Ipex ITG Pty Ltd v Melbourne Water Corporation

PRACTICE AND PROCEDURE - security for costs - security for past costs - value of prior security depreciated - quantum of security.

1 The woes of Ipex ITG Pty Ltd, the plaintiff in this proceeding, continue. It commenced the litigation on 17 February 2003 in the Federal Court seeking what it said was its entitlement to extra payment for work done between 2000 and 2003 under a contract with the defendant, Melbourne Water Corporation. After about a dozen drafts, its current claim appears in its fourth amended statement of claim dated 13 December 2007. It is now a claim for damages for Melbourne Water's misleading and deceptive pre-contractual statements.

2 Before the court are two applications brought by Melbourne Water seeking, first, that the proceeding be stayed or summarily dismissed or struck out because the persons instructing the lawyers for Ipex are not authorised by Ipex to do this; and, second, that Ipex provide further security for the costs of Melbourne Water of the proceeding in the amount of some $3 million.

3 Counsel for Ipex announced their appearance for that company at the outset of this application. Normally, that would be sufficient for me to conclude that they and their instructing solicitors were authorised to act for that company. This, however, is not a normal case. Counsel made it clear that their instructions were received, not from Ipex, but from Takapana Investments Pty Ltd, a company owned and controlled by members of the Schwalb family, or from the family members themselves. In order to understand this it is necessary to step back in time a little.

4 It was not disputed that Ipex did instruct the lawyers when this proceeding was commenced in the Federal Court in February 2003 and when it was transferred to this Court in April of that year. At that time, all the shares in Ipex were held by Takapana as trustee for the Schwalb Family Trust No 1.

5 By share sale agreement dated 22 December 2003 Takapana sold these shares to Volante Group Ltd. At the time of the sale Ipex was involved as a party in 11 proceedings in various courts - six as plaintiff and five as defendant. This proceeding against Melbourne Water is one of those proceedings. As a consequence of the share sale agreement Ipex became a wholly owned subsidiary of Volante.

6 Notwithstanding that the control of Ipex passed to Volante and the directors appointed by Volante, the share sale agreement preserved for Takapana an interest in the existing litigation. This is dealt with by cl 11.2 of the share sale agreement.

(a) (Indemnity): Subject to clause 11.2(b) below, the Vendor hereby indemnifies and holds the Purchaser harmless against all losses, claims, costs, demands, liabilities and expenses which may be suffered, sustained or incurred by the Purchaser directly or indirectly as a result of or in respect of any Existing Litigation, provided that:

(i) the Purchaser must keep the Vendor fully informed in respect of that Existing Litigation and must consult with the Vendor concerning that Existing Litigation;

(ii) the Purchaser must not admit, compromise, settle or make any payment in respect of any Existing Litigation or take any other steps which may in any way prejudice the defence, challenge, conduct or prosecution thereof without the prior written consent of the Vendor (not to be unreasonably withheld);

(iii) if the Vendor so requests, the Purchaser must permit the Vendor, at the Vendor's expense, to take such reasonable action in the name of the Purchaser to defend, continue, pursue or otherwise settle that Existing Litigation or to select legal advisers and seek and obtain legal advice from such advisers as the Vendor may reasonably require provided that the Vendor at all times takes into account the Purchaser's market reputation, relationships with existing customers and prospects as well as the views of the Purchaser's board;

(iv) the Purchaser must ensure that the Vendor and its representatives are given reasonable access to such of the documents and Business Records of the Purchaser as may be reasonably required by the Vendor in relation to any action taken or proposed to be taken by the Vendor under clause 11.2(a)(iii); and

(v) the Purchaser must ensure that it does not do or cause to be done anything in relation to that Existing Litigation which compromises or prejudices the Vendor's rights under this clause 11.2(a).

(b) (Irrevocable undertaking): As consideration for the indemnity in clause 11.2(a), the Purchaser hereby irrevocably undertakes to procure each member of the Company Group named as a party to Existing Litigation to pay to the Vendor any proceeds recovered by, including costs awarded to, such member of the Company Group in connection with the resolution or settlement of that Existing Litigation.

(c) The Vendor must pay the costs of all external advisers in connection with the Existing Litigation within 14 days after receipt of the relevant invoice (together with such other information as the Vendor reasonably requires) by the Vendor.

7 From an early date in this litigation the lawyers for Ipex made it clear that, notwithstanding the sale of its shares to Volante, the proceeding was directed by and conducted for the benefit of the Schwalb family interests, and this did not appear to be a matter of concern for Melbourne Water. It should be noted, however, that the share sale agreement was not provided to the lawyers for Melbourne Water until very recently, on 28 October 2008.

8 Volante was from April 2006 a wholly owned subsidiary of a publicly listed company, Commander Communications Ltd.

9 On 7 August 2008 Commander Communications went into administration and it appointed voluntary administrators for companies within the Commander Communications group, including Volante and Ipex. Both Volante and Ipex are presently under external administration pursuant to Part 5.3A of the Corporations Act 2001.

10 On the same day, Westpac Banking Corporation as chargee under registered charges No 023964412 and No 023964465 filed on 2 October 2007, appointed receivers over the assets of companies within the Commander Communications group including Ipex. The receivership continues.

11 Following the share sale agreement Takapana has continued to instruct the lawyers for Ipex in this proceeding, to pay or to assume liability for their fees and disbursements and to pay or to cause to be paid the orders for costs which have been made against Ipex from time to time. In 2004 Volante provided security to Melbourne Water for its costs of the proceeding which may be payable by Ipex by giving a continuing guarantee for this obligation of Ipex.

12 The position of the receivers with respect to this litigation is that they "have not made any election in relation to the proceeding. Nor have they instructed AJH Lawyers [the solicitors on the record for Ipex] in relation to the proceeding". Again, they say through their solicitors that neither "they, nor their appointors, have any interest in the cause of action the subject of the proceeding.[1] The question of Takapana's entitlement to continue the proceeding in the name of Ipex is a matter it will need to satisfy the Court about ..."[2]

13 The position of the administrators is that the rights of the secured creditors prevail over their rights. Section 441A(3) of the Corporations Act permits the chargee or the receivers to enforce the charge notwithstanding the administration. The charges in this case are in the usual terms conferring extensive powers upon the receivers including those of an attorney under power of the chargor.[3]

14 The solicitors for the administrators state that there is expected to be no surplus after satisfaction of secured liabilities, so that the unsecured creditors and others with whose interests the administrators are concerned have no economic interest in the cause of action which Ipex asserts against Melbourne Water. They add that, as between the interests of the receivers and Takapana, the question where the economic interest in the cause of action will lie depends upon the share sale agreement. If they had the power to do so, they had not authorised "any dealing with the cause of action or any action in relation to the Proceedings".[4]

15 I return, then, to the share sale agreement, and, in particular, to cl 11.2 which is set out above.[5] It was argued on behalf of Melbourne Water that this provision gives no authority to Volante to conduct the litigation. Paragraph (iii) is expressed as a proviso to cl 11.2(a) under which Takapana gives to Volante an indemnity in respect of the litigation. Since the question of indemnity has not yet arisen, the provisos have no work to do. I am not persuaded that this is so. Notwithstanding its form, the obligations imposed by paragraphs (i) to (iv) stand alone. The indemnity is given on the basis that the purchaser does the various things which are specified in the paragraphs.

16 The purchaser Volante, under paragraph (iii), must therefore do as follows -

"If [Takapana] so requests, [Volante] must permit [Takapana], at [Takapana's] expense, to take such reasonable action in the name of [Volante] to defend, continue, pursue or otherwise settle" the proceeding.

The point taken on behalf of Melbourne Water is that this provision does not warrant Takapana continuing the proceeding, otherwise than in Volante's name; not in the name of Ipex. What appears to underlie this paragraph and the other parts of this clause is that the litigation involving Ipex would continue at the direction of Volante but there is little recognition of the fact that Ipex, and not Volante, is the litigant. For example, paragraph (ii) speaks of Volante settling the litigation; paragraph (iv) speaks of the business records of Volante. And, of course, paragraph (iii) speaks of Takapana taking reasonable steps in the name of Volante to continue the proceeding. In each of these paragraphs it might have been expected that Ipex would be the company referred to. Elsewhere in cl 11.2, however, there appears to be a recognition of the distinction.[6]

17 It is not difficult to understand how this confusion arose. First, both Takapana and, in due course, Volante controlled the litigant, Ipex, so that if there arose a problem in the litigation it would lie within the control of Volante to resolve it. Second, although Ipex was the litigant in all but one of the proceedings covered by cl 11.2, it may have been difficult to draft the clause to include the other litigant within the Ipex group. Third, the sums to be paid by Takapana under the indemnity created by cl 11.2(a) and to be received by Takapana under cl 11.2(b) are to be added to or subtracted from the consideration to be paid by Volante to Takapana for the shares in Ipex.[7]

18 What counsel for Ipex seeks in effect is that I substitute for the word "Purchaser" in paragraph (iii), and perhaps elsewhere, the word "Company" which is defined in cl 1.1 to mean Ipex. While I feel some sympathy for the position in which Ipex finds itself, I am not prepared to take this step. This is a sophisticated agreement solemnly entered into. I cannot but assume that the negotiators, the drafters and, more importantly, the executing parties were aware of the distinction and they assumed that their evident objective could be achieved by exercising indirect control over the litigation through the holding company.

19 A further indication is given by the fact that Ipex was not made a party to the share sale agreement. If the intent of cl 11.2(a)(iii) was to permit Takapana to pursue the litigation in the name of Ipex, it would be for Ipex, which possessed this right, to give it away.

20 The submission offered by counsel for Ipex was that the share sale agreement binds Ipex so that the property of Ipex, which is charged and which the receivers are entitled to deal with, includes its cause of action which is subject to the rights of Takapana pursuant to cl 11.2(a) of the share sale agreement. Assuming, contrary to the conclusion I have reached, that cl 11.2(a)(iii) should be interpreted as permitting Takapana to continue the proceeding in the name of Ipex, this raises the question whether Ipex is bound by this agreement to which it is not a party. The argument in favour relied upon the Duomatic rule.[8] Under this rule a company is bound by the assent of all of its members having a right to attend and vote on the matter at a general meeting. This rule, which has been applied to validate an agreement irregularly executed on behalf of a company,[9] can have no application here to bind Ipex to the share sale agreement. While it is undoubtedly true that its sole shareholder, Takapana, might have assented to its being a party to that agreement, there is no evidence that it did. This is not a case where Ipex was named as a party to the document but, for some reason, failed to execute it. The fact is that it was never a party to the agreement and there is no evidence that its shareholder, Takapana, assented to its being a party. There is no evidence that Ipex ever assented to the proposition that, after the share sale, its litigation would be directed by Takapana. The scheme of cl 11.2 appears to be that Volante, as shareholder, would direct the litigation, but that in most respects it would do so only with the consent of Takapana or in accordance with its directions.[10]

21 Next, it was put that Takapana's right to direct the litigation and instruct the lawyers arose by subrogation from its indemnity obligation pursuant to cl 11.2. This point, which was not much developed in argument, cannot achieve the intended result. It is true that Takapana has accepted or satisfied the liabilities of Ipex in the litigation. It has paid its legal expenses and satisfied the costs orders against it. But these are not losses, claims, demands liabilities and expenses of Volante which are the subject of this indemnity obligation. It may be, too, that Takapana has stood behind Volante when it provided its guarantee of the liability of Ipex to meet any orders for costs made in favour of Melbourne Water. These events, however, cannot give rise to a right of subrogation to the rights of Ipex, absent some underlying agreement between Takapana and Ipex.

22 Finally, reliance was placed on the doctrine of equitable estoppel. It was said, doubtless correctly, that Volante and Ipex were aware that Takapana was directing the litigation and meeting all of the expenses. It was then said that these companies accepted that this should be so and were content to accept the benefit of this. They should not, then, be permitted to resile from this position. There is, of course, no evidence that they have sought to resile from it. The difficulty here is that there is no evidence of the precise basis upon which this state of affairs was established and pursued. There is, however, cl 11.2 of the share sale agreement, as well as the fact that Takapana directed the litigation, retained instructed and paid the lawyers and paid the costs orders. In an interlocutory application of this kind I am prepared to act on this material. This is particularly the case where neither the receivers nor the administrators have taken a position adverse to the continuance of the litigation under the direction of Takapana. I reach this conclusion without making a final determination so that the point may be raised upon fuller material and finally determined at trial if the parties so desire.

23 The next step in the Ipex argument is that the assets of Volante fall into the hands of the receivers and into the hands of the administrators subject to the obligations of Volante to Takapana under cl 11.2 of the share sale agreement. The assets of Ipex, too, including its cause of action against Melbourne Water, fall into the same hands, subject to the obligation of Ipex to permit the proceeding to enforce that cause of action to be directed by Takapana on the basis that Takapana bears the costs of this, including any costs awarded against Ipex. It would seem from the correspondence that both of the receivers and the administrators appear to be taking this position, at this stage at least. The submission, then, concludes that neither the receivership nor the administration defeats Takapana's right to continue to direct the litigation and meet the expenses of Ipex.

24 In the case of the receivers, this result must follow, because the property of Ipex and that of Volante does not pass to the receivers upon their appointment. They act as the agents of the chargor.[11] In the same way as Volante and Ipex may not resile from the estoppel, so too, the agents of Ipex are bound by it.[12]

25 The position of the administrators may be different. Section 437A(1) of the Corporations Act passes to the administrators the control of the company's business, property and affairs. The obverse of this is found in s 437C under which the officers of the company, including its directors, remain in office, but they are denied the power to exercise the functions of their office without the approval of the administrator.

437C (1) While a company is under administration, a person (other than the administrator) cannot perform or exercise, and must not purport to perform or exercise, a function or power as an officer or provisional liquidator of the company.

437C(1A) Subsection (1) does not apply to the extent that the performance or exercise, or purported performance or exercise, is with the administrator's written approval.

I was referred to the decision of Wilcox J in the Federal Court[13] as standing for the proposition that s 437C(1) does not cover a cause of action of a company under administration. This decision in fact turned upon the effect of s 440D(1) upon the appeal of a company under administration against an adverse award of damages. His Honour held that s 440D(1) did not require that the appeal be adjourned. He was of opinion that the company's appeal was not, to use the language of the section, "a proceeding in a court against the company" nor was the appeal a proceeding "in relation to any of its property". The property of the company was not affected by the appeal or its outcome except insofar as the failure of the appeal might expose the company property to execution.[14] This was not sufficient to attract a statutory prohibition. This is far from the present case.

26 Here, the cause of action of Ipex against Melbourne Water is part of the property of Ipex. The ordinary function of its directors would include that of causing it to conduct this litigation in its name. Accordingly, it was said, the administrators alone could instruct the lawyers in the proceeding. The response put on behalf of Ipex was that the property comes into the control of the administrators subject to pre-existing rights affecting it.[15] For present purposes, I accept this as a correct statement of principle.

27 Furthermore, a close reading of s 437C shows that it does not in fact prevent Takapana from instructing the Ipex lawyers. In doing so Takapana is not exercising a function or power as an officer[16] of Ipex. The power which it purports to exercise is its own power as the obligee under a pre-existing agreement or estoppel which binds Ipex.

28 I therefore decline to stay or to strike out the Ipex claim on any of the suggested bases. I repeat that this is an interlocutory application and I have approached it as such. The evidence was in some respects incomplete, and I would not wish to shut out the receivers or the administrators from applying to stay the proceeding, or Melbourne Water from raising the question again on fuller material at trial, if they be so advised.

29 By letter dated 29 August 2008 Melbourne Water seeks security for its costs pursuant to r 62.02, s 1335 of the Corporations Act or the inherent jurisdiction of the Court. It was not disputed that security should be given; the issues were whether security should be given for past costs and as to the quantum of security, in any event.

30 I should record, too, that, with the agreement of the parties, I have consulted with the Listing Master upon matters of practice in the taxing of bills of costs. While I have been assisted by his experience, the assessments and allowances are, of course, mine alone.

31 This proceeding has now been on foot for nearly six years, most of that time in this Court. On 3 March 2004, about a year after it was commenced, Melbourne Water wrote to Volante seeking security notwithstanding that there was then no apprehension that Ipex would be unable to satisfy a costs order. On 12 May 2004 Volante executed a continuing guarantee of the obligation of Ipex to meet the costs of Melbourne Water. This guarantee is now worthless following the appointment of administrators of Volante.

32 Counsel for Ipex relied upon the line of authority in which security was refused in whole or in part where the application is brought late. In Southern Cross Exploration NL v Fire & All Risks Insurance Co Ltd,[17] Waddell J was of opinion that it would be unfair for the plaintiff to be required to give security for costs incurred before an unexplained late application.

33 It was said that Melbourne Water never asked Ipex to provide security. Nor has it sought an order that it provide security. It was said that the Volante guarantee was provided, not to cover the risk that security would be ordered against Ipex, but rather as a gesture of goodwill by Volante towards a valued customer, Melbourne Water. I should, therefore, approach this application as a late application, ignoring the guarantee which was obtained by "the application of commercial pressure" rather than by court process.

34 I decline to do this. We are here in an area of discretion which must be exercised in the light of the facts as they are found. I agree with counsel for Melbourne Water that, having obtained the Volante guarantee, there was no point in applying for further security from Ipex. Indeed, the existence of the guarantee may well have led to a rejection of the application.

35 I was referred to the Queensland case of Bruce Pie & Sons Pty Ltd v RH Mainwaring, English & Peldom.[18] In that case, the plaintiff consented to an order for security in the sum of $35,000 and this was provided by an irrevocable guarantee provided by Trustees Executors & Agency Co at the request of the plaintiff and for which the plaintiff paid the security. Following the liquidation of the company, the value of the security was estimated to be only $25,000. Upon an application for further security, it was contended that the plaintiff had provided security as and when ordered and that the risk of any depreciation in its value should lie where it fell.

36 McPherson J took a different view. The provision of security in a form other than money was an indulgence given to plaintiffs lest the security proved to be an instrument of oppression by removing their working capital. To impose the risk of depreciation on defendants would lead to their requiring cash security in cases where there would not be necessary. His Honour stated his conclusion in these terms:

My conclusion therefore is that if, through no fault of the defendants, the value of the security selected by the plaintiff suffers depreciation or diminution in value between the date of its provision and the date of trial, the risk ought ordinarily to fall on the plaintiff so as to render him liable to make good the deficiency in the amount ordered.[19]

37 With respect, I agree. In the present case the loss of value of the security was due to no fault of Melbourne Water. The plaintiff must therefore make up the loss. I will, therefore, order security on the basis that the application was made in March 2004 and that no valuable security presently exists. In the context of this case an application at that time would have been timely. I will assess costs from the date of the commencement of the litigation.

38 I will now assess costs up to and including the first day of the trial reserving to the defendant the right to seek further security in respect of further costs which may be incurred after that date.

39 The assessments offered by the parties varied enormously. MW seeks the following:

40 The plaintiff's assessment is $44,500 for past costs and $164,055 for future costs, a total of $208,555.

41 The costing expert consultant relied upon by Melbourne Water is Elizabeth Mary Harris. She approached her task by applying discount factors to the gross sum of costs charged. The starting point, then, is the total gross costs charged. In paragraph 24 of her report she lists them under three general headings:

This is, of course, a very substantial sum. It is particularly so when I remind myself that the nearly six years which have passed have largely been occupied in battles over the Ipex pleadings. Ipex has had enormous difficulty in formulating drafts of its statement of claim, most of which have been struck out, rejected or abandoned. On my reckoning, no less than nine orders for costs have been made against Ipex as a consequence of this, some on a solicitor-client basis. In total, Melbourne Water has submitted bills for taxation totalling $611,688.78 for these costs orders, of which $321,564.63 has been allowed or agreed,[21] and an indeterminate part deferred. I understand that Volante has met these orders under its guarantee, at least until the appointment of the receivers and administrators. In these circumstances security for their payment is not required.

42 The product of this vast expenditure plus the costs of the Ipex lawyers appears to be that there is a statement of claim and a defence together with particulars and two mediations have occurred. Discovery is included in the future costs estimates. Judges are notoriously out of touch with contemporary charging practices. I permit myself, nevertheless, a moment to wonder whether something here is a little awry.

43 The costs consultant engaged by Ipex is Catherine Mary Dealehr. She has identified the four steps in the discounted gross cost methodology which has, broadly speaking, been adopted by Ms Harris.

Step 1 - calculate the total number of solicitors' hours incurred that make up the actual amount charged;

Step 2 - convert the above total number of hours to the scale rate for solicitors' time specified under the Court scale;

Step 3 - add loading (being a percentage) for general care and conduct claimable under the Court scale;

Step 4 - less any reduction to take into account factors that can be identified as solicitor-own client costs and not party-party costs.[22]

44 Accepting the methodology, the principal challenge of Ipex was directed to steps 1 and 2. Ms Harris was instructed[23] that the total solicitors' time engaged was 9,050 hours[24] and she was given a break-up of this figure between the different staff levels and a break-up as between the four areas of activity for which charge was made.[25] Instead of step 2, she has accepted the solicitors' figure for gross fees in fact charged, namely $2,599,600,[26] and their break-up between the same four areas of activity.[27] In this way, she has arrived at the actual cost figures which are the starting point for her calculation at paragraph 24 of her report.

45 Her approach to counsels' fees was similar. She was told that counsels' fees were $1,040,000 in total and she was given a percentage break-up between the same areas of activity plus an extra area of activity for Appearances. In her report she has, for some reason, taken the total of counsels' fees to be only $851,700 and she applied to this the given percentages for each area of activity so as to arrive at the actual cost figures for counsels' fees in paragraph 24 of her report.

46 The third area of cost is Other Disbursements, totalling $284,169, which she has brought within her para 24. These, too, are more or less taken from the solicitors' letter of instruction of 17 September.[28] For the most part these are not contentious. The notable exception is the item, Witness and Expert Fees, for which actual expenditure is said to be $245,600 as per the solicitors' letter of instruction. I pause to observe that, on the assumption that this sum has been paid to the expert witnesses, this, plus the expected costs of their witness statements, in the future, will mean that the costs of the proceeding payable to the experts will total about $470,000.

47 The complaint of Ipex about all of this is that no further detail is provided to enable any assessment of the accuracy or the reasonableness of these figures. Ms Harris seeks to explain this by saying that she was instructed that the cost of providing details of the fees paid would be prohibitive and that Melbourne Water "is not in a position to waive legal professional privilege in respect of the file of its legal representatives, including time records and bills". It is not clear whether her reference to privilege meant that she had no access to the detail of what work was the subject of the money and time claimed or whether this could not be disclosed to Ipex and the Court. Whatever be the true position, and what, if any, be the justification for such a claim to privilege, the consequence is very unsatisfactory; the court is asked to act on bald figures which, on their face, appear very much excessive.

48 I make no complaint that a party makes a claim for privilege. But, to the extent that I am asked to assess the reasonableness of a list of unsubstantiated figures, it lies upon the party seeking security for its costs to demonstrate what those costs are. This is particularly the case where the figures put forward seem to be extraordinarily high when compared with the sums at stake and, generally. This is, after all, a fairly straightforward misleading and deceptive conduct claim. The area of real complexity will probably lie in the postponed issues attending quantification of damages. I would not like to think that the lawyers involved would overlook their responsibility to their client that costs incurred should be proportional to the amount at stake.

49 On the other hand, I am mindful that, as things now stand, there is little prospect that Melbourne Water, if successful, will recover any costs from Ipex. I do not understand that the Schwalb interests for whose benefit the litigation is being conducted, are proposing to provide a general security as did Volante. In these circumstances, the total costs paid and to be paid by Melbourne Water which, on the figures before me, could total about $8 million or more for the whole proceeding, will be irrecoverable. In these circumstances, I will not shrink from a generous assessment of the likely costs order which Melbourne Water might receive, but provided always that there is a rational basis for the assessment.

50 This said, I turn to the areas of activity adopted by Ms Harris.

51 This activity, from the point of view of Melbourne Water, must comprise its consideration of the statement of claim of Ipex and the preparation of its defence as well as matters as to particulars. In respect of the numerous failed drafts and its earlier defence, Melbourne Water has been the beneficiary of costs orders.

52 The actual costs incurred and those claimed for pleading activities are as follows:

53 For what this is worth, the pleadings are not long: the statement of claim is 19 pages and the defence 14 pages. Accepting that its commendable brevity is probably the result of much time and labour by the solicitors and the two counsel who signed the defence, I would expect the party-party costs involved in its preparation would be of the order of no more than $45,000. For the work generally grouped under this heading I would therefore allow $60,000.

55 This is an area where the lack of detail makes my task very difficult. I accept that it is desirable, even necessary, that instructions be obtained from witnesses in order to prepare the attacks upon the draft statements of claim, to prepare the defence and for the purposes of the mediation. I assume that part of these costs have been included in costs orders already made and that part would have been incurred as part of obtaining instructions for the pleadings. I have no knowledge as to the number of witnesses concerned[29] or whether they are true witnesses, in the sense that they are all candidates to be witnesses at trial. I have no knowledge of what was the area of relevance of their instructions or of the times involved.

56 Given the choice of rejecting this component as a cost not demonstrated or of making an informed guess, I would prefer, in fairness to Melbourne Water, to adopt the latter course. I allow $100,000 as the likely party-party costs and disbursements for this area of activity.

58 Doing the best I can, I would allow one day for preparation plus two days' attendance for two counsel and two solicitors. The daily rates for two counsel and two solicitors in items 83, 84 and 85 of the draft bill for future costs total $11,428. This, for two days plus the disbursements, produces a figure a little over $50,000 which sum I allow.

59 This item appears to be counsels' fees for appearing on interlocutory applications. Ms Harris makes the following claims for this activity:

60 This was a very puzzling item. In the AAR letter of instruction Ms Harris was told that this activity represents 18.5% of a total of $1,040,000 for counsels' fees.[30] This would represent $192,400. In her discussion,[31] Ms Harris says that she has had no regard to appearances relating to pleading disputes. She does not say what is the deduction she makes for this. It may be that this represents $152,900 being the difference between $192,400 and the actual costs claimed of $39,500. I am, of course, aware that there have been numerous interlocutory appearances[32] and my impression is that most of them were concerned with pleadings and that costs orders have already been made for these.

61 I am aware of no good reason why counsels' fee slips are not available for inspection or at least a summary of the number of appearances by each counsel could have been given. Notwithstanding my concern not to disadvantage Melbourne Water, I am reluctant to act upon mere assertions unsupported by detail.

62 The daily rate for two counsel upon an interlocutory application in the draft bill is $7,500. While I do not wish to be taken as giving any approval to the attendance of two counsel on many of those occasions when nothing of substance was to be debated, I will allow three days for two counsel, $22,500.

63 I have already dealt with disbursements for witnesses and mediation. The balance claimed is $21,869 which I will allow in full.

65 The figures are entirely unsubstantiated. They represent over half of the solicitors' time and 48.8% of the solicitors' total charges to their client. They represent 24.6% of the charges of counsel. In her affidavit in response, Ms Harris says only that, having regard to the fact of 30 directions hearings, "It is to be expected there will be a significant level of general case conduct".[33] The item appears to relate to contact and correspondence between the solicitors for Melbourne Water and the other solicitors, the client and the Court.

66 It does not appear that Ms Harris has much confidence that these items would be allowable on a party-party taxation. I am faced again with the unpalatable choice of allowing nothing for this unsubstantiated item or selecting a figure based on my general impression of what has happened over the past five years. I will adopt the latter course and allow $50,000.

67 The total figure for past costs on a party-party basis should therefore be as follows:

68 I have been provided with a draft bill of party-party costs prepared by Ms Harris to which has been attached the response of Ms Dealehr. This document, to which I have added my allowances, is attached as an appendix forming part of this judgment.

69 By way of explanation, I make a number of general observations as to particular items and groups of items. I observe generally that the security is to cover the preparation for a trial of liability only. I have over the past years acquired a considerable familiarity with the issues and some of the evidence to be led. My strong impression is that the factual assumptions given to Ms Harris as a basis for her costing are gross exaggerations.

70 The claim in this case is based upon suggested misleading and deceptive representation as to the number of help desk calls which had been received in the past and which therefore should have been allowed for in the Ipex tender price. The facts underlying the making of the representations are the contents of the information provided in the documentary material provided to tenderers. While there will be an issue about what the tenderers might or should have made of this information, this is not likely to require the examination of many documents. Likewise, the number of help desk calls actually dealt with by Ipex during the period of its contract is not likely to be seriously in issue. The suggested falsity of the representations alleged in paragraph 8 of the statement of claim will probably depend largely upon the content of the Unisys report and its relevance to the suggested representation and a comparison between this and the Ipex experience, to the extent that the figures are comparable. The defence of Melbourne Water largely comprises a series of denials. Positive averments appear in paragraphs 4, 6 and 7. An examination of these pleas does not cause me to expect a large number of documents will be deployed at the trial on liability. And yet, Ms Harris was told to prepare the bill on the basis there would be 10,000 documents discovered by each party.[34] It is likely that this instruction, like others, was on the basis of a trial or trials on all issues. The assessment of Ipex is that it will discover some 1,500 documents with 4,500 pages and a like number by Melbourne Water. I would not expect the defendant to discover more than 2,000 documents totalling 6,000 pages for the first trial.

71 Before I descend to the detail, I should also observe that Ms Dealehr took little, if any, issue as to the applicable rates which Ms Harris applied in the draft bill. I, too, will follow this course. Attention, therefore, shifts to the volume of work to which these rates were applied.

(i) Melbourne Water request for particulars[35]

73 The request is dated 10 April 2008 and Melbourne Water no longer contends that the work in connection with its preparation[36] should be included in the draft bill of future work. It is, however, instructive inasmuch as the now abandoned items demonstrate the exaggerations to which I have referred and which cause me to approach the Melbourne Water claims generally with considerable caution. In the draft bill it is said to comprise 10 pages/30 folios and the claim in items 2-9 is for $1,213 for solicitors' work and $9,000 for counsel. An examination of the document in question on the court file shows that it comprises two paragraphs containing nine requests for the "usual particulars" and one further request. The document occupies two pages plus the Court heading. The assertion, now abandoned, that the unsuccessful party might be ordered to pay over $10,000 for this routine document is fanciful. The particulars, as yet undelivered, are also expected by Melbourne Water to occupy ten pages. Counsel for Ipex told me that this as yet undelivered document comprises three pages. I have adjusted the draft bill accordingly.

74 I have accepted the Ipex assessment of its own number of discoverable documents notwithstanding that I would have thought it is a generous estimate. The draft bill assumes full perusal of all discovered documents. Having regard to the issues in this case, I would expect that the vast number of these documents would be peripheral and would not require full perusal for each page. For example, the contract between Ipex and Melbourne Water occupies some hundreds of pages of which, perhaps a dozen, will require careful analysis for the purposes of this proceeding. I accept that 60% of the discoverable pages will require less than a full perusal by the Melbourne Water lawyers.

75 The draft bill assumes 14,600 documents or 58,400 pages. The figure in the bill has been adjusted to reflect my expectation that discovery for the liability trial will not involve anything like 40,000 pages. I allow 6,000 pages which I consider more than sufficient.

76 I accept Melbourne Water's expectation that it is realistic in this case to expect four more directions hearings. I would expect, however, that not more than two of them would warrant the attendance of senior counsel.

(v) Melbourne Water expert witnesses_[40]_

77 I have Melbourne Water's statement that it proposes to use two IT witnesses at the rate of $475 per hour. I do not expect a forensic accountant would be required for the liability trial. I expect that the reports of these witnesses would not exceed 60 pages in the aggregate. To the extent that the reports may be longer, I would expect that the core would not exceed my estimate. Ms Harris' report on this application provides an example of this. Her report, together with annexures, comprises some 85 pages, a matter of which I make no criticism. The substance of the report, which required detailed consideration, occupied only about 20 pages. In item 52 I have accepted the Melbourne Water estimate that the statements including annexures, for copying purposes, would be 52 pages per witness, but for two witnesses only.

(vi) Melbourne Water lay witnesses_[41]_

78 For present purposes I assume that witness statements will be ordered for lay witnesses. I suspect that the Melbourne Water assessment of the number of these witnesses is fixed on the basis of a trial of all issues. Notwithstanding this, I will act upon its assessment that nine lay witnesses will be called. I assume the average length of the witness statements will be 10 pages.

79 It might be helpful to the parties if I record that my present disposition is that there be no lay witness statements for the preliminary trial. This might help to contain the costs of preparation for trial. For the same reason, I shall endeavour to bring some restraint upon the size of the court book.

80 I make the same assumption as to the requirement that witness statements will be used in this trial. I have accepted the assessment of Ipex that it will call three witnesses whose statements will, on average, total 15 pages each.

81 I allow five days' preparation and the first day of trial only.

82 This is a difficult item for which no detail or justification is offered. This is a discretionary item to be allowed under R63.48 to provide a proper remuneration to solicitors for work, such as the collating and sorting of evidence, which is not covered by the other items in the bill.[45] It is customarily fixed, I am informed, on a global basis having regard to the matters referred in the rule and the amount may be affected by matters such as the complexity of the case and the degree to which the solicitors used counsel for work which they might otherwise have performed. I am mindful of the fact that I have allowed $50,000 for general case conduct in the past costs assessment. For the most part, the actual work on the case in the future has been assessed on an item basis and I have formed the impression that counsel have been extensively used and beyond the norm. The total allowed for solicitors' work is about $154,000. I will allow a surcharge of 60% on the solicitors' work for this item. A proper allowance under this item is therefore $93,000.

83 The total of costs allowed for future work is therefore $428,699.44. This, together with my allowance of $304,369 for past costs, produces a grand total of costs on a party-party basis up to and including the first day of trial of $733,068.44.

84 Counsel for Ipex urged me to apply a discount of 20% to this figure as I have in other cases. To my mind, the appropriate discount is 10% only, producing a cost figure of $659,761.60. I arrive at this discount on the basis that there is a risk, albeit in this case a small one, that the parties will compromise their differences before trial and, further, that some of the costs may not be incurred. As I have mentioned, this is a case where there is no prospect that Ipex will be able to meet any order as to costs. The security offered should, therefore, to a very large extent, indemnify Melbourne Water for my assessment of the costs orders which it might receive in due course.

85 I will therefore order that Ipex provide security for the costs of Melbourne Water up to and including the first day of trial in the sum of $660,000.

Drawing request for further and better particulars - allow 30 folios/10 pages

Paid Senior Counsel (allow $600/hour and $6,000/day exc of GST)

Paid Junior Counsel (allow $300/hour and $3,000/day exc of GST)

Copy to file and serve, for counsel(2) and defendant - 50 pages

Perusing the plaintiff's lists of discovered documents - assume 30 documents listed per page producing 330 pages/990 folios

Trial listed for February 2009 is a split trial on all issues but for quantification of loss and damage, categories of documents have not been agreed to between the parties - allow 1500 documents listed @ 30 documents listed per page producing 50 pgs/150 folios

Attending to inspect the plaintiff's discovered documents - (estimated at 10,000 documents) - allow solicitor attending for 12 hours

Perusing plaintiff's discoverable documents - assume 10, 000 documents at 3 pages/document. Claimed at 2 folios per page for 30,000 pages = 60,000 folios

Allow 1500 documents at 3 pgs/document - 4500 pgs - claim 2 folios per page and allow 40% @ $4.00 (full persual) and 60% at scanning @ 1/4 perusal rate in absence of scale item for scanning = $14,400 + $5,400

Perusing defendant's discoverable documents - assume 14,600 documents at 4 pages/document. Claimed at 2 folios per page for 58,400 pages = 116,800 folios

Allow 1500 documents at 3 pgs/document - 4500 pgs - claim 2 folios per page and allow 30% @ $4.00 (full perusal) and 70% at scanning @ 1/4 perusal rate in absence of scale item for scanning assuming 10% documents common with Plaintiff's discoverable documents) = $10,8000 + $6,300

Drawing and engrossing list of the defendant's documents - assume 30 documents listed per page producing 487 pages/1461 folios@$32.20

Drawing and engrossing list of the defendant's documents - allow 1500 documents listed @ 30 documents listed per page producing 50 pgs/150 folios

Copy to serve, for counsel(2) and for defendant - assume

Copy to serve, for counsel(2) and for defendant - 4 x 50 pgs

Copy discovered documents for defendant and plaintiff for counsel's brief - assume 10,000 pages for each counsel

Unnecessary to provide to counsel hard copy where proper to provide electronic copy on CD or DVD

Directions Hearings - allow 1 in light of trial scheduled for 16 Feb 2009

Brief to counsel to appear on interlocutory application - 4

Brief to counsel to appear on interlocutory application

Attending counsel with brief - allow junior counsel only

Unnecessary for senior counsel to attend as routine directions hearing

Attending instructing counsel on hearing - allow 2 hours each hearing

Attending instructing counsel on hearing - allow 1 hour

No Orders or Directions have been made for the parties to provide witness statements as such, no provision should be made for witness statements and a NIL amount for work in this respect is appropriate, however, in the event witness are ordered, the following figures are appropriate:

Deft's Expert Witness statements - Assume 3 Expert witnesses, 2 IT Experts (average $475/hour exc GST), 1 Forensic Accountant (allow $500/hour exc GST)

Deft's Expert Witness statements - Assume at best 1 Expert witnesses, being IT Expert only in light of split trial on all issues but for quantification (allow $400/hour exc GST),

Attending to engage expert witnesses - allow 2 attendances on each witness - total 6 attendances

Attending to engage expert witness - allow 2 attendances

Copy documents for provision to each expert - allow 25,000 pages

Unnecessary to send voluminous hard copy documents - allow 300 documents or can be sent by CD or DVD

Paid Fee to expert witnesses - Assume 2 experts @ 475/hour (exc GST) each for 145 hours, 1 expert @ $500/hour for 145 hours

Paid Fee to expert witness - allow 50 hours @ $400.00

Perusing expert's reports - assume 50 pages/150 folios each report for 3 experts

Perusing expert's report - assume 30 pages/90 folios

Copy reports for counsel (2) and defendants (3) - total of 750 pages

Copy reports for counsel (2) and defendants - total of 90 pages

Special letter to experts with plaintiff's expert reports for comment (3)

Special letter to expert with plaintiff's expert report for comment

Perusing the reports of the plaintiff's experts - assume 3 experts with reports of 50 pages/150 folios each

Perusing expert's report - assume 30 pages/90 folios

Copy reports of plaintiff for provision to experts - assume 3 experts and reports of 50 pages each - allow 450 pages provided to each of the defendant's 3 experts

Copy reports of plaintiff for provision to expert - 30 pages

Attending conferring with expert witnesses taking instructions regarding plaintiff's statements - allow 2 hours for each of the 3 witnesses

Attending conferring with expert witness taking instructions regarding plaintiff's statements - allow 2 hours

Drawing draft statements - assume 2 pages/5 folios/statement plus expert report to be annexed (allowing 50 pages for each report) - 3 witnesses

Drawing draft statements - assume 2 pages/5 folios/statement plus expert report to be annexed (allowing 30 pages)

Attending counsel appointing conference with experts (6)

Attending counsel appointing conference with experts (2)

Paid Senior Counsel - Conferring with expert witnesses re their reports - 1 day per expert

Paid Senior Counsel - Conferring with expert witness re report - 1/2 day @ $6000 per day

Paid Junior Counsel - Conferring with expert witnesses re their reports - 1 day per expert

Paid Junior Counsel - Conferring with expert witness re report - 1/2 day @ $3000 per day

Short attendance on witnesses appointing conference with counsel (3)

Short attendance on witness appointing conference with counsel

Conference with counsel - solicitor attending conferring with expert witnesses and counsel - allow 3 days @ 8 hours/day

Conference with counsel - solicitor attending conferring with expert witnesses and counsel - allow 1/2 day i.e .5 hours

Engrossing statements - assume 2 pages/5 folios/statement plus expert report to be annexed (allowing 50 pages for each report)

Engrossing statements - assume 2 pages/5 folios/statement plus expert report to be annexed (allowing 30 pages for each report)

Copy - assume 52 pages/statement - copies to serve, for counsel (2) and for witness - total 624 pages

Copy - assume 32 pages/statement - copies to serve, for counsel (2) and for witness - total 96 pages

Deft's Witness statements - Assume 9 lay witnesses

Witness statements - Assume 3 lay witnesses in the absence of details

Attending conferring with witnesses taking instructions - allow 4 hours for each of 9 witnesses

Attending conferring with witnesses taking instructions - allow 2 hours for each of 3 witnesses

Drawing draft statement - allow 30 pages/90 folios/statement

Drawing draft statement - allow 20 pages/60 folios/statement

Paid Senior Counsel - Settling witness statement (9) - allow 10 days

Paid Senior Counsel - Settling witness statement (3) - allow 1 day

Paid Junior Counsel - Settling witness statement (9) - allow 30 days

Paid Junior Counsel - Settling lay witness statement (3) - allow 2 days

Short attendance on witnesses appointing conference with counsel (9)

Short attendance on witnesses appointing conference with counsel (3)

Attending counsel appointing conference (9 witnesses, 2 counsel)

Attending counsel appointing conference (3 witnesses, 2 counsel)

Conference with counsel - solicitor attending conferring with counsel and witnesses settling witness statements - allow 8 hours for each witness

Conference with counsel - solicitor attending conferring with counsel and witnesses settling witness statements - allow 5 hours for each witness

Copy to serve, for counsel (2) and witness - allow 15 pages/statement - total 540 pages

Copy to serve, for counsel (2) and witness - allow 10 pages/statement - total 120 pages

Perusing plaintiff's witness statements - allow 60 folios for each of 5 statements

Perusing plaintiff's witness statements - allow 45 folios for each of 3 statements

Copy for counsel (2) and lay witnesses (9) - allow 15 pages for each of 5 statements - 825 pages

Copy for counsel (2) and lay witnesses (3) - allow 15 pages for each of 3 statements - 225 pages

Special letter to witnesses with statements of plaintiff for instructions (9)

Special letter to witnesses with statements of plaintiff for instructions (3)

Attending witnesses taking instructions re plaintiff's statements - allow 2 hours for each of 9 witnesses

Attending witnesses taking instructions re plaintiff's statements - allow 2 hours for each of 3 witnesses

Court Book - plaintiff's court book will include pleadings, further and better particulars, services agreement, affidavit of documents and relevant documents

Attending counsel with instructions to advice on contents of court book

Attending counsel with instructions to advice on contents of court book

Attending conferring with counsel as to contents of court book - 8 hours

Attending conferring with counsel as to contents of court book - 1 hours

Attending negotiating contents of court book with plaintiff's solicitor - allow 8 hours of attendances

Attending negotiating contents of court book with plaintiff's solicitor - allow 1 hour of attendances

Attending examining court book when received - allow 2 hours

Attending examining court book when received - allow 1/2 hour

Copy court book for counsel (2) - assume 4,500 pages each

Unnecessary as Plaintiff to provide all necessary copies

Drawing and engrossing brief to counsel to appear on trial - assume 4 pages/16 folios

Drawing and engrossing brief to counsel to appear on trial - assume 4 pages/16 folios

Paid Senior Counsel - Preparation - allow 6 days, Appearances - allow 12 days

Paid Senior Counsel - Preparation - allow 4 days, Appearances - allow 1 day - Defendant has been informed that security will be provided for a reasonable sum from 29 May 2008 to the first day of the trial

Paid Junior Counsel - Preparation - allow 6 days, Appearances - allow 12 days

Paid Junior Counsel - Preparation - allow 4 days, Appearances - allow 1 day

Attending instruction counsel on hearing - solicitor engaged whole day - 12 days (2 solicitors)

Attending instructing counsel on hearing - solicitor engaged 1 day

Paid transcript fees - assumed shared and allowing $350/day

Paid transcript fees - assumed shared and allowing $350

Attending perusing transcript - allow 1 hour each hearing day

Attending perusing transcript - allow 1 hour each hearing day

Conference with counsel - solicitor attending conferring with after court each day - allow 1 hour each day

Airfares - 7 airfares - Sydney/Melbourne return - allow $500/fare

Instructions generally including care and attention, skill and responsibility

Instructions generally including care and attention, skill and responsibility

Costs & Disbursements excluding witness statements

[1] It is not clear whether the reference to interest is a reference to a legal interest or a commercial interest.

[2] Letter Henry Davis York to Allens Arthur Robinson dated 27 October 2008.

[4] Letter Freehills to the Supreme Court dated 26 October 2008.

[6] See cl 11.2(b) and, perhaps, 11.2(a)(i) and (v).

[8] Re Duomatic Ltd [1969] 2 Ch 365.

[9] Brick and Pipe Industries Ltd v Occidental Life Nominees Pty Ltd [1992] VicRp 68; [1992] 2 VR 279 at 314-19 per Ormiston J.

[10] See for example cl 11.2(a)(i) and (ii).

[12] See Schering Pty Ltd v Forrest Pharmaceutical Co Pty Ltd [1982] 1 NSWLR 286 at 292-3, per Helsham CJ in Eq; Re Diesel and Components Pty Ltd (Receivers & Managers Appointed) (1985) 9 ACLR 825 at 829 per McPherson J.

[13] Uvanna Pty Ltd v Tsang (1997) 72 FCR 502.

[14] (1997) 72 FCR 502 at 503.

[15] Osborne Computer Corporation Pty Ltd v Airroad Distribution Pty Ltd (1995) 37 NSWLR 382 at 385 per Rolfe J.

[16] As that expression is defined in s 9.

[17] (1985) 1 NSWLR 114 at 125.

[18] [1985] 1 Qd R 401.

[19] [1985] 1 Qd R 401 at 403.