Strategic Financial and Project Services Pty Limited v Bank of China

JUDGE: ROBERTSON J DATE: 14 NOVEMBER 2012 PLACE: SYDNEY

REASONS FOR JUDGMENT 1 Before the Court is an interlocutory application filed on behalf of the second respondent, the Commonwealth Bank of Australia, on 9 October 2012, as amended. The interlocutory orders sought are: 1. Pursuant to Rule 40.02 of the Federal Court Rules 2011, the second respondent's costs of the proceeding be awarded in a lump sum of $550,000, instead of any taxed costs. 2. The District Registrar (NSW Registry) call on the bank guarantee for $200,000 lodged by the applicants as security for costs of the second respondent to the extent of $200,000, and that amount be paid out to the second respondent. 3. The applicants, having been credited in order 1 for the costs order made in their favour on 26 May 2010, are not entitled to any further order as to costs as against the second respondent. 2 There was no appearance by or on behalf of the applicants. I am, however, satisfied that the application came to their attention and they had an opportunity to appear and be heard. I refer to the affidavit of Ms Tyneil Flaherty sworn 12 November 2012 and the affidavit of Ms Marija Isajlovska sworn 13 November 2012. I also note the matter was called outside the Court and there was no appearance by or on behalf of the applicants. 3 The relevant history of the matter is set out in the reasons I gave on 29 June 2012 and 13 July 2012: Strategic Financial and Project Services Pty Ltd v Bank of China [2012] FCA 701 and Strategic Financial and Project Services Pty Ltd v Bank of China [2012] FCA 757. 4 I refer also to the consent orders I made on 30 April 2012 that the applicants provide additional security for the second respondent's costs of and incidental to the proceeding in the sum of $300,000, such that the total security, at that stage, for the second respondent's costs of and incidental to the proceeding was $500,000. Further consent orders made on 30 April 2012 were that the bank guarantee required to be given be lodged with the Court by 21 May 2012 and that the proceeding be stayed as against the second respondent until security for its costs had been provided in accordance with the consent order for additional security. 5 On 29 June 2012 I ordered that if the applicants did not, by 9.00 am on 13 July 2012 comply with the consent order for additional security made by me on 30 April 2012, the proceeding against the second respondent be dismissed with the applicants to pay the second respondent's costs. 6 On 13 July 2012 I ordered that the proceeding against the second respondent be dismissed and the applicants pay the second respondent's costs. This was in default of the applicants providing the additional security which I had ordered in the consent order of 30 April 2012. It is implicit in the order of 13 July 2012 that the applicants pay the second respondent's costs that those costs were to be as agreed or taxed; see also r 40.12. 7 As to the security referred to in proposed order 2 of the interlocutory application, a bank guarantee for $200,000 was lodged with the Court on or about 15 October 2009, and replaced on or about 13 November 2009, on behalf of the applicants as security for the costs of the second respondent pursuant to an order of Moore J made on 5 June 2009. 8 In Strategic Financial and Project Services Pty Limited v Bank of China [2012] FCA 1008 I considered and allowed an interlocutory application for a lump some costs order made by the first respondent. 9 On the present substantive application, the second respondent read the following affidavits: (i) the affidavit of Scott Andrew Atkins sworn 7 October 2012; (ii) the affidavit of Elizabeth Harris sworn 17 September 2012 (iii) a further affidavit of Tyneil Flaherty sworn 13 November 2012. In Mr Atkins' affidavit of 7 October 2012 he referred to paragraphs 5 to 20 and 21 to 65 of an affidavit sworn by him on 28 February 2012 and paragraphs 5 to 10 of an affidavit sworn by him on 4 April 2012. Ms Flaherty's affidavit went to compliance with Practice Note CM 4 and in support of the figure of $550,000, reduced from $665,000, in the amended interlocutory application. 10 In paragraphs [11]-[15] which follow, I adopt, to the extent relevant, the reasons I gave in Strategic Financial and Project Services Pty Limited v Bank of China [2012] FCA 1008 in respect of the first respondent's application for a lump sum costs order. 11 The second respondent relied on r 40.02 of the Federal Court Rules 2011 (Federal Court Rules), particularly its reference to a party "who is entitled to costs", as the source of power to make an order that the costs be awarded in a lump sum instead of any taxed costs. I note also s 43(3)(a) of the Federal Court of Australia Act 1976 (Cth) (Federal Court Act) which provides: Without limiting the discretion of the Court or a Judge in relation to costs, the Court or Judge may do any of the following: (a) make an award of costs at any stage in a proceeding, whether before, during or after any hearing or trial; I agree that I have power to make a lump sum costs order. Such an order is ancillary to the order I made on 13 July 2012 that the applicants pay the second respondent's costs, and deals only with the mode of arriving at a figure. 12 To the extent necessary, the orders of 13 July 2012 having been entered, I would also act under r 39.05(f) of the Federal Court Rules on the basis that the second respondent consents to the varying of the order or under r 39.05(e) on the basis that the intention of the Court in making the order on 13 July 2012 was not to exclude the second respondent from applying as it has done for an order that its costs of the proceeding be awarded in a lump sum, instead of any taxed costs. 13 The factors which in earlier cases have been taken into account by the Court in exercising the discretion to make a lump sum costs order include where the delay, expense and inconvenience of taxing costs in the normal manner would be unduly protracted or unduly expensive and where the financial capacity of the party liable to pay costs is such that the additional cost of taxation would impose a significant burden on the party in whose favour costs are ordered without real prospects of recovering those costs: see CMA Corporation Limited v McSorley (No 2) [2012] FCA 732 (McSorley) at [6] where I applied Bitek Pty Ltd v IConnect Pty Ltd (2012) 290 ALR 288 at [15] per Kenny J and Dunstan v Human Rights and Equal Opportunity Commission (No 3) [2006] FCA 916 at [23]-[24] per Mansfield J. This approach is consistent with the requirements of s 37M of the Federal Court Act. 14 In McSorley I also applied the observations of von Doussa J in Beach Petroleum v Johnson (No 2) (1995) 57 FCR 119 at 123 where his Honour referred to the need to balance the interests of the party against whom a lump sum costs order is sought as against the interests of the party seeking such a costs order and preventing prejudice to the unsuccessful party by overestimating the costs and preventing injustice to the successful party by adopting an arbitrary failsafe discount on the costs estimate. 15 I am satisfied that the preparation of a detailed bill of costs for the purposes of a taxation would be both time-consuming and expensive. Mr Atkins' evidence was that in his experience the process of taxation, from briefing an appropriate expert to the taxation itself, was likely to take between approximately 5 to 12 months. The second respondent's expert legal costs consultant, Ms Elizabeth Harris, estimated that the time involved in preparing an itemised bill of costs and proceeding to a full taxation was between 7 and 11 months. Mr Atkins also gave evidence that the costs of the taxation would be in the vicinity of $100,000 if the taxation was straightforward and proceeded unopposed. Ms Harris gave her opinion that a fair estimate of the costs involved was between $84,000 and $112,000. 16 I am also satisfied that the applicants are unlikely to be able to discharge the costs liability the subject of the orders I made on 13 July 2012 as they have been unable to satisfy the security for costs orders I made by consent on 30 April 2012. The circumstances are referred to in my reasons for judgment on 29 June 2012 and 13 July 2012: Strategic Financial and Project Services Pty Ltd v Bank of China [2012] FCA 701 and Strategic Financial and Project Services Pty Ltd v Bank of China [2012] FCA 757. I am further satisfied that if the second respondent were required to proceed with a taxation of its costs that would produce further costs which would be likely to be unrecoverable from the applicants. 17 As to the relevant calculations I find that the second respondent has incurred solicitor/client costs in the proceedings of approximately $1,087,719. 18 I also find that the costs order made on 26 May 2010 in favour of the applicants on the second respondent's unsuccessful strikeout application would be approximately $50,000. 19 I also find that the costs referable to the consent order I made on 30 April 2012, that each of the present parties bear their own costs of the application for additional security, total approximately $15,000 on the part of the second respondent. 20 Thus, I find the second respondent's total solicitor/client costs to date, not including the amounts in the immediately preceding two paragraphs, to be approximately $1,022,719. 21 Mr Atkins estimated that the second respondent's recoverable costs of the proceeding to date are likely to be no less than approximately 70 percent of the second respondent's total costs of the proceeding to which the applicants are liable, being no less than $715,903.30. Assuming that the applicants' costs in relation to the 26 May 2010 costs order would be no more than the costs incurred by the second respondent, an allowance of $50,000 towards those costs would be reasonable. This would result in a net payment to the second respondent towards its costs of $665,903.30. 22 I also accept the opinion of the second respondent's expert costs consultant, Ms Harris. It was her opinion that a fair estimate of the costs that would be recoverable by the second respondent in a costs assessment pursuant to the orders of 13 July 2012 was $761,047, excluding the costs the subject of the order on 26 May 2010 and the costs of the interlocutory application for increased security, the subject of the order made on 30 April 2012. Ms Harris provided detailed calculations and reasoning in support of her opinion. 23 Ms Flaherty's evidence was to the effect that there were three levels of discount built in to the lump sum figure of $550,000 now claimed. The first was that the amount of solicitor/client costs was reduced by 40 percent rather than the 30 percent figure used by Mr Atkins. The second reduction was an amount of $50,000 so as to include a buffer, being the difference between solicitor/client and party/party costs on the application in respect of which the applicants were awarded costs. The third level of discount was rounding down the result by $13,631.40 to arrive at a conservative lump sum estimate of $550,000. I accept Ms Flaherty's reasons and calculations. 24 I am satisfied that it is appropriate to make a lump sum order in the amount of $550,000. This sum represents, on the evidence, a substantial discount from the amount that would be recovered by the second respondent on any party/party taxation of its costs, making allowances for the costs orders to which I have referred. 25 An appropriate form of order in relation to the security given by bank guarantee is: The District Registrar (New South Wales Registry) call on the bank guarantee for $200,000 lodged on or about 15 October 2009 and replaced on or about 13 November 2009 as security for costs of the second respondent to the extent of $200,000, and that amount be paid out to the second respondent. 26 Since no amount remains it does not seem to me to be necessary otherwise to make an order releasing the guarantee. 27 For these reasons I make the following orders: 1. Pursuant to Rule 40.02(b) of the Federal Court Rules, the second respondent's costs of the proceeding be awarded in a lump sum of $550,000, instead of any taxed costs. 2. The District Registrar (NSW Registry) call on the bank guarantee for $200,000 lodged on or about 15 October 2009 and replaced on or about 13 November 2009 as security for costs of the second respondent to the extent of $200,000, and that amount be paid out to the second respondent. 3. The applicants having been credited in order 1 for the costs order made in their favour on 26 May 2010 and allowance having been made in order 1 for the consent order made on 30 April 2012 that the applicants and the second respondent bear their own costs, any and all costs orders between the applicants and the second respondent be discharged. I certify that the preceding twenty seven (27) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Robertson.