FEDERAL COURT OF AUSTRALIA Carey v Freehills [2014] FCA 132 Citation: Carey v Freehills [2014] FCA 132 Parties: NORMAN PHILLIP CAREY & ORS (ACCORDING TO THE ATTACHED SCHEDULE); FREEHILLS and AUSTRALIAN SECURITIES AND INVESTMENTS COMMISSION File number: VID 485 of 2008 Judge: KENNY J Date of judgment: 25 February 2014 Catchwords: COSTS – application for order that costs be awarded in a lump sum pursuant to rule 40.02(b) of the Federal Court Rules 2011 (Cth) – factors relevant to exercise of discretion discussed – application dismissed. Legislation: Federal Court Rules 2011 (Cth) Cases cited: 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 Bitek Pty Ltd v IConnect Pty Ltd (2012) 290 ALR 288 Hadid v Lenfest Communications Inc [2000] FCA 628 Sony Entertainment (Australia) Ltd v Smith (2005) 215 ALR 788 Keen v Telstra Corporation Ltd (No 2) [2006] FCA 930 Seven Network Limited v News Limited [2007] FCA 2059 ACN 074 971 109 (as trustee for the Argo Unit Trust) v National Mutual Life Association of Australasia Ltd [2013] VSC 137 Salfinger v Niugini Mining (Aust) Pty Ltd (No 5) [2008] FCA 1119 Ualesi t/a Australian Empire Imports v Expeditors International Pty Ltd [2006] FCA 26 Harrison v Schipp (2002) 54 NSWLR 738 WM Wrigley JR Company v Cadbury Schweppes Proprietary Limited [2006] FCA 1186 Date of hearing: Determined on the papers Date of last submissions: 10 February 2014 Place: Melbourne Division: GENERAL DIVISION Category: Catchwords Number of paragraphs: 25 Counsel for the Cross-Claimant: M L Coulson Solicitor for the Cross-Claimant: Metaxas & Hager Counsel for the Cross-Respondents: D A Klempfner Solicitor for the Cross-Respondents: Colin Biggers & Paisley IN THE FEDERAL COURT OF AUSTRALIA VICTORIA DISTRICT REGISTRY GENERAL DIVISION VID 485 of 2008 BETWEEN: NORMAN PHILLIP CAREY & ORS (ACCORDING TO THE ATTACHED SCHEDULE) Cross-Claimants AND: FREEHILLS First Cross-Respondent AUSTRALIAN SECURITIES AND INVESTMENTS COMMISSION Second Cross-Respondent JUDGE: KENNY J DATE OF ORDER: 25 FEBRUARY 2014 WHERE MADE: MELBOURNE THE COURT ORDERS THAT: 1. The application for an order that costs be awarded in a lump sum be dismissed. 2. The first respondent pay the cross-claimants' costs of this application. 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 485 of 2008 BETWEEN: NORMAN PHILLIP CAREY & ORS (ACCORDING TO THE ATTACHED SCHEDULE) Cross-Claimants AND: FREEHILLS First Cross-Respondent AUSTRALIAN SECURITIES AND INVESTMENTS COMMISSION Second Cross-Respondent JUDGE: KENNY J DATE: 25 FEBRUARY 2014 PLACE: MELBOURNE REASONS FOR JUDGMENT nature of the application 1 On 26 November 2013, the Court ordered that the cross-claimants pay the first cross-respondent's costs of and incidental to the cross-claim on a party and party basis. The first cross-respondent now applies for an order that these costs be awarded in a lump sum pursuant to rule 40.02(b) of the Federal Court Rules 2011 (Cth) ("the Rules"). This application is opposed. 2 The background to this proceeding appears in the reasons for judgment delivered with respect to the cross-claim: see Carey v Freehills [2013] FCA 954. The disposition of costs was the subject of Carey v Freehills [2013] FCA 1258. 3 The first respondent's application is supported by the affidavit of Patrick Xavier Tuohey sworn on 13 December 2013, the affidavit of Jennifer Anne Young sworn on 13 December 2013 and her report dated 11 December 2013, which is exhibited to her affidavit. 4 The cross-claimants relied on the affidavit of Arthur Metaxas sworn on 28 January 2014 and the affidavit of Norman Phillip Carey sworn on 28 January 2014 to oppose the first respondent's application. consideration The relevant principles 5 Rule 40.02(b) of the Rules provides that a party who is entitled to costs may apply to the Court for an order that costs "be awarded in a lump sum, instead of, or in addition to, any taxed costs". 6 The parties are in dispute over whether it is appropriate to award lump sum costs in this case. There is little dispute about the relevant principles. The authorities indicate that an award of lump sum costs can be appropriate in various kinds of cases: there is not just one type of case in which lump sum costs are proper. Thus, whilst 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" as in Beach Petroleum NL v Johnson (No 2) (1995) 57 FCR 119 ("Beach Petroleum") at 120 (von Doussa J), a lump sum costs order may also be appropriate in non-complex cases, providing the circumstances warrant the exercise of the power: see, for example, Su v Australian Fisheries Management Authority (No 3) [2008] FCA 2018 at [1] (Reeves J); Dunstan v Human Rights and Equal Opportunity Commission (No 3) [2006] FCA 916 at [23] (Mansfield J); Smart Company Pty Ltd (in liq) v Clipsal Australia Pty Ltd (No 7) [2011] FCA 1359 at [47] (Lander J); and Bitek Pty Ltd v IConnect Pty Ltd (2012) 290 ALR 288 at 291 [14] ("Bitek") (Kenny J). 7 The factors considered relevant to the exercise of discretion include: where the delay, expense and inconvenience of taxing costs in the normal manner would be unduly protracted or unduly expensive: see, for example, Beach Petroleum at 120; 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; Sony Entertainment (Australia) Ltd v Smith (2005) 215 ALR 788 ("Sony Entertainment"); and Bitek. Other factors will also be relevant, depending on the particular case. 8 One factor may influence the assessment of another. Thus, in Keen v Telstra Corporation Ltd (No 2) [2006] FCA 930 at [4], Rares J said 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" (emphasis added). This was the case in Bitek: a lump sum award was made in what was a relatively simple case where "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" and "in order to avoid a further waste of time and money that the applicant may not be able to recoup readily": see Bitek at 292 [17]. The parties' positions 9 In this case the first cross-respondent states that it seeks a lump sum order "to avoid the expense, delay and aggravation involved in protracted litigation arising out of the Court's costs order of 26 November 2013" and "because doubts as to the financial capacity of the cross-claimants to satisfy the Court's costs order of 26 November 2013 are such that the additional cost of taxation will impose a significant burden on [the first respondent] without [it] having a real prospect of recovering those costs". As indicated already, both these factors are relevant to the exercise of discretion. 10 The cross-claimants submit that "the Court cannot fairly determine the sum to be paid by the cross-claimants pursuant to the applicable costs order … without undertaking a more detailed review of the costs incurred by way of taxation, in the usual manner". As appears below, this submission reflects an overarching consideration. 11 In his affidavit, Mr Tuohey deposed to those features of the cross-claim, which he said were indicative of the size and complexity of the cross-claim. He deposed to unsatisfactory aspects of the cross-claimants' conduct, including dilatory conduct, with respect to this and related proceedings. Mr Tuohey also deposed that of the 25 corporate cross-claimants, 8 had been deregistered, 3 were the subject of strike out applications and 6 were under external administration; that property searches indicated that Mr Carey was not the registered proprietor of real property in Australia; and that the cross-claimants' solicitors had themselves sworn to Mr Carey's limited financial means – as confirmed by various other matters to which Mr Tuohey referred. 12 In her report (which, as already stated, is exhibited to her affidavit) Ms Young stated, that, based on analysis that she set out, party and party costs were $1,368,830.25. Ms Young stated that the preparation of a bill for consideration by a Registrar would require 300 hours and some 6 to 8 months to complete. If the parties did not agree with the Registrar's estimate and any confidential conference was unsuccessful, then she estimated that a 10 day hearing would be required for the taxation of the bill. As Ms Young indicated, each stage in the taxation would attract costs. She estimated that the total costs in connection with a taxation of costs to be $150,000, with a likely time frame of 18 months. 13 Ms Young noted that, "[a]lthough a substantial amount of work was done for the First Cross-Respondent prior to February 2011 in relation to the matter … the most substantial work done in preparing the defence of the First Cross-Respondent was undertaken after February 2011". The trial, which was of 18 days' duration, began on 22 November 2011 and continued, intermittently, into 2012. Nature of the cross-claim 14 While the cross-claim was far from straightforward, it did not approach the scale of the litigation discussed in Beach Petroleum and Seven Network Limited v News Limited [2007] FCA 2059 ("Seven Network"), where in both cases the Court, with the consent of the parties, was assisted by a Deputy Registrar of the Court experienced in the taxation of costs. Plainly enough, the cross-claim was also not a simple matter in respect of which a lump sum award might readily be determined. (I note that, in this case, the cross-claimants stated that, if I determined to proceed by way of a lump sum award, they did not consent to me being assisted by a Registrar experienced in the taxation of costs.) In the present context, the disproportionate delay, expense and inconvenience factor, though real, does not weigh as heavily as in Beach Petroleum and Seven Network or a relatively simple case. 15 Further, concern about capacity to pay is but one, albeit significant, factor, which I take into account on this lump sum costs application: compare ACN 074 971 109 (as trustee for the Argo Unit Trust) v National Mutual Life Association of Australasia Ltd [2013] VSC 137 ("ACN 074 971 109") at [57]. Mr Carey purported to depose to the existence of property that might enable the cross-claimants to meet a costs order, although I accept that the effect of his affidavit is equivocal and would not be thought to offer much comfort to the first respondent. 16 In this context, a failure to make a security for costs application has sometimes been mentioned: see ACN 074 971 109 at [52]-[56]. Whilst the question here is a different one from that arising on a security for costs application and the point is of limited, if any relevance, it may be observed that the first cross-respondent might earlier have brought a security for costs application but did not do so; the possibility that that might have been considered is apparent from the statements said to be made by the cross-claimants' solicitors prior to the commencement of the trial, to which Mr Tuohey referred in his affidavit. Mr Tuohey's own affidavit indicates that the first cross-respondent has been aware of relevant aspects of the cross-claimants' financial position for some time, including prior to the trial: compare ACN 074 971 109 at [52]-[56]. As indicated, however, I would not rely on this observation in determining this application. 17 It may be accepted, and the cross-claimants did not dispute, that a lump sum approach would "be quicker and cheaper than a full taxation", citing ACN 074 971 109 at [19]. As Wood AsJ said in that case at [19]: There is no dispute that a gross sum exercise would invariably be quicker and cheaper than a full taxation. This would be so in all cases, not just in these proceedings. If that were the sole criteria there would be a gross sum sought and ordered in every case. In practice it is a rare event. There clearly needs to be more justification than the time/cost differential. 18 As already stated, the cross-claimants' complaint was that a lump sum award would not enable the Court to determine fairly the sum to be paid by the cross-claimants pursuant to the extant costs order. 19 Although the power conferred by rule 40.02(b) of the Rules must be exercised judicially and after giving the parties adequate opportunity to make submissions on the matter (Salfinger v Niugini Mining (Aust) Pty Ltd (No 5) [2008] FCA 1119 ("Salfinger") at [4] (Heerey J), citing Ualesi t/a Australian Empire Imports v Expeditors International Pty Ltd [2006] FCA 26) an order that costs be assessed as a lump sum does not require that any process similar to that involved in taxation should take place: see Salfinger at [4]; also Sony Entertainment at 813 [197], citing Beach Petroleum at 124. This can create its own difficulties and uncertainties. As Wood AsJ said in ACN 074 971 109 (at [58]): The gross sum exercise would in some ways be more problematic than taxation as the types of principles that may or may not be applied and determined on a taxation would have to be factored into a gross sum on an arbitrary basis in the absence of considerable detail. 20 Bearing this in mind, it is unsurprising that, before the Court orders that a lump sum approach be adopted, it must be satisfied that a lump sum award can in fact be fairly determined via a process that is an alternative to that ordinarily adopted. In Sony Entertainment Jacobson J quoted (at 813 [199]) with approval the following passage from the judgment of Giles JA in Harrison v Schipp (2002) 54 NSWLR 738 at [22]: The approach taken to estimate costs must be logical, fair and reasonable. The power should only be exercised when the Court considers that it can do so fairly between the parties, and that includes sufficient confidence in arriving at an appropriate sum on the materials available. See also WM Wrigley JR Company v Cadbury Schweppes Proprietary Limited [2006] FCA 1186 at [5], [9] (Sundberg J). 21 The cross-claimants have pointed to various issues in this case that may give rise to significant contests on the matter of costs. This includes issues arising from the interaction of the principal claim and the cross-claims, the number and role of the parties and uncertainty about the division of work responsibility, the scope of discovery, the disposition of costs arising from interlocutory applications that involve numerous parties with possibly different interest and so on. The existence of these contentious matters leads me to conclude that I should not exercise the power to order a lump sum under rule 40.02(b), because I am not satisfied that I can do so fairly between the parties, and with sufficient confidence that I would be arriving at an appropriate sum on a logical and reasonable basis, rather than selecting figures on the basis of an arbitrary acceptance of one expert's view. In this context, I note too that, although I was the trial judge and the docket judge in what was apparently the most active pre-trial period, I was not the docket judge for this long-running proceeding from its inception. 22 The first cross-respondent drew attention to the fact that as a result of the appeal instituted by the cross-claimants, they would be placed in the invidious position of having to decide whether to proceed to taxation in expectation that the cross-claimants' appeal will be dismissed or to defer the preparation for the assessment of taxed costs until the determination of the appeal. I am not persuaded that a lump sum approach would overcome these difficulties; nor that the position to which the first respondent refers can justify a lump sum approach in circumstances mentioned, that is where I doubt that I can do so fairly between the parties, and have insufficient confidence that I would be arriving at an appropriate sum on a logical and reasonable basis. 23 In summary, I accept that the taxation in this case would, as in ACN 074 971 109, "be time consuming and have some complexity". I would no doubt be assisted by Ms Young's expert opinion (although, as indicated, I would have significant difficulty in fairly assessing her opinion in the circumstances of the case). I have taken into account these factors and the other factors to which the first respondent referred, including the first respondent's concerns about the cross-claimants' financial ability to meet the costs order. They have not persuaded me to depart from the view I have expressed at [21] above. 24 The taxation of costs regime is not inflexible. Once the first respondent files and serves a bill of costs under rules 40.17 and 40.19, the taxing officer will make an estimate under rule 40.20. Unless a party interested in the bill objects to the estimate, the estimate will be "the amount for which the certificate of taxation will be issued" (rule 40.20(4)). An objection to the estimate may, however, be made under rule 40.21. In this context, it is worth noting that rule 40.33 provides that the party who filed the objection must pay all parties' taxation costs in the circumstances set out in that rule. If an objection is filed, the Registrar has a discretion whether or not to direct: (a) the parties to attend a confidential conference; (b) a provisional taxation; or (c) that the bill proceed to taxation (rule 40.21(2)). It may be that, in the circumstances of this litigation, the Registrar will determine that the bill should be taxed, without either prior confidential conference or provisional taxation. This issue will no doubt be explored by the Registrar once an estimate has been made and any objection filed. 25 The taxation of costs regime is the one ordinarily applied in the Court. I consider it appropriate that it be engaged here. Accordingly, in the exercise of my discretion, I decline to award costs in a lump sum pursuant to rule 40.02(b). I would dismiss the application, with costs. I certify that the preceding twenty-five (25) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Kenny. Associate: Dated: 25 February 2014 SCHEDULE OF PARTIES NORMAN PHILLIP CAREY First Cross-Claimant QUARTZ NOMINEES PTY LTD (ACN 008 859 103) ATF THE QUARTZ TRUST Second Cross-claimant HECA NOMINEES PTY LTD (ACN 053 581 874) Third Cross-claimant ACEBID PTY LTD (ACN 074 566 046) Fourth Cross-claimant ANDRIANNI PTY LTD (ACN 005 458 720) ATF THE ANDRIANNI TRUST Fifth Cross-claimant ANN STREET BRISBANE PTY LTD (ACN 101 943 711) ATF THE ANN STREET BRISBANE TRUST Sixth Cross-claimant BENNALONG HOLDINGS PTY LTD (ACN 008 741 008) Seventh Cross-claimant DOSIUS PTY LTD (ACN 009 449 450) Eighth Cross-claimant EARLMIST PTY LTD (RECEIVER & MANAGER APPOINTED) (CONTROLLER APPOINTED) (ACN 069 056 926) ATF THE EARLMIST UNIT TRUST Ninth Cross-claimant ETNAS PTY LTD (ACN 056 599 350) ATF THE ENTAS TRUST Tenth Cross-claimant HEALTHCARE PROPERTIES PTY LTD (ACN 074 501 955) ATF THE HEALTHCARE PROPERTIES TRUST Eleventh Cross-claimant HUNTINGDALE VILLAGE PTY LTD (RECEIVER & MANAGER APPOINTED) (ACN 085 048 531) ATF THE HUNTINGDALE VILLAGE UNIT TRUST Twelfth Cross-claimant JEVWOOD PTY LTD (ACN 074 525 321) Thirteenth Cross-claimant K.I.S. REALTY PTY LTD (ACN 100 871 314) Fourteenth Cross-claimant KEEP IT SIMPLE INVESTMENTS (GLOBAL) PTY LTD (ACN 100 871 270) Fifteenth Cross-claimant NORTH SYDNEY DEVELOPMENT PTY LTD (CONTROLLER APPOINTED) (ACN 107 037 838) ATF THE NORTH SYDNEY DEVELOPMENT TRUST Sixteenth Cross-claimant PAQUERO PTY LTD (ACN 003 530 556) Seventeenth Cross-claimant PARAGON APARTMENTS LTD (RECEIVER & MANAGER APPOINTED) (ACN 087 200 413) Eighteenth Cross-claimant RENAISSANCE MEZZANINE PTY LTD (ACN 110 978 491) Nineteenth Cross-claimant ROMPRIDE PTY LTD (ACN 074 524 824) ATF THE ERLEY UNIT TRUST Twentieth Cross-claimant SCOTS CHURCH DEVELOPMENT LTD (RECEIVER & MANAGER APPOINTED) (ACN 091 686 323) Twenty-first Cross-claimant SILKCHIME PTY LTD (RECEIVER & MANAGER APPOINTED) (ACN 066 849 429) ATF THE SILKCHIME UNIT TRUST Twenty-second Cross-claimant VANNIN PTY LTD (RECEIVER & MANAGER APPOINTED) (ACN 067 610 271) ATF THE HAY FAMILY TRUST Twenty-third Cross-claimant WARWICK ENTERTAINMENT CENTRE PTY LTD (RECEIVER & MANAGER APPOINTED) (ACN 054 246 918) ATF THE WARWICK ENTERTAINMENT CENTRE UNIT TRUST Twenty-forth Cross-claimant WESTPOINT FINANCIAL SERVICES PTY LTD (ACN 074 148 324) Twenty-fifth Cross-claimant WESTPOINT MANAGEMENT (CENTREWAYS) PTY LTD (ACN 082 349 068) ATF THE CENTREWAYS REFURBISHMENT SYNDICATION TRUST Twenty-sixth Cross-claimant FREEHILLS First Cross-respondent AUSTRALIAN SECURITIES AND INVESTMENTS COMMISSION Second Cross-respondent COMMONWEALTH OF AUSTRALIA Third Cross-respondent