation. In any event, she contends for 85% of counsel fees. The previous comments in relation to the high personal stakes in this matter render a rate of $1,500 per hour for senior counsel as being recoverable on the basis that any doubt could be resolved in favour of Joyce.
112 The costs referrable to the order of 27 January 2012 which the second plaintiff is liable for are assessed by Ms Harris at $39,072.70 on scale. Ms Ashe assesses this figure at $30,427.70.
113 At the resumed hearing on 25 October 2013 the same 'hot tub' exercise was undertaken in relation to Joyce. This occupied less time than with the Prudentia parties as there were many common issues.
114 The absence of an affidavit is not significant for the reasons discussed above at paragraphs 66 to 72. The utilisation of time records is uncontroversial as they cannot be classified as high level documents in a gross sum assessment. If the exercise were to drill down into individual file notes this would be inconsistent with the gross sum process, and would be more in the nature of a taxation.
115 Ms Ashe reduced counsel fees for Mr Hopkins by 15% for non-appearance work. However, Ms Harris states that on occasions the use of senior counsel could have been justified on some of the interlocutory applications.[61] Ms Ashe conceded this point.[62] Ms Ashe also conceded that her reduction in counsel fees was based in part on the impact of the 'Dubai phenomenon'.[63]
116 Ms Ashe's discount for Mr Collinson was based on the fact that his preparation work exceeded the estimate posited by the judge in advance of the hearing.[64] The difference was between 18 and 14 days respectively. This is an unnecessarily narrow construction of the indemnity test, namely to use the comment of a judge as to what might be reasonable in advance of a hearing to disallow the 'overshoot' on a recovery exercise on an indemnity basis after the hearing has occurred. The judge did not give the estimate in the knowledge that recovery on an indemnity basis was to be the final result.
117 The final submissions for the plaintiffs suggest that the fact that the solicitors in Australia were not formally acting in Dubai, does not mean that work was not performed from time to time for the benefit of those proceedings. There is some merit in this position (discussed below). The plaintiffs also rely on the fact that some court documents were deleted from Exhibit "EMH 02", and therefore it is open to an inference that they related to another proceeding. This, together with a number of other factors suggested to Ms Ashe that the solicitors in Australia were acting in the Dubai matter. For example, the fact that Mr Amad (Dubai solicitor) was not referred to in time sheets after the end of 2009,[65] and the fact that Ms Harris asked her instructors if another file existed and did not receive an answer.[66]
118 In my view it is unlikely (where Joyce is represented by Dubai lawyers in Dubai proceedings) that much work would be capable of being done by Australian lawyers to any great extent when Joyce was in Dubai. Even assuming there was work done on the Australian case which had 'dual value', this is probably work that would have been done for the Australian case even had there been no Dubai proceeding on the basis that investigation of what occurred in Dubai is relevant to the Australian proceedings in any event. Even if there was a dual scenario, it should not significantly reduce recovery in the Australian proceeding.
119 Ms Harris gave evidence on 25 October 2013 that on her instructions Joyce's solicitors in Australia did not act in the criminal proceedings in Dubai. She stated in evidence this information was conveyed to her prior to her first report.[67] The assertion that they were not acting in the criminal proceedings was confirmed (albeit from the bar table) by Mr Harvey on behalf of Mr Joyce. In the face of this Ms Ashe adopted the position that this was unlikely to be true. She ultimately conceded that if it was probable that they were not acting then her percentage for recovery would alter.[68] Again, her initial position could be characterised as overly defensive and advocating for the plaintiffs.[69]
120 Even assuming, there was some work performed solely in connection with the Dubai criminal defence (even though not in a formal capacity), in reality there was only one example given by Ms Ashe of a note in a time sheet that recorded a relevant attendance of concern.[70]
121 There was also an e-mail dated 12 November 2009 involving Mr Mc Robert, a solicitor acting for Joyce, described as "e mail from Angela Higgins re criminal strategy"[71]. Ms Higgins was Joyce's wife. Again, this might still be relevant to the Australian proceedings and could merely constitute a reference to receiving information about this aspect rather than acting. In order to justify discounts of the dimension proposed by Ms Ashe there would have to be a far greater probability of the phenomenon impacting on the Joyce legal costs and a greater number of examples found.
122 It is true there was a greater potential for work performed in Australia for Joyce (as opposed to Prudentia) to be relevant only to the defence in Dubai. The fact that there was an application to be released from the Harmon undertaking in relation to documents in the Australian proceedings in 2010 and the fact that a Notice to Produce was served in 2009 was relied upon to argue that some consideration of strategies to assist the Dubai criminal proceedings must have been discussed in Australia. This was the oral submission put by the plaintiffs on 28 October 2013.[72] Counsel for Joyce resisted any such suggestion in relation to the Notice to Produce, but conceded that the release application was to enable discovered documents and witness statements to be utilised by the Dubai lawyers.[73] It is also likely that Joyce's wife was engaging the Australian solicitor in some communication relating solely to the defence of the criminal proceedings when her husband was in custody and there were Dubai lawyers involved. It also seems likely that progress reports of what was occurring during the trial in Australia was communicated to Dubai, particularly as the credit issues identified by Croft J emerged in the running of the Australian proceedings.
123 In my view there is justification for a small allowance on a 'failsafe' basis. As noted above, the plaintiffs argued that this was permissible (per von Doussa J in Beach). It was argued on behalf of Joyce that an arbitrary discount is impermissible and that it could be put no higher than a possibility that the phenomenon was in play.
124 It is clear from Hamod v State of New South Wales & Anor[74] that an impressionistic discount of the costs incurred can be applied where it is stated: "This may involve an impressionistic discount of the costs actually incurred or estimated, in order to take into account the contingencies that would be relevant in any formal costs assessment: Leary v Leary at WLR 76 per Purchas LJ; Beach Petroleum NL v Johnson (No 2) at 123; Auspine Ltd v Australian Newsprint Mills Ltd at 164-165. "
125 Ms Harris attributed a higher recovery percentage (90%) than for the Prudentia parties. Her justification was on the basis of the Joyce legal team being much smaller. There was therefore a diminished likelihood for duplication of work, less requirement for delegation and supervision, and less requirement for communication between team members. There were efficiencies that flow from having a smaller team and therefore a higher chance for, and rate of, recoverability. The sums invoiced were said to be less than the amounts represented by the time sheets. This might be seen as relevant to an argument in favour of the proposition that Joyce costs were reasonable, however, it also provides a basis for the plaintiffs to infer that the solicitors may have been performing some work solely referrable to the Dubai criminal proceedings.
126 Joyce relies on the statement in 620 Collins Street Pty Ltd v Abigroup Contractors Pty Ltd[75] where Osborn J (as he then was) said that "the purpose of an order for indemnity costs is to do what the court can to ensure that the party is not out of pocket". He approved the passage from EMI Records Ltd v Ian Cameron Wallace Ltd[76] in which Megarry V.-C. stated that "...everything is included unless driven out by the words of exclusion".
127 On that basis Ms Ashe's starting point is arguably open to criticism. However, on balance there is a justification of a small moderation in the figures posited by Ms Harris on the basis of the 'Dubai phenomenon'.
128 There is a tension between, on the one hand, the plaintiffs carrying the burden of proof to demonstrate unreasonableness on the indemnity test, and being hamstrung in a gross sum exercise in their ability to satisfy this burden on the balance of probabilities when the process does not descend to file notes and correspondence, as would be the case in a traditional taxation. This was highlighted by Ms Ashe in paragraph 117 in her first report. The utilisation of generic time records does make it more difficult to discharge that burden of proof.
129 I do not conclude that the process is unfair. It is probably as fair as the case law and definition of indemnity costs require it to be, given the requirement for a broad brush approach. In an ideal world, a close inspection of a select number of samples of file notes and correspondence that coincide with key events may have removed doubt about whether work was performed by the Australian team that exclusively aided the criminal defence in Dubai.
130 Ms Ashe advances an argument in her first report (pages 54 and 55) that the Court has an inherent jurisdiction as to costs which in the context of a gross sum is not fettered by the Rules. The argument was developed further in the plaintiffs' written submissions filed on 11 November 2013. The argument is centred around the fact that the order of the Judge provided for a gross sum "instead of taxed costs". The order did not therefore provide for taxation on an indemnity basis - (the words in the order however do no more than pick up the words in Rule 63.07(2)). Because that Rule provides that a gross sum is "instead of taxed costs", it is argued that the reference in 63.01(1) to "assessment" in the definition of taxation cannot apply to 63.07(2) where gross costs are provided for.
131 Further, it is argued that the heading in 63.07 states "Taxation or other costs provision" and that 63.07(2) is not expressed to be "subject to" Rule 63. It is also argued that the order of the Judge does not refer the exercise to the Costs Court or a Costs Judge, but refers the matter to an Associate Judge pursuant to Rule 77. What would flow from this argument is that the benefit of the doubt provision in Rule 63.30.1(2) in favour of the receiving party cannot apply in the gross costs assessment because the rule is couched in terms of the doubt being that of the "Costs Court". The referral by the Croft J was not to the Costs Court , but to an Associate Judge.
132 For the purpose of this argument only and accepting that the plaintiffs' strict interpretation of Rule 63 is correct, the harsh reality is that the Judge has ordered assessment of costs on an indemnity basis. The question then arises as to what this means. One could look to Rule 63.30.1 anyway for guidance as it provides a definition. Again, for the sake of the argument let us assume that the Rule cannot be regarded as relevant and that definition utilised. The inclusion of a definition of indemnity costs in the Supreme Court Rules only dates from 2001. The category and definition pre-dates the Rule and evolved from case law. The Rule merely codified the then existing concept and definition of indemnity costs. In Colgate - Palmolive Co v Cussons Pty Ltd Sheppard J stated:[77]
...the various bases upon which the Court now awards costs were summarised by Sir Robert Megarry V-C in EMI Records Limited v. Ian Cameron Wallace Limited (1983) Ch 59. The Vice-Chancellor thought that there were five bases; see at 63-5. These were the party and party basis, the common fund basis, the trustee basis, the solicitor and own client basis and the indemnity basis. With respect, the judgment gives a short but most helpful account of what each basis involves.
133 At page 72 in the EMI Records case the definition of indemnity costs is outlined in almost identical terms to Rule 63.30.1. Sir Robert Megarry V.-C. stated:
...a rule that excludes nothing reasonable and includes nothing unreasonable makes no provision for items or amounts which stand on the borderline between reason and unreason, so that it fails to indicate who is to have the benefit of any doubt. Under an order for costs on an indemnity basis I feel no doubt that it is the successful party who should get this.
134 The argument of the plaintiffs therefore takes us nowhere as the order of Croft J can be interpreted on the basis of the common law with the same result. That is, that the definition in the Rule is the applicable test in any event. Any broad inherent discretion described in paragraph 130 above is one that Croft J exercised. It is not open to an Associate Judge on this referral to exercise the same broad inherent discretion in the interpretation of the order. If the plaintiffs were of the view that a gross sum exercise on an indemnity basis was unfair due to the broad brush approach and the disadvantage they might suffer by the onus they carried as to unreasonableness and not having file notes scrutinised, then this was an argument that should have been put to Croft J. I can only assume the Judge was aware of the impact of that burden of proof on an indemnity basis and how that might impact in a gross sum exercise which requires a broad brush approach. If the plaintiffs thought the order would operate unfairly then that was a matter they could have advanced in the Court of Appeal.
135 By making the order that costs be assessed on an indemnity basis, (thus picking up the definition in the Rule or the common law definition), and ordering a gross sum exercise in which costs are to be assessed on the basis of the retainer agreement, then looking at documents like interlocutory judgments, counsel invoices, court documents, bills of costs, and time sheets is all that is required. Croft J would have considered all this when he made the order. The exercise has been logical, fair and reasonable and in an overall sense the evidence of Ms Harris is preferred to that of Ms Ashe for the reasons outlined.
136 It should be noted that the solicitors for Joyce elected not produce an affidavit similar to the Prudentia parties in relation to file maintenance and putting the issue beyond doubt that, while not formally acting, they were not performing work that was solely beneficial to the criminal defence particularly when they were on notice that this was an issue. This may have been a conscious decision given that the onus fell on the plaintiffs. However, as outlined in paragraphs 51 and 59 above the 'Dubai phenomenon' is more likely to be a factor in relation to Joyce than the Prudentia parties, and the issue could have been put beyond doubt.
137 Taking everything into account, the overall figure that is appropriate for Joyce is $2,750.000 for the proceeding and $32,000 for the anti-suit application. The latter figure is preferred because of the fact that the assessment of Ms Harris included the attendance of two solicitors on some occasions.[78] The costs recovery from this order was not on an indemnity basis and therefore a figure closer to that of Ms Ashe is preferred.
138 A remaining issue for determination is the costs associated with a Summons issued by the plaintiffs on 27 May 2013. It was heard and dismissed the same day with the costs reserved until the conclusion of the gross costs hearing.
139 The context is that the gross costs exercise was fixed for hearing at a mention on 7 February 2013. Apart from extending the time for the plaintiffs' expert (Ms Ashe) to file her report and direct a mediation, there were no other orders made, notably no provision for any further affidavit material. Liberty to apply was also reserved to the parties.
140 Subsequently the parties have corresponded with each other in relation to affidavit material. In summary, the plaintiffs communicated no objection in principle to further affidavit material by the defendants, but were unable to elicit that material in a time frame satisfactory to them.
141 The defendants ultimately provided two affidavits on behalf of the Prudentia parties (Ms Harris sworn 24 May 2013 and Ms Lincoln sworn 16 May 2013) and one on behalf of Joyce (Ms Harris sworn 23 May 2013).
142 The liberty to apply was not triggered and if it had been, a simple mention could have been arranged without the necessity for formal documentation. The plaintiffs filed a Summons seeking a vacation of the mediation scheduled for 31 May 2013, vacation of the gross hearing scheduled for 6 June 2013 and an order that the plaintiffs have an opportunity to provide affidavits in reply by 19 July 2013 and that the hearing be scheduled after 12 August 2013.
143 In support of the Summons the plaintiffs produced a six page affidavit with 42 exhibits (comprising 62 pages). This elicited an affidavit on behalf of the Prudentia parties (with four exhibits) and another one on behalf of Joyce. None of this would have been necessary if either party had merely approached the Court for a mention pursuant to the liberty granted.
144 The Summons was dismissed and the mediation and hearing dates remained. The basis of the decision was that the proceedings and mediation could continue as planned and in the event that the plaintiffs were unable to file answering affidavits in time, the affidavits of the defendants prepared without Court approval could be excluded and the material contained therein be given in oral evidence or form part of submissions.
145 Ordinarily the plaintiffs would be liable for costs if the costs were to follow the event. However, in this case the defendants communicated an intention to provide further affidavit material outside the ambit of the order of 7 February 2013, delivered it later than their own communicated deadline, and failed to trigger the liberty to apply once they decided that they would seek to rely on further affidavits. There are grounds to criticise both sides. In the circumstances, there will be no order as to costs in relation to the plaintiffs' Summons of 27 May 2013.
146 The plaintiffs argued that these did not have to be allowed on the same basis as the order of Croft J, that is, on an indemnity basis.[79] Rule 63.36 merely stated that the costs of taxation are part of the order for costs. They submitted that the level of recovery was a separate matter and that there was a discretion that could be exercised. They argued for costs in their favour or in the alternative that the defendants be allowed only 60% of their costs as a result of the inaccuracy of the estimates given to Croft J by them in order to persuade the Court to make the order for a gross sum assessment.[80] It was also put that Ms Ashe spent a lot of time correcting the mathematical errors in the reports of Ms Harris. However, it could also be said a large amount of time was occupied by Ms Harris dealing with the large discount applied by Ms Ashe in relation to the 'Dubai phenomenon' and some of Ms Ashe's other methodologies which were not accepted. There may be grounds for criticism for both experts, but in a matter as novel and complex as this there would seem to be little justification in utilising such grounds to impact on the costs of the gross sum exercise.
147 Clearly all parties gave inaccurate estimates of the process and it is reasonable to assume that their estimates for taxation would also have been inaccurate if that path had been selected given how hard-fought this matter has been.
148 The defendants relied on the approach taken by me in Giller v Procopets.[81] On a review from a decision of a Costs Registrar the issue was whether recovery of 75% of costs pursuant to an order of the Court of Appeal flowed through to the costs of the taxation. The Rule states as follows:
(1) Costs to be taxed under these Rules shall include the costs of the taxation.
(2) Costs to be taxed under a judgment or order shall, unless the judgment or order otherwise provides, include the costs of the taxation.
_(3) After service of a summons under Rule 63.38 for the taxation of costs - _
(a) the party entitled to costs and the party liable for them may serve on one another an offer of compromise in respect of the amount of the costs to be taxed; and
(b) Order 26, with any necessary modification, shall apply as if in Rule 26.03(3) and (4) "seven days" were substituted for "14 days" and as if the order of the Costs Court on the taxation were a verdict or judgment at trial.
(4) Subject to this Rule and to any order of the Court, the Costs Court may make orders for the costs of a taxation.
(5) Paragraphs (1) to (4) apply subject to any Act and to Rule 63.85.
"42. In my view, the starting point arising from the order of the Court of Appeal is that the Applicant is entitled to 75% costs of the taxation, unless there is conduct in the taxation that would alter that position.
43. The wording of sub-paragraph (2) of Rule 63.36 means that any costs must be taxed on the same basis as the order in relation to the costs of the proceeding. Therefore, a 25% reduction in costs as a result of the conduct of the substantive litigation automatically flows through to the costs of the taxation when costs are sought to be quantified and recovered. The bill of costs that was prepared and filed included the 25% reduction on all items (including the costs of the taxation), consistent with the provisions in Rule 63.36(2). It was only in oral argument before the Costs Registrar that the Applicant sought to resile from that position and sought leave to amend the bill of costs.
44. Bearing in mind that the Costs Court taxes costs arising from the orders of Victorian Civil and Administrative Tribunal, Magistrates', County and Supreme Court proceedings, there is another interpretation of sub-paragraph (2) that is open, and that is that the costs of the taxation arising from say, a Magistrates' Court matter, ought to be assessed on Magistrates' Court scale. In other words, just because the taxation occurs in the Costs Court (a division of the Supreme Court) this does not justify the costs of taxation being on Supreme Court scale. It would be inconsistent with the object of establishing the Costs Court if this meant that irrespective of which Court or Tribunal the entitlement originated from, Supreme Court costs were justified. Sub-paragraph (2) of Rule 63.36 can also be interpreted in a manner consistent with that object.
45. However, sub-paragraph (4) of Rule 63.36 is consistent with preserving, to a limited extent, a discretion in the Costs Court to make orders for the costs of the taxation "subject to this rule and to any order of the court". In other words, making an order that alters the effect of sub-rule (2) so that, for example the 25% discount does not flow through to the taxation costs of the Applicant.
46. The phrase "subject to this rule " is a reference to sub-paragraph (3), which incorporates by reference the Offer of Compromise provisions and therefore, provides a discretion to make an order for costs in the taxation that potentially alters the burden of costs in the judgment or any percentage reduction in entitlement to costs arising from the judgment. For example, if the party who had the obligation to pay costs made an effective Offer of Compromise so that the party with the entitlement to costs failed to obtain a taxation figure more favourable than the offer, then the paying party would be entitled to the costs of the taxation despite the fact that the party seeking taxation had an entitlement to 75% costs of the trial and by operation of the sub-paragraph (2), 75% of the costs of the taxation.
47. The inclusion of sub rule (3) in Rule 63.36 incorporates the Offer of Compromise rule provisions into the taxation of costs. The impact of this inclusion therefore, is to treat the taxation of costs as a separate proceeding in the event that a party successfully seeks to utilise the provisions. The incorporation of Rule 26 into the taxation process has this effect. The operation of Rule 26, if utilised by parties, can entirely shift the costs burden in relation to the costs of the taxation and the basis under which they are to be quantified. This clearly must be intended to take precedence over an order giving a party 75% of costs of the proceeding for unrelated conduct and have this flow through to the taxation. Commentary in Quick on Costs (Volume 2 at [5.5910]) supports this view where it states that "Order 26 (Vic) then applies to determine the costs of the taxation as if the Taxing Master's order on the taxation were a verdict or judgment at trial : O 63.36(Vic)".
48. If the intention of the Court of Appeal was to restrict the recovery of costs of the taxation to 75% irrespective of any conduct in the taxation, or utilisation of Offers of Compromise, and fetter any discretion in relation to costs of proceedings in the Costs Court, then clear language in the order would be required.
49. Here, there was no Offer of Compromise and so the Costs Registrar was entitled to make a ruling that the 75% entitlement flowed through to the costs of the taxation consistent with the wording in Rule 63.36(2)."
149 There was no Offer of Compromise made by the plaintiffs to attempt to protect themselves from the defendants' costs of the gross sum assessment even though there was a minimum sum their own expert concluded they were liable for. It would have been obvious prior to the hearing in June 2013 that the costs estimates of the exercise provided to Croft J were underestimated and therefore there may have been utility in making an Offer of Compromise. There is no ground to criticise the plaintiffs in this regard as the Court of Appeal decision was not handed down until 6 September 2013.
150 In the absence of an effective Offer of Compromise or other relevant intervening conduct of the matter (for example, breaches of overarching responsibilities in the Civil Procedure Act 2010), there is no reason for indemnity costs to not flow through to the exercise (in favour of the defendants) on the same basis as that ordered by Croft J.
Quantification of costs of the gross sum exercise
151 Joyce relies on an affidavit of Whitney Kay Bishop which updated his final costs of the gross sum exercise and the Court was urged to allow this amount or allow a percentage of it. The Prudentia parties did not press for their costs of this exercise to be quantified in this manner or at all at this stage. The plaintiffs are entitled to a greater opportunity to scrutinise these costs claimed. The appropriate order is for the costs of the gross sum assessment to be paid by the plaintiffs on an indemnity basis on the same basis as the order of Croft J (namely, on the basis of the retainer agreements), but that they be taxed in default of agreement.
152 The costs of the Prudentia parties are assessed in the sum of $4,000,000 in relation to the order of Croft J of 14 September 2012, and $39,000 in relation to the anti-suit application and order made on 27 January 2012. The costs of Joyce are assessed at $2,750,000 and $32,000 respectively arising from the same orders.
153 The parties are invited to consider this judgment and attempt to frame orders by consent giving it effect in the first instance, including dealing with the interim sums already paid. Liberty to apply is granted to the parties in the event that there is no agreement.
[1] (1995) 57 FCR 119 at 123
[2] (1987) 1 All ER 261 at 265
[5] Paragraph 85(c)(iii) of judgment, 14 September 2012
[6] [2006] FCA 1186 [9]
[18] Paragraphs [49(c)], [65], [117] and [259]
[20] This is discussed further at paragraphs 128 and 129 below
[24] Transcript pages 149-150, 7 June 2013
[25] Sunland Waterfront (BVI) Ltd v Prudentia Investments Pty Ltd (No2) [2010] FCA 312 at par[16]
[26] Discussed at paragraphs 62 and 63 below
[27] Transcript lines 5 to 28, page 134, 7 June 2013
[28] Transcript lines 7 to 22, page 151, 7 June 2013
[29] Transcript page 154, commencing at line 23, 7 June 2013
[30] See Ms Ashe's first report [46] and second report [236]
[31] Transcript page 233, lines 12-31; page 236 - 7 June 2013; page 24, lines 1-2 and 28-30 - 25 October 2013
[32] Transcript page 21 lines 10 to 16, page 25 lines 25 to 28, page 29 lines 28 to 31, page 30, lines 12 to 14 and 15 to 20, page 33 lines 6 to 29, page 34 and page 37 lines 11 to 19 on 25 October 2013
[33] Transcript 25 October 2013, pages 37 and 38
[34] Transcript page 42, 25 October 2013
[35] See her first report [84 to [88], [91] and [99]
[36] Transcript page 164 commencing at line 28, 7 June 2013
[37] Transcript page 182 commencing at line 8, 7 June 2013
[38] Transcript page 20, lines 1to 7 and page 50 lines, 17 to 20, 25 October 2013.
[39] Transcript page 15, lines 14 to 17, 25 October 2013.
[40] Transcript page 15, lines 4 to 8, 25 October 2013.
[41] Transcript page 20, lines 8 to 12 to 25 October 2013.
[43] Transcript page 133, 25 October 2013
[44] Transcript page 124, line 8, 7 June 2013
[45] Transcript pages 11-13, 25 October 2013
[46] Transcript page 13, lines 19-30, 25 October 2013
[47] Transcript page 97, line 20, 6 June 2013
[48] Transcript page 78, line 5, 6 June 2013
[49] Transcript page 250, commencing at line 10, 7 June 2013
[50] Transcript pages 25-29, 25 October 2013
[51] Transcript page 238, line 20, 7 June 2013
[52] Per Ms Ashe - Transcript page 144, line 8, 6 June 2013
[53] See paragraph 46 of her first report
[54] Transcript page 181, lines 8 to 12 ; page 192, line 9, 7 June 2013
[57] Transcript page 79, line 3, 6 June 2013
[58] Transcript page 186, lines 21 to 26, 7 June 2013
[61] Transcript page 52 transcript, 25 October 2013
[62] Transcript page 91, lines 15-19 and 23, 25 October 2013
[63] Transcript page 83, 25 October 2013
[64] Transcript page 86, 25 October 2013
[65] Transcript pages 66 and 67, 25 October 2013
[66] Transcript page 78, 28 October 2013
[67] Transcript page 60, 25 October 2013
[68] Transcript pages 80 and 81, 25 October 2013
[69] Transcript page 78, 25 October 2013
[70] Transcript page 67, lines 10 to 12, 25 October 2013
[71] Transcript page 76 lines 18 to 20, 25 October 2013
[72] Transcript page 240 commencing at line 26 and page 241, lines 11 to 13, 28 October 2013
[73] Transcript page 273, lines 12 to 15, 28 October 2013
[75] (No 3) [2006] VSC 492 at [6]
[78] Transcript page 92, lines 12-17, 25 October 2013
[79] Transcript page 248, lines 1 to 3, and page 249, lines 27 to 31, 28 October 2013
[80] See paragraphs 18, 19 and 20 above
[81] S CI 2010 4742, 25 October 2012 at [40] - [51] unreported
Sunland Waterfront (BVI) Ltd & Anor
Prudentia Investments Pty Ltd & Ors
(2002) 54 NSWLR 738
(1966) 115 CLR 470
(1999) 93 FCR 1
(1995) 57 FCR 119
(1993) 46 FCR 225