FEDERAL COURT OF AUSTRALIA Bitek Pty Ltd v IConnect Pty Ltd [2012] FCA 506 Citation: Bitek Pty Ltd v IConnect Pty Ltd [2012] FCA 506 Parties: BITEK PTY LTD ACN 084 308 207 v ICONNECT PTY LTD ACN 129 382 341 and ABEDEL-GUNE CHAKIELLI File number: VID 1249 of 2011 Judge: KENNY J Date of judgment: 17 May 2012 Catchwords: COSTS – indemnity costs – party and party costs –Federal Court Rules – rule 40.02(b) – lump sum costs – circumstances that warrant lump sum costs – evasion of service – failure to attend directions hearing – failure to co-operate in the progress of the litigation – failure to comply with court orders – principles for fixing lump sum costs. Legislation: Federal Court Rules 2011 (Cth) Federal Court of Australia Act 1976 (Cth) Cases cited: Ruddock v Vadarlis (No 2) (2001) 115 FCR 229 Colgate-Palmolive Company v Cussons Pty Limited (1993) 46 FCR 225 Re Wilcox: Ex parte Venture Industries Pty Ltd (No 2) (1996) 72 FCR 151 Bitek Pty Ltd v IConnect Pty Ltd [2012] FCA 133 Hamod v New South Wales (2002) 188 ALR 659 Beach Petroleum NL v Johnson (No 2) (1995) 57 FCR 119 Su v Australian Fisheries Management Authority (No 3) [2008] FCA 2018 Dunstan v Human Rights and Equal Opportunity Commission (No 3) [2006] FCA 916 Smart Company Pty Ltd (in liq) v Clipsal Australia Pty Ltd (No 7) [2011] FCA 1359 Keen v Telstra Corporation Ltd (No 2) [2006] FCA 930 Hadid v Lenfest Communications Inc [2000] FCA 628 Hamod v State of New South Wales and Anor [2011] NSWCA 375 Canvas Graphics Pty Ltd v Kodak (Australasia) Ptd Ltd [1998] FCA 23 Harrison v Schipp (2002) 54 NSWLR 738 Auspine Ltd v Australian Newsprint Mills Ltd (1999) 93 FCR 1 Date of hearing: Determined on the papers Place: Melbourne Division: GENERAL DIVISION Category: Catchwords Number of paragraphs: 24 Counsel for the Applicant: Mr G Fitzgerald Solicitor for the Applicant: Norman Waterhouse Counsel for the Respondents: No submissions by the Respondents IN THE FEDERAL COURT OF AUSTRALIA VICTORIA DISTRICT REGISTRY GENERAL DIVISION VID 1249 of 2011 BETWEEN: BITEK PTY LTD ACN 084 308 207 Applicant AND: ICONNECT PTY LTD ACN 129 382 341 First Respondent ABEDEL-GUNE CHAKIELLI Second Respondent JUDGE: KENNY J DATE OF ORDER: 17 MAY 2012 WHERE MADE: MELBOURNE THE COURT ORDERS THAT: 1. The respondents pay the applicant's costs of the proceeding: (a) for the period 18 November 2011 to 13 December 2011 inclusive, on an indemnity basis; and (b) for the period 14 December 2011 to 24 February 2012 inclusive, on a party and party basis. 2. Pursuant to rule 40.02(b) of the Federal Court Rules 2011, the costs in paragraph 1 above be fixed in the sum of $47,279.94. 3. The applicant's costs of the proceeding incurred after 24 February 2012 be reserved. 4. The parties have liberty to apply on reasonable notice. Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011. IN THE FEDERAL COURT OF AUSTRALIA VICTORIA DISTRICT REGISTRY GENERAL DIVISION VID 1249 of 2011 BETWEEN: BITEK PTY LTD ACN 084 308 207 Applicant AND: ICONNECT PTY LTD ACN 129 382 341 First Respondent ABEDEL-GUNE CHAKIELLI Second Respondent JUDGE: KENNY J DATE: 17 MAY 2012 PLACE: MELBOURNE REASONS FOR JUDGMENT 1 These reasons for judgement concern the costs payable to date by the respondents to the applicant in this proceeding. 2 On 24 February 2012, the Court granted the applicant's application for judgment in default pursuant to Rule 5.23(2) of the Federal Court Rules 2011 (Cth) ("the Rules"). Also that day, the Court ordered that the applicant file and serve an affidavit as to costs and a minute of proposed orders. In accordance with these orders, the applicant filed a minute of proposed orders and an affidavit sworn by its solicitor, Gregory Ralph Tye, on 23 March 2012. By its minute of proposed orders, the applicant seeks the following: 1. The costs of the applicant incurred up to and including 24 February 2012 in relation to the proceeding shall be paid by the Respondents. 2. Such costs be awarded pursuant to rule 40.02 of the Federal Court Rules 2011 (Cth) in a lump sum totalling $47,279.94 comprising: a. the sum of $5,931.42, determined on a solicitor/own client basis for costs incurred by the applicant during the period from 18 November 2011 to 13 December 2011 inclusive; and b. the sum of $20,928.81, determined on a party and party basis for costs incurred by the applicant during the period from 13 December 2011 to 24 February 2012. c. the sum of $20,419.71 for disbursements. 3. Any costs of the applicant incurred after 24 February 2012 in relation to the proceeding are reserved. 3 Section 43 of the Federal Court of Australia Act 1976 (Cth) confers upon the Court a wide discretion in relation to costs. This discretion must be exercised judicially, having regard, amongst other things, to the relevant provisions of the Rules. Rule 40.02 provides that a party may apply to the Court for an order that costs: (a) awarded in [its] favour be paid other than as between party and party; or (b) be awarded in a lump sum, instead of, or in addition to, any taxed costs; or (c) be determined otherwise than by taxation. 4 Since the applicant has been successful in its default judgment application, it is appropriate that the respondents pay its costs up to 24 February 2012 when judgment was delivered: see Ruddock v Vadarlis (No 2) (2001) 115 FCR 229 ("Ruddock v Vadarlis (No 2)") at 234 per Black CJ and French J. The usual rule is that costs are payable on a party and party basis, unless the particular circumstances of the case warrant a departure from the normal course: see Rule 40.02. The applicant seeks an award of costs on an indemnity basis for the period 18 November to 13 December 2011 inclusive; and thereafter costs on a party and party basis. 5 Though concerned with the former Rules, the principles as to the payment of indemnity costs set forth by Sheppard J in Colgate-Palmolive Company v Cussons Pty Limited (1993) 46 FCR 225 at 233 and in the reasons for judgment of Black CJ and of Cooper and Merkel JJ in Re Wilcox: Ex parte Venture Industries Pty Ltd (No 2) (1996) 72 FCR 151 at 152-153 and 156-158 continue to apply where an order for indemnity costs is sought. The critical question is whether the particular facts and circumstances of the case in the period 18 November 2011 to 13 December 2011 justify the making of a costs order on an indemnity (i.e., solicitor and client) basis. 6 In his affidavit of 23 March 2012, Mr Tye deposed: Costs on a solicitor and own client basis are sought for attendances undertaken in the period from 18 November 2011 to 13 December 2011 ("the Indemnity period"), on the grounds that the Respondent caused costs to be unnecessarily incurred by evading or failing to co-operate to allow service on him, and by failing to attend the directions hearing set down for 13 December 2011. 7 For the reasons I am about to state, I accept that, in the special circumstances of this case, it is appropriate to make an indemnity costs order in respect of the period from 18 November 2011 to 13 December 2011 inclusive, as the applicant seeks. 8 The nature of the proceeding is described in my earlier reasons for judgment in this proceeding: see Bitek Pty Ltd v IConnect Pty Ltd [2012] FCA 133. The pertinent facts (as deposed to by Mr Tye in affidavits sworn on 9 December 2011 and 3 February 2012) are as follows. 9 The applicant filed an originating application and statement of claim on 10 November 2011. Over the following weeks, the applicant made numerous unsuccessful efforts to elicit an appropriate response from the respondents. Amongst other things, the applicant, by his solicitor: emailed the originating application, the statement of claim and the genuine steps statement to respondents on 11 November 2011. shortly thereafter, sent the same documents by registered post to the first respondent's registered office and principal place of business. The documents were later returned in an envelope bearing the notation "refused". on 16 November 2011, emailed the respondents for, amongst other things, details of an address for service; on 18 November 2011, following the return of the documents sent by registered post, telephoned the second respondent's mobile telephone number and spoke with "Adam" – a name adopted by the second respondent. In conversation, "Adam" indicated that he knew of the proceeding and said "This is going to cost Bitek money". on 18 November 2011, emailed the respondents and, amongst other things, referred to their "attempts to refuse or frustrate service". on 27 November 2011, served the initiating documents on the second respondent via a process server. 10 Notwithstanding these efforts, in the period between 18 November 2011 and 13 December 2011, the respondents did not file a notice of address for service or genuine steps statement. Nor did they attend the first directions hearing on 13 December 2011. 11 As stated in my previous judgment, the history of the litigation showed that the respondents were not prepared to co-operate in having the applicant's claims for relief brought to trial or in resolving these claims appropriately in some other way. The evidence established that, between 18 November 2011 and 13 December 2011, the respondents were aware of the proceeding and took deliberate steps to frustrate it. By their deliberate attempts to evade service and to ignore the applicant's repeated attempts to put them on notice of the proceeding, as well as their failure to attend the first scheduled directions hearing on 13 December 2011, the respondents wasted the applicant's time and unnecessarily increased the costs of the litigation. 12 As the Full Court said in Hamod v New South Wales (2002) 188 ALR 659 at 665 (per Gray J, with whom Carr and Goldberg JJ agreed), indemnity costs "serve the purpose of compensating a party fully for costs incurred, as a normal costs order could not be expected to do, when the Court takes the view that it was unreasonable for the party against whom the order is made to have subjected the innocent party to the expenditure of costs". I would conclude, therefore, that the applicant is entitled to an award of costs on an indemnity basis for the period 18 November 2011 to 13 December 2011 (inclusive). 13 As noted above, the applicant seeks an award of costs on a party and party basis for the period 14 December 2011 to 24 February 2012 (inclusive). As a general rule, costs ordinarily follow the event, with the result that a successful litigant receives costs on a party and party basis in the absence of special circumstances justifying some other order: see Ruddock v Vadarlis (No 2) at 234. As noted above, the applicant was successful in its default judgment application; and the costs incurred by the applicant after the 13 December 2011 directions hearing were attributable to this application. In accordance with the usual rule, these costs are payable on a party and party basis. The applicant does not argue that, with respect to these costs, there are circumstances warranting a departure from this basis. 14 Also in this case, however, the applicant seeks an award of costs in a lump sum, instead of taxed costs. The Court may make such an order under r 40.02(b) of the Rules. An award of costs in a lump (or gross) sum may be appropriate in a large and complex commercial matter "to avoid the expense, delay and aggravation involved in protracted litigation arising out of taxation": see Beach Petroleum NL v Johnson (No 2) (1995) 57 FCR 119 ("Beach Petroleum") at 120 per von Doussa J. The present matter is not of this kind. Since Beach Petroleum, however, it has also been said that a lump sum costs order may be appropriate in non-complex cases, providing the circumstances warrant the exercise of the power: see Su v Australian Fisheries Management Authority (No 3) [2008] FCA 2018 at [1] per Reeves J; Dunstan v Human Rights and Equal Opportunity Commission (No 3) [2006] FCA 916 ("Dunstan") at [23] per Mansfield J; and Smart Company Pty Ltd (in liq) v Clipsal Australia Pty Ltd (No 7) [2011] FCA 1359 at [47] per Lander J. 15 As Mansfield J said in Dunstan at [23] and [24]: There is no particular characteristic of a case which must exist before a gross sum costs order can be made: Australasian Performing Rights Association Ltd v Marlin [1999] FCA 1006. It is a power which may be exercised whenever the particular circumstances of the case warrant it: Beach Petroleum NL v Johnson (1995) 57 FCR 119 (Beach); Harrison v Schipp (2002) 54 NSWLR 738. Factors which have been considered when exercising the discretion to make such an order include – . where the delay, expense and inconvenience of taxing costs in the normal manner would be unduly protracted or unduly expensive: Beach at 120; Charlick Trading Pty Ltd v Australian National Railways Commission [2001] FCA 629 …; Foyster v Foyster Holdings (2003) 44 ACSR 705; and . where the financial capacity of the party liable to pay costs is such that the additional cost of taxation will impose a significant burden on the party in whose favour costs are ordered without real prospects of recovering those costs: Hadid v Lenfest Communications Inc [2000] FCA 628; Sparnon v Apand Pty Ltd (unreported, von Doussa J, 4 March 1998); Sony Entertainment (Australia) Ltd v Smith (2005) ALR 788. There are other considerations to which the Court has had regard, but they are not said by any party to arise in the present matter. 16 To similar effect, Rares J remarked, in Keen v Telstra Corporation Ltd (No 2) [2006] FCA 930 at [4], that a gross costs (or lump sum) order would be appropriate in a simple matter where it will save the parties "the time, trouble, delay, expense and aggravation in having a taxation proceed on a matter". 17 In the present case, the respondents have wasted the applicant's resources and time by their ongoing refusal to respond to the applicant's communications, the institution of this proceeding, and Court orders. Moreover, the respondents' conduct, as evidenced by the affidavits sworn by the applicant's solicitor, Mr Tye, indicates that they are unlikely to co-operate in any further court processes and meet any liability for costs in an efficient and appropriate way. There is evidence, as in a further affidavit of Mr Tye sworn on 30 March 2012, that the respondents' failure to progress the litigation or to comply with Court orders is on-going, notwithstanding the service of these orders and the applicant's continued attempts to communicate with the respondents. There is no evidence as to the respondents' financial position save that the evidence indicates that the business in question is relatively small and that the proposed costs orders may be significant in this context: compare Hadid v Lenfest Communications Inc [2000] FCA 628 at [25]-[27]. In all the circumstances, in order to avoid a further waste of time and money that the applicant may not be able to recoup readily from the respondents or at all, I consider it appropriate to make a lump sum costs order. 18 The starting point for the fixing of costs is the charges rendered by the applicant's solicitors: Beach Petroleum at 124 and Hamod v State of New South Wales and Anor [2011] NSWCA 375 at [820] per Beazley JA (with whom Giles and Whealy JJA agreed). The sum of costs fixed should also be proportionate to the nature, including the complexity, of the case: see Canvas Graphics Pty Ltd v Kodak (Australasia) Ptd Ltd [1998] FCA 23. As Beazley JA said in Hamod, at [820], citing, amongst others, Beach Petroleum at 123: The approach taken to estimate the costs to be ordered must be logical, fair and reasonable … . This may involve an impressionistic discount of the costs actually incurred or estimated, in order to take into account the contingencies that would be relevant in any formal costs assessment … . (Citations omitted.) 19 The applicant seeks a lump sum for costs of $47,279.94, comprising $5,931.42 on a solicitor and own client basis for the period 18 November 2011 to 13 December 2011 (inclusive) and $20,928.81 for the balance of the period ending 24 February 2012 and $20,419.71 for disbursements. This is based upon the affidavit of Mr Tye sworn on 23 March 2012. 20 I accept that Mr Tye is a legal practitioner with experience in the taxation of costs, and that he has made sufficient inquiries properly to form an opinion as to the costs incurred by the applicant and allowable on a lump sum basis. Further, I accept that, as Mr Tye deposed, since the legal work for the applicant was undertaken after 1 August 2011, the cost scales under Schedule 3 of the Rules apply. 21 Mr Tye's calculation included: (a) an additional allowance of 10% (under item 11 of Schedule 3); and (b) a reduction of 17.5% in the lump sum assessment of party and party costs. Mr Tye deposed that the additional allowance was sought to take account of the circumstances that "the subject matter of the proceeding is reasonably complex, the subject matter of the proceeding is relatively specialised in the Intellectual Property area, and the steps required to be taken were made more difficult and time consuming due to the lack of co-operation and non appearance of the respondents". I accept that the allowance sought is properly made under item 11 of Schedule 3 in the circumstances of the case. I also accept that the relatively limited reduction of 17.5% is appropriate in the circumstances of the case, having regard to the fact that the costs were incurred in a short time period and did not involve a significant number of interlocutory procedures or attendances, or extensive instructions to be sought from the applicant. 22 Also added to Mr Tye's calculation were reasonable and proper disbursements, including ASIC search fees, photocopying/printing, courier fees, court fees, process service fees, faxes, travel costs and counsel fees. 23 It must also be borne in mind that, in making a lump sum costs order, the Court is not required to undertake a detailed examination of the kind that would be appropriate to taxation or formal costs assessment: see Harrison v Schipp (2002) 54 NSWLR 738 per Giles JA at 743 [21]–[22]; Hadid v Lenfest Communications Inc [2000] FCA 628 at [35] per Lehane J; and Auspine Ltd v Australian Newsprint Mills Ltd (1999) 93 FCR 1 at 5 per O'Loughlin J. Indeed, to do so would defeat the purpose of making a lump sum costs order. Adopting a less exacting approach than would be applied on taxation, but bearing in mind that there is only Mr Tye's evidence before the Court and that the Court must be astute not to cause an injustice to anyone including the respondents, I am satisfied that Mr Tye has not calculated costs in an excessive amount. 24 Accordingly, I would fix the applicant's costs in the sum of $47,279.94, which comprises: (a) $5,931.42 determined on an indemnity basis for costs incurred by the applicant in the period from 18 November 2011 to 13 December 2011 inclusive; (b) $20,928.81 determined on a party and party basis for costs incurred by the applicant in the period from 14 December 2011 to 24 February 2012 inclusive; and (c) $20,419.71 for disbursements. I would reserve the applicant's costs of the proceeding incurred after 24 February 2012. I certify that the preceding twenty-four (24) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Kenny. Associate: Dated: 17 May 2012