WHAT AMOUNT SHOULD BE ORDERED?
27 In calculating lump sum costs the Court does not proceed as if it were undertaking taxation. The authorities which guide the estimation process were summarised by Finn J in Ginos Engineers Pty Ltd v Autodesk Australia Pty Ltd (2008) 249 ALR 371 at 377:
"22 Rules of court such as r 21.02(2)(a) of the FMC Rules and O 62 r 4(2)(c) of the Federal Court Rules, which empower a court to order a gross amount in costs instead of an amount determined after taxation, are well accepted as being directed to the avoidance of expense, delay and the protraction of litigation, whether the case be a complex or a simple one: see Beach Petroleum NL v Johnson (No 2) (1995) 57 FCR 119 at 120 ; 135 ALR 160 at 162 (Beach Petroleum NL); Australasian Performing Rights Assn Ltd v Marlin [1999] FCA 1006; Nine Films & Television Pty Ltd v Ninox Television Ltd [2006] FCA 1046 (Nine Films & Television); see generally on fixing of costs by courts, G E Dal Pont, Law of Costs, Butterworths, Sydney, 2003, para [15.14] and following and R Quick and D J Garnsworthy, Quick on Costs, looseleaf, LBC Information Services, Sydney, para [6.20].
23 It is inconsistent both with the terms of r 21.02(2)(a) and to the clear objective in making a lump sum order that the costs in issue be subjected to the detailed scrutiny often applied in taxations: Leary v Leary [1987] 1 All ER 261 at 265; Dal Pont, 2003, paras [15.17] and [15.19]. In specifying a lump sum, it is well accepted that it is appropriate to apply a 'much broader brush' than would be applied on a taxation: see Sony Entertainment (Australia) Ltd v Smith (2005) 215 ALR 788; 64 IPR 18; [2005] FCA 228 at [196]-[200] (Sony Entertainment). Nonetheless, the discretion to make a lump sum order, no less than the general discretion to order costs, must be exercised judicially and in accordance with principle. In particular in making a lump sum estimate the approach of the court should be 'logical, fair and reasonable': Beach Petroleum NL at CLR 123; ALR 164; Nine Films & Television at [8].
24 It is not uncommon, particularly, but not only, in intellectual property cases, for the court to take as its starting point the evidence of the charges for professional costs incurred and disbursements made by the lawyers of the party awarded costs -- and this irrespective of whether the costs are to be estimated on an indemnity basis: compare Beach Petroleum NL at CLR 120; ALR 162; or on a party and party basis: compare Universal Music Australia Pty Ltd v Miyamoto [2003] FCA 812 at [29] and following. That figure is then characteristically adjusted to take account of the acceptability of the charges made, the conduct of the proceeding, the measure of success on issues and so on, to produce a sum which as a matter of judgment is neither overcompensatory nor prejudicial to the successful party. Consistent with the broad brush approach, that adjustment ordinarily is effected through the application of a discount to the figure accepted by the court on the available evidence as appropriately reflecting actual professional costs charged and disbursements made. The case law evidences wide variations in the percentages of discount sought and/or applied to reflect the exigencies of the matter in question: compare Sony Entertainment, 60%; Beach Petroleum NL, 39%, Nine Films & Television, 23%. What is clear is that a lump sum award may be in an amount that is greater or smaller than would have been the taxed costs payable: see Dal Pont, 2003, para [15.20]."
28 The Court strives to achieve an outcome that is "logical, fair and reasonable". This will require avoidance of overestimation of recoverable costs on the one hand and avoiding "underestimating the appropriate amount, for example by applying an arbitrary discount to the amounts claimed" on the other: Seven Network at [25].
29 Seafolly calculated that the amount sought by it as a lump sum represented 73.6% of the actual costs and disbursements incurred by it. This, it submitted, was "well within the scope of lump sum costs awards granted by the Court for party/party costs in other proceedings."
30 Ms Madden challenged this contention. Her position was that any discount should be calculated, not on actual professional costs and disbursements, but on estimated party/party costs. She placed particular reliance on the judgment of Gordon J in Telstra Corporation Limited v Phone Directories Company Pty Ltd [2011] FCA 1463. There her Honour made a lump sum costs order which, she said, represented 75% of the party/party costs and disbursements claimed by the respondents. Were this methodology to be applied in the present proceeding to the estimates made by Ms Young, Ms Madden submitted, Seafolly would only be entitled to a lump sum order of $357,346.46. The calculation would be made up as follows: Seafolly's taxed party/party costs and disbursements were estimated at $560,543.48, less 15% (taking account of the order that she pay Seafolly 85% of its costs) - $476,461.95; less 25% - $357,346.46.
31 Seafolly responded that a discount should not be applied to Ms Young's estimate of its party/party costs. It did so on the basis that Ms Young had already factored in a discount when calculating those costs.
32 Seafolly advised the Court that it pressed its application for the award of lump sum costs even if the Court were minded to accede to Ms Madden's submissions and determine that a lower figure than that sought by it should be awarded.
33 The parties placed different constructions on Gordon J's reasons. Both claimed that those reasons supported their respective positions. Some confusion arose because Gordon J said that she had ordered that "the applicants pay the respondents 75% of the party and party fees and disbursements claimed by the respondents", fixed at $326,931.75: see at [13]. That figure was, however, 75% of $435,909 which her Honour had identified (at [1]) as the amount claimed by the respondents "for the total professional fees and disbursements" incurred by them (emphasis added). The dispute related to whether the figure of $435,909 to which her Honour had applied the 25% discount was the total of actual costs and disbursements or an estimate of what would have been allowed for costs and disbursements on a party/party taxation.
34 In my view the dispute can be resolved by examining a table which appears at [9] in her Honour's reasons. She there sets out, in tabular form, a costs analysis undertaken by an expert consultant. It was necessary for the consultant to isolate professional costs and disbursements relating to the copyright issue which her Honour had determined. Additional costs had been incurred in relation to other issues. Having examined the respondents' solicitors files the consultant identified total professional fees and total disbursements. Estimates were then made of the parts of each category which were attributable to the copyright issue. In a column headed "Estimated Professional Fees Relevant to Copyright" the total was $249,628. In a separate column, headed "Estimated Disbs Relevant to Copyright" a total of $186,179.35 appears. When these two figures are added they produce the sum of $435,807.35. This is near enough to the $435,909 recorded by her Honour in paragraph [1] of her reasons. The consultant then went on, in separate columns, to record fees and disbursements allowed on a party/party basis. These figures were, respectively, $218,004 and $146,689.96 - a total of $364,693.96. Her Honour, therefore, can be seen to have applied one discount of 25% to the actual costs and disbursements figure. As it happened the amount she awarded was about $40,000 less than the estimated party/party costs.
35 In the end the methodology adopted by the Court in cases such as Telstra Corporation, and others referred to by the parties, are of assistance but cannot be determinative. The Court is required to have regard to the exigencies of this particular case and to apply the principles to which I have referred with a view to reaching a logical, fair and reasonable figure.
36 As Finn J said in Ginos Engineers, the methodology employed by the Court ordinarily involves the application of a discount to the figure which the evidence suggests reflects the actual professional costs charged and disbursements made by the successful party. Seafolly's actual costs and disbursements were estimated at $761,601.10. Eighty-five percent of this figure is $647,360.94. It is to this figure that I propose to apply a discount. In fixing the discount it is necessary for the Court to have regard to a range of matters peculiar to this proceeding. When the discount is applied the resultant figure may be more or less than the amount payable following a taxation.
37 Ms Madden ultimately argued that a discount in the range of 23-42% would be appropriate and that it should be applied to the party/party estimate. She said that a discount of 32% would be appropriate and within the range. She made this submission by reference to decided cases but did not point to any case-specific considerations which should inform a choice within that range.
38 As already noted, Seafolly contended that no discount should be applied. I reject that submission. It is based on the assumption that the discounts made by Ms Young, when estimating its party/party costs, were adequate to ensure that the quantum of the gross sum order would not exceed that which might fairly fall on Ms Madden. The authorities establish that a discount should be applied to actual costs incurred by the party seeking a gross sum order. The discount is intended to take account, not only of the inevitable reduction in the amount awarded as a result of a taxation on a party/party basis, but also to recognise that no such taxation has occurred and that any estimate of its outcome is just that and that a further allowance may be necessary in order to ensure fairness to the party against whom the order is made. Both underestimation and overestimation are, to the extent possible, to be avoided.
39 In the circumstances of the present case I consider that a discount of 30% is appropriate. I will, therefore, make an order, pursuant to r 40.02(b) that Ms Madden pay Seafolly a lump sum of $453,152.66. Interest will be payable, calculated in accordance with the Rules.
40 There was some reference, in written submissions, to the possibility that Order 62 r 36A of the Court's Federal Court Rules 1979 (Cth) may apply because Seafolly was awarded less than $100,000 in damages. These references arose from Mr Arnold's opinion that an "automatic one-third deduction" was to be applied (subject to contrary order) under that Rule. I did not understand Ms Madden to press any such suggestion. Had she done so I would have rejected it on the basis that the interlocutory application for the making of a lump sum costs order was made after the commencement of the present Rules and that, accordingly those Rules applied: see r 1.04(2).