Sandalwood Properties Ltd (Subject to a Deed of Company Arrangement) v Huntley Management Ltd

Federal Court of Australia|2019-05-10|Before: Mr P, Colvin J

The application for a lump-sum assessment of costs be dismissed.
The plaintiff do pay the third defendant's costs of the application for the lump-sum assessment of costs.
Unless the plaintiff elects on or before 5.00 pm on 31 May 2019 by written notice to the solicitors for the third defendant to proceed by way of assessment of costs, the costs to be paid pursuant to this order and the order dated 8 October 2018 be fixed with effect from 31 May 2019 in the amount of $130,500 (exclusive of GST) payable by the third defendant to the plaintiff. Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

COLVIN J: 1 On 23 July 2018 a meeting of members of the TFS Sandalwood Project 2003 (Project) was convened. The Project is a managed investment scheme. At the time of the meeting, the responsible entity was Sandalwood Properties (Subject to a Deed of Company Arrangement) (Receivers and Managers Appointed) (SPL). 2 It was claimed that at the meeting Mr Graeme Scott was appointed chair and resolutions were passed that removed SPL as the responsible entity for the Project and appointed a new responsible entity. 3 Urgent proceedings were brought by SPL seeking declaratory relief to the effect that the resolutions purportedly passed at the meeting were invalid and of no effect. The relief was opposed by Mr Scott. On 27 August 2018 I made directions for affidavit material and submissions to be filed and for the matter to be listed for hearing on 2 October 2018. The hearing occupied the morning. The factual issues were canvassed in a few affidavits concerned with what occurred at the July meeting and, to some extent, the dealings by the proposed new responsible entity with the Australian Securities and Investments Commission concerning its authority to act as a responsible entity. There was no cross-examination. 4 The forensic task on the application was confined. The factual dispute was narrow in compass. The legal issues were not extensive. There was some complexity in those issues. However, the case as a whole would not be accurately described as complex. 5 On 8 October 2018 I delivered reasons granting the declaratory relief sought and ordered that Mr Scott pay the costs of the application to be assessed if not agreed. 6 SPL now seeks a lump-sum costs order in the amount of $219,905.80 (excluding GST). It says that its actual legal costs and disbursements on the application were $360,830.60. It says that the amount that it seeks by way of lump-sum order is reasonable because, amongst other things, it is approximately 61% of its total actual costs. 7 At the request of both parties, the application is to be dealt with on the papers. Final submissions were received on 8 February 2019. My unavailability for reasons of ill-health from then until April has delayed the delivery of these reasons unduly which is regretted.

Relevant principles 8 Although the preference of the Court is for the making of a lump-sum costs order, the utilisation of the procedure is always at the discretion of the judge. 9 A lump-sum assessment is made to avoid the expense, delay and protraction of litigation which is particularly associated with satellite disputation about the quantification of costs payable in accordance with costs orders. 10 In undertaking a lump-sum assessment the court applies a broader brush than would be undertaken on taxation or other detailed assessment by reference to individual items of costs. The lump-sum assessment, if undertaken, should ordinarily be guided by the aim of seeking to fix a sum that is proportionate to the nature of the case. 11 The process is not to be adopted if the case is not suitable for lump-sum assessment. It will not be suitable if the Court is not persuaded that the matters advanced to support the application enable a determination that, though robust, is fair, logical and reasonable. 12 There must be an appropriate basis for the Court to be able to make a judicial decision rather than a guess. Faux calculations that provide no real basis upon which to conclude that it is reasonable to assess a particular lump-sum as an appropriate amount to be paid pursuant to the Court's cost order do not suffice. The process requires that there be a proper foundation for the lump-sum assessment, taking account that there is a trade-off between the risk of injustice in forming a conclusion as to a lump-sum on limited information and the likely injustice that flows from the costs and delay involved in undertaking a detailed assessment. 13 One way of supporting the reasonableness of the costs is to provide evidence of the independent opinion of an experienced costs consultant who has been given sufficient information about the overall nature of the case to be able to express such an opinion. Parties may be expected to act upon advice of this kind in resolving by agreement claims as to costs without detailed assessment and it is reasonable for the Court to act on the same basis. However, when the opinion is advanced as a basis upon which the Court should make a lump-sum costs order it is important to ensure that the view expressed by the cost consultant is truly an independent view and not one expressed as an advocate for the interests of one of the parties. 14 Another way is to apply a percentage discount to the actual total costs incurred by the party entitled to the benefit of the costs order where the court is satisfied that the overall costs were reasonably incurred. The expectation that most parties act commercially in incurring costs may provide this assurance. In such instances, the discount to be applied is based upon a consideration of the procedural course of the particular case and is facilitated in many instances by the familiarity of the case managing judge with the course of the proceedings. The decided cases reveal considerable variation in the discount applied. Formulating the discount requires the court to bring to account factors in the circumstances of the particular case that may have affected the extent to which the costs incurred exceed that which is provided for by the nature of the costs order made. However, care must be taken with this approach because it is anchored in the actual costs incurred and the task in most instances is to assess a reasonable amount of costs on a party and party basis. There may be a concern that a party who has chosen to incur substantial costs in excess of those that might be incurred by a reasonable party in the same position acting prudently in its interests may recover an excessive costs award by a top down approach to assessment. This exposes the importance of the broad categories of costs as described in the costs summary which must be provided in support of the application (see below). By dividing the costs claimed into relevant categories the Court is able to check the quantum for particular kinds of work against amounts generally claimed under lump sum assessments and to apply principles of proportionality in a logical way. 15 Where the party liable to pay the costs was legally represented in the proceedings then it may be appropriate to bring to account the actual costs incurred by that party (or the failure by that party to provide any evidence of those actual costs). Due allowance must be made for the fact that usually a greater cost burden falls upon the party seeking to advance a case than the party seeking to defend it, but an evaluation as to whether there is a general alignment between the two sets of costs (allowing for the different forensic tasks faced by each party) may assist in reaching a conclusion as to whether the costs of a particular party were reasonable. 16 Where the actual costs have been charged based on hourly rates, consideration may be given to published rates which have themselves been assessed for their reasonableness by some independent process. The rates applied by this court when undertaking a detailed assessment are one such set of rates. 17 In a particularly complex case, the Court may refer aspects for consideration by a Registrar or obtain assistance by requiring a referee's report. 18 The above examples are not exhaustive. The process is flexible. 19 The application for a lump-sum assessment must be supported by affidavit. The affidavit must provide a sufficient basis for the court to undertake a robust assessment of the reasonableness of the costs claimed on a lump-sum basis. In particular, it should include a clear, concise and direct costs summary. The costs summary should adopt a breakdown that suits the nature of the particular case and the forensic course of the proceedings. It should not be as itemised as a bill of costs as that would defeat the whole purpose of the procedure. It should not be expressed at such a level of generality that an assessment of the reasonableness of the costs is not assisted by the breakdown in the summary. It should not be expressed by reference to categories that are meaningless, such as the time spent by named practitioners rather than categories of work to be done. The former may be used to determine the later, but the extra step must be taken. 20 So, by way of example, in this case, the breakdown could identify those costs actually incurred that related to each of (a) commencing the application (including taking initial instructions and formulating the basis for the claim); (b) preparing the affidavits to be relied upon by SPL; (c) interlocutory hearings; (d) retaining and briefing counsel; (e) considering the evidence filed on behalf of Mr Scott; (f) preparing written submissions; and (g) preparing for and attending at the final hearing. Each item may include the costs of solicitors and the costs of counsel. It may show actual amounts incurred and the amounts claimed. Alternatively, the costs of counsel may be claimed separately by describing in general terms what they were briefed to do and then identifying the amount charged by counsel that is claimed on the lump-sum assessment, perhaps separated into costs of preparing written submissions, other preparation and appearances. 21 The whole process of lump-sum assessment depends upon the preparation of a sensible costs summary that has a form of breakdown of costs that logically assists the task of undertaking the lump-sum assessment in the particular case. The costs summary then becomes a practical document with which the party who is liable under the costs order is able to engage by way of response. The parts that are disputed can be identified and brief reasons given for disputing the particular amount and why a different amount should be assessed. 22 If the above principles are followed, then any submissions in addition to the costs summary and the response to the costs summary should be able to be brief. 23 As to the above matters: see Central Practice Note: National Court Framework and Case Management (CPN-1), Costs Practice Note (GPN-Costs); Coshott v Prentice (No 2) [2018] FCAFC 221 at [3]-[5]; Coshott v Burke (No 2) [2018] FCAFC 81 at [20]-[22]; Paciocco v Australia and New Zealand Banking Group Limited (No 2) [2017] FCAFC 146; (2017) 253 FCR 403 at [13]-[20]; LFDB v MS S M (No 2) [2018] FCA 2062 at [4]-[8]; Plankton Australia Pty Limited v Rainstorm Dust Control Pty Limited [2018] FCA 174 at [234]-[250]; Seven Network Limited v News Limited [2007] FCA 2059 at [28]; and Motor Trades Association of Australia Superannuation Fund Pty Ltd v Rickus [2007] FCA 1878 at [26].

There should be no lump-sum order in this case 24 For the following reasons, the application for a lump-sum costs order should be dismissed on terms that allow SPL to elect to accept that the amount of $130,500 payable by Mr Scott to SPL be fixed as the amount payable in respect of all costs orders. 25 First, the application is not supported by a costs summary. It is supported by an affidavit which says that it is the costs summary but which does not provide a breakdown of the kind described above. 26 Instead, it provides a table which lists each of the lawyers at the firm acting for SPL who were engaged in the matter (some 15 in number). For each lawyer, the table states their 'position', 'start date', 'end date', 'period of involvement', 'hours', 'rate' and 'fees'. There is no general description in the table of the work that was done by each lawyer. There is a separate schedule specifying the total fees rendered by each of three counsel who were briefed in the matter. There is an explanation that senior counsel who was initially briefed was replaced due to unavailability when the matter was listed. The same junior counsel was retained throughout. There is no attempt to provide any meaningful division of the costs into the tasks that were undertaken on the application. It is to be expected that such a division could be undertaken on a broad brush basis by a person familiar with the conduct of the proceedings who had access to the records maintained by the solicitors and, if necessary, made some brief inquiries of counsel. 27 Second, the affidavit in support of the application refers to an expert, Mr Nicholas, being briefed as an expert. His curriculum vitae is provided. It is said that his advice has been taken into account in preparing the costs summary. However, nothing is said as to the actual advice that was provided by Mr Nicholas or the basis upon which that advice was provided. This approach is meaningless and provides no basis upon which the Court might conclude that a particular amount is a reasonable lump-sum. It is impossible for those advising Mr Scott to provide any response to a claim for costs that is advanced on such a basis. Indeed, reliance on the fact that the advice has been obtained without any statement to the effect that the costs claimed reflect the independent opinion of the costs consultant suggests that the advice from Mr Nicholas does not assist the lump-sum claim and is a matter that counts against the reasonableness of the amounts sought. This is especially so given that the affidavit in support of the application says that Mr Nicholas has charged only $1,155 for work relating to the costs application whereas lawyers for SPL say they have spent nearly 33 hours preparing the application. Given the large discrepancy it appears that Mr Nicholas has provided little input into the assessment made. Rather, as the affidavit indicates, the adjustments that have been undertaken have been guided by one of the partners at the firm of solicitors who had conduct of the matter for SPL. 28 Third, the only breakdown of the costs is that a partner of the firm of solicitors acting for SPL as an experienced commercial solicitor deposes to his estimate that 38% of the amount claimed relates to the preparation of the originating process including the affidavit in support of the application, 15% to reviewing and responding to evidence filed by Mr Scott and 45% to preparation for and attendance at the hearing including drafting written submissions. Although he does not state the corresponding figures, they are approximately $83,564, $32,985 and $98,957. These are confronting amounts for a short hearing of the kind I have described. At an average rate of say $500 per hour they represent about five weeks full-time work for two experienced practitioners. As the breakdown is provided at such a high level of generality, effectively by reference to only three categories of work, it not possible to undertake any meaningful analysis of the reasonableness of the amounts incurred for particular tasks. For example, there is no separate cost for preparation of written submissions. There is no separate cost for attendance by counsel and instructing solicitors at the final hearing. There is no indication as to how many of the practitioners engaged in the matter were involved in each task. Again it is impossible for Mr Scott to provide a meaningful broad brush response to costs that are broadly categorised in this way. 29 Fourth, the deponent to the affidavit in support of the application identifies the 'Core Team' who had conduct of the matter for SPL. He says that it involved a partner, senior associate and associate (with those personnel changing at various times). He said that the use of such a Core Team and the use of additional personnel from time to time (described as 'lawyers, law graduates and research assistants') is common where an application is determined within a relatively short period of time. The persons undertaking the partner role (which was described as overseeing the matter as a whole) were said to have worked over 70 hours in undertaking oversight - although the amount claimed on a lump-sum assessment basis was reduced by the process described below. The persons undertaking the associate role (which was described as assisting the primary lawyers responsible for doing the work in preparing court documents, instructing counsel, dealing with correspondence and attending court) were said to have worked over 196 hours in assisting (again, an amount adjusted through the process described below). Those actually doing the work (other than counsel) were said to have worked over 87 hours (also adjusted for the lump-sum claim as described below). The information provided really does not rise above stating how much time was spent by these persons in performing the oversight, doing the work or undertaking the assistance roles. The time spent is not allocated or related in any broad brush way to the main tasks undertaken in the conduct of the proceedings. 30 Fifth, the deponent described a series of adjustments that he had made to the actual legal costs (other than counsel fees and disbursements) charged to SPL of $253,170.38 to determine the amount of $136,172.34 claimed on a lump-sum assessment for those costs. It involved six steps. First, excluding the fees of three practitioners on the basis that they were not part of the 'Core Team' (being a reduction of $27,080.94). Second, fees charged for a person who was a Core Team member but for work done outside the dates when that person was identified as the relevant member of the Core Team were deducted (being a reduction of $34,645.06). Third, fees charged for those who worked for less than 10 hours on the matter were deducted (being a reduction of $4,234.50). Fourth, the rates to be applied for partners and senior associates were reduced to the maximum hourly rate under the Court's Scale of Costs of $580 per hour (being a reduction of $19,095.88). Fifth, a discount of 10% has been applied 'to reflect the difficulty of adjusting to accommodate items of work in the Scale of Costs that are not claimable at an hourly rate'. Sixth, a further discount of 10% has been applied to reflect the work that might not be recoverable between party and party. Again, these adjustments do not relate to the type of work done. The last two adjustments in particular have a degree of randomness about them in circumstances where the earlier adjustments have already been made and there is no attempt to explain why 10% is used. For all of the attempts to create an impression that there has been a logical broad brush approach, the analysis lacks that character because it is not related to broad categories of work undertaken in the matter. As a result it is not possible to assess the reasonableness of the adjustments by reference to the calculations undertaken for SPL. 31 Sixth, there was no evidence in support of the application that was expressed in terms that in the opinion of the deponent the costs were a reasonable approximation of an itemised assessment of party and party costs or anything of that kind. Rather, the deponent to the affidavit said that in undertaking the adjustments he had 'considered' the usual rate of recovery in contested cost applications, the application of the scale of costs in the Federal Court Rules 2011 (Cth), the range of counsel fees provided for by the published National Guide to Counsel Fees and appropriate reductions to reflect the difference between hours spent on a solicitor and client basis and the likely recovery for those costs on a party and party basis. However, the consideration of those matters is only of any assistance if it is undertaken in a meaningful way by reference to categories of costs claimed for various aspects of the work done. The hours of work done when compared to the nature of the proceedings call for itemisation to disclose, for example, how much is claimed for the preparation of written submissions. Once the amount claimed is allocated to a particular category of costs then some meaningful assessment can be made as to whether that amount is reasonable given the nature of the task and the forensic course of the proceedings. 32 Seventh, as to proportionality, the affidavit includes a brief explanation of what was in issue. It is expressed in the following terms: It was necessary to determine the proceedings in a short period of time to overcome the uncertainty arising from a meeting of growers at which time certain growers purported to remove the Plaintiff as the responsible entity of the Scheme. As the responsible entity of the Scheme, the Plaintiff was undertaking to harvest half of the plantation before the rainy season started. In doing so, the Plaintiff was dealing with the Scheme assets. 33 There is no attempt to indicate the value of the harvest or the consequence that might have flowed if the matter was not resolved urgently. In any event, having regard to the nature of the issues involved, the timetable for resolution was not particularly pressing. The listing of the matter did result in SPL having to brief alternative senior counsel, but this is not a case where the degree of urgency might be expected to have contributed significantly to an increase in legal costs. The facts were confined and the factual forensic task not considerable. The main task was to develop the legal arguments to support the contentions advanced for SPL. 34 Eighth, once the application had been commenced the main forensic task to be undertaken was to consider the evidence filed by Mr Scott and whether it required a substantive response or further forensic preparation, including preparation of cross-examination. Otherwise, there was a need to prepare written submissions and oral argument. In that regard senior counsel who appeared at the hearing for SPL spent more than 40 hours in preparation prior to the hearing (in addition to conferences). Junior counsel spent over 100 hours. Therefore, it is evident that counsel spent a considerable amount of time addressing the legal issues and the submissions to be advanced. Given the extent of charges for work done by the Core Team there is the possibility for considerable overlap and duplication. There is no information provided concerning the nature of the work done that would enable a meaningful broad evaluation as to whether that was the case. 35 Ninth, there is no suggestion in the affidavit in support of the application that there were issues that were broader than those ultimately addressed by the Court as part of the forensic task of advancing the claim. The issues ultimately addressed were those raised by the application at the outset. Therefore, this is not a case where the Court needs to take care to bring to account the fact that the final issues as presented to the Court were refined through the due and proper discharge of lawyers of their duty to confine the case to the real issues. In such instances, it is necessary to ensure that any lump-sum is assessed by reference to the scale of the forensic task faced by lawyers in the course of the conduct of the proceedings prior to the final hearing (and not just by reference to the refined set of issues that were ultimately determined). 36 Tenth, this is a case where the preparation of an itemised bill for assessment would not be unduly burdensome. The items that would need to be considered are quite confined. Therefore, it would be consistent with the purpose of avoiding expense and delay in the assessment of costs for that procedure to be applied in circumstances where the present application does not provide the proper foundation for the court to assess costs on a lump-sum basis. In a different more complex case I may have considered whether the application should be adjourned to a case management hearing at which time directions might be made to ensure that there was a proper costs summary as required by GPN-Costs and an opportunity for Mr Scott to respond rather than the matter being referred for assessment. However, this is not an instance where supplementary information is required. What is needed is a proper summary of the costs. Given the nature of the case and the extent of itemisation required on a full assessment, there would be efficiency in simply allowing the costs to be assessed. 37 Submissions for Mr Scott complained of various ways in which the application fails to provide a basis for the costs claimed in a way that enables a meaningful response. For reasons I have given I accept the gravamen behind these complaints. Significantly, a summary of the components that would be expected to be awarded 'on a taxed basis' was advanced by way of submission for Mr Scott. It identified an amount of $140,500. Therefore, the real dispute between the parties is between an amount of about $220,000 and an amount of about $140,000. In those circumstances, it seems to me that I should afford to SPL an opportunity to accept the conceded amount as the assessed costs rather than proceed to assessment. However, the order should reflect the fact that Mr Scott has been successful on the present application and would be entitled to costs of the application. It is appropriate that the entitlement to those costs be reflected in a reduction of the amount put forward on behalf of Mr Scott as the amount that would be awarded 'on a taxed basis'. In that regard, I note that an amount of $10,000 was included by SPL in its proposed lump-sum amount as being for the costs of the application for a lump-sum assessment.

Conclusions and costs 38 In the circumstances, the application by SPL fails to demonstrate a proper basis for the Court to exercise its discretion in favour of making a lump-sum costs order. The application should be dismissed with costs. As indicated, I will make an order that unless SPL elects on or before 5.00 pm on 31 May 2019 by written notice to the solicitors for Mr Scott to proceed by way of assessment of costs, the costs to be paid pursuant to my costs order of 8 October 2018 and these orders be fixed in the amount of $130,500 (exclusive of GST) payable by Mr Scott to SPL. I certify that the preceding thirty-eight (38) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Colvin.

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