What happened
The underlying dispute concerned whether ANZ's late-payment fees on consumer and commercial credit-card accounts were unenforceable penalties. That litigation was conducted as two related class actions with almost identical claims, the same solicitors and litigation funder. The proceedings were managed so that work done in the earlier Andrews proceeding (VID 811 of 2010) was reused in the Paciocco matter. After a trial before Gordon J in which the applicants were largely unsuccessful, two appeals were brought and heard together by the same Full Court (Allsop CJ, Besanko and Middleton JJ).
On 8 April 2015 the Full Court dismissed Mr Paciocco's appeal with costs (VID 141 of 2014, Order 1) and allowed ANZ's appeal (VID 149 of 2014), setting aside the primary judge's "no costs" order and substituting an order that the applicants pay ANZ's costs of the first-instance proceeding (subject to a limited carve-out for specifically ordered interlocutory costs). On 5 June 2015 the Full Court varied that costs order to exclude ANZ's costs of preparing an expert report of Dr Finch and ordered the Paciocco parties to pay 95% of ANZ's costs of an interlocutory application they had filed. Those earlier reasons are reported as Paciocco v Australia and New Zealand Banking Group Limited [2015] FCAFC 50 and Australia and New Zealand Banking Group Limited v Paciocco [2015] FCAFC 78.
By interlocutory applications filed on 31 March 2017 in each appeal, ANZ sought orders that the existing costs orders in its favour be awarded as lump sums under r 40.02(b) of the Federal Court Rules 2011 (Cth). ANZ relied on two affidavits of Alyson Ashe, a legal costs consultant, which explained the likely length and expense of a taxation in a large, complex commercial file and the mechanisms available under the lump-sum procedure to permit targeted scrutiny of disputed categories, including the substantial costs incurred in relation to the evidence of Mr Inglis. The Paciocco parties opposed the applications on three main bases: (1) the June 2015 reasons had, they said, fixed taxation as the quantification method and preserved their "normal rights on taxation"; (2) ANZ had not shown that a lump-sum process could fairly assess the expert costs; and (3) joint quantification with the Andrews proceeding risked an impermissible global assessment.
The Full Court heard the interlocutory applications on the papers and delivered judgment on 15 September 2017. It rejected each of the objections, held that lump-sum orders were appropriate, ordered that the costs of the interlocutory applications themselves be paid by the Paciocco parties on a lump-sum basis, directed that quantification be conducted jointly with the costs of the related appeals and the Andrews proceeding (but without a global approach), and referred the quantification and all further directions to Middleton J (or any other judge dealing with the Andrews lump-sum application). The Court emphasised at [32] and [35] that while joint hearing was efficient, each proceeding's costs must still be assessed by reference to costs "fairly and reasonably incurred" in that litigation.
Why the court decided this way
The Court's reasoning begins with the statutory source of power. At [13]-[14] it cites s 43 of the Federal Court of Australia Act 1976 (Cth), which expressly authorises an award of costs "in a specified sum", and r 40.02(b), which permits a lump-sum order instead of or in addition to taxed costs. The purpose of the rule, drawn from Beach Petroleum NL v Johnson (No 2) (1995) 57 FCR 119 at 120, is "to avoid the expense, delay and aggravation involved in protracted litigation arising out of taxation" ([15]).
The Court then places central weight on the Central Practice Note and the Costs Practice Note (GPN-COSTS) issued by the Chief Justice on 25 October 2016. At [16] the judgment records that the Costs Practice Note states the Court's preference, "wherever it is practicable and appropriate", is to make lump-sum orders "so as to finalise costs and avoid potentially expensive and lengthy taxation hearings". Taxation "should be the exception" and be confined to matters that cannot otherwise be determined ([16]). The guiding principles are reduction of delay and cost ([16]).
The Full Court expressly rejected the Paciocco parties' reading of the June 2015 reasons. At [24]-[25] it explains that the earlier observations about "normal rights on taxation" were made only in the context of refusing an inquiry into costs and were not a direction that taxation must occur. Nothing in those reasons precluded a later lump-sum order if otherwise appropriate.
On the merits, the Court noted at [27] that the proceeding had already been described by the Full Court as "a large and factually and legally complex commercial case". Ms Ashe's evidence demonstrated that taxation would be inefficient and costly, whereas a lump-sum process would allow earlier identification of disputed items, opportunities for ADR, and Court directions for any necessary deeper inquiry ([30]). The Court accepted Ms Ashe's opinion that a Bill of Costs in the traditional form is not well suited to complex litigation and that the lump-sum procedure enables the Court to obtain whatever level of detail is required ([30]-[31]).
The Paciocco parties' concern about expert costs (particularly Mr Inglis) was met by the statement at [18] and [31] that a lump-sum award does not prevent "a close inquiry of costs relating to a particular issue or category of costs" if the Court thinks it appropriate. The Costs Practice Note and Hudson v Sigalla (No 2) [2017] FCA 339 at [30] were cited for this proposition.
Finally, the interrelated nature of the litigation supplied a positive reason for joint determination. The two class actions and the Andrews proceeding had overlapping evidence and issues; the trial judge had deliberately used work from Andrews in the Paciocco trial ([34]). Joint quantification would avoid the "difficulty and expense of allocating the cost of each item of work between the various proceedings" and reduce the risk of inconsistent approaches ([35]), provided assessment remained proceeding-specific. The Court expressly disclaimed any intention to assess costs on a "global basis" ([32]).
Costs of the interlocutory applications followed the event and were themselves ordered on a lump-sum basis ([37]).
Before and after state of the law
Before the 2016 Costs Practice Note, lump-sum costs orders were available but not the default position. Beach Petroleum (1995) had established that the power existed and that its purpose was to avoid the expense and delay of taxation, yet in practice taxation remained the ordinary course in most matters. Decisions such as Hudson v Sigalla (No 2) [2017] FCA 339 confirmed that a lump-sum order did not preclude detailed examination of discrete issues, but the procedural culture still favoured taxation in complex cases.
The Costs Practice Note (GPN-COSTS) effected a deliberate policy shift. Paragraph [3.3] (quoted at [16]) states that the Court will proceed on the basis that taxation "should be the exception". The Practice Note encourages sophisticated costs orders, use of registrars, referees, and early identification of disputed categories so that the quantification exercise itself does not become another protracted dispute. The Central Practice Note reinforces that the quantum of costs of a successful party should not be delayed.
After Paciocco (No 2), the law is clearer in two respects. First, in large, complex commercial litigation a lump-sum order will ordinarily be regarded as the appropriate course unless some feature makes it unsuitable ([19]-[20]). Second, the fact that earlier reasons have referred to "rights on taxation" does not preclude a later lump-sum order; the Court will examine the context in which those remarks were made ([25]). The decision also illustrates that joint quantification of costs across related proceedings is positively desirable where the factual and legal overlap is substantial, provided each proceeding's costs are kept distinct ([32]-[36]).
The judgment leaves the detailed mechanics (length of affidavits, subpoena powers, use of a registrar at the hearing, etc.) to the single judge, thereby preserving flexibility while endorsing the policy of the Practice Note.
Key passages with plain-English translation
"[15] The purpose of such a rule is 'to avoid the expense, delay and aggravation involved in protracted litigation arising out of taxation'."
Plain English: The whole point of allowing a judge to fix costs as a single sum is to stop the parties fighting about every single item on a bill for years.
"[16] … the Court should now proceed on the basis that taxation 'should be the exception' and confined to matters which are unable to be determined otherwise: Costs Practice Note at [3.3]."
Plain English: Taxation is no longer the normal way to work out how much one side must pay the other. A fixed-sum order is now the starting point unless there is a good reason why it cannot be done.
"[18] … in making a lump sum award of costs, the Court … 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."
Plain English: Even if the judge fixes a lump sum, he or she can still drill down into any particular part of the bill (for example, the $X spent on an expert) if it looks questionable.
"[27] It is further apparent from Ms Ashe's evidence that a taxation of the ANZ's 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."
Plain English: The evidence showed that a traditional taxation would take years and cost a fortune; fixing a sum now will save everyone a lot of money and time.
"[35] … the joint determination of the costs of all related proceedings and appeals will in all likelihood avoid the difficulty and expense of allocating the cost of each item of work between the various proceedings. Further, the risk of inconsistent approaches being taken with respect to the allocation of costs if the costs of each proceeding were determined separately will be avoided."
Plain English: Because the cases overlap so much, it makes sense to look at all the costs questions together so the judge does not have to keep splitting every hourly rate three ways and reaching different answers in different court files.
What fact patterns trigger this precedent
The decision is likely to be applied where:
- the underlying litigation is "large and factually and legally complex commercial" litigation ([27]);
- a successful party can demonstrate, usually by evidence from a costs consultant, that taxation would involve significant further delay and cost;
- the proceedings form part of a group of closely related matters (multiple class actions, overlapping evidence, common issues) so that joint quantification avoids duplication and inconsistency;
- a party seeks to challenge particular categories of costs (e.g. expert evidence) and the Court is satisfied that the lump-sum procedure can accommodate a "close inquiry" into those categories;
- an earlier costs order has referred to taxation but the context shows that the Court was simply preserving ordinary rights rather than mandating taxation as the only method.
The precedent is not triggered (or at least the presumption in favour of a lump sum is weaker) in modest-value personal-injury or small-claim matters where taxation is cheap and quick, or where the Court lacks confidence that it can obtain sufficient information to make a "fair, logical and reasonable" assessment.
How later courts have treated it
Although the judgment is relatively recent (15 September 2017), it has been cited as authority for the proposition that the Costs Practice Note has shifted the default position so that lump-sum orders are now the norm rather than the exception. Subsequent decisions have followed its reasoning that complexity and the risk of protracted taxation justify a lump-sum order, and that such an order does not preclude targeted scrutiny of discrete cost categories.
The referral mechanism adopted (sending quantification to a single judge who may sit with a registrar or refer discrete issues to a referee) has been replicated in other large commercial files. Later cases have also cited [32] and [35] for the utility of joint determination of costs across related proceedings provided each proceeding's costs remain separately identified. No appellate court has doubted the correctness of the approach; rather, the decision is routinely treated as an application of the Practice Note to a complex factual setting.
Still-open questions
Several practical questions remain for future litigation. First, exactly how "close" an inquiry into a particular category (such as expert costs) can be conducted within a lump-sum hearing without the process morphing back into a de-facto taxation is not spelled out; the Court left that to the single judge. Second, the precise boundaries of "joint determination" are still to be worked through: how does a judge avoid the prohibited "global" assessment while still taking account of the overlap that justified the joint hearing in the first place?
Third, the weight to be given to an earlier costs order that expressly contemplated taxation (as the Paciocco parties argued the June 2015 orders did) is not exhaustively defined; the Court here looked at context, but future cases may test the limits of that approach. Fourth, the extent to which the Costs Practice Note can be varied in a particular case (the Paciocco parties sought removal of page limits and additional subpoena powers) is left to the discretion of the single judge, so different judges may adopt different procedures.
Finally, the interaction between lump-sum orders and common-fund orders or third-party litigation funding remains unexplored in this judgment. Given that the original Paciocco litigation was funded, later cases involving funded class actions may have to consider whether a lump-sum costs order against the representative party can be satisfied from the common fund without further application. These issues will no doubt be worked out in the quantification hearing before Middleton J and in subsequent decisions applying Paciocco (No 2).