Louise Haselhurst v Toyota Motor Corporation Australia Limited trading as Toyota Australia

Background facts

1. These class action proceedings were commenced by statement of claim dated 10 November 2017. They involve a claim for damages as a result of faulty airbags placed in a number of vehicles manufactured by the defendant, Toyota Motor Corporation Australia (TMCA). Since then six other class actions have been commenced against different motor vehicle manufacturers.
2. The pleadings are closed and the common questions determined (Takata Air Bags Class - Common Questions [2018] NSWSC 1868). The plaintiff has filed its lay and expert evidence. The defendant is yet to file its evidence but it is imminent and it will include a number of lay and expert witnesses. Liability and quantum are in issue.
3. Security had already been provided in two tranches totalling $450,000, $200,000 from 10 November 2017 to 18 May 2018 and a further $250,000 from 19 May 2018 to 31 October 2018.
4. The parties have unsuccessfully attempted to resolve issues but to no avail. Open offers have been made on both sides.
5. The matter is fixed for hearing for eight weeks commencing 3 May 2021. A mediation is due to take place on or before 15 March 2021. The plaintiff's claim is funded by a litigation funder, Regency Funding Pty Limited.
6. Both parties have filed evidence from costs experts who seek to determine as best they can for the purposes of a security for costs motion and having regard to estimates of the defendant's costs provided by Mr Peter Butler of Herbert Smith Freehills the costs the defendant would be likely to recover on an assessment for the period from 1 November 2018, should a costs order be made in the defendant's favour following the hearing of the common questions.

Legal Principles

1. This Court has power to order security for costs against a plaintiff in representative proceedings pursuant to s 67 of the Civil Procedure Act 2005 (NSW) and its inherent jurisdiction. It also has power to stay proceedings if security is not provided (De Jong v Carnival [2016] NSWSC 347 at [42]ff (Beech-Jones J).
2. In determining the quantum of an order for security the Court does not set out to give a complete and certain indemnity to a defendant and there is no principle that entitles a defendant to be given security for the whole of its recoverable costs (CBX2 Pty Ltd v National Australia Bank (No 2) [2015] NSWSC 1969 at [54] and [55]).
3. Rather the Court embarks on a process of estimation which embodies to a considerable extent, necessary reliance on the "feel" of the case after considering relevant factors (see, e.g., Bryan E Fencott & Associates Pty Ltd v Eretta Pty Ltd (1987) 16 FCR 497 at 515 (French J)).
4. Whilst the Court requires some evidentiary basis for the estimate of costs, a precise estimate is not required. The Court is not fixing a gross sum amount, and should not decline to act on the evidence before it because the evidence was not the "best evidence" available to support the application (Pathway Investments Pty Ltd & Anor v National Australia Bank Limited [2012] VSC 97 at [35]-[38]; DIF III Global CoInvestment Fund LP v BBLP LLC [2015] VSC 484). Although a discount for exigencies may be required (see, e.g., Pathway Investments Pty Ltd & Anor v National Australia Bank Limited [2012] VSC 97 at [55]).
5. Further the Court is to stand back from the amounts claimed and the precise assessment of costs to consider the case on its particular facts and will make an order that is just and reasonable in the circumstances (Wollongong City Council v FPM Constructions Pty Ltd [2004] NSWSC 523 at [50]).
6. In embarking on such a process the Court is not required to attempt its own detailed costs assessment but can take a "broad brush" approach having regard to the information before it, seeking to prevent (on the one hand) prejudice to the party paying costs by overestimating the costs and (on the other hand) injustice to the party recovering costs by adopting an arbitrary "fail safe" discount across the board on the costs claimed (see, e.g., Allstate Life Insurance Co v ANZ Banking Group Ltd (1995) 134 ALR 187 at 199-201; Ashington Capital Pty Ltd v Parissen Capital (Project X) Pty Ltd [2012] NSWSC 410 at [17]-[18]; Pathway Investments Pty Ltd & Anor v National Australia Bank Limited [2012] VSC 97 at [25]).
7. An important factor informing the exercise of the Court's power to order security for costs where a person such as a litigation funder stands behind the plaintiff is that those who seek to benefit from litigation should bear the risks and burdens that the process entails (see, e.g., Fiduciary Ltd v Morningstar Research Pty Ltd (2004) 208 ALR 564 at 584 [83] (Austin J)).
8. However in Allen Dodd as Trustee for the Dodd Superannuation Fund v Shine Corporate [2018] QSC 40 Martin J noted that the involvement of a funder may loosen slightly the stringency which normally attaches to the calculation of the appropriate security amount.
9. It has also been accepted that where multiple defendants have a common interest but are separately represented the Court has a discretion to make an order having the effect that the unsuccessful plaintiff does not pay full costs in respect of all defendants. That may be achieved by disallowing the costs of the additional defendants or reducing the costs payable by the plaintiff in respect of each defendant (ACN 115 918 959 Pty Ltd v Hoeys Lawyers Pty Ltd & Ors (Costs Ruling) [2018] VSC 508 at [39]; see also Local Democracy Matters Inc v Infrastructure NSW (No 2) [2019] NSWCA 118 at [21]-[23]; Andrianakis v Uber Technologies (Ruling No 1) [2019] VSC 850).
10. The defendant points out similar amounts have been awarded in other significant, complex representative proceedings (see, e.g., Money Max Int Pty Ltd (Trustee) v QBE Insurance Group Ltd (2018) 358 ALR 382 at [8(a)], [189]; Pathway Investments Pty Ltd & Anor v National Australia Bank Limited [2012] VSC 97; Webster (Trustee) v Murray Goulburn Co-Operative Co Ltd (No 4) [2020] FCA 1053 at [66], [141]; David William Pallas v Julie Ann Pallas as trustees for the Pallas Family Superannuation Fund v Lendlease Corporation Limited, NSW Supreme Court proceedings 2019/00122037).

The Evidence

1. The defendants relied upon the affidavits of Mr Peter Butler of 15 June and 10 September 2020 (ultimately sworn on 3 November 2020) and also two affidavits from Ms Valerie Edith Higinbotham (an expert) dated 26 June and 11 September 2020.
2. The plaintiff relied upon affidavits of Mr Damian Scattini of 17 August, 25 September and 4 November 2020 and the affidavits of Mr Ian Ramsey-Stewart (an expert) of 21 August and 25 September 2020.
3. No witnesses were required for cross examination nor were any objections taken to any aspect of the evidence.
4. In his first affidavit of 15 June Mr Butler, a partner of Herbert Smith Freehills and the solicitor for the defendants, set out the procedural history and the open offers made by both sides ([10]-[35]). However he pointed out that TMCA has the most vehicles subject to recall and as a result has played a lead role compared to some of the other defendants ([18] and [72]).
5. He outlined the work undertaken between 1 November 2018 and 13 March 2020 and from 14 March 2020 and to the conclusion of the hearing in 2021. I should also note that Mr Butler's assessment as set out in this affidavit was based upon a 12 week hearing.
6. He then identified the work done in the period up to 13 March and broke that down into various categories of work: analysis and preparation of pleadings; document collection, review and production; preparation for and attendance at case management hearings; hearing regarding common questions; and client reporting and miscellaneous. The rates in each category of work for counsel and solicitor are also set out ([38], [41], [45], [49], [51] and [53]. Although each of those categories are separately quantified the total fees including counsels' fees is $3,878,858 ([54]).
7. Mr Butler estimated the fees that TMCA is likely to incur from 14 March 2020 to the conclusion of the common questions. He deals with the preparation of both lay and expert evidence. Again he identifies the various other areas requiring work, such as discovery, client reporting, mediation, and of course both the preparation and conduct of the hearing. Again although the categories are broken down the total fees to the end of the trial is estimated to be $5,845,666 ([87]). To that needs to be added disbursements which include expert fees of $1,040,246.
8. In his affidavit of 10 September (ultimately sworn on 3 November) he indicated he made an adjustment for a reduction in the hearing from 12 weeks to 8 weeks ([3]).That caused him to revise his estimates downwards ([3]).
9. He gave greater details in relation to the proposed lay and expert witnesses ([5]-[7] and [8]-[13]). His expectation is that TMCA will bear the costs of at least four expert witnesses (identified), although there is presently no agreement in place with the other defendants ([10]).
10. Bearing in mind his first affidavit was sworn in June this affidavit responds in part to the plaintiff's expert Mr Ramsey-Stewart. To that extent Mr Butler asserted that more work has been done than was estimated ([11]). He also identified fees he said were applicable to the Registration/ Class Closure and which were not included ([20]).
11. Ms Higinbotham is an expert. She was asked in her letter of instructions to express a view as to the likely outcome of an assessment of costs should a costs order be made in TCMA's favour for the two periods 1 November 2018 to 13 March 2020 and from 14 March 2020 to the end of the hearing of the common questions.
12. Her first report is dated 26 June 2020. In explaining her reasoning process she made adjustments against the Costs Assessment Rules Committee (CARC) guidelines ([20]) as explained and what she described as 'market rates' (see, e.g., [30.3]). She considered the hourly rates, work done and charges of counsel and solicitors and then each of those components for the two specified periods.
13. She applied various percentage discounts to the calculations for counsel and solicitors ([40]-[43]) and a total percentage discount was identified at [44]. She then dealt with disbursements and data management fees at ([45]-[48]). Her view was that the total amount of $2,572,302 was a fair and reasonable amount for the costs to 13 March 2020 ([49]).
14. She performed a similar exercise for the period after 14 March. For the period up to the end of the hearing she assessed as fair and reasonable the amount of $5,183,490 ([65]).
15. In her second report of 11 September 2020 she was asked to comment on the information in Mr Butler's second affidavit and those of Mr Scattini (16 August) and Mr Ramsey-Stewart (24 August). This of course required Ms Higinbotham to address Mr Butler's revised calculations.
16. She reaffirmed her assessment for the period to 13 March ([13]) but revised the amount to the end of the hearing (8 weeks) to $3,182, 217 ([15]).
17. She responded to and was critical of Mr Ramsey-Stewart, the expert for the plaintiff. Essentially she commented that he engaged in unexplained or blanket reductions and did not employ the correct test when dealing with counsels' fees ([17]-[20]).
18. She then pointed out that he appears to agree with her that a 25-35% reduction was necessary but he then resorts to his "Adjusted Fees Methodology" which required multiple reductions on account of a 15% "large firm reduction", a further reduction of 15% for unnecessary and duplicated work and finally a reduction of 35% purporting to agree with Ms Higinbotham ([21]).
19. Before criticising his methodology she explained that this leads to the total of HSF charges being reduced to 46.96% of the incurred costs and estimated costs ([22]). She rejects his reductions ([23]). She then points out what she says are errors in his calculations ([24]-[35]). Her conclusion was that the likely outcome of an assessment on the ordinary basis from 1 November 2018 to 13 March 2020 was $2,572,302, and $3,662,470 to the conclusion to the hearing, totalling $6,234,772.
20. For the plaintiffs Mr Scattini in his two affidavits while he accepted the defendants "have co-ordinated their strategies" and in the first disputed that Mr Butler had in fact taken out of his calculations the costs of the Registration Motions as alleged ([15]-[22]). He then commented on the states of the expert evidence and other matters. In the second he referred to the open offer made ([8]-[10]). The plaintiffs in an attempt to settle the security issue offered the total sum of $11.3m (inclusive of the amount of $3.8m already paid) to all defendants, which was rejected. In the balance of his affidavit he returned to the issue of the costs of the Registration Motions ([11]-[16]) and the experts ([17]).
21. Mr Ramsey-Stewart is the costs expert deployed by the plaintiff. He was asked to address the questions posed to Ms Higinbotham in her letter of instructions at [8] and [9]. He was of course supplied with relevant affidavit material.
22. In his first report of 24 August he stated that in his experience the costs assessor has a broad degree of discretion in determining what are to be considered the "fair and reasonable costs" ([27]) and deal with what can be described as general objections to any itemised bills of costs ([29]). He outlined what he asserted were numerous deficiencies in Mr Butler's first affidavit ([35]). Without attempting to be comprehensive, they were said to include a lack of specificity so far as documentation is concerned, for example, no costs agreements or a schedule of tax invoices were provided. As a result he was unable to analyse whether for example members of the legal team were duplicating work ([35(i)]).
23. The lack of detail in his opinion prevented Ms Higinbotham from being able properly to analyse the materials for appropriate reductions ([36]) and nothing short of an itemised bill would permit an accurate quantification of the costs ([38]). He then purported to analyse Ms Higinbotham's calculations and made it plain he disagrees with her approach to the various charges (see, e.g., [54]). He asserted a blanket 25% reduction in counsels' fees is appropriate ([54]).
24. As for solicitors he disagreed again with Ms Higinbotham's 25-35% reduction and criticised it as a "blanket one off reduction" ([57]). What is called for in Mr Ramsey-Stewart's view is a three staged reduction process. Stage one, 15%, is called the "large firm reduction". At the heart of this reduction is the presumption that large firms overwork matters and do not make use of economy of scale ([57(a)-(b)]).
25. Stage two, another 15%, is to reduce the possibility that excessive time is being charged for. And stage three (purporting to agree with Ms Higinbotham) is a further 25-35% but say 30%.
26. As far as disbursements are concerned he purported to agree with Ms Higinbotham ([59]-[61]).
27. He then performed a series of calculations and expressed the view that the range of fair and reasonable costs would be in the range of $3,881,000 to $4,478,000 exclusive of GST ([93(a)]). He also quantified class closure applications at $450,000.
28. In his report of 25 September he reviewed the more recent materials from Mr Butler and Ms Higinbottom.
29. He noted that Mr Butler had reviewed downwards his estimate from $10,764,770 to $8,737,518 ([10]). Mr Ramsey-Stewart also reduced his estimate to $3,552,000 to $3,884,000 ([12]).
30. As a result of Mr Butler's affidavit he reduced his discount of counsels' fees from 25% to 20% ([16]). For reasons he purported to explain he assumed that 20% of total costs are attributable costs related to registration ([25]). He responded in some considerable detail to the criticisms of Ms Higinbotham as to his methodology ([37]-[44]).

The defendant (applicant)'s submissions

1. The defendant submits that the "further reductions" applied by Mr Ramsey-Stewart to Mr Butler's estimates are impermissible. It submits Mr Ramsey-Stewart's reduction for its costs of the class closure and registration motion and Court of Appeal proceedings ignores Mr Butler's clear evidence that those costs were excluded from his estimates and calculations.
2. It criticises Mr Ramsey-Stewart's proposed reductions in respect of lay and expert evidence. It submits such reductions duplicate reductions Mr Ramsey-Stewart already applied to account for work overlap, duplicated costs, excessive time and unreasonable hourly rates. It submits the reductions are based on Mr Ramsey-Stewart's views that because there is some uncertainty about future evidence costs security should not be provided for those costs (or should be heavily reduced) until they have been incurred, but that misunderstands the very purpose of security for costs. It submits Mr Ramsey-Stewart also considered that there may be cooperation between the defendants on lay evidence but there has never been any suggestion that will be so.
3. It submits that once Mr Ramsey-Stewart's impermissible "further reductions" are put to one side the difference between the experts is not significant.
4. It submits Ms Higinbotham's approach should be preferred because Mr Ramsey-Stewart's approach is problematic in that it ultimately amounts to three separate reductions directed to potential duplication and inefficiencies, the net effect of which is to reduce recoverable fees below 50%.
5. Mr Ramsey-Stewart's reduction to counsels' fees is said to be focused on the fact that the defendant engaged two senior counsel but ignores the rates actually charged and the fact one was appointed very recently in the course of this proceeding. The plaintiff's legal representatives have also conceded that their rates tend to be higher than the defendant's.
6. The defendant also submits that the proceedings will be the largest collective legal action commenced in Australia to date, the defendant has the most vehicles subject to recalls and has accordingly played a lead role, and the proceedings give rise to several complex questions.
7. It submits the size and complexity of the proceedings is reflected in the plaintiffs' costs of the seven proceedings to date (in excess of $12 million) in circumstances where hardly any costs would be expected to have been incurred by the plaintiffs on discovery or lay evidence.
8. It submits that while there may be some efficiencies arising from there being multiple manufacturer defendants across the proceedings responding to common questions, those efficiencies should not be overstated; serious and complicated allegations are made about each particular manufacturer and each manufacturer will prepare its own position for mediation and defence to the proceedings. And any costs savings are likely to be achieved by defendants other than TMCA.
9. Finally, it submits that the level of information it was criticised for not providing is not required for the purposes of a security for costs application.
10. The defendant is content for security to be paid in tranches.

The plaintiff's submissions

1. The plaintiff submits that the absence of detail in Mr Butler's evidence means a number of assumptions put to Ms Higinbotham and upon which her opinions were based were inadequate and as such Mr Ramsey-Stewart's discounts should be accepted.
2. The plaintiff submits the number of lawyers engaged by the defendant is disproportionate and on any view is not reasonable and there is an "obvious virtual certainty" of duplication of work.
3. The plaintiff submits there is no basis for the defendant's submission that it has played a lead role to date or will continue to do so. It says there is seemingly no agreement between the defendants to that effect and Nissan has principally taken the lead role. There is nothing that would stop each defendant purporting to claim they would be taking the lead role and claim security for costs accordingly and it is asserted that it is incumbent on the defendants to share expenses where possible.
4. The plaintiff submits that Mr Butler's calculations in relation to the work performed "in relation to the analysis and preparation of pleadings during the period 1 November 2018 to 13 March 2020" related to amendments to the Third Further Amended Statement of Claim which were minor and could not reasonably have cost $36,273.
5. The plaintiff submits that the defendant has incurred a disproportionate amount of costs on discovery and estimates for further discovery should be left out of a prospective security for costs assessment unless and until there is more certainty around the tasks that will have to be completed and when (if ever).
6. The plaintiff submits it should not be required to pay security for the cost of three counsel attending mediation because that is excessive.
7. The plaintiff further submits that costs in respect of registration ought to be excluded and despite Mr Butler's assertions there remains obvious intermingling of registration costs and costs claimed by the defendant (see Mr Scattini's second affidavit at [15]). This it is submitted should give rise to a significant discount.
8. The plaintiff submits that it is highly unlikely that in circumstances where there is a significant commonality of issues each defendant would be permitted to recover the full value of duplicated expenditure when the defendants are in the same interests and this should be taken into account in the application of the broad brush approach.
9. Finally the plaintiff submits security should be ordered in tranches because of all of the unknowns. It says that any security ordered at this stage should be in respect of work done to the conclusion of the defendant's evidence, the scope of which is unknown at this stage.

Consideration

1. The entity providing the security is a litigation funder, Regency Funding Pty Limited. It is funding this litigation as a commercial enterprise seeking a return on its investment. It has agreed to provide for security and to pay any adverse costs order (see Mr Butler's first affidavit at [26]-[27]). There is no suggestion the Court should not accept this assertion.
2. There is no doubt this is a large and complex piece of litigation. Although there is always a certain amount of posturing it may be accepted that both sides presently consider they each have either a good case or a good defence. Liability and no doubt quantum are seriously in dispute.
3. On the basis of the evidence currently before the Court the defendant is it seems self-appointed leader of the defendants. It has the most vehicles subject to recall and may be expected to have the most group members of the seven proceedings. However there is no agreement as such and questions such as how many experts will or will not be permitted to be deployed is yet to be a matter for discussion at a case management hearing if it is necessary.
4. Criticism is made by both sides as to the assessments undertaken by the respective experts. Ms Higinbotham amongst other things is critical of the staged discount approach adopted by Mr Ramsey-Stewart and he likewise is critical of her approach.
5. What is clear is that although it may be accepted both experts have the requisite expertise some of the criticisms on both sides are warranted. It was entirely appropriate for Mr Ramsey-Stewart to seek to ensure no unreasonableness in the charges in respect of which security is sought. Equally it was incumbent on Ms Higinbotham to ensure a fair and reasonable assessment was before the Court.
6. I have however some problems with both expert assessments. I am not satisfied that either can in fairness do any more than apply a very crude analysis based on their respective appreciation of the issues and their experience of the legal market.
7. Unsurprisingly Mr Butler has performed his assessment up to the conclusion of the hearing of the common questions. In a case such as this, that is an ambitious task when the evidence of the defendants is yet to emerge. The full extent of the conflict of lay and expert evidence is yet to be exposed. That is why I am of the view that payment in tranches is appropriate, however at this stage of the proceedings I do not consider it is either fair or reasonable to set security through to the conclusion of the trial of the common questions. That is not to say that security should only be fixed after costs have been incurred as has been suggested by Mr Ramsey-Stewart in his 24 August affidavit ([83]-[90]). That is unnecessary and contrary to the usual practice in such applications.
8. Both Ms Higinbotham and Mr Ramsey-Stewart applied discounts to Mr Butler's estimates of actuals. What I am not satisfied is necessary nor adequately explained is Mr Ramsey-Stewart's rather idiosyncratic staged reduction process starting with his "large firm reduction". Such a starting point is it seems to me impermissible for any number of reasons. It betrays an underlying prejudice or assumption or mindset which detracts from what should be as far as possible an objective analysis. It presumably is meant to mean that large firms charge excessive fees. Without any detailed analysis such a proposition only needs to be stated for its unreasonableness to be exposed.
9. Ms Higinbotham's approach is not only fairer but conventional.
10. At the outset I should say that I am satisfied that Mr Butler has already reduced his estimates by deducting the costs recoverable for the class closure and registration in the Court of Appeal. Mr Butler made his position quite clear in his first affidavit at [21]. He is experienced in his field and I accept his explanation at [40]-[54].
11. I am by no means satisfied that Mr Ramsey-Stewart has otherwise adequately explained his rather heavy handed reductions. His criticism based to some extent on the speculative or premature nature of some of the proposed charges is odd to say the least. This is not for example a lump sum cost application and because it is to a large extent a prognosis it is by its very nature speculative and in anticipation of costs to be incurred.
12. Whilst there may well be an overlap or indeed TMCA's experts may be the only or lead experts the lay evidence for each defendant will be quite separate and distinct.
13. On balance I prefer the assessment undertaken by Ms Higinbotham. The approach undertaken by Mr Ramsey-Stewart lacks both logic and in my view fairness. Indeed it would lead to the defendant recovering only 47% of the fees estimated or incurred. The criticism of counsels' fees I regard as equally unfair. In a piece of litigation as complex as this case the retention of two senior counsel when viewed in historical context is I am satisfied reasonable.
14. However it may well be that when the full extent of the evidence and hence the triable factual and legal issues are finally exposed savings can be achieved. That is why I consider tranches to be appropriate but not at this stage to the end of the trial.
15. I should also mention that during the hearing counsel for the plaintiff, Ms Holmes, also invited me to take into account the agreed outcome for security for costs in the Subaru proceedings. In my view it is not possible to make much use of an agreement in a related but different matter. Rather it is necessary to focus as I have upon the evidence in this case.
16. The regime submitted by the defendant is for 50% of the estimate calculated by Ms Higinbotham be paid within two weeks of the orders being made, with other amounts to be paid in the middle of January 2021 and by 12 April 2021. In my view I would reduce the amount determined by Ms Higinbotham by a further 10% for exigencies (in addition to the 15% discount already applied by the defendant). That reduces the amount to $4,770,000. I would however order that one third of that be paid by 31 December 2020 and another third be paid by 31 January 2021 (either into court or by way of a suitable financial instrument). That is $1,588,410 be paid by 31 December and a further $1,588,410 be paid by 31 January. I would make no other order for the time being but the defendant is of course able to apply for further security as it may be advised.
17. I invite the parties to provide a short minute of order reflecting these reasons and also my ruling in relation to the costs of the defendant's 8 August 2018 notice of motion.

DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 16 November 2020