CTHFCA

Red Hill Wine Pty Ltd v Red Hill Vineyard Pty Ltd

[2023] FCA 1151

Federal Court of Australia|2023-09-26|Before: Rofe J

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Source facts

Court

Federal Court of Australia

Decision date

2023-09-26

Before

Rofe J

Source

Original judgment source is linked above.

Judgment (14 paragraphs)

[1]

The Amended Interlocutory Application dated 1 June 2023 be dismissed.
The Cross-Respondents pay the Cross-Claimant's costs of the application. Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

[2]

ROFE J: 1 This matter has come before me as the docket judge in circumstances where the substantive matter has settled, well prior to trial or any evidence being filed or served. The only remaining issue in dispute is the quantum of the Cross-Claimant's costs of the cross-claim to be paid by the Cross-Respondents.

[3]

Background 2 On 29 July 2022, I made orders by consent that the Cross-Respondents jointly and severally pay the Cross-Claimant's costs of, and incidental to, the cross-claim as agreed or taxed. On that day, I also made orders that each party to the Further Amended Statement of Claim bear their own costs of, and incidental to, the Further Amended Statement of Claim. 3 No agreement as to the Cross-Claimant's costs of the cross-claim was reached and on 25 October 2022, the Cross-Claimant, R H Wine Group Pty Ltd (RHWG), filed a Form 127: Bill of Costs - Long Form. A copy of the stamped Bill of Costs was served on the solicitors for the Cross-Respondents by email on 28 October 2022. 4 On 9 January 2023, Edwards JR issued a notice of estimate for the Bill of Costs (the Estimate), giving the Cross-Respondents, Red Hill Wine Pty Ltd and Cheviot Wine Group Pty Ltd (together, Red Hill), 21 days to file any notice of objection to the Estimate. No such notice was filed. On 9 February 2023, a Certificate of Taxation (the Certificate) was issued by Edwards JR in the amount of $260,025. 5 On 9 February 2023, the lawyers for RHWG forwarded the Certificate to Red Hill's lawyers, together with their trust account details to enable payment, 6 Red Hill filed an interlocutory application dated 22 February 2023 seeking to have the Certificate set aside and the time for filing a notice of objection extended. Due to difficulties experienced with the e-filing of the affidavit of Mr Kekatos in support of the interlocutory application, the application was not filed in its proper form until 28 February 2023, and was not stamped by the Registry until 15 March 2023. An unstamped copy of the interlocutory application was served on 7 March 2023 and a stamped copy of the application was served on 23 March 2023. No explanation has been provided by Red Hill for why it took over a week to serve the stamped copy of the application after Red Hill had received it from the Registry. The interlocutory application was, for reasons discussed below, incorrect and had to be re-filed in the proper form, which was eventually done on 5 June 2023. 7 On 16 March 2023, RHWG served a Creditor's Statutory Demand on the second Cross-Respondent, Cheviot Wine Group Pty Ltd. The statutory period for compliance with the Statutory Demand expired on 17 April 2023. On 12 May 2023, an originating process for winding up was filed by Rothwell Lawyers on behalf of RHWG. 8 Red Hill sought to file an amended interlocutory application, the filing of which was not opposed by RHWG. The amended application is dated 1 June 2023 but was filed on 5 June 2023. 9 The amended interlocutory application seeks orders that: (1) the Certificate be set aside; (2) the time for filing a notice of objection pursuant to r 40.25 of the Federal Court Rules 2011 (Cth) be extended to seven days after these orders are made; (3) the time for filing a notice of objection to the Estimate, and payment of $2,000 into the Litigant's fund as security pursuant to r 40.21 of the Rules, be extended to seven days after these orders are made; and (4) no order as to costs. 10 RHWG objects to the these orders being made. 11 In support of its application, Red Hill relies upon the following affidavits: (a) two affidavits of its solicitor, Mr Jim Kekatos of Kekatos Lawyers, made on 22 February 2023 and 2 June 2023; and (b) the affidavit of Mr Joe Rose, lawyer and costs consultant of Rose Legal Costing, made on 2 June 2023. 12 RHWG relies on the following affidavits in opposing the application: (a) an affidavit made by its solicitor, Mr Michael David McDonald, director and managing partner of mdp Law, affirmed on 17 May 2023; and (b) an affidavit of Mr Michael John Dudman, costs lawyer and director of Blackstone Legal Costing, sworn on 17 May 2023. 13 The parties filed written submissions. I determined that this matter could appropriately be dealt with on the papers. The parties did not object to this course.

[4]

Relevant rules 14 If an order is made in favour of a party for payment of the party's costs, the costs must be taxed in accordance with Pt 40 of the Rules in default of agreement: r 40.12. A party who wants to have costs taxed must file a bill for taxation: r 40.17. A party who files a bill must serve on each party interested in the bill, at least seven days before the date endorsed on the bill, a copy of the bill as endorsed by the Registrar and a copy of the receipt for each disbursement or, if not paid, a copy of the relevant accounts: r 40.19. 15 Before a bill is taxed, however, the taxing officer, who is a Registrar (see the definition of "taxing officer" in the Dictionary contained in Sch 1 to the Rules), must make an estimate of the approximate total for which the certificate of taxation would be likely to issue if the bill were taxed and must give notice in writing of that estimate to each party interested in the bill: r 40.20(1) and (3). 16 Unless a party interested in the bill objects to the estimate, the amount of the estimate is the amount for which the certificate of taxation will be issued: r 40.20(4). 17 Rule 40.21 provides as follows: 40.21 Objection to estimate (1) A party interested in the bill who wants to object to the estimate must, within 21 days after the issue of the notice of estimate: (a) file a notice of objection, in accordance with Form 128; and (b) pay into the Litigants' Fund an amount of $2 000 as security for the costs of any taxation of the bill. (2) On receipt of the notice of objection and the payment in paragraph (1)(b), the Registrar may direct: (a) the parties to attend before a designated Registrar for a confidential conference to: (i) identify the real issues in dispute; and (ii) reach a resolution of the dispute; or (b) a provisional taxation; or (c) that the taxation of the bill proceed. 18 Red Hill relies on rr 1.32, 1.39 and 39.04 of the Rules, and s 23 of the Federal Court of Australia Act 1976 (Cth) in support of its case. Those rules provide: 1.32 Court may make any order it considers appropriate in the interests of justice The Court may make any order that the Court considers appropriate in the interests of justice. 1.39 Extension and shortening of time The Court may extend or shorten a time fixed by these Rules or by order of the Court: (a) before or after the time expires; and (b) whether or not an application for extension is made before the time expires. 39.04 Varying or setting aside a judgment or order before it has been entered The Court may vary or set aside a judgment or order before it has been entered. 19 Section 23 of the Act states: 23 Making of orders and issue of writs The Court has power, in relation to matters in which it has jurisdiction, to make orders of such kinds, including interlocutory orders, and to issue, or direct the issue of, writs of such kinds, as the Court thinks appropriate. 20 RHWG submits that Red Hill's reliance on r 39.04 is in error, as r 40.32(2) states that a certificate of taxation has the force and effect of an order of the Court. The Certificate was issued by Edwards JR on 9 February 2023. Therefore, Red Hill's reliance on r 39.04 is misplaced, and ought to be directed to r 39.05, which provides for the setting aside or variation of an order after it has been entered. 21 I agree. I will continue on the basis that this was an error on the part of Red Hill and assess the matter pursuant to r 39.05. As set out by Gordon J in Australian Securities and Investments Commission (ASIC) v ActiveSuper Pty Ltd (No 4) [2013] FCA 318 at [6], "[t]he power under r 39.05 is discretionary. The power is to be exercised with caution … [and] is 'ordinarily only exercised in exceptional circumstances'". That statement of principle is important to bear in mind when considering the discretionary considerations below. 22 I am satisfied that r 1.39 gives the Court the power to extend the time fixed by the Rules in relation to the filing of a notice of objection pursuant to r 40.21: Dahler v Australian Capital Territory [2016] FCA 257 at [42] (per Katzmann J) citing Calder v Commissioner of Taxation [2006] FCA 1299. There are a number of considerations which guide the exercise of the discretion to extend time, including length of delay, whether there is an acceptable explanation for the delay, whether the other party would be prejudiced by the delay, and the merits of the substantive application: Dahler at [43] (Katzmann J). See also Hunter Valley Developments Pty Ltd v Cohen (1984) 3 FCR 344 at 348-349 (per Wilcox J).

[7]

Explanation for the delay 27 In his affidavit dated 22 February 2023, Red Hill's instructing solicitor, Mr Kekatos, provided an explanation for the delay. In summary, due to a breakdown of communications at his firm, he believed that the Notice of Objection was filed by his Law Graduate (the Graduate), when it had not been. Mr Kekatos did not realise the error until he received the Certificate. 28 Upon receiving the Bill of Costs from RHWG on 28 October 2022, Mr Kekatos forwarded it by email to the Graduate. Mr Kekatos then had a conversation with the Graduate and told him that he wanted the Graduate to "look after the [Red Hill, Bill of Costs] matter with me". 29 Between 22 December 2022 and 16 January 2023, the Kekatos Lawyers office was closed for the Christmas break, with many staff, including the Graduate, travelling overseas. Mr Kekatos deposes that on 9 January 2023, he received an email from the Federal Court enclosing Edward JR's Estimate. Mr Kekatos deposed that he read the email whilst on holidays and away from the office, noting that the Graduate was also on holidays. Mr Kekatos then states: I was of the erroneous belief that the matter would be dealt with by the Law Graduate and put the email from the registry out of my mind, without making an enquiry with the Law Graduate, which I would have normally made, to ensure that a Notice of Objection would be filed in time. 30 The closure of the offices and the holiday plans of Mr Kekatos and the Graduate do not explain why the Notice of Objection was not filed within time. Further, there is no evidence that Mr Kekatos forwarded the email from the Registry to the Graduate even though it was addressed only to him. 31 The offices of Kekatos Lawyers reopened on 16 January 2023. Both Mr Kekatos and the Graduate had returned to work and were in the offices that day. Mr Kekatos deposes that he had a conversation in person with the Graduate in which he asked the Graduate if they had filed the Notice of Objection. In response, the Graduate confirmed thar he would file the Notice "today". 32 As it turned out, the Notice of Objection was not filed on 16 January 2023, or any time before the period for filing expired on 31 January 2023. 33 It was only on 9 February 2023, upon receipt of an email which attached the Certificate from the Court, that Mr Kekatos realised the Notice of Objection had not been filed. Mr Kekatos' exact words were that he "did not turn my mind or return to the matter until the Certificate of Taxation was received on 9 February 2023 when I learnt of this error". 34 Mr Kekatos' evidence is that the Notice of Objection document had been created on 15 December 2022, and it was last modified on 10 January 2023. Mr Kekatos submits that this shows that the Notice of Objection was finalised and ready to be filed on 10 January 2023. 35 Ultimately, the reason for the delay is Mr Kekatos' failure to supervise the Graduate, not a deliberate disregard for the Court's processes or a failure to foresee that the Estimate might be issued during the holiday shutdown in January. Nonetheless, for the reasons set out below, I am not satisfied that this is an acceptable explanation for the delay. 36 However, that is not the only delay in question. The interlocutory application filed on 22 February 2023 sought an extension of time to file a notice of objection pursuant to r 40.25. Rule 40.25 relates to objecting to taxing bills, not objecting to estimates made under r 40.20. As set out above, a party must file a Form 128, pursuant to r 40.21, to object to an estimate. The interlocutory application filed on 22 February 2023 did not seek such an extension. It was not until 5 June 2023, when Red Hill sought to amend its interlocutory application, that Red Hill also sought an extension of time to file a Form 128, which had only been prepared on 1 June 2023, four months after it was due. There is no explanation for the failure to prepare this document earlier.

[9]

Merits of the Notice of Objection 42 Red Hill's costs consultant, Mr Rose, received instructions on 26 October 2022 to prepare a notice of objection to the Bill of Costs served by RHWG. Mr Rose is a UK qualified lawyer, admitted in NSW, who has practiced exclusively and continuously in the area of legal costs since April 2010. Mr Rose finalised the Notice of Objection (of some 160 pages) on 11 January 2023 and provided it to Kekatos Lawyers that same day. However, Mr Rose also overlooked that a Form 128, not a Form 130, should have been filed to object to the Estimate. Mr Rose estimated that RHWG's costs should be $109,795.65 rather than the $304,029.57 claimed by RHWG in its Bill of Costs. 43 Red Hill's submissions make little mention of the merits of the Notice, other than stating that there is an arguable case that the quantum ought to be significantly less, and that they believe the costs should be reduced from $265,025 to $110,000. 44 The proposed Notice of Objection appears to rely on four grounds of objection: (1) The Bill seeks disproportionately and unreasonably high costs and includes swathes of costs that are not properly apportioned and are outside the scope of the order. (2) The majority of the items in the Bill do not provide any explanation for the work undertaken, which, Red Hill states, leaves them with no choice but to object to these items and request further information be provided in relation to them. (3) The claims appear to be a print out of RHWG's internal time recording system and/or solicitor/client invoices presented to their client without consideration of the reasonableness of those costs. (4) The Bill contains an abundance of items relating to internal communications that Red Hill submits are not recoverable on an inter partes basis. 45 Red Hill submits that it has an arguable case that the quantum of the Estimate should be significantly less than the sum of $260,025, based on the Notice of Objection prepared by Mr Rose which annexes an itemised list of objections with further details as to each individual objection. The list amounts to 827 objections in total. 46 RHWG rejects Red Hill's proposed Notice of Objection and submits that it has no merits and is not reasonably arguable. 47 Mr McDonald gives evidence as to the detailed and lengthy process of preparing the Bill, and deposes as to the thorough analysis undertaken of the costs incurred by RHWG to determine whether particular costs related to the cross-claim. 48 Mr McDonald annexes an email sent by his firm to Red Hill's lawyers dated 18 July 2022, prior to the preparation of the Bill of Costs. That email sets out RHWG's earlier two offers to settle the costs of the cross-claim, made in June and July 2022. Both offers are for less than the Estimate. Neither were accepted by Red Hill, who also failed to respond to other emails and telephone calls from mdp Law seeking to settle the costs issue. Mr McDonald's evidence is that the preparation of the long form Bill was only commenced after Red Hill's lawyers had failed to engage with the quantum of costs. The Bill was finalised in October 2022. 49 RHWG submits that if the quantum of costs were to be reduced to $110,000, as Red Hill contends they should, this would be an extreme reduction of the Registrar's estimate. RHWG notes that Red Hill does not challenge RHWG's disbursements, which were estimated to be $82,000 by Edwards JR. This would leave only $28,000 of professional fees in Red Hill's total proposed sum, which RHWG notes is a 90% reduction of the current estimate. 50 Mr Dudman is a lawyer admitted in NSW in 1991, who has practiced exclusively in the area of legal costs consulting since January 2000. In 2018, he was appointed as a Queensland Courts Costs Assessor. Mr Dudman received instructions from mdp Lawyers on 3 May 2023 and was provided with copies of documents including the Bill of Costs, the Estimate, pleadings, the Cross-Respondent's 22 page of List of Documents, 152 documents listed in the List of Documents, subpoena material, Mr Kekatos' 28 February 2023 affidavit, and the orders of the Court. 51 Mr Dudman's evidence was that in his experience: (a) It is rare that deductions to: (i) professional fees claimed exceed 30%; (ii) counsel's fees and other disbursements claimed exceed 15%; (b) The usual percentage deductions between a Bill of Costs and a Registrar's estimate falls between the range of 5% to 30% in relation to professional fees itemised, and between 1% to 10% in relation to Counsel's fees and other disbursements claimed; (c) It is rare for the Registrar's estimate to vary significantly from the outcome of a full taxation; (d) The usual percentage variance between a Registrar's estimate and the outcome of a full taxation falls between the range of: (i) 2% to 10% in relation to professional fees itemised; and (ii) 1% to 5% in relation to counsel's fees and other itemised disbursements; (e) No Registrar's estimate has been varied "by almost 90%". 52 Ultimately, Mr Dudman's opinion is that it is "extremely unlikely" that the Estimate would be varied by almost 90% and, as Red Hill are only challenging the professional fees not the disbursements, the maximum variation would be 10%.

[10]

Length and explanation of the delay 53 In my view, there are two relevant delays in this matter: 1) filing the Notice of Objection after receiving the Estimate on 9 January 2023; and 2) not filing the correct form pursuant to r 40.21 (Form 128) until 5 June 2023. Both delays are not insignificant. The explanation for the first delay is unsatisfactory and there is no explanation for the second delay. 54 Red Hill's explanation for the first delay boils down to assigning blame to the Graduate. This is an entirely inappropriate response. It is unclear from the material whether the Graduate was, at the relevant time, admitted to practice. Nevertheless, at most, the Graduate is likely engaged in supervised legal practice within the meaning of Sch 1 of the Legal Profession Uniform Law Application Act 2014 (NSW) and therefore a condition of his practicing certificate is that he cannot practice without supervision. Mr Kekatos, on the other hand, is the principal of his firm and has been admitted to practice for over 29 years. 55 Rule 37.1 of the Legal Profession Uniform Law Australian Solicitors' Conduct Rules 2015 provides that "[a] solicitor with designated responsibility for a matter must exercise reasonable supervision over solicitors and all other employees engaged in the provision of the legal services for that matter". As set out in his affidavit dated 2 June 2023, Mr Kekatos is the solicitor on record for Red Hill and had carriage of this matter. It was therefore Mr Kekatos' responsibility to exercise reasonable supervision over the Graduate and it was ultimately his responsibility, not the Graduate's, as to whether the Notice of Objection was filed on time. Mr Kekatos asked the Graduate to file the Notice on 16 January 2023, but made no further inquiries with the Graduate as to whether the Notice had, in fact, been filed by the prescribed time (31 January 2023). This was both careless as a legal practitioner, and unreasonable as a supervisor. In these circumstances, I do not consider that there is any acceptable explanation for the first delay. 56 I accept that Red Hill did seek RHWG's consent to set aside the Certificate very shortly after receiving it from Edwards JR on 9 February 2023 and realising their error. After consent was refused, Red Hill filed the initial interlocutory application in a timely manner on 22 February 2023. However, the application filed on 22 February 2023 sought to set aside the Certificate under r 40.25, which was incorrect. As explained above, r 40.25 relates to the issuing of a notice of objection when a bill has reached the taxation stage. It was not until 5 June 2023 that Red Hill filed an amended interlocutory application seeking orders under the correct rule, r 40.21, along with the required Form 128. This was four months after the period in which an objection could have been filed had elapsed. Red Hill has provided absolutely no explanation for this second delay. 57 Accordingly, I consider that the total delay in this matter is not insignificant and there are no acceptable explanations for the delay. These considerations strongly weigh against exercising my discretion to grant the extension of time.

[13]

Conclusion 64 The length and lack of acceptable explanation for the delay, the prejudice to RHWG and the doubtful merit of Red Hill's Notice of Objection, weigh against granting an extension of time pursuant to r 1.39 of the Rules. 65 Further, and in any event, I do not consider that it is appropriate to vary or set aside the Certificate pursuant to r 39.05. 66 The parties have managed to settle the substantive proceeding but the overarching purpose of s 37M and s 37N of the Act - to resolve disputes "as quickly, inexpensively and efficiently as possible" - seems to have gone missing in the costs process. 67 RHWG has sought to operate pursuant to s 37M by making two reasonable offers to settle the costs issue, both of which turned out to be less than the Estimate. The costs issue could have been finalised a year ago had those offers been accepted. Of course, Red Hill was entitled to reject those offers but the consequence, other than that it now faces an order of costs on an indemnity basis (see r 23.14), is a significant delay in resolving this issue. That did not have to be so, but Red Hill's repeated failure to comply with deadlines and file the correct document has significantly and unnecessarily drawn out this proceeding. Granting Red Hill's application would only lead to further costs and delays as it would likely end up in a taxation proceeding, for the reasons given above at [59]. 68 Neither party would be winners in such a proceeding. If Red Hill fails to better the Estimate by 15% in the taxation hearing (which, for the reasons given above, is unlikely) they will pay RHWG's costs of the taxation: r 40.33. Therefore, even if Red Hill succeeds in trimming a small percentage from RHWG's costs, the costs of the taxation process is likely to far exceed that amount for Red Hill. 69 As O'Bryan J stated in Polis v Zombor (No 5) [2022] FCA 122 at [43], "the discretion permitted to the Court by r 39.05 … should ordinarily be exercised only in exceptional circumstances, bearing in mind the overarching principle of the finality of litigation". This dispute has gone on for too long and the parties, particularly RHWG, should not be subjected to further costs and delays. That is particularly so where the total costs incurred by both parties in the costs process, including this application, may well exceed the amount ultimately in dispute. Further, the circumstances in this case are by no means "exceptional" - rather, Red Hill simply failed, for unexceptional reasons relating to its legal representatives own carelessness, to file a notice of objection in time. The interlocutory application is therefore dismissed. 70 Red Hill should bear the costs of this application. I will make orders accordingly. I certify that the preceding seventy (70) numbered paragraphs are a true copy of the Reasons for Judgment of the Honourable Justice Rofe.

Red Hill Wine Pty Ltd v Red Hill Vineyard Pty Ltd - [2023] FCA 1151 - FCA 2023 case summary — Zoe