Seven Network Limited v News Limited

Federal Court of Australia|1998-01-23|Before: O'Loughlin J, Sackville J

Pursuant to Federal Court Rules, O 62 r 4(2)(c), the third, fifth and sixth respondents ('Telstra') are entitled as against the applicants ('Seven') to a gross sum of $13 million instead of taxed costs.
Seven pay to Telstra its costs of the proceedings assessed in the sum of $13 million.
All subsisting costs orders between Seven and Telstra be vacated.

Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.

NEW SOUTH WALES DISTRICT REGISTRY NSD 1223 of 2002

JUDGE: SACKVILLE J DATE OF ORDER: 20 DECEMBER 2007

THE ISSUE 1 I delivered judgment in these proceedings on 27 July 2007, after a trial lasting 120 hearing days: Seven Network Ltd v News Ltd [2007] FCA 1062 ('Principal Judgment'). In consequence of the Principal Judgment, I subsequently made orders dismissing the proceedings against the Respondents (the News, Foxtel, Fox Sports, PBL, Telstra and Optus parties, together with Mr Philip, ARL, NRL and Austar). (I use the same abbreviations in this judgment as I used in the Principal Judgment.) 2 Following delivery of the Principal Judgment, all the Respondents, other than the PBL, Telstra and Optus parties ('Costs Respondents') resolved their claims for costs against Seven. On 26 September 2007, I gave judgment on the application of the Costs Respondents for an award of costs in their favour against Seven on an indemnity basis. I rejected the application, with the result that each of the Costs Respondents became entitled to an order for costs against Seven on the usual party and party basis: Seven Network Ltd v News Ltd [2007] FCA 1489 ('Costs Judgment'). 3 During the argument on indemnity costs, it had been more or less common ground that the case was an appropriate one for the exercise of the Court's power to order that, instead of taxed costs, the successful party should be entitled to a gross sum specified in the order: Federal Court Rules ('FCR'), O 62 r 4(2)(c). The parties adopted this sensible position because a taxation of costs in a case as complex as this would be likely to involve unreasonable delay and expense: Beach Petroleum NL v Johnson (No 2) (1995) 57 FCR 119, at 122-123, per von Doussa J; Hadid v Lenfest Communications Inc [2000] FCA 628, at [24]-[27], per Lehane J. 4 The only unresolved dispute therefore concerned quantification of the gross sums to be awarded to each of the Costs Respondents on a party and party basis. The scope of the costs dispute was further narrowed when PBL and Optus resolved their costs claims by agreement with Seven. Accordingly, the last issue that remains is to determine a gross sum representing the costs that are to be paid by Seven to Telstra on a party and party basis. On this issue Seven and Telstra are a long way apart. 5 Telstra seeks an order for payment of its costs by Seven in the sum of $16 million. This is equivalent to the amount estimated by Ms Alyson Ashe, an experienced costs consultant called by Telstra, as that likely to be recovered by Telstra on a party and party taxation. Ms Ashe initially put forward a figure of $15.8 million in her first report, but amended that figure to $16 million in her second report. She regarded that as 'the lowest reasonably likely outcome for Telstra on a taxation on [a] party and party basis'. That figure took account of existing costs orders adverse to Telstra. 6 An order requiring Seven to pay the sum of $16 million by way of costs would reimburse Telstra 77.24 per cent of the total costs and disbursements incurred by it in the proceedings. That amount is $20,714,476, exclusive of GST. (I have been told that the figures used by the experts and the parties, with immaterial exceptions, are exclusive of GST.) 7 Seven submits that the gross sum costs order against it should be in the amount of $8.69 million. This is the amount which, according to the experienced costs consultant called by Seven, Ms E M Harris, is likely to be awarded on a taxation of Telstra's costs on a party and party basis. The sum of $8.69 million represents 41.95 per cent of the total costs and disbursements incurred by Telstra in the proceedings. 8 The parties prepared in advance of the hearing a helpful schedule identifying the major differences between the allowances made by Ms Ashe and Ms Harris in their respective reports. The schedule shows that the major differences relate to the allowances for the professional fees charged by Telstra's solicitors and the allowances for counsel's fees. Ms Ashe allowed $7,904,407 for solicitors' professional fees, while Ms Harris allowed only $3,131,292, a difference of $4,773,115. Similarly, Ms Ashe allowed the sum of $4,823,217 for counsel's fees, while Ms Harris allowed only $2,914,317, a difference of $1,908,900.

THE HEARING 9 The hearing of Telstra's application for a gross sum costs order was held on 10 December 2007. Prior to the hearing, the parties filed written submissions supporting their respective positions. The parties do not have any significant disagreement as to the principles to be applied on an application for a gross sum costs order. The disagreement is essentially related to the application of those principles to this unusually large and complex litigation. 10 The parties suggested that I should follow the practice adopted by von Doussa J in Beach Petroleum v Johnson (No 2), where his Honour sat with a Deputy Registrar experienced in conducting taxations of costs for the purpose of making a gross sum costs order pursuant to FCR, O 62 r 4(2)(c). His Honour recorded (at 120) that the Deputy Registrar had: 'been able to confirm submissions made by the parties about normal practices on taxation, and about rates customarily allowed by taxing officers in this State'. von Doussa J also recorded (at 125) that he had sought the assistance of the Deputy Registrar before reaching the conclusions embodied in his judgment. 11 I gratefully adopted the parties' suggestion. In consequence, Deputy District Registrar Tesoriero, who has extensive experience in taxing bills of costs, sat with me at the hearing. The Registrar participated in the hearing, in particular asking questions of the expert witnesses. I have also consulted Registrar Tesoriero about the conclusions I have reached and his assistance has been extremely valuable. It is important to stress, however, that I am responsible for this judgment, the conclusions reached in it and the orders I intend to make. 12 At the hearing, Mr Castle, who appeared with Mr Pike on behalf of Telstra, tendered two reports prepared by Ms Ashe. In addition, Mr Sheahan SC, who appeared with Mr Halley for Seven, tendered Ms Harris' report. 13 By agreement between the parties, Ms Ashe and Ms Harris gave concurrent evidence. Each expert made an opening statement explaining her reasoning and dealing with issues raised in the three reports. Registrar Tesoriero and I asked questions during and after the opening statements. Thereafter Mr Castle put some questions to Ms Harris and Mr Sheahan questioned Ms Ashe. Finally, Ms Ashe and Ms Harris each made brief closing statements. 14 No issue arises as to the credit of either of the expert witnesses. In my view, Ms Ashe displayed a tendency to argue the case on behalf of Telstra, rather than confine herself to her area of expertise. Ms Harris, by contrast, was careful to acknowledge the limitations of the tasks she performed and the uncertainties of the taxation process. Overall, however, the expert evidence was helpful in isolating the points of difference and in explaining the respective approaches to the assessment of costs taken by Ms Ashe and Ms Harris. 15 In addition to Ms Ashe's evidence, Telstra relied on two substantial affidavits sworn by Mr Forbes, the partner of the firm of solicitors acting for Telstra who had carriage of the proceedings on Telstra's behalf. Mr Forbes' affidavits addressed, among other matters, Ms Harris' grounds for suggesting that a taxing officer would be unlikely to allow certain professional costs or disbursements Telstra contends should be incorporated in the gross sum costs award. Mr Sheahan did not seek to cross-examine Mr Forbes.

LEGISLATION AND RULES OF COURT 16 Section 43(2) of the Federal Court of Australia Act 1976 (Cth) ('Federal Court Act') states that, except as provided by any other Act, the award of costs is in the discretion of the Court or Judge. The Court may exercise its powers and discretions as to costs at any stage of the proceeding or after the conclusion of the proceeding: FCR, O 62 r 3(1). 17 FCR, O 62 r 4 provides for the Court to make a gross sum costs order. Rule 4 relevantly provides as follows: '(1) Subject to this Order, where by or under these Rules or any order of the Court costs are to be paid to any person, that person shall be entitled to his taxed costs. (2) Where the Court orders that costs be paid to any person, the Court may further order that as to the whole or any part of the costs specified in the order, instead of taxed costs, that person shall be entitled to: (a) … (b) … (c) a gross sum specified in the order; or (d) … (3) The Court may make an order under subrule (2) at any time, whether or not an order that costs be paid to a person has previously been made or entered.' 18 Where a bill of costs has been directed to be taxed, or is liable to be taxed without express direction, the bill is to be taxed and certified by a taxing officer: O 62 r 8(1). Unless the taxing officer appoints a time for taxation of the bill, it is to be assessed under O 62 r 46. Order 62 r 46 allows the taxing officer, in the absence of the parties and without making a determination of individual items, to make an estimate of the approximate total for which, if the bill were to be taxed, the certificate of taxation would be likely to issue. If no notice of objection is filed, the estimate is taken to be the amount for which a certificate of taxation may be issued: r 46(3)(ca). If an objection is filed, the Registrar proceeds to a provisional taxation of the bill or to a full taxation: r 46(4). Every taxation of costs is subject to review by a Judge: O 62 r 11. 19 FCR, O 62 r 12 provides for a scale of costs. Subrule (1) states that: 'solicitors are, subject to these Rules, entitled to charge and be allowed the fees set forth in the Second Schedule in respect of the matters referred to in that Schedule and higher fees shall not be allowed in any case except such as are by this Order otherwise provided for.' 20 Schedule 2 to the FCR, in its current form, specifies 50 items for which a charge may be made and the charge that may be made in respect of work covered by each item. Some of the items are time-based, such as Item 31 which sets out a charge per quarter hour for an 'attendance that requires the attendance of a solicitor'. Others are non-time-based, such as Item 16, which deals with photocopying. The charges specified in Schedule 2 are mostly set at a dollar figure, but certain Items allow for charges 'at the discretion of the taxing officer'. 21 I set out below three examples of items in Schedule 2, including Items 16 and 31, each of which played a part in the argument. '16 Of any document, including carbon, photographic 2 or machine-made copy - for each page except if allowance for 10 or more pages is at the discretion claimed in respect of any document or documents of the taxing officer 31 An attendance that requires the attendance of a solicitor or managing clerk and involves the exercise of skill or legal knowledge (including an attendance to inspect or negotiate) - for each quarter hour:

solicitor 65
managing clerk 14 37 In court or chambers or before the Registrar for hearing with counsel:
for each hour or part of an hour of the 235 attendance during the hearing
for each hour or part of an hour of the 235 attendance when likely to be heard, but not heard
not to exceed per day 1,065 If a person other than solicitor attends in place of a solicitor: (a) attendance by a managing clerk:
for each hour 100
not to exceed per day 435 (b) attendance by any other clerk:
for each hour 53
not to exceed per day 231' 22 Item 41 provides for an allowance for 'general care and conduct' of the proceedings: 'If the case or circumstances warrant it, an a percentage of allowance may be claimed under this item, in the total amount addition to any other item that appears in this of the allowed scale, for general care and conduct (if costs excluding appropriate) including the following: disbursements (a) the complexity of the matter and the difficulty and novelty of questions raised; (b) the importance of the matter to the party and the amount involved; (c) the skill, labour, specialised knowledge and responsibility involved in the matter on the part of the solicitor; (d) the number and importance of the documents prepared or perused, without regard to length; (e) the time taken by the solicitor; (f) research and consideration of questions of law and fact.' 23 Order 62 r 19 is a general provision applicable to a taxation of costs. It provides as follows: 'On every taxation the taxing officer shall allow all such costs charges and expenses as appear to him to have been necessary or proper for the attainment of justice or for maintaining or defending the rights of a party, but, except as against the party who incurred them, costs shall not be allowed which appear to the taxing officer to have been incurred or increased: (a) through over-caution, negligence or misconduct; (b) by payment of special fees to counsel or special charges or expenses to witnesses or other persons; or (c) by other unusual expenses.' 24 Order 62 r 21 covers allowances for work not specifically provided for in Schedule 2: 'The taxing officer may in his discretion allow such sum as he thinks just and reasonable having regard to all the circumstances of the case for work and labour properly performed and not specifically provided for in the Second Schedule in respect of work and labour for which, in his opinion, an allowance should be made.' Item 50 of Schedule 2 provides that matters not included in the scale may be allowed to the extent they are covered by O 62 r 21.

PRINCIPLES 25 The authorities establish a number of principles applicable to a claim for a gross sum costs order to be made pursuant to FCR, O 62 r 4(2)(c): (i) The purpose of the subrule is to avoid the expense, delay and aggravation involved in protracted litigation arising out of taxation: Beach Petroleum v Johnson (No 2), at 120, per von Doussa J, applying Leary v Leary [1987] 1 All ER 261; Harrison v Schipp (2002) 54 NSWLR 738, at 742 [21] per Giles JA. (ii) An order that costs be assessed as a gross sum does not envisage that any process similar to that involved in taxation should take place. On the contrary, the Court applies a much broader brush than would be used on a taxation of costs pursuant to O 62: Beach Petroleum v Johnson (No 2), at 120, 124, per von Doussa J; Harrison v Schipp, at 743 [22], per Giles JA. (iii) The Court should be confident that the approach taken to the estimate of costs is logical, fair and reasonable. The Court should be astute to avoid both overestimating the recoverable costs and underestimating the appropriate amount, for example by applying an arbitrary discount to the amounts claimed: Beach Petroleum v Johnson (No 2), at 123, per von Doussa J. (iv) Although the power to assess a gross sum for costs involves the exercise of a discretion, it is necessary to bear in mind fundamental principles applicable to an assessment of costs on a party and party basis. These include the principles contained in O 62 r 19 (embodying the 'necessary or proper' test) and those stated in Stanley v Phillips (1966) 115 CLR 470, at 478, per Barwick CJ (on a party and party taxation the emphasis is upon obtaining adequate representation to enable justice to be done, not upon the propriety of steps taken to ensure maximum success in the cause): Auspine Ltd v Australian Newsprint Mills Ltd (1999) 93 FCR 1, at 4-5 [12]-[15], per O'Loughlin J; Charlick Trading Pty Ltd v Australian National Railways Commission [2001] FCA 629, at [6]-[8], per Mansfield J. (v) Although the methodology permitted by O 62 r 4(2)(c) initially involves a broader approach than on a normal taxation, the provisions of O 62 and Schedule 2 provide assistance in fixing an appropriate gross sum: Charlick Trading Pty Ltd v ANRC, at [10], per Mansfield J. 26 The last point should be developed a little further. FCR, O 62 r 4(2)(c) authorises the Court to order that, instead of taxed costs, the successful party should be entitled to a gross sum costs order. The subrule contains no express direction that the Court is to apply the detailed criteria that are laid down in O 62 and Schedule 2. On the contrary, the subrule apparently leaves the question of quantification at large. 27 Rule 4(2)(c) is, however, located within an Order that makes detailed provision for the assessment of party and party costs. It would be extremely odd if the more expeditious procedure contemplated by r 4(2)(c) resulted in either a successful or an unsuccessful party being exposed to an assessment of costs which simply ignores or overrides the basic principles applicable to a taxation of costs. I accept Mr Sheahan's submission that it would be an error for a Court to use its power under r 4(2)(c) to assess a gross sum clearly higher than that which would be allowed on a taxation of costs. 28 On the other hand, it must be borne in mind that r 4(2)(c) establishes a procedure that applies instead of taxed costs. As the cases have stressed, the object of the procedure is to avoid the expense, delay and aggravation that would be involved in a taxation of costs, especially in a lengthy and complex case such as this. The procedure is intended to replace the potentially elaborate process contemplated by O 62 and Schedule 2, whereby a taxing officer meticulously analyses a specially prepared bill of costs by reference to individual items, some of which have distinctly Dickensian overtones. 29 It is necessary for the Court to have sufficient information to enable it to make a logical, fair and reasonable estimate. In this respect, as the parties agreed, Telstra bears the onus of establishing that its claim to a gross sum satisfies the applicable test. In practice, this may involve the parties adducing evidence from expert costs assessors addressing whether the costs claimed by the successful party were 'necessary or proper for the attainment of justice or for maintaining or defending the rights of a party' (O 62 r 19) or, in more general terms, whether the amounts sought would have been recoverable on a taxation of costs. 30 Care should be taken, however, to ensure that the process does not take on too many of the characteristics of a taxation of costs. There is a danger, perhaps reflected to a limited extent in some of the evidence adduced on this application, that the parties will descend too far into the minutiae of the rules governing a taxation and will spend disproportionate time analysing the application of specific items in Schedule 2 to the costs claimed by the successful party. The process should direct attention primarily to issues of principle that explain the differences in the positions taken by each party in relation to the assessment of recoverable costs. For the most part, the reports and oral evidence of the experts in this matter concentrated on the more general issues. 31 Given that experts should not undertake a detailed analysis of Schedule 2 of the kind that is required on a taxation of costs, it is virtually inevitable that their opinions as to the appropriate gross sum costs order, at least in relation to lengthy and complex proceedings, will be based on incomplete material or on an incomplete understanding of the nuances of the litigation. Both experts recognised this point in their evidence. Ms Harris, for example, readily agreed that it was difficult for her to assess whether and to what extent Telstra's solicitors performed work beyond that necessarily or properly required to defend the proceedings, because she had only limited material available to her concerning the issues in the proceedings and the nature of the legal work required to address them satisfactorily. Accordingly, her opinion was founded on her experience in assessing costs or preparing bills of costs in litigation which was not necessarily comparable to this case. 32 A further difficulty, perhaps peculiar to these proceedings, is that neither expert, despite extensive experience as a costs assessor, has had to prepare a bill of costs or to tax costs in proceedings of such complexity and of such dimensions. In particular, neither has had experience with a case involving the great volume of documentation, in paper or electronic form, that this case has generated. Consequently, insofar as their opinions rest on the usual practice in taxations of costs, the force of those opinions may be affected by the fact that this case has extremely unusual, if not unique, characteristics. This comment is not a criticism of either Ms Ashe or Ms Harris. It merely reflects the necessary limitations of the expert evidence in providing guidance on the issues I must address. As Einstein J pointed out in Idoport Pty Ltd v National Australia Bank Ltd [2007] NSWSC 23, at [117], a court is entitled to form its own view as to where a case falls within the possible range of recoveries, given its own appreciation of the factors bearing on the assessment. 33 I was referred to a number of Federal Court cases in order to illustrate the range of gross sum costs orders that have been made. The range, measured by reference to the percentage of total costs and disbursements allowed by the Court, is quite wide. The cases to which I was referred include Beach Petroleum v Johnson (No 2) (a gross sum costs award equivalent to 64.7 per cent of the successful party's total costs and disbursements); Canvas Graphics Pty Ltd v Kodak (Australasia) Pty Ltd (unreported, O'Loughlin J, 23 January 1998) (38.19 per cent of the amount claimed); Datadot Technology Ltd v Alpha Microtech Pty Ltd [2003] FCA 1449 (59.05 per cent of total costs and disbursements); Williams Advanced Materials Inc v Target Technology Co LLC [2004] FCA 1405 (65 per cent); Nine Films and Television Pty Ltd v Ninox Television Ltd [2006] FCA 1046 (67.31 per cent); Sparnon v Apand Pty Ltd [1998] FCA 164 (60.98 per cent); and Sony Entertainment (Australia) Limited v Smith [2005] FCA 228 (40.79 per cent). If these cases are any guide, most awards seem to fall broadly within the range of 60 to 70 per cent of total costs and disbursements, although sometimes the award may amount to less than 40 per cent of total costs and disbursements. As Mr Sheahan pointed out, none of the cases appears to have allowed the proportion of total costs claimed by Telstra in this case (77.24 per cent). 34 In my view, however, costs assessments made in previous cases are of limited assistance in determining an appropriate order in the present case. Each award must depend on the particular circumstances and on the evidence adduced by the parties. Moreover, none of the cases to which I was referred involved costs anywhere near those incurred by Telstra, let alone the many other parties, in these proceedings. I therefore approach the assessment of the gross sum recoverable by Telstra with no particular preconceptions derived from previous cases as to the proposition of total costs and disbursements that would be appropriate.

REASONING 35 There was a good deal of common ground between the experts and, consequently, between the parties. The submissions identify four matters that explain the differences between the quantum of costs suggested by Telstra ($16 million) and the quantum proposed by Seven ($8.69 million). The parties' submissions, following the lead of the experts, start with the amount suggested by Telstra and address what reductions, if any, should be made to that figure by reason of the matters relied on by Mr Harris. I intend to follow much the same approach. In addressing this question, however, I intend to adopt the 'broad brush' suggested by the authorities, but to do so taking into account the expert evidence and the evidence given by Mr Forbes. 36 The four major matters in dispute between the parties are the following: (i) the discounts, if any, that are to be applied to the professional costs actually charged by Telstra's solicitors, after adjusting the actual hourly rates by reference to the rates allowed in Item 31 of Schedule 2; (ii) the hourly rates to be allowed for work performed by so-called 'unqualified contributors' (that is, staff without legal qualifications) and the discount, if any, to be applied; (iii) the amounts to be allowed for the fees charged by Telstra's counsel, particularly Mr Archibald QC; and (iv) whether Telstra is entitled to the fees charged by experts retained by it, given that none was apparently engaged for the purpose of giving evidence in the proceedings.

TELSTRA'S PROFESSIONAL COSTS 37 Ms Harris accepted that the rate specified in Item 31 of Schedule 2 would be applied to work performed by solicitors on behalf of Telstra, except when the work is covered by other items in the scale. She also agreed with Ms Ashe that a taxing officer would allow a loading of 35 per cent on the scale rate pursuant to Item 41 in a case of this complexity, for general care and conduct of the proceedings. 38 However, in Ms Harris' view, a taxing officer would be likely to reduce the total number of hours billed to Telstra by its solicitors (33,325.8) by 50 per cent to take account of a number of matters. The principal matters identified by Ms Harris include the following: · duplication of work, reflected in the apparently high number of internal conferences and work arising out of delegation, particularly involving solicitors who were not part of the 'core team'; · the large number of solicitors (up to nine) attending team meetings; · possible discrepancies in recording of time devoted to work for which charges were made; · multiple solicitors attending court to instruct, particularly in the early stages of the case; · apparent inefficiencies in the discovery process, whereby Telstra's solicitors reviewed many times the number of documents ultimately discovered by it, and in the scanning of documents for the database before reviewing them; · charges levied for administrative work that, in Ms Harris' opinion, would not be allowed on a taxation; and · the difficulties sometimes experienced in translating the solicitors' general record of time spent on work into a form acceptable for taxation purposes. 39 In her evidence, Ms Harris described the 50 per cent discount as: 'a global reduction taking into account generally the nature of the work and the descriptions of the work and the fact that there were multiple solicitors involved … and the other matters that I have set out in my report'. 40 On this basis, Ms Harris allowed $3,865,792.80 for Telstra's professional costs, being the number of hours allowed (16,662.90) multiplied by the weighted average of the Item 31 scale fee (on her calculations, $232 per hour). Ms Harris considered that this figure for professional costs should be reduced further to take account of the fact that the Item 31 hourly rate applies only to certain kinds of work. In her view, work such as attending counsel (Item 35) or instructing in court (Item 37) would attract lower hourly rates than Item 31, while some work performed by Telstra's solicitors appeared to relate to unskilled attendances. Ms Harris expressed the opinion that a taxing officer, having regard to these additional considerations, would reduce the allowance for professional fees by a further 40 per cent. 41 The result was an allowance of $3,131,292.17 for Telstra's professional costs, calculated as follows: $ Base scale fee (after a reduction of 50 per cent in chargeable hours) 3,865,792.80 Adjusted scale fees (allowing 60 per cent only) 2,319,475.68 Add general care and conduct loading of 35 per cent 811,816.49 Assessed professional costs 3,131,292.17 42 Ms Ashe's starting point for assessing the allowable professional costs was similar to that of Ms Harris. Ms Ashe adopted the same total hours (33,325.8). She also multiplied these hours by a weighted average of scale rates, but used slightly different figures to those adopted by Ms Harris. For the period before 16 August 2005 (the date of the offer of settlement made by the Respondents), Ms Ashe used an hourly rate of $227. For the period after 16 August 2005, she used an hourly rate of $252. 43 Ms Ashe, like Ms Harris, applied a loading of 35 per cent to the amounts calculated by reference to the scale to allow for the care and conduct of the proceedings. However, Ms Ashe then applied a reduction of only 25 per cent (compared with the successive reductions of 50 per cent and 40 per cent applied by Ms Harris). 44 Ms Ashe's calculations appear from the following table: Party and Party Costs Before 16 August 2005 Hours 23,651.2 Convert to scale ($227 per hour) $5,368,822.40 Add 35 per cent loading $7,247,910.24 Less 25 per cent reduction $5,435,932.68 Party and Party Costs After 16 August 2005 Hours 9,674.6 Convert to scale ($252 per hour) $2,437,999.20 Add 35 per cent loading $3,291,298.92 Less 25 per cent reduction $2,468,474.19 TOTAL $7,904,406.87 45 The difference between the amount allowed by Ms Ashe for Telstra's professional costs ($7,904,406.87) and the amount allowed by Ms Harris ($3,131,292.17) is $4,773,114.70. 46 Ms Ashe justified her approach on the ground that a reduction of only 25 per cent was appropriate in a complex case such as this, particularly giving full effect to the words 'or proper' in the 'necessary or proper' test stated in FCR, O 62 r 19 and in the case law reflected in Stanley v Phillips. Ms Ashe took the view, having regard to Mr Forbes' evidence, that Telstra had conducted its defence in 'a relatively efficient and economical manner', including taking advantage of the electronic database to minimise document-handling costs. 47 In her oral evidence, Ms Ashe noted that under the arrangements between Telstra and its solicitors, no separate charges had been made for photocopying by the solicitors themselves. Ms Ashe said that this was an important factor in limiting the discount that otherwise might apply, particularly as the reimbursement for photocopying tends to be relatively generous. Another factor she identified was that non-time based items under the scale could provide Telstra's solicitors with relatively high levels of reimbursement. In this respect, she pointed to the apparently generous allowances under the scale for 'perusal' or 'scan[ning]' of documents (Items 17, 18). Ms Ashe identified other quirks in the scale that, in her view, would counteract some of the matters upon which Ms Harris relied to support the application of cumulative discounts of 50 per cent and 40 per cent. 48 In evaluating the competing views of the experts, a number of matters should be borne in mind. They include the following: · As I explained, neither Ms Ashe nor Ms Harris has had experience in assessing costs in a case as complex and 'document-heavy' (Ms Harris' expression) as the present. Similarly, neither expert had (or could have had) access to all the material that would be available on a taxation of costs. It is no disrespect to them to observe that by reason of my own involvement in the proceedings, I am in a better position than they to assess whether certain kinds of work undertaken, or expenditure incurred, by Telstra's solicitors were necessary or proper for Telstra's defence. · Ms Harris accepted that her assessment of the appropriate discounts that would be applied to Telstra's professional fees on a taxation of costs necessarily was based on a comparison with less complex cases than the present case. Thus Ms Harris' assessment of the extent to which the work performed by Telstra's solicitors was necessary or proper for its defence rested to some extent on instinct and, in any event, was a task, as she said, of 'great difficulty'. · Ms Harris also accepted that on a taxation of costs, an allowance would be made for the internal photocopying undertaken by Telstra's solicitors notwithstanding that no separate charge was in fact levied for that service. She pointed out, however, that determining the allowance for large scale photocopying involves the exercise of a discretion by a Taxing Officer. · Mr Forbes' uncontradicted evidence explained the approach taken by Telstra's solicitors to the work performed in connection with the case. His evidence addressed some of the issues raised by Ms Harris and sought to establish that the work was necessary or proper for Telstra's defence and was carried out efficiently. I do not think that Mr Forbes' evidence necessarily fully answers all the concerns expressed by Ms Harris (bearing in mind that the disallowance of costs does not imply any wrongdoing or profligacy on the part of Telstra or its solicitors, but only that the charges were not 'necessary or proper' for the defence or otherwise not permissible under the scale). However, in my opinion, Mr Forbes' evidence suggests that substantially more of the professional services provided by Telstra's solicitors could be regarded as necessary or proper for Telstra's defence than Ms Harris was prepared to accept. In particular, I think that Mr Forbes' evidence demonstrates that, in general terms, the demands of the case justified the general approach taken by the solicitors to the discovery process and to the scanning of documents. · Mr Forbes identified a 'core' team of two partners (one of whom participated only prior to the hearing), three senior associates and a solicitor who worked on the case. The core team generated costs of $8.3 million, while another 100 or so 'fee earners' (to use Seven's description) generated costs of about $3.3 million. Seven relies on these matters as indicating that Telstra did not adopt an 'unusually frugal' approach and that the potential for duplication and inefficiency was 'manifest'. In my view, Seven's criticisms pay insufficient regard to the fact that most of the additional fee earners were paralegals, clerks or other non-legally qualified personnel. Moreover, having regard to the complexity and size of this case, much of which can be laid directly at Seven's door, I do not think that the bare figures necessarily indicate that substantial costs were incurred that were not necessary or proper for the mounting of Telstra's defence. Some allowance should be made for duplication, possible inefficiency and excessive caution, but it should be considerably more modest than the discount suggested by Ms Harris. · Ms Harris correctly pointed out that some items in Schedule 2 provide relatively low allowances for professional services (by comparison with time-based items). This feature of the scale should be taken into account in determining the appropriate allowance for professional fees incurred by Telstra in defending these proceedings. · Ms Ashe's assessment was that work covered by the relatively generous non-time based items in the scale would offset more or less entirely the reductions to the Item 31 rate that would flow from the application of less generous items to certain aspects of the work. This assessment seems to me to be a little optimistic (from Telstra's point of view), but nonetheless to have a good deal of force. · Any analysis of the costs necessarily or properly incurred by Telstra has to take account not only of the nature of the proceedings, but of the fact that Seven chose to rely on and persist with a very large number of allegations. Seven's approach meant that the case not only required a great deal of preparation and continuing work, but also necessitated Telstra (and the other Respondents) addressing an extraordinary range of factual and legal issues, not all of which survived until final submissions. 49 My overall assessment is that the cumulative discounts of 50 per cent and 40 per cent applied by Ms Harris (in effect limiting an award in respect of professional fees to 30 per cent of the costs actually incurred) substantially underestimate the costs that were necessarily and properly incurred by Telstra in mounting its defence in these complex and document-heavy proceedings. The discounts she suggested also seem to me substantially greater than could be applied on a taxation of Telstra's claim for costs on a party and party basis. Ms Ashe's approach is, I think, somewhat too generous to Telstra. But if attention is focussed only on the professional fees, my view is that the allowance should be closer to Ms Ashe's figure than to Ms Harris'. 50 Apart from the different reductions applied by Ms Ashe and Ms Harris, their calculations differed slightly by reason of the variations in the weighted average hourly rates each adopted. If Ms Ashe's calculations are rounded down, her allowance for professional costs, before any loading or reduction, is $7.8 million. A loading of 35 per cent increases that figure to $10.53 million. A reduction of 35 per cent applied to $10.53 million produces allowable costs of approximately $6.84 million. This figure is some $1,054,000 less than that allowed by Ms Ashe, but about $3.7 million more than allowed by Ms Harris. For the purposes of assessing an appropriate gross sum costs order, the figure of $1,054,000 can conveniently be rounded down to $1 million.

Non-Professional Staff 51 For most of the period during which this litigation was on foot, Item 31 of the Schedule 2 (reproduced at [20] above) provided an allowance for an 'attendance that requires the attendance of [a] managing clerk' of between $45 and $52 per hour. Ms Ashe expressed the view that Item 31 insofar as it relates to work performed by non-legally qualified staff: 'fails to have regard to the way in which modern litigation is conducted, particularly where substantial resources are devoted to the production and management of electronic databases.' 52 Ms Ashe took as her starting point undisputed evidence given by Mr Forbes that 'unqualified contributors' spent 6795 hours on the matter, at a billed cost to Telstra of $970,443. In Ms Ashe's view, given the inappropriateness of the scale in relation to this work, an award of $125 per hour would be allowed at taxation on a party and party basis. From the figure so derived ($849,375), Ms Ashe deducted 25 per cent, producing a gross sum of $637,031 in respect of unqualified contributors. 53 In her second report, Ms Ashe argued that Item 50 of Schedule 2 (reproduced at [23] above), which allows a just and reasonable rate for work not provided for in Schedule 2, could be used to justify a reasonable hourly allowance for unqualified contributors. This contention rests on the expression 'managing clerk', as used in Item 31, being interpreted as inapplicable to most, if not all, of the work performed by unqualified contributors. 54 Ms Harris took an approach less generous to Telstra. She argued that a taxing officer would be bound to apply the Item 31 rate for a 'managing clerk' when assessing the allowance for work performed by unqualified contributors. She adopted a midpoint hourly rate of $52 for this purpose. Ms Ashe also considered that the total number of hours would be reduced by 40 per cent to take account of factors such as the very low scale rates allowed for certain types of work done by unqualified contributors (even lower than $52 per hour). According to Ms Harris, a reduction of 40 per cent adequately allowed for the countervailing effect of certain items that provide more generously for work done by unqualified contributors. Ms Harris then added the care and conduct loading of 35 per cent. 55 In the result, Ms Harris allowed $143,111 for work performed by unqualified contributors. The calculation was as follows (allowing for minor errors): Allow 50 per cent of actual hours (6795) 3397.5 Multiply by $52 per hour $176,670 Allow 60 per cent of total $106,002 Add loading of 35 per cent $ 37,101 TOTAL $143,103 The difference between the figure allowed by Ms Ashe for unqualified contributors and that allowed by Ms Harris is $493,928. 56 In my view, it would not be open to a taxing officer simply to ignore Item 31 of Schedule 2 on the ground that the scale allowance is inappropriate to modern litigation. Moreover, as Ms Ashe herself implied, the figure of $125 per hour for unqualified contributors is not grounded in empirical information. 57 On the other hand, the expression 'managing clerk', which is used in Item 31, is not only outdated, but fraught with ambiguity. The evidence suggests that the expression is given a broad interpretation in practice by taxing officers. Nonetheless, as Ms Harris accepted in her evidence, it is difficult to see how Item 31 would cover most, if not all, of the technological support provided in this case by so-called unqualified contributors. I have in mind particularly the very considerable work done in relation to the establishment and operation of electronic databases and the processing of documents in electronic form. Much of this work, although performed by people without legal qualifications, is likely to have required specialised skills. 58 I think the best that can be done in relation to costs attributable to unqualified contributors is to place the competing considerations into a melting pot. If this were done, the figure of $52 per hour would be increased by the allowance of a substantially higher rate for skilled technological support services and other specialised contributions. It would also be increased by the uplift of 35 per cent allowed for care and conduct of the proceedings. The hourly rate would be decreased to take account of any duplication of work or inefficiencies in the use of paralegals or clerks. Adjustments would have to be made for specific scale items that would have the practical effect of lowering or increasing the hourly rate provided by Item 31, although I suspect that they would tend to cancel each other out. 59 I think that an appropriate allowance for unqualified contributors in the circumstances of this case would be the figure derived by simply multiplying the relevant number of hours (6795) by the adjusted scale rate ($52). The figure so derived is $353,340. This amount is in the order of $300,000 less than that allowed by Ms Ashe.

Counsel's Fees 60 Seven raises two substantial issues in relation to the allowances for the fees charged by Telstra's counsel: · the rates to be allowed for Telstra's senior counsel, Mr Archibald QC, and travel expenses associated with engaging Melbourne senior counsel for a case to be heard in Sydney; and · the extent of the reductions, if any, to be applied to counsel's fees to take account of any duplication of work or unnecessary preparation. 61 Telstra retained senior counsel (Mr Archibald QC) and two junior counsel (Mr Castle and Mr Pike) for these proceedings. The total fees charged by counsel amounted to approximately $5.9 million, exclusive of GST. A high proportion of this amount, some 80 per cent, related to out of court work. 62 Mr Archibald appeared in court on 50 days. He charged for 236 non-court days. His daily rates, exclusive of GST, ranged from approximately $8800 in 2002-2003 to approximately $11,800 in 2006-2007. Mr Archibald's total fees, exclusive of GST and after deducting travel expenses, amounted to $3,396,060. 63 Since Mr Archibald was based in Melbourne, Telstra incurred travel and accommodation expenses of some $80,000 for Mr Archibald and for solicitors travelling to Melbourne to confer with him. Ms Harris' view was that the expenses for travel and accommodation were unnecessary, as Telstra could have briefed Sydney counsel of the appropriate seniority. Ms Ashe was prepared to allow 50 per cent of the travel and accommodation costs associated with the engagement of Mr Archibald. 64 Ms Ashe allowed Mr Archibald's fees for court work more or less in full (a total of $555,000, being 50 days at $11,100 per day). She calculated Mr Archibald's actual fees for 236 days of out of court work as amounting to $2,501,600. Ms Ashe allowed 75 per cent of that figure, being $1,876,200. Thus her total allowance in respect of Mr Archibald's fees was $2,469,200. 65 Ms Harris, as I followed her reasoning, allowed $8,000 per day in respect of Mr Archibald's 50 days of court work, a total of $400,000. This figure, so she calculated, amounted to 71.37 per cent of Mr Archibald's actual fees. She said that she applied that percentage to the actual fees of $2,841,514 for out of court work. This was said to produce a figure for out of court work of $2,024,447, although on my calculations the correct figure is $2,027,989. (For some reason, Ms Harris took Mr Archibald's actual fees for out of court work to be $2,841,514, while Ms Ashe took the amount to be $2,501,600). 66 Ms Harris then applied a further discount of 55 per cent to the allowance for Mr Archibald's out of court work, on the grounds, among others, that some fees notes did not enable the work performed to be identified with precision and that some of the work was covered by specific costs orders. (That is, Ms Harris allowed only 45 per cent of Mr Archibald's adjusted fees.) This reduced the allowance for Mr Archibald's out of court work to $910,695 (again my calculations are slightly different, but nothing turns on the difference). 67 The result was that Ms Harris allowed $1,310,695 ($910,695 plus $400,000) in respect of Mr Archibald's fees, or 38.59 per cent of the fees actually charged by him. The difference between Ms Harris' allowance and Ms Ashe's ($2,469,200) is $1,158,505. 68 Mr Castle, the more senior of the two junior counsel, charged fees (on Ms Ashe's calculations) totalling $1,606,012, of which approximately $486,750 represented payment for 118 days of court work. The balance was assessed by Ms Ashe at $1,223,200 (although her figures do not exactly reconcile). Ms Ashe allowed the appearance fees in full and 85 per cent of the charges for out of court work. This produced, on her calculations, a figure of $1,526,470. 69 Ms Harris worked from slightly different figures. She allowed $490,875 for Mr Castle's court work, being her calculations of the total fees charged by Mr Castle for 119 (not 118) days of hearings. However, she allowed only 70 per cent of the actual charges for Mr Castle's out of court work (which she calculated at $1,129,787), being the sum of $790,851. Thus Ms Harris allowed $1,281,726 in all ($490,875 plus $790,851), or $244,744 less than Ms Ashe. 70 Mr Pike charged fees (as both experts agree) totalling $840,225. Ms Ashe allowed 58.5 days of court work at $2,500 per day, amounting to $146,250. She allowed 90 per cent of the balance, which she assessed at $748,000, resulting in an allowance for out of court work of $673,200. The total allowance, on Ms Harris' calculations, was therefore $819,450 ($146,250 plus $673,200). (Again Ms Ashe's figures do not seem to reconcile.) 71 Ms Harris reduced the allowance for Mr Pike's appearance work to $2,000 per day, producing a figure of $117,000. She allowed 35 per cent of the actual fees for Mr Pike's out of court work (which she calculated at $566,103), amounting to $198,165. Thus Ms Harris allowed $315,165 in total in respect of Mr Pike's fees ($117,000 plus $198,165), or $504,285 less than that allowed by Ms Ashe. 72 In my view, it was necessary or proper for Telstra's defence of these proceedings for it to engage a senior counsel of Mr Archibald's experience and standing, together with two junior counsel of the experience and standing of Mr Castle and Mr Pike. As I have already noted, not only were the issues in this case complex and the amount of documentation vast, but the complexity and sheer size of the litigation were directly attributable to the manner in which Seven chose to conduct its case. A great amount of work and skill was required to address and answer the allegations made against Telstra. 73 It is quite true that Telstra played a relatively passive role during segments of the trial, but it was not feasible, in my view, for a party in Telstra's position to reduce its representation in court substantially below the levels it in fact had. Mr Archibald was in court for only 50 of the 120 hearing days (although that was partly because he was unavailable for the presentation of final oral submissions) and Mr Pike for under 60 days. In my view, the extent of Telstra's representation in court involved no substantial element of duplication, excessive caution or the like. 74 The extent of out of court work performed by Telstra's counsel was very considerable, amounting to nearly 800 days. However, in assessing this commitment of resources it is necessary to bear in mind the nature and complexity of the case, the vast amount of documentation, the issues of fact and law peculiar to Telstra (including some ultimately not pressed by Seven) and the need for continuity of representation. In these circumstances, the extent of the out of court work performed by counsel does not seem to me to have gone obviously beyond what the necessary or proper defence of the proceedings required. 75 This does not mean that there should be no reductions in the allowances in respect of counsel's fees. The reductions should take account of a number of matters, including the following: · I am not convinced that it was necessary or proper (in the relevant sense) for Telstra to engage senior counsel from Melbourne, as distinct from Sydney. In my view, travel expenses connected with Mr Archibald's retainer would not be allowed on a taxation. · Mr Archibald's daily fees, for the purposes of costs recovery, should be capped at about $8,000 (allowing for market considerations and the variations in fees charged over time). · Reductions should be made in the fees charged for out of court work (over and above the capping of the allowance for Mr Archibald's fees). Both experts agreed that reductions were appropriate but they disagreed on the quantum of the reductions. 76 The last item is the most significant in relation to the assessment of an allowance for counsel's fees. Once again, I consider that Ms Harris' proposed reductions are too great. I think she was influenced by her perception - which I do not share - that Telstra's retainer of a very experienced senior counsel and two junior counsel for more or less the entirety of the proceedings was not necessary or proper for its defence. I think that Ms Harris was also unduly influenced by the apparent disparity between the number of days spent in court and the much greater number of days in which counsel undertook work out of court. 77 Reductions should be made, however, to reflect the likelihood that there was some duplication of work among counsel or between counsel and solicitors. No doubt, too, some fees charged by counsel would not be recoverable on a taxation, for example because the work related to the market experts who were not to be called or because recovery would be inconsistent with costs orders made by the Court. Other charges, if scrutinised in the manner required by a taxation, probably would be found to relate to peripheral issues and thus would not be characterised as necessary or proper to Telstra's defence. 78 In my view, these matters would be appropriately recognised if the fees charged by counsel for out of court work (in Mr Archibald's case the fees capped in the manner I have suggested) were reduced by 35 per cent. 79 In broad terms, therefore, the allowance for counsel's fees should be in the order of $3.3 million, comprising: · $400,000 in respect of appearance fees for Mr Archibald; · approximately $600,000 in respect of appearance fees for Messrs Castle and Pike; · approximately $1.2 million in respect of out of court work performed by Mr Archibald; · approximately $1.1 million in respect of out of court work performed by Messrs Castle and Pike (doing the best I can with the various figures used by the experts). The allowance of $3.3 million is approximately $1.5 million less than the allowances made by Ms Ashe for the fees of senior and junior counsel

Experts 80 Two issues arise in relation to the allowance sought by Telstra for the costs incurred in retaining experts: · Ms Ashe allowed 100 per cent of the costs incurred by Telstra as its share of retaining the damages experts who were called by the News or PBL Respondents, while Ms Harris allowed only 95 per cent. The difference amounts to approximately $100,000. · Telstra retained three consultants to advise on market issues, none of whom was called as a witness in the proceedings. Ms Ashe allowed 95 per cent of the consultants' fees, while Ms Harris made no allowance for these fees on the ground that a taxing officer would not make an allowance for consultants who were not to be called. The costs incurred by Telstra in engaging the three consultants amounted to approximately $270,000. 81 Telstra contributed one third of the costs of engaging experts on damages-related issues. Each of the experts was called to give evidence by either the News or PBL parties (who apparently paid the other two-thirds of the costs), thus relieving Telstra from the necessity of calling evidence on these issues. Ms Ashe expressed the view that the totality of these costs would be allowed on a taxation. I am not persuaded by Ms Harris' evidence that a taxing officer, in the circumstances of this case, would reduce the actual amounts paid in respect of the experts. 82 Telstra engaged two consultants with expertise in markets, Dr Ergas and Mr Ordover, relatively early in the proceedings. They were engaged in order to advise Telstra on claims that its advisors apparently thought Seven was likely to bring by reference to the markets for internet and telephony services. However, at no time did Telstra plead any such claims. In my view, it was neither necessary nor proper for Telstra to spend over $200,000 on experts whose advice was not ultimately required for Telstra's defence of the proceedings. The prudent course was to defer engaging the experts unless and until Seven pleaded a case based on the markets in relation to which Dr Ergas and Mr Ordover could provide expert advice. 83 The third market expert, Mr Pleatsikas, falls into a different category. He gave advice in order to assist Telstra's senior counsel in the cross-examination of Seven's market experts. It is true that Mr Pleatsikas was not called by Telstra to give evidence, but that does not mean that his advice on market issues was not necessary or proper for Telstra's defence. It would only encourage parties to prolong proceedings if the costs of engaging an expert could be recovered only if the expert gives evidence in Court. I see no reason not to allow Telstra to recover the costs (approximately $60,000) of engaging Mr Pleatsikas. 84 The result is that I think it appropriate to reduce the amounts allowed to Telstra by Ms Ashe in respect of the costs of engaging expert witnesses by about $200,000, in round numbers.

CONCLUSION 85 A gross sum costs order in favour of Telstra should reflect, in a very broad sense, a number of deductions from the figure of $16 million supported by Telstra. The deductions, which have been explained earlier in this judgment, are as follows: · Professional costs : $1.0 million; · Unqualified contributors : $0.3 million · Counsel's fees : $1.5 million · Experts' fees : $0.2 million $3.0 million 86 These deductions suggest that it would be appropriate, pursuant to O 62 r 4(2)(c), to order Seven to pay Telstra's costs in a gross sum of $13 million. This figure represents 62.75 per cent of Telstra's actual costs and disbursements incurred up to the date of the Principal Judgment. 87 If the matter is viewed simply as an assessment by reference to the percentage of total costs and disbursements an award of approximately 63 per cent seems to me well within the appropriate range, taking into account the particular circumstances of this case. 88 As I have explained, the assessment of a gross sum costs order requires a broad brush. I do not wish to create the impression that the exercise is in truth more precise than it is. The figures supported by Ms Ashe and Ms Harris, which I have taken as my starting points, involve matters of evaluation and judgment. I have used those figures as the basis for my analysis because to do so is consistent with the approach taken by the parties. It also has the advantage of concentrating on the narrow range of issues identified by the parties in their submissions. The fact that some of the figures I have used are precise down to the last dollar should not obscure the elements of evaluation and judgment in my own assessment. 89 I propose to make an order pursuant to O 62 r 4(2)(c) that Seven pay Telstra the sum of $13 million in respect of the costs incurred by it in the proceedings. All previous costs orders between Seven and Telstra should be vacated. Any such orders were taken into account by the experts in preparing their reports and have also been taken into account by me in my assessment. 90 Telstra invited me to include in the gross sum an allowance for costs that have been incurred since the delivery of judgment, including the costs incurred in relation to indemnity costs application. I have insufficient material before me to do this. However, my impression is that an order requiring each party to bear its own costs incurred after the date of the Principal Judgment would be a fair and reasonable result, bearing in mind that Telstra's application for indemnity costs did not succeed. In any event, the parties should be able to resolve this issue without further recourse to the Court.

I certify that the preceding ninety (90) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Sackville.

Counsel for the First and Second Applicants (Seven parties): Mr J C Sheahan SC and Mr J A Halley Solicitors for the First and Second Applicants (Seven parties): Freehills Counsel for the Third, Fifth and Sixth Respondents (Telstra parties): Mr T D Castle and Mr I R Pike Solicitors for the Third, Fifth and Sixth Respondents (Telstra arties): Mallesons Stephen Jaques Date of Hearing: 10 December 2007 Date of Judgment: 20 December 2007

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