GM Holden Ltd v Paine [2011] FCA 693 | Case summary

Indemnity costs 5 The claim for indemnity costs arises as follows. On 5 April 2011, the applicants made an offer to settle the proceeding against the ninth and tenth respondents for $150,000 inclusive of costs and interest (the 5 April letter). The offer was expressed to be made on the basis of the principles enunciated in Calderbank v Calderbank [1975] 3 All ER 333. The offer expired at 5.00pm on 12 April 2011. The 5 April letter referred to previous correspondence sent by the applicants' solicitors to the solicitors for the ninth and tenth respondents which pointed out the weaknesses in their defences as at the date of each letter. On 5 April, the solicitors for the ninth and tenth respondents wrote to the applicants' solicitors criticising their conduct of the proceeding and stating that they would deal with the balance of the letter (the settlement offer) under separate cover. No response was received. 6 Against that background, two questions arise (1) is the 5 April letter able to be taken into account in the exercise of the costs discretion and (2) are the applicants entitled to costs on an indemnity basis from and including 13 April 2011 to judgment? In my view, the answer to each is yes. 7 Recently in Facton Ltd (formerly known as G-Star Raw Denim KFT) v Seo [2011] FCA 344 at [55], the applicable principles were summarised as follows: 1. the Court's power to award costs is contained in s 43 of the Federal Court of Australia Act 1976 (Cth). The Court has a wide discretion in the award of costs. It is, of course, a discretion which must be exercised judicially and in accordance with well established principles: Alpine Hardwoods (Aust) Pty Ltd v Hardys Pty Ltd (No 2) (2002) 190 ALR 121 at [8] - [10]; 2. the usual course is to order costs on a party and party basis: Colgate-Palmolive Company v Cussons Pty Limited (1993) 46 FCR 225 at 233 per Sheppard J; 3. indemnity costs can properly be awarded where the circumstances of the case warrant the Court departing from the usual course of ordering costs on a party and party basis. Those circumstances have been variously described as "some special or unusual feature" and include "an imprudent refusal of an offer to compromise": Alpine Hardwoods at [11] and the authorities cited; 4. Order 23 of the Rules headed "Offer of Compromise and Payment into Court" provides a structure which encourages parties to make and consider fair and reasonable offers to settle proceedings: Alpine Hardwoods at [12] and the authorities cited. It is not however a code: Alpine Hardwoods at [18] and [19]. Parties are also able to rely upon the common law principles in relation to Calderbank letters: Calderbank v Calderbank [1975] 3 All ER 333. A Calderbank letter can be considered by the Court in deciding whether to make an order displacing the usual costs order even if O 23 of the Rules has not been followed: Alpine Hardwoods at [18] and the authorities cited; 5. refusal of an offer which satisfies the requirements of a Calderbank letter does not itself warrant an order for indemnity costs: Alpine Hardwoods at [20], [21], [27] and [28]; Black v Lipovac (by his next friend Lipovac) (1998) 217 ALR 386 at [217]. The onus is on the offeror to show that the conduct of the offeree was unreasonable: Alpine Hardwoods at [21], [27] and [28]. The reasonableness of the conduct is viewed in light of the circumstances which existed at the time the offer was rejected; 6. if, however, the central requirements of a Calderbank letter (that it is clear, precise and certain: Perry v Comcare (2006) 150 FCR 319 at [55] - [57]) are not met, it does not mean that the offer cannot be considered by the Court in the exercise of its general costs discretion. Courts will be prepared to pay some regard to an offer of compromise which purports to be in accordance with the Rules but which for some reason is technically deficient if the terms of the offer are such as to leave the offeree in no reasonable doubt as to the nature and extent of what is being offered: Grbavac v Hart [1997] 1 VR 154 at 155. The offer must be certain: Duncan & Weller Pty Ltd v Mendelson [1989] VR 386 at 401 and Grbavac at 155 and 160. It must be capable of acceptance which, if accepted, would have brought the dispute between the parties to an end: Grbavac at 164; and 7. in determining whether an offer should have been rejected, a Court looks at the "reasonableness of the conduct of the offeree, [when] viewed in the light of the circumstances which existed when the offer was rejected": Black at [218]. It has also been described as whether the rejection of the offer was "imprudent" or "unreasonable" (Black at [52] and [216]) or "imprudent, reckless or unreasonable": United Salvage Pty Ltd v Louis Dreyfus Armateurs SNC [2006] FCA 1611 at [18]. 8 In this case, the terms of the 5 April letter were clear, precise and certain. It left the Talebs in no doubt as to the nature and extent of what was being offered. Moreover, it was capable of acceptance which, if accepted, would have brought the dispute between the parties to an end. 9 Further, the Talebs' conduct in refusing (or in this case, even failing to respond to) the offer was in my view imprudent or unreasonable: Keays v JP Morgan Administrative Services Australia Ltd (No 2) [2011] FCA 547 at [18]. First, the 5 April letter (and the many letters that preceded it) contained statements why the Talebs' case would fail, or at the very least, would fall short of the offer: Keays at [20]. Second, the quantum of the offer (inclusive of costs and interest) was low. Third, as noted above, the Talebs did not respond to the offer. Fourth, the amount ultimately awarded against the Talebs exceeded the amount of the offer, even though one aspect of the applicants' case - damages for imported wheels - was unsuccessful. Fifth, the offer gave the Talebs sufficient time to obtain advice and to assess the merits of the offer within the seven day period specified in the 5 April letter. In fact, the offer was made two weeks prior to the commencement of the trial at a time when the Talebs had solicitors and Counsel to represent them: cf O 23 r 5(3) of the Federal Court Rules. Finally, the offer was made just three days before the Talebs filed the late evidence which was addressed at paragraphs [29] - [32] of GM Holden Ltd v Paine [2011] FCA 569 and which I found to be recent invention. 10 In those circumstances, I consider that the applicants are entitled to indemnity costs from and including 13 April 2011 to judgment.

Gross sum costs - O 62 r 4(2)(c) of the Federal Court Rules 11 As noted the applicants seek a gross sum costs order covering all costs awarded in the proceeding against the Talebs. 12 What are the applicable principles? In Ginos Engineers Pty Ltd v Autodesk Australia Pty Ltd (2008) 249 ALR 371 at [22] - [24], Finn J described them as follows: 22 Rules of Court such as r 21.02(2)(a) of the FMC Rules and O 62 r 4(2)(c) of the Federal Court Rules, which empower a court to order a gross amount in costs instead of an amount determined after taxation, are well accepted as being directed to the avoidance of expense, delay and the protraction of litigation, whether the case be a complex or a simple one: see Beach Petroleum NL v Johnson (No 2) (1995) 57 FCR 119 at 120 (Beach Petroleum NL); Australasian Performing Rights Association Ltd v Marlin [1999] FCA 1006; Nine Films & Television Pty Ltd v Ninox Television Ltd [2006] FCA 1046 (Nine Films & Television); see generally on fixing of costs by courts, GE Dal Pont, Law of Costs, Butterworths, Sydney (2003) para [15.14] and following R Quick and DJ Garnsworthy, Quick on Costs, looseleaf, LBS Information Services, Sydney, para [6.20]. 23 It is inconsistent both with the terms of r 21.02(2)(a) and to the clear objective in making a lump sum order that the costs in issue be subjected to the detailed scrutiny often applied in taxations: Leary v Leary [1987] 1 All ER 261 at 265; Dal Pont, 2003 para [15.17] and [15.19]. In specifying a lump sum, it is well accepted that it is appropriate to apply a "much broader brush" than would be applied on a taxation: see Sony Entertainment (Australia) Ltd v Smith (2005) 215 ALR 788 at [196] - [200] (Sony Entertainment). Nonetheless, the discretion to make a lump sum order, no less than the general discretion to order costs, must be exercised judicially and in accordance with principle. In particular in making a lump sum estimate the approach of the court should be "logical, fair and reasonable": Beach Petroleum NL at CLR 123; ALR 164; Nine Films & Television Pty Ltd at [8]. 24. It is not uncommon, particularly, but not only, in intellectual property cases, for the court to take as its starting point the evidence of the charges for professional costs incurred and disbursements made by the lawyers of the party awarded costs - and this irrespective of whether the costs are to be estimated on an indemnity basis: compare Beach Petroleum NL at CLR 120; ALR 162; or on a party and party basis: compare Universal Music Australia Pty Ltd v Miyamoto [2003] FCA 812 at [29] and following. That figure is then characteristically adjusted to take account of the acceptability of the charges made, the conduct of the proceeding, the measure of success on issues and so on, to produce a sum which as a matter of judgment is neither overcompensatory nor prejudicial to the successful party. Consistent with the broad brush approach, that adjustment ordinarily is effected through the application of a discount to the figure accepted by the court on the available evidence as appropriately reflecting actual professional costs charged and disbursements made. The case law evidences wide variations in the percentages of discount sought and/or applied to reflect the exigencies of the matter in question: compare Sony Entertainment, 60%; Beach Petroleum NL, 39%, Nine Films & Television, 23%. What is clear is that a lump sum award may be in an amount that is greater or smaller than would have been the taxed costs payable: see Dal Pont , 2003, para [15.20]. 13 Against that background, I turn to consider the circumstances of the present case. 14 There is no doubt that a taxation of the applicants' costs against the Talebs under O 62 would be complex, costly and time consuming. The proceeding was originally commenced against three groups of respondents. On 25 October 2010, a further seven groups were joined to the proceeding. One of those groups never participated in the proceeding. Prior to the mediation on 25 November 2010, the applicants settled the proceeding as against the twentieth to twenty fourth Respondents. At the mediation on 25 November 2010, the applicants settled with all other respondents except the sixth and seventh (the BSA Parties), the eight, ninth and tenth respondents (the Taleb Parties). On 14 December 2010, the eighth respondent went into liquidation. On 17 February 2011, the applicants settled with the BSA Parties. As a result, from 17 February 2011 the only respondents to the proceedings were the Talebs. The applicants' principal solicitor filed an affidavit in which he deposed to the fact that the file currently extends to over 20 lever arch volumes of correspondence and documents and there are over 2,000 narrations recorded against the relevant matter on the solicitors' accounting system. Indeed, the applicants' solicitors estimate that taking into account the volume of material, the need to determine the extent to which costs incurred by the applicant are attributable to the proceeding against the Talebs, the attitude of the Talebs and the other demands of the taxing Registrars, a taxation of the applicants' costs could take between three and 12 months. It is therefore unsurprising that the applicants submitted that a gross sum costs order would deliver costs and savings to all parties and should be awarded. I agree. Moreover, there is another reason why that is so. There are currently freezing orders that extend to the assets of the ninth respondent and those orders should be lifted to the extent of any excess as soon as practicable. 15 The method for calculating a gross sum costs order is not rigid. As noted, above, a starting point may be evidence of professional costs and disbursements charged by the lawyers for the party awarded costs (irrespective of whether costs were to be estimated on an indemnity basis) adjusted to produce a sum which was neither over compensatory nor prejudicial to the successful party: see [12] above. 16 Using that as the starting point, the applicants' solicitors analysed the applicants' costs of the proceedings by dividing the proceeding into six phases. They summarised the total professional costs and disbursements incurred in each phase on the basis that the costs were charged to the applicants. Then, in respect of professional fees, 60% of the costs incurred on a party and party basis (up to 12 April 2011) and 90% of the costs incurred on an indemnity basis from 13 April 2011 up to and including 18 April 2011 were then divided by the number of groups of respondents actively involved in the proceeding during each of the six phases. I accept that the general approach proposed by the applicants is appropriate in the circumstances, subject to some modifications which take into account particular facts and matters. 17 The first phase, period A, was a period prior to the joining of the Taleb Parties. I do not accept that the applicants are entitled to claim any costs against the Taleb Parties in Period A. 18 The second phase, Period B, was from 25 October 2010 up to and including the mediation on 25 November 2010. Nine separate groups were actively involved in the proceeding. The actual costs incurred by the applicants totalled $75,064.66 (including GST) comprising professional fees of $73,627.40 and disbursements of $1,437.26. Taking 60% of those party and party professional costs and then dividing it by the nine groups, the applicants claim that the Talebs' share of taxable professional costs for Period B would be $4,908.49. 19 The third phase, Period C, was from 26 November 2010 to 17 February 2011 (when the only parties in the proceeding were the BSA Parties and the Taleb Parties). The actual costs incurred by the applicants totalled $60,538.45 (including GST) comprising professional fees of $60,276.15 and disbursements of $262.30. Taking 60% of those party and party professional costs and then dividing it by the two groups, the applicants claim that Taleb's share of taxable professional costs associated for Period C would be $18,082.85. 20 The fourth phase, Period D, was from 18 February 2011 (after the applicants settled with the BSA Parties) up to 12 April 2011 (the expiration of the 5 April Letter). The actual costs incurred by the applicants totalled $69,449.50 (including GST) comprising professional fees of $61,879.40 and disbursements of $7,570.10. Taking 60% of those party and party costs, the applicants claim that the Taleb's share of the taxable professional costs for Period D would be $37,127.64. This stage of the proceedings is difficult to assess. As the Talebs submitted, it includes the period when the trial set down for 4 to 8 April 2011 was adjourned on the application of the Talebs on 1 April 2011. The applicants opposed the adjournment. Despite their opposition on the basis that the hearing should proceed on 4 April, the applicants took a number of subsequent steps including filing further affidavits which were relied upon at trial. In those circumstances, I consider that the discount to be applied for this period should be 60%. Accordingly, taking only 40% of the party and party professional costs, the Talebs' share of the taxable professional costs associated Period D would be $24,751.76. 21 The fifth phase, Period E, was from 13 April 2011 (after expiration of the 5 April letter) up to and including the trial on 18 April 2011. The actual costs incurred by the applicants totalled $37,032.20 (including GST) comprising professional fees of $20,407.20 and disbursements of $16,625.00. Taking 60% of those professional fees, the applicants claim that the Talebs' share of taxable professional costs associated for Period E would be $12,244.32. 22 During the final phase, Period F, from 19 April 2011 to the date the applicants filed their written submissions in relation to this application, the actual costs incurred by the applicants were approximately $53,429.47 (including GST) comprising billed and unbilled professional fees of $41,413.90 and billed and unbilled disbursements of $12,015.57. Taking 60% of those professional fees, the applicants' claim that the Talebs' share of taxable professional costs associated with Period F would be $24,848.34. 23 Accordingly, the total sum of estimated recoverable professional fees is $84,835.76. To ensure that the amount is not over compensatory, the applicants submitted that a further discount factor of 10% might be appropriate. I agree. In the absence of an indemnity costs order for costs incurred from 13 April 2011 until judgment (3 June 2011), the discount would have been greater. The applicants submitted, and I accept, that they would receive a greater amount if the proceeding was taxed in the usual fashion. However, for the reasons stated above, I consider that a gross sum costs order of $76,352.18 is appropriate in this case. 24 As will be apparent, the preceding paragraphs have not addressed the question of disbursements. The applicants' submissions did not propose any discount in relation to disbursements or, for that matter, provide any indication of the nature of the disbursements. The Talebs submitted that it is to be assumed that the disbursements in Periods D and E would include Counsel's fees and that if those costs were assessed on a party and party basis, they would be reduced by 35 to 40%. A judge's experience in taxing costs is limited: see, by way of example, Korda, In the matter of Clynton Court Pty Ltd [2005] FCA 543 at [21]. However, some matters are self evident. First, there is a "National Guide to Counsel Fees" published by the Federal Court with effect from 4 January 2010. The guide provides a range of fees for junior and senior Counsel, by type of application and appeal. Second, if the fees fall within the guide, then in the absence of some other fact or matter, Counsel's fees would not be reduced substantively and, in particular, not "in the order of 35 to 40%". Third, in a taxation of costs, unless a party seeking taxed costs provides evidence to the contrary, the registrar assumes the party is able to claim an input tax credit for GST on disbursements and does not allow claims for GST on disbursements. 25 Given the seniority of the applicants' Counsel and the nature of the issues the subject of the dispute, if the fees charged by the applicants' Counsel are within the guide published by the Federal Court for junior Counsel, it would in my view be inappropriate for those fees to be discounted by 35 to 40%. In the circumstances just outlined, I would discount all disbursements claimed by the applicants (including Counsel's fees) by 5%. Next, subject to the applicants satisfying the respondents that the fees charged by Counsel fall within the appropriate guide and that the disbursements claimed do not include a claim for GST on disbursements, the applicants should be entitled to 95% of the disbursements claimed. If the fees charged are outside the guide, then Counsel's fees will need to be reduced and the amount of the order adjusted accordingly. Similarly, if the amount claimed includes GST, the amount claimed will need to be reduced. In addition, the applicants should satisfy the Talebs that the disbursements have in fact been paid. Subject to resolution of those issues, I consider that the applicants are entitled to the disbursements claimed for Periods B - F (inclusive) fixed in the sum of $36,014.72.

GM Holden Ltd v Paine

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