Consideration
27 Section 43 of the Federal Court of Australia Act 1976 (Cth) (FCA Act) provides that the Court or a Judge has jurisdiction to award costs in all proceedings before the Court other than proceedings in respect of which an Act provides that costs must not be awarded. The award of costs is in the discretion of the Court or Judge: FCA Act, s 43(2).
28 Rule 40.02 of the Rules relevantly provides:
40.02 Other order for costs
A party or a person who is entitled to costs may apply to the Court for an order that costs:
…
(b) be awarded in a lump sum, instead of, or in addition to, any taxed costs; or
(c) be determined otherwise than by taxation.
29 Division 40.2 of the Rules deals with taxation of costs, however that Division will not apply if an order has been made under r 40.02(b) that costs be awarded in a lump sum instead of any taxed costs.
30 The Costs Practice Note was issued by the Chief Justice on 25 October 2016, and took effect from that date. It applies to all proceedings in this Court, subject to any specific statutory or other legal considerations that may apply in proceedings within certain areas of the law (such as class actions, fair work matters, and native title matters). As the Costs Practice Note expressly acknowledges, it must be read together with the FCA Act, including in particular the overarching purpose provisions in s 37M and s 37N of that Act. Further, the Costs Practice Note should be understood as a guide rather than an inflexible set of rules: see Coshott at [21].
31 The principles set out in the Costs Practice Note emphasise that the procedure for determining the quantum of costs for a party successful at a final hearing should not be delayed and should be as inexpensive and efficient as possible: see paragraph [3.1]. While this principle is expressed to apply to the determination of costs following success at a final hearing, the approach should be no different in relation to the determination of the quantum of the costs of interlocutory applications once that quantum falls to be determined after the proceeding is finished (see r 40.13).
32 Paragraph [3.3] of the Costs Practice Note relevantly provides that "[f]or those costs issues that are unable to be resolved by negotiation and require the involvement of the Court, the Court's preference is to avoid, where possible, the making of costs orders that lead to potentially expensive and lengthy taxation of costs hearings". To this end, the Court "will seek to adopt, and will encourage parties to utilise, the appropriate use of sophisticated costs orders and procedures", including in particular lump sum costs orders. Accordingly, "[t]axation of costs hearings should be the exception and be confined to those matters that have genuinely been unable to be otherwise resolved or determined."
33 Paragraph [4.1] of the Costs Practice Note states:
The Court's preference, wherever it is practicable and appropriate to do so, is for the making of a lump sum costs order.
34 Of potential importance in the present case, this paragraph contains the following footnote:
Although it may be applied in certain appropriate circumstances, the lump sum costs procedure is not intended to apply generally to interlocutory costs orders unless otherwise ordered. Parties are reminded of timing considerations in respect of interlocutory costs orders (see r 40.13 of the Federal Court Rules).
35 Paragraph [4.2] makes it clear that the utilisation of a lump sum costs procedure remains at the discretion of the judge, and that parties have a right to be heard on the appropriateness of utilising such a procedure. Parties are encouraged to notify the Court and all other parties of their views on the appropriateness of utilising the lump sum costs procedure at the earliest practicable stage in the proceeding: paragraph [4.8].
36 The timing of any lump sum costs procedure is dealt with in paragraphs [4.3] to [4.7] of the Costs Practice Note, which distinguishes between "regular" costs scenarios and "simple" costs scenarios. In the former, the Costs Practice Note contemplates that the costs hearing dealing with lump sum costs will take place within 6 weeks following the determination of the costs entitlement question, or as soon as possible at any other time considered appropriate by the judge. In the latter, being "particularly short and simple cases" where straightforward costs orders are sought, the costs hearing dealing with lump sum costs may take place during closing submissions at trial, before or immediately following the determination of the costs entitlement question.
37 A Registrar may be involved various capacities in a lump sum costs procedure, including as a consultant or referee: paragraph [4.9].
38 Paragraphs [4.10] to [4.20] of the Costs Practice Note set out the procedure for determining costs on a lump sum basis. In broad terms, this involves the costs applicant filing a "Costs Summary" addressing and verifying the matters specified in Annexure A of the Costs Practice Note, following which the costs respondent may file a "Costs Response" summarising the categories of any disputes arising in respect of the Costs Summary. Both the Costs Summary and the Costs Response are in the form of an affidavit. The parties may then be given leave to file short written submissions addressing the law as to costs on relevant issues.
39 The deponent must verify in the Costs Summary, among other things, that:
(a) the applicant is not claiming more than the applicant is liable to pay for costs and disbursements (that is, reflecting the indemnity principle);
(c) the calculations made are correct;
(d) the matters noted are a fair and accurate summary of the costs and disbursements that the applicant is entitled to claim; and
(e) the amounts claimed are capable of further verification through source material.
40 The information that must be set out in the Costs Summary relevantly includes:
(a) the amount of the lump sum sought, and how it has been calculated including if any discounts have been applied;
(b) a summary of the categories of the work fairly and reasonably incurred in the conduct of the litigation, together with an estimate of the proportion that each category of work constitutes of the total costs claimed;
(c) in respect of each person who has performed costs work the subject of the claim, a summary of the person's hourly rate and total hours worked, together with an estimate of the proportion of the total sum claimed attributable to that person;
(d) a summary (with any applicable hourly and/or daily rates) of disbursements fairly and reasonably incurred in the conduct of the litigation, including fees charged by counsel and any expert witness, together with an estimate of the proportion of the total sum claimed attributable to counsel fees;
(e) a clarification of the amount of any "skill, care and responsibility" claimed and how it has been calculated, and the bases for it being claimed;
(f) where applicable, a description of any special or unusual costs arrangements underpinning the costs claimed (e.g. conditional fee agreements, pro-bono arrangements or fixed fee arrangements);
(g) whether the amounts claimed fall within or outside the amounts permissible for any item under the Scale, the National Guide to Counsel's Fees, or the National Guide to Discretionary Items in Bills of Costs, as relevant; and
(h) any special features of the case which may impact the assessment of costs or any other relevant and important matters not mentioned above
41 The taxation process, on the other hand, is governed by Div 40.2 (rr 40.12 to 40.35) of the Rules, and is addressed in paragraphs [5.1] to [5.21] and Annexure B of the Costs Practice Note. I put to one side the short form bill procedure under Div 40.3 that applies to winding up proceedings under the Corporations Act 2001 (Cth) and migration appeals. The steps in a taxation process under Div 40.2 include:
(a) the preparation, filing and service of a bill of costs for taxation;
(b) the provision by a taxing officer of an estimate of the approximate total for which the certificate of taxation would be likely to issue (without making any determination on the individual items in the bill);
(c) if a party interested in the bill objects to the estimate, the filing of a notice of objection together with the payment of security for the costs of taxation;
(d) if a Registrar so directs, the conduct of a confidential conference of the parties before a designated Registrar;
(e) in some cases, a provisional taxation by a taxing officer, in the absence of the parties;
(f) the giving of notice by a Registrar that the bill is to be taxed;
(g) the filing of notices of objection identifying each item or part of an item to which objection is taken (and stating briefly but specifically why the item or part of the item should be disallowed and the amount by which it is contended that the item should be reduced);
(h) the filing and service of a notice of response stating whether each objection is admitted or opposed (and stating briefly but specifically why the item or part of the item should be allowed and why the objection should be dismissed);
(i) the conduct of the taxation by the taxing officer, who has a range of powers including to summon and examine witnesses, direct or require the production of books, papers and documents, or issue subpoenas;
(j) the issue of a sealed certificate of taxation; and
(k) potentially, the hearing of any application for review of the taxation and any consequential orders.
42 It is apparent that the taxation process under Div 40.2 will often be longer and more intensive than the lump sum costs process. As is recognised in paragraph [5.7] of the Costs Practice Notice, "[e]mbarking on a long form bill of costs process may result in a lengthier and more costly process than the lump sum process set out in this practice note". In Clipsal Australia at [15], Perram J noted that "the modern process of taxation is very onerous and few have the fortitude to see a taxation through to its conclusion".
43 Paragraph [5.12] of the Costs Practice Note contemplates that the estimate of the taxable costs will be made by a registrar "wherever possible, within 30-60 days of the filing of the bill of costs, depending on the complexity of the bill". The Costs Practice Notice also expresses an expectation that, in the light of the guidance provided by the estimates process and the use of alternative dispute resolution processes such as mediation, notices of objection and taxation hearings will be required "infrequently".
44 Both parties accepted that r 40.02(b) confers a broad discretion to order that costs be awarded in a lump sum. That discretion must of course be exercised judicially by reference to considerations relevant to its exercise and upon facts connected with the litigation. Further, the power should be exercised in the way that best promotes the overarching purpose to facilitate the just resolution of disputes according to law and "as quickly, inexpensively and efficiently as possible": s 37M(1)(b), (3).
45 The purpose of a power such as that conferred by r 40.02(b) has been described as being "to avoid the expense, delay and aggravation involved in protracted litigation arising out of taxation": Beach Petroleum NL at 120; Seven Network Limited v News Limited [2007] FCA 2059 at [25] (Sackville J); Paciocco at [15].
46 In my view, two important considerations bearing on the exercise of the discretion to make a lump sum costs order in the present case are efficiency and fairness. In relation to efficiency, the issue is whether the lump sum costs process will minimize the time and costs incurred by the parties as compared to embarking on a taxation process. In relation to fairness, the issue is whether the lump sum costs process will provide an outcome that is logical and reasonable and sufficiently accurate to do justice between the parties. Each of those considerations must be balanced and considered in the context of the particular circumstances of the case, including the complexity of the litigation and the scope and magnitude of the costs involved.
47 Paciocco involved costs orders made in favour of a party on the final hearing of an appeal, and the question of whether a lump sum costs order should be made or whether the costs disputes should proceed to taxation in the ordinary course. Chief Justice Allsop, Besanko and Middleton JJ observed at [17] that the Costs Practice Note provides for the Court to "take such steps as it considers necessary to ensure that it has the requisite level of detail to make a costs determination that is fair, logical and reasonable and to avoid orders that lead to potentially expensive and lengthy taxation hearings". Their Honours continued (at [18]-[20]):
We emphasise that in making a lump sum award of costs, the Court in undertaking the task of assessing costs is not precluded from undertaking a close inquiry of costs relating to a particular issue or category of costs, should the Court consider it appropriate to do so: see e.g. Hudson v Sigalla (No 2) [2017] FCA 339 at [30] ('Sigalla'). The Court is able to adopt its own procedures in inquiring into costs, is able to be flexible in how it conducts that inquiry, including by the obtaining of suitable assistance whether by referee's report or other reporting, and is able to acquire the level of detail needed to make a determination that is fair, logical and reasonable.
Whilst the Costs Practice Note now suggests that most cases should have a lump sum costs order approach applied unless there is some characteristic that would make it unsuitable, a lump sum costs order is not mandated in all instances. In all cases it is a matter for the Court to exercise the discretion given to the Court by the Federal Court Act and the Rules as appropriate: see Sigalla at [18]-[19].
There is no particular characteristic that a case must possess for it to be suitable for the making of a lump sum costs order. Particular circumstances that may make a lump sum order especially appropriate include where in a large and complex commercial matter it would save the time, trouble, expense and aggravation of a taxation; where a taxation would require the parties to consume additional time and incur additional expenditure prolonging already protracted litigation; and generally to avoid an ongoing, counter-productive dispute as to costs, in the interests of achieving finality.
48 In deciding that it was appropriate to make a lump sum costs order, the Full Court in Paciocco rejected as unwarranted a concern that had been expressed by the parties liable for costs "that a lump sum determination of costs will deny the Court the ability to closely scrutinise the costs in a way that would ordinarily occur through the process of taxation": at [29]. The Full Court accepted that, if a lump sum procedure were adopted in that case, "the Court would be able to apply the appropriate and necessary level of scrutiny" to the relevant costs, and "would not be constrained in any way from ensuring that it had sufficient information to make a logical, fair and reasonable determination": at [30]. In particular, the Court was "not precluded from adopting appropriate steps and procedures which may include undertaking a close inquiry of costs relating to a particular issue or category of costs … should the Court consider it appropriate to do so": at [31].
49 In Paciocco, the Full Court relied on evidence from a costs consultant that a taxation of costs "would be inefficient and costly, and there would be significant time and costs savings achieved by adoption of a lump sum award of costs": at [28]. In the present case, the applicant did not ultimately rely on any evidence of that nature for the purposes of its application. Nevertheless, for the following reasons, I consider that it is practicable and appropriate for the costs of the interlocutory applications to be awarded on a lump sum basis, and there is nothing in the particular circumstances that would make such a process unsuitable.
50 First, in relation to the timing of the application for a lump sum costs order, I do not consider that it is significant that such an application was not made at the time that the costs entitlement was determined. In circumstances where r 40.13 of the Rules provides that the costs of an interlocutory application cannot be taxed until the proceeding is finished, it cannot be expected that the party in whose favour such costs are awarded would initiate a lump sum costs process at that time. This is consistent with the footnote to paragraph [4.1] of the Costs Practice Note, which recognises that the lump sum costs procedure is not intended to apply generally to interlocutory costs orders unless otherwise ordered, and reminds parties of the timing considerations in respect of interlocutory costs orders. Ordinarily, the quantification of interlocutory costs would be addressed together with any final costs awarded once the proceeding is finished. The applicant in the present case accepted that, if an application were to be made for a lump sum costs order in relation to any final costs awarded at the end of the proceeding, it would be possible to deal with the interlocutory costs orders on the same basis notwithstanding that an application for a lump sum cost process had not been made at the time of those orders: compare, in this regard, LFDB at [18]; Clipsal Australia at [31].
51 In light of the settlement reached by the parties, it does not appear that there will be any order made in respect of the costs of the proceeding generally. Nevertheless, the Costs Orders made in the applicant's favour on the interlocutory applications remain to be dealt with. There is no evidence before the Court to suggest that the applicant has unduly delayed raising the issue of lump sum costs after the settlement was reached and the proceeding "finished" for the purposes of r 40.13 of the Rules. While it might be less common for the costs of an interlocutory application to be addressed discretely by means of a lump sum costs process (see, for example, Saizeriya Co Ltd v Peregrine Management Group Pty Ltd [2005] FCA 1174 at [31] (Kenny J)), such a process can be applied "in certain appropriate circumstances", to use the language contained in the footnote to paragraph [4.1] of the Costs Practice Note. It is not in dispute that the Court has power to make a lump sum costs order notwithstanding that an earlier costs order envisaged taxation in the ordinary way: Beach Petroleum NL at 120.
52 While the Council submitted that it had proceeded on the basis that there was neither a lump sum costs order nor an application for such an order, no particular prejudice was identified as flowing from any assumption that might have been made by the Council as to the process by which the costs entitlement would be quantified, other than that it might have informed the parties' negotiations in relation to costs in circumstances where the Council asserts that a lump sum costs process will result in a "markedly different" outcome from a taxation (a matter which I will address below).
53 Secondly, the interrelated nature of the interlocutory applications in respect of which the Costs Orders were made involved the preparation of multiple affidavits, the filing of written submissions, and the conduct of a hearing over two days before a Judicial Registrar. The making of a lump sum costs order is not limited to large complex commercial matters: see e.g. Playcorp Group of Companies Pty Ltd v Peter Bodum A/S (No. 2) [2010] FCA 455 at [3] (Middleton J); Coshott at [19]. In the circumstances of this case, I do not consider that a taxation of the costs of the interlocutory applications would necessarily be a "relatively straightforward process", as the Council submitted. Conversely, it is speculative to suggest that the lump sum costs process will be highly contested and will end up being more protracted than a full taxation. Ultimately, no evidence was led in support of or against either proposition.
54 While the interlocutory applications were contested, it is not possible to make any finding that the parties have engaged in, or are likely to continue to engage in, "trench warfare" of the kind referred to in Coshott at [19] and LFDB at [16]. On the contrary, the parties have since been able to reach a full settlement of the substantive dispute. Nevertheless, some assessment can still be made of the likely time and cost of a taxation process and a lump sum costs process respectively. The Council cannot, on the one hand, suggest that it would vigorously contest any lump sum costs process and, on the other hand, that it would readily agree to a costs estimate without requiring a full taxation (even accepting that the latter would have involved the production by the applicant of an itemised bill of costs).
55 The Council placed some reliance on the approach adopted by Middleton J in Playcorp at [19]-[23], who proceeded on the basis that the parties in that case would conduct the taxation process in a manner consistent with the overarching purpose and that unnecessary conflict would not necessarily occur between the parties on a taxation. Similar considerations have been referred to in cases such as ACN 074 971 109 (as trustee for the Argo Unit Trust) v National Mutual Life Association of Australasia Limited [2013] VSC 137 at [14]-[16], [42]-[43] (Wood AsJ) and Wilson v Bauer Media Pty Ltd [2018] VSC 161 at [15] (John Dixon J). However, apart from the fact that these decisions either preceded or were not guided by this Court's current Costs Practice Note, each case will ultimately turn on its own particular facts and circumstances. Further, in the present case, no expert evidence was ultimately placed before the Court in relation to the predicted time and cost that might be involved in a taxation process or a lump sum costs process respectively.
56 Having regard to the Costs Practice Note and the provisions governing the taxation process and the lump sum costs process, together with the general circumstances of the proceeding, I consider that the lump sum costs process is likely to save time and costs and be more efficient than the taxation process in determining the costs entitlement of the applicant in relation to the Costs Orders.
57 Thirdly, I do not consider that the lump sum costs process is less likely to reach a fair and reasonable outcome in relation to the quantification of the applicant's entitlement to costs. As the Full Court noted in Paciocco, the Court can take appropriate steps in a lump sum costs process to acquire the level of detail necessary to make a costs determination that is fair, logical and reasonable. The Costs Summary and Costs Response are capable of exposing any significant contested issues in relation to the costs to which the applicant claims to be entitled.
58 The particular concerns foreshadowed by the Council relating to the inter partes costs allowable in respect of documents such as the affidavits filed by the applicant on the interlocutory applications (which the Council contends should be assessed on a "task" or per folio basis by reference to item 2 of Sch 3 of the Rules, as opposed to a time costing basis) are capable of being raised and considered in the lump sum costs process. As Middleton J noted in Playcorp at [5] and [7], while a lump sum costs order "applies a much broader brush than would be used on a taxation of costs", it nevertheless involves consideration of "the basic principles applicable to a taxation of costs" and the scale of costs "provide[s] assistance in fixing an appropriate gross [or lump] sum" (in this regard, see also Seven Network Limited at [25]-[30]).
59 Further, I have decided to refer the determination of the lump sum costs amount to Registrar Edwards, who, as is evident from these reasons, has considerable familiarity with each of the interlocutory applications giving rise to the Costs Orders.
60 I am therefore not satisfied that there would be any risk of prejudice or injustice to either the Council or the applicant in determining the costs as a lump sum rather than by a taxation of costs (cf. Beach Petroleum NL at 123).
61 Fourthly, I also take into account the position of the applicant, who it is accepted is impecunious and will not receive the benefit of the settlement sum until such time as the costs dispute is finalised and final orders are made to dismiss the proceeding. This is an additional factor that militates against requiring the parties to engage in a potentially time-consuming and costly process of taxation of costs.
62 Accordingly, I consider that it is appropriate to order that the applicant's costs of the interlocutory applications should be awarded as a lump sum pursuant to r 40.02(b) of the Rules, and that directions should be made for the filing of material in accordance with paragraphs [4.10] to [4.20] of the Costs Practice Note.
63 The determination of a lump sum costs award can be performed by a Judge, including with the assistance of a Registrar, or can be delegated to a Registrar. As the Full Court explained in Paciocco at [39] (see also Clipsal Australia at [17]; LFDB at [17]):
Whilst a judge of the Court can hear and determine a lump sum costs award, the determination of the lump sum quantum can be referred to a registrar pursuant to s 35A(1)(h) of the Federal Court Act, and r 3.01(1)(b) of the Rules, read with item 221 of Schedule 2. Alternatively, a registrar may provide assistance with the lump sum hearing: Costs Practice Note at [4.9]. If necessary a separate issue could be referred to a referee by a judge pursuant to s 54A of the Federal Court Act and r 8.6 of the Rules.
64 In the present case, I consider that it is appropriate to direct that the assessment and determination of the lump sum costs be carried out by a Registrar. As the Full Court noted in LFDB at [17], "[t]his will not become a 'mini taxation' as there are important differences between the protracted process involved in the conduct of a taxation of costs under Division 40.2, and the more general assessment under FCR 40.02(b)".
65 Finally, I have considered whether it is appropriate to order that the Council pay the applicant's costs of this hearing on the question whether a lump sum costs award should be made. I note that an order to that effect was made in Paciocco, with those costs also being awarded in a lump sum to be quantified together with the other lump sum costs. However, there was no formal interlocutory application made by the applicant, and the orders proposed by the applicant did not seek any order in relation to the costs of this hearing. Further, the making of a further costs order might run the risk of further complicating the resolution of the existing costs dispute between the parties. On balance, I do not propose to make any order as to the costs of the hearing on the lump sum costs issue.