Plaintiff v Defendants

1 On 20 December 2019, I approved the plaintiff's entry into an agreement to settle this proceeding on terms on which, with a denial of liability, the defendant agreed to pay the plaintiff and group members the sum of $5,000,000 inclusive of interest and costs. On 6 April 2020, I approved a scheme for the distribution of settlement moneys between group members.

2 The plaintiff sought approval for the distribution between group members of the "compensation pool", which is the settlement sum less three sub-sets of costs, namely "common benefit legal costs" which are the professional fees and disbursements incurred by the plaintiff's solicitors (Maddens) in the conduct of the proceeding; "administration costs", which are the costs incurred and to be incurred in administering the settlement distribution scheme; and a payment to the plaintiff in "reimbursement" of his time spent advancing the proceeding on behalf of group members.

3 The Settlement Distribution Scheme approved by my orders of 6 April 2020 directed the scheme Administrator to make an interim distribution to group members, of moneys within the compensation pool which ensured that sufficient funds remained in the pool to meet the claimed amounts common benefit legal costs, administration costs and the proposed reimbursement payment, which had not at that time been approved.

4 In this judgment I deal with the plaintiff's costs.

5 For the reasons that follow, I approve the plaintiff's costs of the proceeding in the sum of $2,250,000 inclusive of GST. That amount includes the plaintiff's professional fees and disbursements in relation to the conduct of the proceeding, the application for approval of the settlement, and the administration of the settlement distribution scheme.

6 I also approve an allowance to Mr Francis in the sum of $5,000.

7 This proceeding has been managed with another proceeding, Lenehan v Powercor Australia Ltd (S CI 2018 1290), in which I delivered judgment for costs on 2 March 2020 (Lenehan Costs Judgment).[1] In that judgment I set out the following principles, that are also applicable to this case:

1. Section 33V of the Supreme Court Act 1986 provides that a group proceeding may not be settled without the approval of the Court. In giving approval the Court may make such orders as it thinks fit with respect to the distribution of any money paid under the settlement.
2. The principles governing the approval of the costs of a representative proceeding are well understood.
3. The Court's function in scrutinising a claim for costs by the plaintiff and his solicitors is protective. Group members ordinarily benefit from the legal work undertaken by the plaintiff's solicitors in conducting and settling the proceeding and are typically required to pay a proportionate share of the plaintiff's costs. However, they have no control over the costs incurred during the conduct of proceeding and the information available to them about costs (including information that would allow them to effectively scrutinise a claim for costs) is generally limited.[2] As Murphy J put it in Petersen,[3] group members suffer a significant information asymmetry in this regard.[4]
4. The Court must be satisfied that the costs claimed are reasonable in all of the circumstances[5] and proportionately incurred.
5. The proportionality measure looks to the relationship between the costs incurred and the value and importance of the subject matter in issue.[6] The requirement for proportionality as it concerns legal costs generally is expressed in s 172 of the Legal Profession Uniform Law (Vic) (the Uniform Law) and in s 24 of the Civil Procedure Act 2010 (Vic). It is a forward looking assessment which compares the cost of the work with the benefit that could reasonably be expected from the work, at the time at which the work was performed.[7]
6. The Court may be satisfied as to the amount of costs that is reasonable and proportionate, in any one of a number of ways.
7. As Moshinsky J observed in Camilleri,[8] the precision with which a Court will require a plaintiff to justify the quantum of costs incurred for the benefit of group members will vary according to the circumstances of the case. Thus, "a very large costs sum might readily be approved in a settlement following a lengthy trial, while an apparently modest costs sum might require more exacting validation if it is associated with a modest sized proceeding and represents a significant proportion of the overall settlement sum".[9]
8. Sufficient evidence must be tendered so as to enable the Court to make an assessment as to whether the costs were reasonably and proportionately incurred.[10]
9. Evidence on this question commonly comes from an independent solicitor or costs consultant[11] or from an independent referee on a formal reference under the rules of Court; and at times with assistance from a contradictor.[12] Even where an independent expert is appointed it is, however, the Court and not the expert who is required to determine whether the costs are reasonable.[13]
10. In Matthews,[14] Osborn JA observed (citing Re Medforce[15]) that the principles approving solicitor and client costs in this context are similar to those relevant to fixing a liquidator's remuneration. There, at minimum, what is required is a statement of the work undertaken, together with an expenditure account sufficiently itemised to enable the charges made to be related to the work done.[16]
11. It is recognised that a balance should be struck, affording the Court sufficient information to discharge its function, without the assessment itself significantly diminishing the corpus of the settlement funds.[17]
12. What is reasonable and proportionate will vary from case to case. Factors commonly considered in this assessment include:

(a) the reasonableness of the terms of the fee agreements and whether the costs actually charged have been calculated in accordance with those agreements;

(b) whether any significant portion of the fees charged have been inappropriately or unnecessarily incurred;

(c) whether the work in a particular area or in relation to a particular issue was undertaken efficiently and appropriately;

(d) whether the work was undertaken by a person of an appropriate level of seniority and whether the charge out rates were appropriate having regard to the seniority of the practitioners and the nature of the work undertaken;

(e) whether the tasks and associated charges were appropriate having regard to the nature of the work and the time taken to complete the work.[18]

1. Considerations of this kind might be characterised as broadly reflecting the requirements of s 172 of the Uniform Law which applies to costs generally.
2. Ordinarily, the plaintiff's costs of the proceeding will have been incurred and charged pursuant to an agreement between the plaintiff and his or her solicitors. Often, the plaintiff's solicitors will also have entered costs agreements with at least some group members. Accordingly, those agreements will inform the assessment to be made by the Court on an application for approval of the costs of a representative proceeding, on settlement. A logical starting point for assessing the reasonableness of the costs claimed is to establish what costs have actually been incurred and pursuant to what terms.
3. However, costs agreements inform rather than determine the Court's assessment of the quantum and nature of costs to be approved. The Court may consider the reasonableness of the terms of the costs agreements.[19] The considerations relevant to an exercise of the power to approve costs on a settlement of a representative proceeding are not limited to what is permitted by the costs agreement.[20] The question remains whether in the Court's assessment the costs are reasonable and proportionate. The costs agreement may itself assist in evidencing reasonableness.[21]
4. Those observations are subject to the proviso that legal costs and costs agreements are regulated by Part 4.3 of the Uniform Law. Accordingly, aspects of that law may become relevant on an assessment of this kind.

Costs Agreements and sharing of costs between group members

8 Consequent upon orders for class closure, 40 group members registered to participate in the proceeding. Of those, 26 group members entered into conditional costs agreements with Maddens. The terms of the costs agreements were revised and further agreed, in August 2019. Relevant aspects of the agreements are mentioned below. The remaining group members did not enter costs agreements with Maddens.

9 The settlement distribution scheme provides that the settlement pool be distributed between group members pro-rata, calculated by reference to the respective value of each group member's assessed loss as a proportion of the settlement pool. The settlement pool is the settlement sum less costs as described above.

10 Distributed in that way, group members will share the costs burden in the same way that they share the settlement pool. The upshot is also that costs are shared between group members regardless of whether or not they have retained Maddens. It is uncontroversial as a matter of principle that the cost of legal work done to conduct proceedings and achieve a settlement should be shared by group members as a whole.[22] I consider that it is fair and reasonable that costs be shared in this way.

11 Maddens agreed with the plaintiff to cap their legal costs at $2,250,000, including professional fees and disbursements and including all costs and future costs of administering the settlement distribution scheme.[23] The agreement did not appear to have been made by an amendment to the costs agreements, however its effect is that regardless of the amount of costs to which Maddens would otherwise be entitled under their fee agreements, and regardless of the amount of costs that I determine to be reasonable and proportionately incurred, Maddens will recover no more than $2,250,000. The question then, on this assessment, is whether the quantum of the costs determined to be reasonable and proportionate, is at least $2,250,000.

12 Ms Catherine Dealehr is a highly experienced accredited costs law specialist who has practised solely as a costs lawyer since 1988. On 29 November 2019, I made orders appointing Ms Dealehr as an expert to inquire into and report to the Court as to whether the plaintiff's claimed legal costs up to and including the hearing of the application for approval, and of the administration of the settlement distribution schemes were fair and reasonable as to the work done and the amounts claimed. Ms Dealehr filed a report of her assessments dated 28 November 2019. At my request Ms Dealehr filed a supplementary report on 5 March 2020.

13 In evidence before me were Ms Dealehr's reports, and a number of affidavits of the plaintiff's solicitor, Ms Kathryn Emeny. Ms Emeny deposed to having instructed Ms Dealehr in accordance with the Court's direction. I am satisfied that Maddens' role in so doing was limited to the provision of information to Ms Dealehr, including by providing access to their files, and that Ms Dealehr performed her work independently, and not as an advocate for Maddens. Ms Emeny described the significant events in the litigation and aspects of the work undertaken by Maddens in conducting and resolving the proceeding.

14 In support of the claim for costs the plaintiff and Maddens relied upon the reports of Ms Dealehr.

15 Ms Dealehr quantifies the plaintiff's reasonable and proportionate legal costs and disbursements as follows:

Amount allowed if costs agreements do not apply

Amount allowed if costs agreements do not apply

B. Estimated costs (27 November - 9 December 2019)

Difference between the assessed amounts and the capped amount of $2,250,000

16 It is apparent that Ms Dealehr has made her assessment on alternative bases - the first assumes that the costs agreements were valid, and the second assumes that the costs agreements were void or invalid.

17 The difference between the two assessments is attributable to amounts allowed under the costs agreements for an uplift of 25% on professional fees, and also for a "loading" calculated at 30% of professional fees. The alternative calculation (assuming the costs agreements did not apply) did not allow for an uplift fee and, separately, applied a loading of 25% rather than 30%.

18 It will be seen that the total assessment exceeds the capped amount of $2,250,000 by a considerable amount, whether or not the uplift and loadings provided in the costs agreements are allowed.

19 As noted earlier, on an assessment of this kind the terms of a valid costs agreement will inform, rather than determine, the outcome. And, as observed in the Lenehan Costs Judgment, the plaintiff's solicitors would be entitled to charge for the work done on a fair and reasonable basis pursuant to s 172 of the Legal Profession Uniform Law[24] (the Uniform Law), even in the absence of a valid costs agreement.

20 Ms Dealehr's reports gave careful and detailed consideration to the terms of the costs agreements and to the relevance of those terms to the task at hand. As it happens, it is strictly unnecessary for me to determine whether the costs agreements were valid because, even calculated on the basis of assumed invalidity (which produces a lesser total sum), the assessed costs are above the agreed cap of $2,250,000. However it is necessary to record several matters, briefly.

21 The costs agreements (relevantly between Maddens and the plaintiff) provided for an uplift calculated at 25% of professional fees. The uplift was to be charged in consideration of Maddens' undertaking the action on a conditional or "no-win, no-fee" basis. Conditional costs agreements that include uplift fees (to a maximum of 25%) are permitted under s 182 of the Uniform Law. However, as discussed in the Lenehan Costs Judgment, a law practice may not recover any part of an uplift fee where the conditional costs agreement that provides for payment of that fee, does not comply with s 182 of the Uniform Law.[25] In substance, s 182(3) requires that the costs agreement identify the basis on which the uplift fee is to be calculated and an estimate of the fee, or, where that is not reasonably practicable, the range of estimates for the fee and an explanation of the major variables that may affect its calculation. A law practice must not enter into a costs agreement in contravention of the Uniform Rules relating to uplift fees.

22 Ms Dealehr was of the opinion that the first Maddens costs agreement did not comply with several important disclosure requirements under the Uniform Law, including in respect of the uplift fee. There was an attempt to rectify those failures in the revised costs agreement which applied from August 2019. Because of the prospect that the costs agreements may have been determined to be invalid, Ms Dealehr calculated fees on the alternative basis that excluded an uplift fee.

23 It should be recalled that in the Lenehan Costs Judgment I concluded that the first form of the costs agreement in that case did not comply with the Uniform Law.[26] The first version of the costs agreement in this proceeding was in a materially identical form. It should not go unremarked upon that in these matters Maddens have not paid adequate attention to the disclosures required of them in relation to legal costs, and such an approach is to be deprecated.

24 On the question of a loading, the costs agreements provided for an allowance of 5% of the total sum of professional fees, calculated under item 17 of the Supreme Court Scale pursuant to r 63.48, and a further loading of 30% of the total sum of the legal practitioner's charges, under r 63.34(3). For the reasons discussed in the Lenehan Costs Judgment[27] I did not consider that the grounds for an allowance under r 63.34 had been established in that case. The same reasoning and conclusion apply in this case.

25 Ms Dealehr's opinion was that even if the costs agreements were void, the fees allowed on the Supreme Court Scale would be an appropriate guide for the quantum of fair and reasonable costs, although it is no longer prescribed that the Scale applies by default where a costs agreement is held to be void.[28] The Scale includes a loading for care, skill and responsibility under item 17 and pursuant to r 63.48. In Ms Dealehr's opinion, taking into account the matters set out in her report, a loading of 25% would be appropriate.

26 Ms Dealehr's assessment proceeded in the following stages.

27 First, verification of the time recorded by Maddens' lawyers (and other operators) working on the proceeding. This involved filtering the data from Maddens' time recording system to identify and eliminate any duplications (with reference to the time keeper, date and narrative with respect to each entry), errors in the units of time claimed and other IT errors.

28 Second, application of the Supreme Court Scale rates, taking into account the update to the rates that came into effect on 1 January 2019.

29 Third, classification of time spent on each phase of the proceeding, the tasks undertaken in each phase and the activities conducted in fulfilment of each task. This resulted in the identification and coding of 13 phases, 38 tasks and 17 activities. Once this information was identified and organised, Ms Dealehr conducted her own sampling to verify the accuracy of the categorisations, formulae and calculations involved.

30 Fourth, removal of non-claimable hours by scrutinising the tasks in the various phases identified in the previous step.

31 Fifth, application of discounts, with reference to certain tasks and activities. Broadly, this involved excision of work that was likely duplicated, such as where multiple tasks or activities were undertaken, where lawyers performed clerical activities or data entry, and a reduction with reference to the limitations of single unit time recording, which was apparent on the face of some entries of this kind.

32 Sixth, application of loadings to the total amount of professional fees calculated in accordance with steps one to five. The loadings were applied in the two alternatives upon which Ms Dealehr's assessment proceeded and to which reference has already been made: either in accordance with the costs agreements (under rr 63.34 and 63.48) for a total loading of 35%; or, if the costs agreements did not apply, a loading of 25% that Ms Dealehr considered to be fair and reasonable, and proportionate.

33 Seventh, application of a 25% uplift fee on professional fees on obtaining a successful outcome, applied to the amount of professional fees calculated in steps one to six. As noted earlier, the uplift fee was only to be allowed if the costs agreements were determined to be compliant with the Uniform Law.

34 Eighth, application of GST to the total amount of professional fees after the seven previous steps.

35 Ninth, assessment of the reasonableness of disbursements, performed through an audit of the accounts, invoices and billing records provided by Maddens, which were checked for any errors and to confirm their relevance. As to the reasonableness of counsel's fees, Ms Dealehr noted that it was usual for just one or two counsel to appear in the hearings during the course of the matter. When analysed with reference to phase, task and activity, Ms Dealehr considered senior counsel's time was appropriately reserved for expert evidence and mediation, whilst junior counsel's time was spent on phases such as trial preparation.

36 On the basis of her detailed review of the material comprising the plaintiff's file, and having regard to her experience, Ms Dealehr's conclusions in relation to the complexity of the proceeding were as follows:

(a) The proceeding involved factual and legal issues of moderate complexity.[29]

(b) Substantial work was undertaken in discovery. In total, documents discovered or produced amounted to 515,187 pages or approximately 134GB. As a consequence, an electronic document protocol was established and an e-discovery provider was engaged to host a platform on which the discovered and produced documents could be reviewed and utilised through the phases of trial preparation.[30]

(c) Initially, four main liability expert witnesses were identified and instructed. Once the insurer proceedings commenced, Maddens, with the insurers' solicitors, jointly instructed two further liability experts. Expert briefs were prepared, expert reports considered and advices were prepared as a result and briefs were created for Court ordered conclaves (which ultimately did not take place before the matter settled).[31]

(d) A significant amount of work had to be undertaken by a number of loss adjusters, who were specialised in different fields and were instructed to deal with the wide range of losses suffered.[32]

(e) Complexity (along with level of skill, specialisation, novelty, difficulty, labour, urgency, commercial sensitivity, and responsibility) were factors Ms Dealehr considered were relevant to determining whether costs had been reasonably and proportionately incurred, and whether those costs were of a reasonable and proportionate amount.[33]

(f) The nature of the proceeding, its complexity and the importance of the issues or amount in dispute meant that, in Ms Dealehr's view, the costs were proportionate at the time they were incurred.[34]

37 I accept Ms Dealehr's methodology as a sound and rigorous basis on which to assess the amount of costs that is fair, reasonable and proportionate in the circumstances of this case. Furthermore, I consider that Ms Dealehr has carefully and thoughtfully applied that methodology to the particular facts of this proceeding.

38 Accordingly, I allow costs in the amount of $2,250,000.

39 The plaintiff seeks an order that he be paid $5,000 prior to the disbursement of the balance of the settlement sum. The sum (described as a "reimbursement payment"), is intended to compensate the plaintiff for the time, inconvenience and the personal burden associated with discharging his responsibilities as plaintiff. The principles applicable to reimbursement payments were set out in the Lenehan Costs Judgment as follows:

1. It is accepted that it is appropriate to compensate representative parties in this way.[35] A conservative approach should be taken to the quantification of compensation of this kind, and a distinction should be drawn between time devoted by the plaintiff to work activities that benefit the group as a whole, as opposed to work that benefits the plaintiff's personal claim. A claim of this kind must be based on adequate evidence.[36]

1. Allowances of this kind recognise, in a modest way, the non-economic burdens assumed by a plaintiff in a group proceeding and the corresponding benefit that the group, as a whole, receives, by virtue of the willingness of one person to assume the not insignificant responsibility of acting as a representative party.

40 Ms Emeny's evidence established that Mr Francis was required to contribute more time than other group members as a result of his agreeing to undertake the representative role of plaintiff in this proceeding. Maddens estimated the number of hours Mr Francis spent on tasks related to this group proceeding. Those tasks included the preparation of documentation and information in respect of bushfire loss and damage, participating in meetings with legal representatives, and preparing for and attending mediation.

41 While the evidence does not specify the time spent or proportion of tasks undertaken by the plaintiff in relation to the group proceedings generally (rather than with respect to his personal claim), I am satisfied that time and effort were expended by him for the benefit of the group as a whole. And I am satisfied that a burden was borne by the plaintiff in his agreeing to accept the public-facing role of the lead plaintiff in a representative proceeding.

42 The proposed payment to Mr Francis was notified to group members in the notice advising group members of the proposed application for approval of the settlement of the proceeding. No group members objected to the proposed payment (nor, for that matter, to any other aspect of the proposed settlement).

43 I approve the proposed payment of $5,000 to the plaintiff.

[1] Lenehan v Powercor Australia Ltd [2020] VSC 82 (Lenehan Costs Judgment).

[2] Modtech Engineering Australia Pty Ltd v GPT Management Holdings Ltd [2013] FCA 626 (Modtech (No 1)), [27] and Matthews v Ausnet Electricity Services Pty Ltd [2014] VSC 663 (Matthews), [349].

[3] Petersen Superannuation Fund Pty Ltd v Bank of Queensland Limited (No 3) [2018] FCA 1842 (Petersen).

[5] Matthews, [348]; Modtech (No 1), [32].

[6] See Skalkos v T & S Recoveries Pty Ltd [2004] NSWCA 281; (2004) 65 NSWLR 151 at 153 [8].

[7] Yara Australia Pty Ltd v Oswal [2013] VSCA 337; (2013) 41 VR 302; Williams v Ausnet Electricity Services Pty Ltd [2017] VSC 474 (Williams), [110].

[8] Camilleri v The Trust Company (Nominees) Ltd [2015] FCA 1468 (Camilleri).

[11] Erin Downie v Spiral Foods Pty Ltd & Ors [2015] VSC 190 (Downie), [179].

[12] See for example, Petersen at [124].

[14] Matthews v AusNet Electricity Services Pty Ltd & Ors [2014] VSC 663.

[15] Re Medforce Healthcare Services Pty Ltd (in liq) [2001] 3 NZLR 145.

[18] See, for example, Courtney v Medtel Pty Ltd (No 5) [2004] FCA 1406 (Medtel (No 5)), [61]; Modtech (No 1), [37]; Matthews, [350]-[352].

[19] See for example, Medtel (No 5), [61]; Matthews, [350].

[21] See s 172(4) of schedule 1 of the Legal Profession Uniform Law Application Act 2014.

[22] See for example, Modtech (No 1), [24].

[23] Report of Ms Dealehr (28 November 2019) (First report), [5]; letter of instruction from Maddens to Ms Dealehr (8 November 2019), [39].

[24] Legal Profession Uniform Law Application Act 2014, schedule 1 (Uniform Law).

[27] Lenehan Costs Judgment, [73]-[76].

[28] See ss 172 (1) -(3) of the Uniform Law compared with the former s 3.4.19(b) of Legal Profession Act 2004; see also Johnson v Dimos Lawyers [2019] VSC 462.

[33] Uniform Law s 172(2); First report, [180].

[35] See for example, Darwalla Milling Co Pty Ltd v F Hoffmann-La Roche Limited (No 2) [2006] FCA 1388; (2006) 236 ALR 322 at 347, [76]; Matthews.

[36] Modtech (No 1), [65]-[72].