The report of the Costs Referee dated 21 November 2023 be adopted by the Court.
R&B Investments pay the costs of the former third, fourth and tenth respondents in the amount of $88,258.16.
Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.
REASONS FOR JUDGMENT
(Delivered ex tempore, revised from the transcript)
LEE J:
In November 2022, I approved the discontinuance of these proceedings against the third to eighth, tenth, eleventh, thirteenth and fourteenth respondents (former respondents) and ordered that the first applicant (R&B Investments) pay the costs of the former respondents as agreed within seven days or, failing agreement, in a sum calculated following an application for a lump sum order pursuant to r 40.02 of the Federal Court Rules 2011 (Cth) (FCR).
I determined then that absent the agreement of the parties, the issue of costs be resolved in a way which I considered best facilitated the overarching purpose in Pt VB of the Federal Court of Australia Act 1976 (Cth) and, in particular, the efficient and inexpensive determination of any issues relating to costs. To this end, in January 2023, I posed a question to Mr Roland Matters, a highly experienced costs referee, in the following terms:
Given the constraints of the extent of the work contemplated by the Reference, what is a reasonably accurate estimate of the likely quantum of the lump sum costs referred to in Orders 4 and 5 of the November Orders, in respect of:
(a) the former third respondent;
(b) the former fourth respondent;
(c) the former sixth respondent;
(d) the former seventh respondent;
(e) the former tenth respondent; and
(f) the former eleventh respondent?
The referee prepared a report in relation to the costs he determined ought to be applicable in relation to the former respondents listed above, which was provided to the Court on 21 November 2023 (Report).
R&B Investments contends that the Court should adopt the Report. Three of the former respondents have since resolved the issue the subject of the reference, but the former third, fourth and tenth respondents (Mr Wilson, Mr Dignam and Ms Stead respectively) (who I will call the costs applicants) submit that pursuant to FCR 28.67(1)(a), the Court should vary the Report "by increasing the [costs estimate] to 70% per cent of its costs incurred, or such amount as the Court considers appropriate".
Before going further, it is important to put some matters into perspective.
When this proceeding was commenced in August 2022, I listed the matter for a first case management hearing as quickly as possible. Indeed, the first case management hearing occurred about a fortnight after parties were served with the originating documents. In doing so, I was conscious of the prospect that a competing class action would be commenced (which proceeding was ultimately filed on 6 November 2022): see R&B Investments Pty Ltd (Trustee) v Blue Sky Alternative Investments Limited (Administrators Appointed) (in liq) (Carriage Application) [2022] FCA 1444.
On 12 October, during the first case management hearing, in the light of uncertainty as to which proceeding would ultimately continue (and the high likelihood there would be a reformulated pleading), I indicated to all concerned that (T11.39-40):
HIS HONOUR: … I don't want people spending the money on filing a defence that's in respect of a case it's not advancing.
On 2 November, when the matter returned for a second case management hearing, I made it clear that it was necessary for the Court to determine any issues relating to any carriage dispute as "quickly as possible with the minimum amount of costs (T6.36-37).
Twelve days after the second case management hearing, a statement of claim was served whereby the solicitors for the former respondents were told that arrangements would be made for the proceedings to be discontinued, which eventually occurred on 23 November when I made orders on that date.
Following the first case management hearing, no one could have had any reasonable misapprehension that I did not want costs to be incurred in relation to the underlying substantive issues in the case until the carriage dispute had been resolved, and it was clear which proceeding would be continuing and the form in which it would proceed.
Having said this, I recognise that it is a vexing and stressful matter for an individual to be sued. Often those persons will give instructions for work to be undertaken which they may regard as being subjectively important but might amount to unnecessary work or work that could be deferred until a time when it could be done more efficiently. Nothing in this judgment should be taken as a suggestion that the counsel or solicitors acting in this matter have done anything but behave entirely appropriately in incurring costs and acted in accordance with their clients' express instructions. There is no basis for me on the evidence to conclude otherwise, and given the high reputation of all those involved, I would not assume to the contrary.
In exercising my discretion as to what is fair and just between the parties, however, I confess to being surprised to discover that an amount of approximately $247,261.53 was incurred by the costs applicants in relation to these proceedings between 6 October 2022 (that is, the date R&B Investments served its originating application and concise statement) and 5 December 2022, being approximately two weeks after the proceedings were discontinued against the former respondents.
In broad terms, it was fair and reasonable for costs to be incurred by the costs applicants in preparing for the first case management hearing and undertaking the work necessary to engage in that case management hearing, including: (1) reviewing a previous judgment that I had delivered in relation to the former tenth respondent, Ms Stead, and making an informed decision as to whether an application should be made that I disqualify myself on the basis of apprehended bias (see Stead v Fairfax Media Publications Pty Ltd [2021] FCA 15; (2021) 387 ALR 123); and (2) to do all the work necessary to respond to matters that may be relevant to the carriage dispute (costs which, I would have thought, would have been quite modest).
The relevant authorities as to adoption of reports of referees are well known. As Allsop CJ explained in Sheehan v Lloyds Names Munich Re Syndicate Ltd [2017] FCA 1340 (at [10]):
Once a referee's report is provided to the Court, the Court will then hold an adoption hearing if adoption of the report is contested. The principles regarding the adoption of a referee's report, albeit within the context of the Supreme Court Rules 1970 (NSW), were distilled succinctly, but comprehensively, by McDougall J in Seven Sydney Pty Ltd v Fuji Xerox Australia Pty Ltd [2004] NSWSC 902 at [12]. They include that a Court should be reluctant to allow factual issues determined by a referee to be argued afresh in Court: Seven Sydney [2004] NSWSC 902 at [12] per McDougall J; Chocolate Factory Apartments Ltd v Westpoint Finance Pty Ltd [2005] NSWSC 784 at [7] per McDougall J. Some error of principle, absence or excess of jurisdiction or patent misapprehension of the evidence should generally be demonstrated to justify the rejection of the referee's report: Super v SJP Formwork 29 NSWLR at 563. The Court will generally not reconsider disputed questions of fact where there exists factual material that is sufficient to entitle the referee to reach the conclusions that he or she did, particularly where the disputed conclusions are made in a technical area in which the referee possesses appropriate expertise: Seven Sydney [2004] NSWSC 902 at [12] per McDougall J. Furthermore, the discretion to reconsider a referee's factual findings will generally only be exercised if the findings are such that no reasonable finder of fact could have made that finding: Franks v Berem Constructions Pty Ltd [1998] NSWCA 87 at 11 per Hodgson CJ in Eq. However, the determination of questions of law and the application of legal principles to facts found by the referee is a matter for the Court: Homebush Abbattoir Corporation v Bermria Pty Ltd (1991) 22 NSWLR 605 at 609; Super v SJP Formwork 29 NSWLR at 563; and Seven Sydney [2004] NSWSC 902 at [12].
As has often been remarked, a right to be heard does not mean one has a right to be heard twice. Indeed, the purpose of referring the matters the subject of the Report out to a referee in this case was to avoid the Court to go through the process of hearing various competing contentions in relation to various methodologies employed by solicitors as to the appropriate "rough and ready" way to fix upon a fair estimate of recoverable costs.
Be that as it may, the alleged errors identified by the costs applicants in their submissions are, in summary, as follows: (1) the referee had no reasonable basis to "prefer", let alone accept as "reliable" (albeit subject to adjustments), Ms Banton's (the solicitor for R&B Investments) "alternative methodology" in identifying appropriate costs; (2) a principal reason for the referee's rejection of Mr Harris's methodology for quantifying the costs applicants' costs as "flawed" and "unreliable" was wrong in principle; that reason being that the costs applicants had provided an "[i]nsufficient explanation" in relation to incurring costs for certain work; and (3) the referee made no allowance for costs relating to what was described as "Work Category 8", which he said related to the "the preparation of a draft interlocutory application supporting evidence and draft submissions and conferring with the respondents".
Let me deal with the third alleged error first. According to the material before the referee, this interlocutory application involved a detailed consideration of the pleadings and was prepared on an expedited basis with a view to it being heard on 23 November 2022 (the day set aside for the hearing of the carriage dispute) but was ultimately not filed due to the discontinuance orders that the applicant proposed on 14 November 2022. I cannot think of a clearer example of the sort of costs that I entreated the parties not to incur pending the resolution of the carriage dispute. To the extent that the referee's opinion is that no costs associated with this work category ought be recoverable, not only do I consider that this does not disclose manifest error on the part of the referee, but was clearly correct.
As it turned out, the "manifest errors" were said to focus on the referee wrongly adopting Ms Banton's submissions, and, perhaps most substantively, the wrong test being adopted by the referee as to what costs were fairly and reasonably recoverable.
As to the first reason, a fair reading of the Report demonstrates that the referee, as would be expected given his experience, apprised himself of the task which was set for him, which involved developing his own view as to the appropriate method of responding to the tasks that he had been given. I do not consider that the referee accepted Ms Banton's view in an uncritical way and clearly applied his mind to what he considered was the appropriate task.
As to the second argument that the wrong test was adopted, much emphasis was placed on referee's statement (at [10]) that:
Insufficient explanation has been provided of why [the costs applicants'] best interests in their responses in the proceeding were not maintainable absent work summarised in the below listed categories referred to in paragraph 28 of Mr Harris' 7 December affidavit and tabulated on page 66 of RGH‐1, had consideration of such work awaited service of R&B Investments' statement of claim on 14 November 2022
Too much can be read into the precise words chosen by the referee. From reading the Report as a whole, it is evident that what the referee was saying was that he did not consider work falling into the identified categories to be incurred fairly and reasonably in all the circumstances of the case, including in the light of the admonition I had given about incurring unnecessary costs prior to what might be described as the "stabilisation" of the proceedings following the determination of the carriage dispute.
Accordingly, I propose to adopt the Report. As it turns out, I did indicate to the parties that instead of proceeding to adopt the Report, I could take the course of vacating my earlier costs orders and re-exercising the costs discretion to make an order for a specific amount recoverable that I considered to be fair and reasonable in all the circumstances of the case, having been provided with much more information than I had at the time I made the earlier order. I must say, if I had attended to that course, I do not believe that I would have been persuaded to make an award of costs any greater than that estimated by the referee and, indeed, the result may have been less favourable from the point of view of the costs applicants.
In any event, following my indication today that I proposed to adopt the Report, the parties made competing costs applications. On the one hand, R&B Investments seek an order for the costs of the entire reference process, pointing to the fact that it offered an amount of approximately $64,000 by way of costs, and the amount that was sought was almost $200,000. On the other hand, the costs applicants seek the costs of the reference process up until the preparation of the Report because, they submit, this was a course mandated by the Court (and, they also contend there be no order as to costs in relation to their opposition to adoption).
I consider the most appropriate course in all the circumstances is to make no further order as to costs. There were costs caused by a failure of an agreement as between R&B Investments and the costs applicants, and the amount awarded to the costs applicants was greater than the amount that had been offered by R&B Investments. Balanced against this is the costs applicants' opposition to the adoption of the Report, which, for the reasons above, I considered was not well founded.
Accordingly, I will make the following orders:
The report of the Costs Referee dated 21 November 2023 be adopted by the Court.
R&B Investments pay the costs of the former third, fourth and tenth respondents in the amount of $88,258.16.
I certify that the preceding twenty-five (25) numbered paragraphs is a true copy of the Reasons for Judgment of the Honourable Justice Lee.
[2]
Associate:
Dated: 17 September 2024
SCHEDULE OF PARTIES
No: NSD665/2022
Federal Court of Australia
District Registry: New South Wales
Division: General
Applicants:
Second Applicant: DAVID FURNISS
Respondents:
Second Respondent: ROBERT WARNER SHAND
Third Respondent: JOHN BRUCE KAIN
Fourth Respondent: ERNST & YOUNG (A FIRM) ABN 75 288 172 749
Fifth Respondent: CHUBB INSURANCE AUSTRALIA LIMITED ACN 001 642 020
Sixth Respondent: DUAL AUSTRALIA PTY LTD ACN 107 553 257 ON BEHALF OF CERTAIN UNDERWRITERS AT LLOYD'S BEING:
(i) LIBERTY MANAGING AGENCY LIMITED FOR AND ON BEHALF OF SYNDICATE 4473;
(ii) ASTA MANAGING AGENCY LTD FOR AND ON BEHALF OF SYNDICATE NO. 2786 EVE; AND
(iii) HARDY (UNDERWRITING AGENCIES) LIMITED, MANAGING AGENT FOR AND ON BEHALF OF LLOYD'S SYNDICATE HDU 382
Seventh Respondent: ZURICH AUSTRALIAN INSURANCE LIMITED ACN 000 296 640
Eighth Respondent: XL INSURANCE COMPANY SE ARBN 083 570 441
Parties
Applicant/Plaintiff:
R&B Investments Pty Ltd (Trustee)
Respondent/Defendant:
Blue Sky Alternative Investments Limited
Legislation Cited (4)
Pt VB Federal Court Rules 2011(Cth)rr 28.67(1)(a), 40.02