FEDERAL COURT OF AUSTRALIA Money Max Int Pty Limited (Trustee) v QBE Insurance Group Limited (No 2) [2018] FCA 1805 File number: VID 513 of 2015 Judge: MURPHY J Date of judgment: 20 November 2018 Cases cited: Money Max Int Pty Limited (Trustee) v QBE Insurance Group Limited [2018] FCA 1030 Super Pty Ltd v SJP Formwork (Aust) Pty Ltd (1999) 29 NSWLR 549 Date of hearing: Heard on the papers Registry: Victoria Division: General Division National Practice Area: Commercial and Corporations Sub-area: Corporations and Corporate Insolvency Category: No Catchwords Number of paragraphs: 18 Solicitor for the Applicant: Maurice Blackburn Lawyers Solicitor for the Respondent: Allens Table of Corrections 20 November 2018 In paragraph 16(b), the name of the Australian actuarial expert be deleted. ORDERS VID 513 of 2015 BETWEEN: MONEY MAX INT PTY LIMITED, AS TRUSTEE FOR THE GOLDIE SUPERANNUATION FUND Applicant AND: QBE INSURANCE GROUP LIMITED Respondent JUDGE: MURPHY J DATE OF ORDER: 20 NOVEMBER 2018 THE COURT ORDERS THAT: 1. Pursuant to s 33V of the Federal Court of Australia Act 1976 (Cth) the following amounts be approved as the reasonable costs and disbursements of performing the Legal Work as defined in the Funding Terms and for the purposes of the Settlement Distribution Scheme as the amount of the 'Applicant's Legal Costs' as defined therein for the period commencing from 1 March 2018: (a) AUD $771,123.67; and (b) USD $357,414.67. Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011. REASONS FOR JUDGMENT MURPHY J: 1 This judgment concerns two small issues in relation to costs incurred in this securities class action. On 4 May 2018 I made orders approving the settlement together with orders approving the costs of the applicant's solicitors up to and including 28 February 2018: see Money Max Int Pty Limited (Trustee) v QBE Insurance Group Limited [2018] FCA 1030. 2 I also made orders pursuant to s 54A of the Federal Court of Australia Act 1976 (Cth) (the Act) to refer the question of the reasonableness of the costs incurred by the applicant's solicitors after 28 February 2018 (the Further Proceeding Costs) to Ms Elizabeth Harris, a legal costs expert, (the Referee) to inquire and report in writing to the Court. Since then the Referee has provided two further reports, a report dated 2 August 2018 (the Second Report) and a report dated 11 October 2018 (the Third Report). It is now appropriate to deal with that reference. The Referee's reports 3 The applicant's solicitors, Maurice Blackburn, seek approval of Further Proceeding Costs of $1,275,596.46, comprising $365,168.84 of solicitor's fees and $910,427.62 of disbursements. 4 The Second Report shows that the Referee was provided access to spreadsheets of the time recorded by Maurice Blackburn's fee earners in relation to the Further Proceeding Costs, spreadsheets of disbursements which form part of the Further Proceeding Costs and supporting invoices, affidavit material filed on behalf of the applicant since 1 March 2018, Maurice Blackburn's file relevant to the Further Proceeding Costs, and that the Referee had discussions with the solicitors with the conduct of the matter. 5 The Referee gave detailed consideration to the fees and disbursements sought, including by: (a) identifying the scope of the work done; (b) identifying the nature of the costs incurred over particular periods of time; (c) examining the bills and invoices and calculating the time spent on the proceedings by each of the lawyers and non-lawyers; (d) examining the time spreadsheets and sampling the charges claim for work done by reference to selected operators and selected dates; (e) sampling the disbursements claimed by reference to selected service providers and selected dates; (f) confirming the hourly rates accorded with the rates in the costs agreement applying to the matter; (g) identifying the fees relating to non-recoverable work by reason of that work not being reasonably incurred or reasonable in amount and, if any, excising that work; and (h) identifying and, if any, reducing or deducting disbursements which appear unreasonably incurred or unreasonable in amount. The recommended reduction in professional fees 6 In her Second Report the Referee recommended that Maurice Blackburn's professional fees be reduced by an amount of $29,800. Maurice Blackburn does not object to that reduction and it is unnecessary to descend to the minutiae in relation to it. I adopt the Referee's report in this regard. The recommended reduction in disbursements 7 In her Second Report the Referee also said that, save for two items, all of the claimed disbursements are reasonable. The two items which the Referee recommended be reduced are: (a) a reduction of $9,935.20 in the fees charged by the costs expert retained by the applicant solicitors, Ms Dealehr of the Australian Legal Costing Group (ALCG); (b) a substantial reduction (AUD $479,318.09) in the fees charged by Mr Michael Toothman, an American actuarial expert engaged on behalf of the applicant, to report in relation to American Actuarial Standards. The recommended reduction in ALCG's fees 8 The Referee recommended a reduction of $9,935.20 out of total ALCG fees of $127,693.50, out of a concern that the methodology adopted by Ms Dealehr, which involved the re-coding of each of more than 24,000 Maurice Blackburn time entries, was labour-intensive, more expensive and was not a methodology adopted by other cost experts. In the Referee's view the approach Ms Dealehr took effectively duplicated work which had already been done. 9 Maurice Blackburn does not, in terms, oppose this reduction but notes that Ms Dealehr's evidence regarding the reasonableness of costs has been accepted by the Courts on numerous occasions, as has her methodology. Maurice Blackburn submits that Ms Dealehr adopted substantially the same methodology in this case as has been accepted by the courts in other cases. 10 Ms Dealehr is a costs expert of good repute and I intend no criticism of her. I accept that experts may differ as to the preferred methodology for approaching a particular task in the assessment of reasonable costs and I make no suggestion that Ms Dealehr's methodology is inappropriate or incorrect. However, in circumstances where the Referee's report shows a thorough and analytical approach, Maurice Blackburn had the opportunity to make submissions to the Referee, the reduction recommended by the Referee is a modest one (less than 10%), and the reference procedure is not a warm up for the real contest: Super Pty Ltd v SJP Formwork (Aust) Pty Ltd (1999) 29 NSWLR 549 at 563-4 (Gleeson CJ) and 566-7 (Mahoney JA), it is appropriate to adopt the Referee's report. The recommended reduction in Mr Toothman's fees 11 In her Second Report the Referee noted that Mr Toothman's fees greatly exceeded the fees charged by the other experts engaged by Maurice Blackburn, and that some of the invoices did not contain sufficient detail to sufficiently explain what work was undertaken in any billing period. Maurice Blackburn had at that stage been unable to get more detailed invoices from Mr Toothman. 12 The Referee considered the Toothman invoices, attempted to gain some further understanding about the hours spent by Mr Toothman and his staff, reviewed Maurice Blackburn's file and conferred with the relevant solicitors at Maurice Blackburn, but in the finish was not satisfied that she was in a position to express an opinion that Mr Toothman's fees were reasonable. In the absence of further information about the work undertaken by Mr Toothman and his staff, the Referee declined to find that his last two invoices were reasonable and recommended a reduction in Mr Toothman's fees of AUD $479,318.09. 13 The Referee said that over the course of his retainer Mr Toothman was briefed with 4,790 documents. He prepared a report dated 27 July 2017 in which he explained that he conducted an independent line of business analysis of the QBE's insurance business and performed a detailed review of the program by program review undertaken by QBE in establishing its reserves in 2013. The analysis of the program by program review involved a review of QBE's estimates for 24 of its individual programs/reserve groups. 14 The Referee accepted Mr Toothman's explanation that the review was not simply a matter of undertaking mathematical calculations applying actuarial methods but understanding the business operations underlying the numbers being analysed. It involved a two-pronged approach which involved, first, a 'top-down' review addressing the actuarial approach adopted by the respondent and, second, a 'bottom-up' recalculation of the proper actuarial approach. The Referee also accepted that Mr Toothman and his staff were required to undertake very considerable work to analyse the extensive brief and address the questions posed, and she accepted that Mr Toothman's evidence was crucial to the applicant's case. 15 The Referee said that Mr Toothman rendered invoices in a total of USD $1,135,402, but as noted in the Third Report this did not include an invoice dated 16 July 2017 for USD $133,115, which takes the total fees to USD $1,268,517 (being AUD $1,732,704.91 at the existing exchange rate). 16 The Referee recommended to Maurice Blackburn that the firm seek further details from Mr Toothman of the work undertaken by him and his staff. Subsequently, as the Referee notes in her Third Report: (a) Mr Toothman provided material which evidenced the time that he spent together with the time spent by other experienced actuaries who assisted in the matter. Some invoices provided by the other actuaries on the team were helpful in providing detail about the nature of the work Mr Toothman and his staff undertook. Mr Toothman also provided extracts from his diary detailing time spent on the matter, and an extensive letter detailing the reasons for the expenditure of resources and which explained the complexity of various matters which needed to be addressed, the considerable deficiencies in the respondent's material with which he and his team are working and the approach adopted by the team; (b) Maurice Blackburn provided copies of emails, file notes and internal memos discussing the work undertaken on the evidence proposed to be given by Mr Toothman and the Australian actuarial expert. The Referee said that the material showed considerable discussion about the adequacy of the approaches being adopted by each expert, and an acknowledgement that a 'bottom-up' analysis would be a very time intensive exercise. The material evidenced consideration by senior solicitors and counsel as to whether the 'bottom-up' exercise was warranted, and a decision that it was. 17 The Referee concluded that the final two Toothman invoices, totalling USD $357,414.67 are reasonable, and withdrew her recommendation that the fees be reduced. I adopt the Referee's conclusion that no reduction is appropriate in relation to Mr Toothman's fees. 18 I approve the Further Proceeding Costs as set out in the Third Report, comprising AUD $771,123.67 plus a further USD $357,414.67 for Mr Toothman's fees, to be converted into its Australian dollar equivalent. I certify that the preceding eighteen (18) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Murphy. Associate: Dated: 20 November 2018