LFDB v SM

Lump sum costs 4 The source of the Court's power to order lump sum costs is to be found in s 43(3)(d) of the Federal Court of Australia Act 1976 (Cth) and r 13.01 of the Federal Court Rules 2011 (Cth). The Court has a broad discretion in the matter, which nevertheless must be exercised judicially. Justice Davies helpfully summarised some of the primary guiding principles as to whether a lump sum costs order should be made in Royal v El Ali (No 3) [2016] FCA 1573 (Royal) at [10]: Whilst the Court has a broad discretion to award costs orders, the Court's preference, wherever it is practicable and appropriate to do so, is to make a lump-sum costs order in order to finalise the costs issue and avoid, where possible, potentially expensive and lengthy taxation of costs hearings: Federal Court of Australia Practice Notes, Costs Practice Note (GPN-COSTS) 25 October 2016, at [3.3] and [4.1]. The expense, time and delay involved in a taxation of costs are all matters to take into consideration in determining whether to fix costs, bearing in mind s 37M of the Federal Court of Australia Act 1976 (Cth) and the objective of facilitating the just resolution of disputes as quickly, inexpensively and efficiently as possible. The financial capacity of the party liable to pay the costs is also a consideration where the successful party is already likely to be out of pocket in respect of costs and taxation would add an additional unrecoverable cost. There is no particular characteristic of a case though which must exist before a gross sum costs order can be made: Australasian Performing Rights Association Ltd v Marlin [1999] FCA 1006. The power may be exercised whenever the particular circumstances of the case warrant it: Beach Petroleum NL v Johnson (No 2) (1995) 57 FCR 119 ("Beach Petroleum v Johnson") at 122-123. If a lump-sum costs order is to be made, the Court should be confident that the approach taken to the estimate of costs is logical, fair and reasonable. The Court should be astute to avoid both overestimating the recoverable costs and underestimating the appropriate amount, for example by applying an arbitrary discount to the amounts claimed: Beach Petroleum v Johnson at 123. 5 In addition, it might be noted that, in making a lump sum costs order, the Court is not required to engage in a detailed examination of the kind that would be appropriate in a formal taxation or costs assessment (see Bitek Pty Ltd v IConnect Pty Ltd [2012] FCA 506; 290 ALR 288 at [23]). 6 There is a long history of disputes between one or more of the applicants and the respondent which have taken up considerable time and resources in multiple courts in both Australia and New Zealand. Some of that history is described in my earlier judgment in LFDB v SM (No 3) [2017] FCA 80 at [17]-[49]. That history strongly favours the making of a lump sum costs order here. That will mean that the substantive proceedings are finalised as soon as practicable and will minimise the costs to the parties if the matter proceeds to an assessment as would appear to be inevitable given the parties' apparent inability to reach agreement on disputed matters. As was emphasised in Beach Petroleum NL v Johnson (No 2) [1995] FCA 1250; 57 FCR 119 at 120, the very purpose of the rule is to avoid the expense, delay and aggravation involved in protracted litigation arising out of a taxation of costs. 7 I also take into account the fact that even though it is not uncommon for a lump sum costs order to be made in lengthy and complex cases, when looked at in isolation, this particular case may not meet that description. Such an approach would, however, isolate the current proceedings between the parties from the wider history of disputation to which I refer. In any event, even in a simple case, a lump sum order may be appropriate to save the parties the difficulties and inconvenience of a formal assessment. 8 In my view, this is clearly an appropriate case to make such an order. I now turn to the issue of quantum. 9 I accept that it is open to the Court, when considering such an order, to have regard to any applicable scale of costs which regulates the recoverable amount on a party/party basis (see Seven Network Limited v News Limited [2007] FCA 2059 at [25(iv)-(v)] per Sackville J). 10 The respondent seeks a lump sum costs order in the amount of $154,034.69. That amount is supported by an affidavit affirmed by her instructing solicitor, Mr Damian Sturzaker on 8 June 2017. Mr Sturzaker also swore two earlier affidavits which provided information in support of the lump sum costs order in response to the Court's Costs Practice Note (GPN-COSTS). Mr Sturzaker is a solicitor with considerable commercial litigation experience. He has practised as a solicitor since 1989 and has had the conduct of many cases in superior and lower courts, including the High Court and the Federal Court. Based on his experience in recovery of costs in this Court, Mr Sturzaker opined that it was common to recover between 75 per cent and 85 per cent of solicitors' fees and 100 per cent of disbursements, including counsel's fees. He said that he considered that the respondent would be likely to recover at least 75 per cent of solicitors' fees on any taxation and 100 per cent of their disbursements, including counsel's fees. 11 Mr Sturzaker described the legal work undertaken by himself and various members of his team and their charge out rates, as well as the professional fees of Dr Ward SC who was retained to advise and appear for the applicants. He said that Dr Ward's fees fell within the range for senior counsel set out in the National Guide to Counsel Fees. 12 Mr Sturzaker also provided a broad breakdown of the legal fees into categories of solicitors' professional fees, counsel's fees and other disbursements. He acknowledged that the rates charged by him were outside the scale but he said that this was understandable having regard to the difficult model and complex issues raised in the substantive proceedings concerning the construction and application of the Trans-Tasman Proceedings Act 2010 (Cth). 13 Mr Sturzaker explained in his third affidavit that the quantum of the lump sum costs order sought took into account recent developments concerning the respondent's estimated costs claim to include work which had actually been done in the period leading up to the hearing, as well as estimated costs likely to be incurred by the respondent up to and including hearing, noting, in particular, the applicants' belated active participation in opposing the interlocutory application. 14 That is a reference to the fact that the applicants did not comply with orders made by the Court on 9 May 2017 for the timeous filing of any evidence and submissions in respect of the respondent's interlocutory application. This was not done until very recently. It is evident from an affidavit dated 3 July 2017 by Mr Gino Pignone, solicitor for the applicants, and the applicant's written submissions, that Mr Pignone was not retained in respect of the current matter until late June 2017. He said that the respondent had refused to agree to the hearing being adjourned despite his late involvement. He explained how on 30 June 2017 he contacted three costs experts and one agreed to assist. 15 Mr Pignone retained counsel, Mr Cutler, to act for the applicants. Mr Cutler prepared a brief outline of written submissions dated 3 July 2017 in opposing the interlocutory application. 16 The applicants submit that part of the reason for the late retention of lawyers in respect of this matter relates to proceedings before Jagot J on 23 June 2017 in which LFDB appeared in person in support of his interlocutory application in the Full Court proceedings involving an appeal from my judgment referred to above. That appeal is scheduled to be heard in the August Full Court sittings. The applicants sought a stay of the orders made by the Court on 9 February 2017, including the order that they pay the respondent's costs of the substantive proceedings. During the course of the hearing before Jagot J, her Honour expressed the view that the New Zealand freezing orders did not appear to prevent the retention of Australian lawyers in litigation in this country. Her Honour dismissed the stay application. Although reasons for judgment appear not yet to have been provided, it is evident from the transcript which is before me that her Honour considered that the stay was brought "fairly belatedly" and that there was "no case for a stay". Her Honour described the stay application as "hopeless". 17 Although the applicants are out of time, I granted leave for them to rely upon their outline of written submissions and two affidavits. Apart from the affidavit of Mr Pignone, the applicants also relied upon what purports to be an expert report by Mr Ross Nicholas affirmed on 3 July 2017. Mr Nicholas described himself as a solicitor primarily practising as a legal costs consultant. His expert report did not comply with the Court's Expert Evidence Practice Notes (GPN-EXPT). The same may be said in respect of Mr Sturzaker's affidavits. Nevertheless, having regard to the pressure of time under which Mr Nicholas' affidavit was prepared, that formality should be dispensed with on this occasion. 18 Mr Nicholas explained that he had been retained on the afternoon of 30 June 2017 to prepare a report in respect of the lump sum costs application and that he had reviewed the interlocutory application and the various affidavits of Mr Sturzaker sworn on 8 and 9 May 2017. It is evident that he did not review, prior to him finalising his affidavit, Mr Sturzaker's third affidavit affirmed on 8 June 2017. 19 Mr Nicholas opined that the respondent's application for a lump sum costs order suffered from the following difficulties: (a) he was unable to see why GST was included in the claims, given that the respondent was offshore. He acknowledged that GST may be payable on Dr Ward's fees because they have been charged to the instructing solicitors but he questioned why the applicants should bear that cost; (b) no costs agreement had been supplied as part of the evidence; (c) although he described Mr Sturzaker's estimate of 75 per cent to 85 per cent of solicitor's fees being recoverable as being "not entirely unreasonable", Mr Nicholas said that, based on his experience, when costs were drawn on the Federal Court Scale, the amount estimated for costs and disbursements is generally 70 per cent to 80 per cent. He also said that it was "unrealistic" to assert that 100 per cent of disbursements would be allowed and that he expected that some percentage would be taxed off the disbursements, however, he did not offer any figure; (d) Mr Nicholas considered that the amount sought was excessive in respect of the lump sum costs application itself and that, based on his experience, the drawing of a bill of costs would be no more than approximately $10,000, with a filing fee of $435.00. He also questioned the reasonableness of retaining Senior Counsel on a costs application; and (e) Mr Nicholas challenged the claim that Dr Ward's fees fell within the range in the National Guide, because he said that the top hourly rate stated there is $740.00 per hour and the daily rate for appearance is $6,400 per hour. 20 Each of those issues will now be dealt with. 21 (a) GST Claim: As Mr Nicholas frankly agreed, GST was payable on Dr Ward's fees because they are a taxable supply by him to his instructing solicitor. There was no evidence before the Court to indicate that the solicitors' fees included any amount in respect of GST. Indeed, the figures given by Mr Sturzaker's affidavits estimating the fees were expressly stated to be exclusive of GST, including counsel's fees. Accordingly, I reject the applicant's contentions on this topic. (b) No costs agreement: There is no substance in this criticism having regard to the well-established principle that any failure to comply with a cost disclosure requirement under the Legal Profession Act 2004 (NSW) is only relevant to an assessment of costs as between solicitor and client, not the costs as between parties (see Royal at [31] and the other authorities referred to there by Davies J). In any event, I am satisfied that there is a sufficient explanation of the legal fee arrangement in [25] and [26] of Mr Sturzaker's first affidavit. (c) Percentage claims for solicitors' fees: As noted above, Mr Nicholas gave evidence of his experience that the amount estimated for costs and disbursements in the Federal Court is generally 70 per cent to 80 per cent. I consider that 75 per cent, which is in the middle of that range and at the lower end of the range supported by, and ultimately used by, Mr Sturzaker is inappropriate. I do not accept Mr Nicholas' evidence that a range of 70 per cent to 80 per cent is appropriate for disbursements, including counsel's fees. I am prepared to allow an estimate of 100 per cent in respect of those fees. (d) Costs of lump sum costs application: The estimate of the costs of the costs application is $18,320.00. As noted above, Mr Nicholas opined that the cost of drawing a bill of costs is normally no more than $10,000 with a filing fee of $435.00. He also questioned whether it was reasonable to retain Senior Counsel on the costs application. I do not accept Mr Nicholas' evidence on this matter. Having regard to the history of disputation between these parties, I think it highly likely that any formal bill of costs would be challenged and give rise to further legal costs well in excess of the $10,000 estimate to draw a bill of costs. In addition, I reject the suggestion that it was unreasonable to retain Senior Counsel on the application. That criticism ignores the history of the protracted and multiple litigation between these parties. (c) Dr Ward's fees: Even accepting that Dr Ward's fees are higher than those in the National Guide, I do not consider that they are unreasonable having regard to the complex and technical issues presented by the substantive proceedings, as well as the wider history of the matter. 22 The applicants also claim that there are a number of difficulties which made it hard for the Court to assess the lump sum costs application. Dealing with each of those matters in turn: (a) as to the claimed differences in the amount invoiced to the client, as opposed to the amount claimed, Mr Sturzaker's affidavit dated 8 May 2017 sufficiently explains that difference at [23] to [32]; (b) as to the criticism that Mr Sturzaker has not set out the actual or estimated number of hours which have been spent, there is no requirement under Annexure A to the Costs Practice Note (GPN-COSTS) to do so. I am satisfied that the costs summary provided by Mr Sturzaker is adequate for the particular purpose of this interlocutory application, bearing in mind that the whole point of a lump sum costs order is to obviate the need for a detailed bill of costs; (c) as to the criticisms relating to the absence in evidence of copies of the costs of any costs agreements and the suggestion that there is some form of "contingency", I am satisfied that Mr Sturzaker has adequately explained the fee agreements with both his firm and Counsel in his first affidavit at [25] and [26]. The indemnity principle does not require that the costs have been paid, but it does require that there be a legal liability to pay costs (see Wentworth v Rogers [2006] NSWCA 145; 66 NSWLR 474 at [126]. I am satisfied that that is the case here (see generally Royal at [37] ff); (d) as to the complaint that costs have not been allocated to Senior and Junior Counsel so as to make it difficult to assess whether there has been an appropriate division of "skill, care and responsibility", it appears from the evidence before the Court that no costs are sought in respect of Junior Counsel. Having regard to the complexity of the issues raised in the substantive proceedings, I accept that Dr Ward's fees are reasonable and appropriate, including in respect of the current interlocutory application. 23 For all these reasons, I consider that this is an appropriate case to make a lump sum costs order which, taking into account all the matters raised above, should be in the amount of $154,034.69.

Release of security 24 The applicants oppose release of the amount paid as security for costs in accordance with the Court's order dated 14 March 2016 on the basis that this should not occur before the appeal to the Full Court is heard in August. I respectfully disagree. There is no reason why the security should not be released now, bearing in mind the respondent's rights to enjoy the fruits of her victory and, in particular, having regard to the recent rejection by Jagot J of the applicants' stay application. 25 The security costs order was expressed in terms which provided for a set off of any costs in favour of the respondent against the costs ordered in favour of the applicants in proceedings before Gleeson J, No NSD 353 of 2015 and the security to be applied only to payment of the balance. The applicants have not yet taken any steps to pursue the costs order in their favour in those proceedings. I do not consider that that justifies the security not being released now.

Conclusion 26 Orders will be made accordingly. There is no reason why costs should not follow the event. The respondent has been successful in her interlocutory application and should have a costs order in her favour. The costs are included in the lump sum costs order. I certify that the preceding twenty-six (26) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Griffiths.

SCHEDULE OF PARTIES NSD 1665 of 2015 Applicants Fourth Applicant: SE Fifth Applicant: BWP