FEDERAL COURT OF AUSTRALIA Davaria Pty Limited v 7-Eleven Stores Pty Ltd (No 5) [2020] FCA 953 File numbers: VID 180 of 2018 VID 182 of 2018 Judge: MIDDLETON J Date of judgment: 7 July 2020 Catchwords: SECURITY FOR COSTS — variation of earlier orders — expenditure of actual costs beyond that anticipated in earlier security for cost application — relevance of not informing opposing party of increased actual costs spent on discovery — broad-brush approach to determining quantum appropriate Legislation: Federal Court of Australia Act 1976 (Cth) Federal Court Rules 2011 (Cth) Date of hearing: 22 June 2020 Registry: Victoria Division: General Division National Practice Area: Commercial and Corporations Sub-area: Commercial Contracts, Banking, Finance and Insurance Category: Catchwords Number of paragraphs: 28 Counsel for the Applicants: Mr D R Pritchard SC with Mr P D Tucker, Mr G E S Ng and Mr N Y H Li Solicitor for the Applicants: Levitt Robinson Solicitors Counsel for the First Respondent: Mr R G Craig SC with Mr A N McRobert Solicitor for the First Respondent: Norton Rose Fulbright ORDERS VID 180 of 2018 BETWEEN: DAVARIA PTY LIMITED Applicant KAIZENWORLD PTY LTD (ACN 163 833 565) Second Applicant AND: 7-ELEVEN STORES PTY LTD First Respondent 7-ELEVEN INC (A TEXAS CORPORATION) Second Respondent ANZ BANKING GROUP LIMITED (ABN 11 005 357 522) Third Respondent JUDGE: MIDDLETON J DATE OF ORDER: 7 July 2020 THE COURT ORDERS THAT: 1. Orders 8(g) and 8(h) of the orders made by Justice Middleton on 12 April 2019 be vacated. 2. The Applicants provide a seventh tranche of security for 7-Eleven's costs for the period up to the commencement of the initial trial in the sum of $2,713,500 by depositing cash with the Court in an interest-bearing account as follows: (a) 12.5% of that amount, being $339,187.50 to be deposited by 19 July 2020; (b) 12.5% of that amount, being $339,187.50 to be deposited by 5 August 2020; (c) 12.5% of that amount, being $339,187.50 to be deposited by 5 October 2020; (d) 12.5% of that amount, being $339,187.50 to be deposited by 5 December 2021; (e) 12.5% of that amount, being $339,187.50 to be deposited by 5 February 2021; (f) 12.5% of that amount, being $339,187.50 to be deposited by 5 April 2021; (g) 12.5% of that amount, being $339,187.50 to be deposited by 5 June 2021; and (h) 12.5% of that amount, being $339,187.50 to be deposited by 5 August 2021; (7-Eleven Security). 3. In default of delivery of the 7-Eleven Security in accordance with paragraph 2 of these orders, the proceeding as against 7-Eleven shall be stayed until such time as the security is provided, or further order of the Court. Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011. ORDERS VID 182 of 2018 BETWEEN: PARESHKUMAR DAVARIA Applicant KHUSHBU DAVARIA Second Applicant JATINDER PAL SINGH Third Applicant SUMAN MEET KAUR Fourth Applicant AND: 7-ELEVEN STORES PTY LTD First Respondent AUSTRALIA AND NEW ZEALAND BANKING GROUP LIMITED Second Respondent JUDGE: MIDDLETON J DATE OF ORDER: 7 July 2020 THE COURT ORDERS THAT: 1. Orders 8(g) and 8(h) of the orders made by Justice Middleton on 12 April 2019 be vacated. 2. The Applicants provide a seventh tranche of security for 7-Eleven's costs for the period up to the commencement of the initial trial in the sum of $301,500 by depositing cash with the Court in an interest-bearing account as follows: (a) 12.5% of that amount, being $37,687.50 to be deposited by 19 July 2020; (b) 12.5% of that amount, being $37,687.50 to be deposited by 5 August 2020; (c) 12.5% of that amount, being $37,687.50 to be deposited by 5 October 2020; (d) 12.5% of that amount, being $37,687.50 to be deposited by 5 December 2021; (e) 12.5% of that amount, being $37,687.50 to be deposited by 5 February 2021; (f) 12.5% of that amount, being $37,687.50 to be deposited by 5 April 2021; (g) 12.5% of that amount, being $37,687.50 to be deposited by 5 June 2021; and (h) 12.5% of that amount, being $37,687.50 to be deposited by 5 August 2021; (7-Eleven Security). 3. In default of delivery of the 7-Eleven Security in accordance with paragraph 2 of these orders, the proceeding as against 7-Eleven shall be stayed until such time as the security is provided, or further order of the Court. Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011. REASONS FOR JUDGMENT MIDDLETON J: INTRODUCTION 1 The Court has before it a number of applications relating to security for costs, which ultimately concern only a dispute as to the quantum of the security to be provided by the Applicants until trial. 2 I do not need to rehearse all the background to the security for costs applications, other than to indicate the salient events leading up to the current position. 3 By Order 8 of the Orders made by this Court on 12 April 2019 (the 'Orders'), the Applicants were ordered to provide security for the costs of the First Respondent ('7-Eleven') payable in instalments. 4 Order 8 of the Orders required the Applicants to provide security for 7-Eleven's costs for the period from 16 March 2019 up to the commencement of the initial trial, payable in eight equal instalments as follows: TRANCHE VID180 VID182 TOTAL DUE 1 $312,500 $31,250 $343,750 12 May 2019 2 $312,500 $31,250 $343,750 12 July 2019 3 $312,500 $31,250 $343,750 12 September 2019 4 $312,500 $31,250 $343,750 12 November 2019 5 $312,500 $31,250 $343,750 12 January 2020 6 $312,500 $31,250 $343,750 12 March 2020 7 $312,500 $31,250 $343,750 12 May 2020 8 $312,500 $31,250 $343,750 12 July 2020 TOTAL 2,500,000 $250,000 $2,750,000 5 Of the eight instalments, the Applicants have paid six instalments. 6 By Order 7 of the Orders, the Court set down the proceedings for the initial trial to commence on 14 September 2020 ('the 2020 Trial Date') with an estimate of six weeks. 7 On or about 8 May 2020, the parties agreed with the Court's approval to vacate the 2020 Trial Date and the Court set the matter down for trial to commence on 9 August 2021 (the '2021 Trial Date'). 8 In addition to seeking to remedy the fact that the Applicants have defaulted on the existing orders for security for costs, having failed to pay $343,750 by 12 May 2020, 7-Eleven is seeking an increase of the current total of security up to the 2021 Trial Date. This arises because 7-Eleven's costs substantially exceed the total amount of security ordered to date and in light of the additional costs it now anticipates will be incurred prior to the 2021 Trial Date. 9 It is pursuant to s 56 of the Federal Court of Australia Act 1976 (Cth) (the 'Act') and r 19 of the Federal Court Rules 2011 (Cth), that 7-Eleven seeks the additional security for costs in the proceedings. 10 The discretion conferred by s 56 of the Act must be exercised judicially, and is broad and unfettered. However, in determining the quantum of security, the Court's discretion is guided by the following principles: (1) The Court is to order an amount which it thinks is "just and reasonable" having regard to all of the circumstances of the case. (2) The purpose of security for costs is not to provide full protection for the estimated costs of the party seeking security. (3) The Court is to adopt a "broad-brush" approach to the determination of the amount of security to be ordered, which should be based upon evidence. (4) The Court is not bound to give security in the amount sought and is not bound by the estimates of the parties, subject to according natural justice to the parties if the Court proposes to go outside these estimates. (5) In making its assessment of the appropriate quantum, the Court may scrutinise individual items but not to the extent of minute examination akin to a taxation. (6) The amount ultimately fixed by the Court must not be so low that it fails to provide any real protection to the party seeking security, or so high that it is oppressive to the party required to provide security. (7) Insufficiency in the evidence substantiating a claim for security may be reason for the Court to look critically at the estimate provided and may be reason for the Court to apply a heavier percentage discount to the amount sought. 11 The parties had prepared extensive written submissions and evidence as to the quantum of security, based upon the past costs and anticipated costs until the 2021 Trial Date. The approach by the parties was relatively and unnecessarily complicated. The evidence was provided by Mr Jones for 7-Eleven and Mr Levitt for the Applicants, both experienced solicitors. 12 Prior to the hearing of the dispute before the Court, the Court suggested an alternative methodology to determine quantum, which involved looking at the actual past costs (making any appropriate deduction for "excess" work and taking into account party/party cost taxation considerations) then considering the future anticipated costs (again giving appropriate consideration to the reasonableness of these anticipated costs and party/party cost taxation considerations), and then deducting from the sum of these two items the security already paid. The orders relating to the security yet to be paid by the Applicants would be vacated. 13 The parties helpfully took up this suggestion, and the dispute as to quantum became more confined, although not over. 14 Before going to the competing figures as to quantum put before the Court, I make these observations. 15 Whilst security can be ordered in respect of past costs, in this case the Applicants have been taken by surprise as to the increase in costs actually spent by 7-Eleven (in particular on discovery), and have not had the opportunity (at least) to consider their position if they had come to appreciate the original estimates of costs would be greatly exceeded. I take this into account, not in disentitling 7-Eleven from making an application for further security, but in considering the overall quantum of security so as to be fair to the Applicants. I do this by adopting a discount of the past (and future) costs by 50% to take into account party/party cost taxation considerations, even though there is some evidence that on average the percentage on a party/party taxation would by an allowance of 57% to 60% of the actual costs. I should observe that whilst it was submitted that some of the past tasks and costs spent on them may have been unnecessary and may have resulted in a so called "Rolls-Royce" service, I am in no position to form an opinion on the conduct of this litigation by 7-Eleven on this aspect. 16 The second observation is this. I have been provided with evidence from two experienced solicitors as to the past costs and the estimate of future costs. As to the past costs, as I have alluded to, discovery costs greatly exceeded the original budgeted amount. I have taken this evidence into account in determining the quantum, but have also undertaken the task of determining the quantum based upon my observation as to the conduct of these proceedings (to the extent I am able), my own knowledge and experience of large-scale litigation and the tasks involved, and an appreciation that a budget can be exceeded without any fault. In making this last comment, I am also mindful that costs of discovery should be carefully supervised and monitored by each party and their legal representatives. 17 The parties put forward two relevant proposals, which demonstrate the divergence of the quantum and the complexity of possible approaches. 18 Just prior to the hearing on 22 June 2020, the Applicants put forward the following figures based upon the methodology set out above: A. Expression of formula 0.5 (actual past cost from 16 March 2019 to 27 April 2020) + 0.5 (future costs) - security already paid from 16 March 2019 to trial = revised order for security B. Inputs Item Raw amount Discounted amount (50%) (a) Total actual past cost $6,611,562.84 $3,305,781.42 (b1) 7-Eleven future cost $4,343,417.50 $2,171,708.75 (b2) Applicants' future cost $1,497,455 $748,727.50 (c) Security already paid $2,557,500 C. Calculation A Formula Result Rounded Security to be ordered (7-Eleven future cost) $3,305,781.42 + $2,171,708.75 - $2,557,500 = $2,919,990.17 $2,920,000* Security to be ordered (Applicants' future cost) $3,305,781.42 + $748,727.50 - $2,557,500 = $1,497,008.92 $1,500,000* * Orders requiring security of $687,500 yet to be paid to be vacated 19 Just prior to the hearing on 22 June 2020, 7-Eleven put forward the following figures and position: No. Description Amount (ex. GST) 1 Actual costs incurred to 31 March 2020: $10,592,665.33 2 Actual costs incurred to 31 May 2020: $11,847,272.04 3 Anticipated costs (16 March 2020 to August 2021): $4,343,417.50 4 Broad-brush reduction of anticipated costs (re work completed since 16 March 2020) $915,000.00 5 Anticipated costs less broad-brush reduction $3,428,417.50 6 50% recovery (March 2020 plus anticipated costs): $7,468,041.42 7 57% recovery (March 2020 plus anticipated costs): $8,513,567.21 8 60% recovery (March 2020 plus anticipated costs): $8,961,649.70 9 50% recovery (May 2020 plus reduced broad-brush anticipated costs): $7,637,844.77 10 57% recovery (May 2020 plus reduced broad-brush anticipated costs): $8,707,143.04 11 60% recovery (May 2020 plus reduced broad-brush anticipated costs): $9,165,413.72 12 Security paid to date: $4,307,500.00 13 Shortfall between actual and anticipated costs (50%), less security paid (March 2020 figure): $3,160,541.42 14 Shortfall between actual and anticipated costs (57%), less security paid (March 2020 figure): $4,206,067.21 15 Shortfall between actual and anticipated costs (60%), less security paid (March 2020 figure): $4,654,149.70 16 Shortfall between actual and anticipated costs (no party/party reduction), less security (March 2020 figure) $10,628,582.83 17 Shortfall between actual and anticipated costs (50%), less security paid (May 2020 figure): $3,330,344.77 18 Shortfall between actual and anticipated costs (57%), less security paid (May 2020 figure): $4,399,643.04 19 Shortfall between actual and anticipated costs (60%), less security paid (May 2020 figure): $4,857,913.72 20 Shortfall between actual and anticipated costs (no party/party reduction), less security (May 2020 figure) $10,968,189.54 Category Amount Evidence Amount A Global statistics 1. Total security ordered to date $4,995,000 2. Total security paid to date $4,307,500 3. (a) Total security ordered on 15 March 2019 and 12 April 2019 for the period from 16 March 2019 to the commencement of trial on 14 September 2020 $3,245,000 (b) Portion paid to date $2,557,500 (c) Portion not yet paid $687,500 4. Further amount sought in present application to commencement of trial now on 9 August 2021 $4,225,000 B Prior 7-Eleven estimates for costs from 16 March 2019 to initial 2020 trial (as at 6 February 2019) 5. (a) Estimated costs for the period from 16 March 2019 to commencement of trial on 14 September 2020 $6,056,627.50 (b) portion of estimated discovery costs $671,837.50 (c) portion of estimated costs for interlocutory applications $332,850.00 (d) portion of estimated non-discovery costs (being (a) less (b)) $6,056,627.50 $5,384,790.00 C Proportions as to security ordered on 15 March 2019 and 12 April 2019 6. Percentage of security ordered compared to estimated costs ($3,245,000 as a ratio of $6,056,627.50) 53.58% 7. Proportion of security attributable to estimated discovery costs of $671,837.50 (at 53.58% of $671,837.50) $359,954.89 D Actual 7-Eleven past costs and projected future costs from 16 March 2019 (as at 20 May 2020) to commencement of 2021 trial 8. (a) Total amount spent by 7-eleven from 16 March 2019 to 27 April 2020 $6,611,562.84 (b) Actual discovery costs $3,113,315.04 (c) Actual interlocutory costs from 16 March 2019 to 27 April 2020 $1,082,236.23 (d) portion of communication protocol application $882,836.19 9. (a) Estimated future costs for period 16 March 2020 to commencement of trial on 9 August 2021 $4,343,417.50 (b) portion of estimated discovery costs $479,087.50 (c) portion of estimated non-discovery costs (being (a) less (b) $3,864,330.00 E Estimated recoverable costs 10. 7-Eleven's estimated future costs (being $4,343,417.50) at 20% discount $3,474,734 11. (a) 7-Eleven's past costs in excess of secured amount (being $6,611,562.84 less $3,245,000) $3,366,562.84 (b) 7-Eleven's claim for past costs in excess of secured amount at 78% discount $750,000 12. (a) Applicant's estimated additional future costs plus disbursements $1,497,455 (b) Applicant's estimated additional future professional fees at 50% discount $618,527.50 (c) Applicant's estimated disbursements amount $260,400 (d) Applicant's estimated discounted costs plus disbursements $878,927.50 F Competing estimates 13. 7-Eleven security sought (being the sum of the amount in 10 and 11(b)) $4,225,000 (plus $687,500 not yet paid) 14. Applicant security proffered $880,000 (plus $687,500 not yet paid) 20 After the hearing, the parties sought to agree upon a figure for actual past costs incurred, but no agreement could be reached. I see no reason not to accept the figure put forward by 7-Eleven by email on 26 June 2020 of $10,327,917.40 (rounded down to $10,300,000) as the past costs (at least put forward for the purposes of the security for cost applications). 21 In light of the above observations, I have approached the determination of quantum in this way: I am looking at all past costs incurred from 20 February 2018 to 31 March 2020, then anticipated future costs from 1 April 2020 to the 2021 Trial Date, and deduct then all security paid to date (which is rounded down to $4,307,000). 22 As to future costs, I have primarily relied upon Mr Jones' evidence as to the tasks to be undertaken, including the preparation of lay and expert witnesses. Mr Jones is in the best position to opine on what he considers needs to be done for his client. Nevertheless, I have considered Mr Levitt's qualifications to the views of Mr Jones, and am mindful that I should not descend into detail as to the exact scope of the work required, which after all, can only be assessed on the basis of the current information. The assessment of likely future costs in large-scale litigation such as these proceedings involves elements of uncertainty. 23 Therefore, I work from the figure provided as actual past costs up to 31 March 2020. As I have said, the parties could not agree on an exact figure for past costs, but based upon the figures provided by the parties, I am prepared to accept the figure of $10,300,000 (rounded down) as actual costs incurred to 31 March 2020. I consider 50% should be the figure representing an allowance on party/party taxation in respect of past costs. The allowance for future costs ($4,343,417) should be that basically given by Mr Jones, but again I consider 50% should be a figure representing an allowance on a party/party taxation. This discount of 50% takes a conservative but reliable approach. Even starting from Mr Jones' estimates, there are necessarily assumptions to be made and there is some unpredictability in certain of the assumptions relating to the future tasks to be undertaken. Then one should be mindful of the possibility of settlement at a mediation prior to final preparation for the 2021 Trial Date. Taking a 50% discount (not a 20% discount suggested by 7-Eleven) covers these matters as well as taking into account my earlier observations. I then deduct the sum of $4,307,000 (rounded down) as the amount already paid by way of security. 24 To a certain extent this is a broad brush approach, and I observe that some actual costs would have been incurred since the date I adopt of 31 March 2020. However, allowance is made in the future anticipated costs for work done during the period 31 March 2020 to date. In any event, the exercise to arrive at an appropriate quantum is not meant to be an exact mathematical calculation. 25 Therefore, attempting to deal with the quantum in a lump-sum way, the figure is arrived in accordance with the methodology above as follows: 50% of Total Actual Past Costs $5,150,000 50% of Total Future Costs $2,171,708 = $7,321,708 Then deduct - $4,307,000 Total: $3,014,708 Rounded to: $3,015,000 26 Whilst a considerable sum has and is to be paid in tranches prior to the 2021 Trial Date, this litigation will involve considerable cost expenditure by both parties. The past costs and anticipated tasks indicate this prediction to be reliable. It is not the function of the Court on a security for costs application to constrain future necessary expenditure by a party, but security is not to be provided for unreasonable expenditure. I am satisfied that the quantum I have chosen will provide real protection to 7-Eleven on a party/party taxation basis, and is fair and reasonable in light of the anticipated tasks to be undertaken. 27 I will order in proceeding VID 180 of 2018: (1) Orders 8(g) and 8(h) of the orders made by Justice Middleton on 12 April 2019 be vacated. (2) The Applicants provide a seventh tranche of security for 7-Eleven's costs for the period up to the commencement of the initial trial in the sum of $2,713,500 by depositing cash with the Court in an interest-bearing account as follows: (a) 12.5% of that amount, being $339,187.50 to be deposited by 19 July 2020; (b) 12.5% of that amount, being $339,187.50 to be deposited by 5 August 2020; (c) 12.5% of that amount, being $339,187.50 to be deposited by 5 October 2020; (d) 12.5% of that amount, being $339,187.50 to be deposited by 5 December 2021; (e) 12.5% of that amount, being $339,187.50 to be deposited by 5 February 2021; (f) 12.5% of that amount, being $339,187.50 to be deposited by 5 April 2021; (g) 12.5% of that amount, being $339,187.50 to be deposited by 5 June 2021; and (h) 12.5% of that amount, being $339,187.50 to be deposited by 5 August 2021; (7-Eleven Security). (3) In default of delivery of the 7-Eleven Security in accordance with paragraph 2 of these orders, the proceeding as against 7-Eleven shall be stayed until such time as the security is provided, or further order of the Court. 28 I will order in proceeding VID 182 of 2018: (1) Orders 8(g) and 8(h) of the orders made by Justice Middleton on 12 April 2019 be vacated. (2) The Applicants provide a seventh tranche of security for 7-Eleven's costs for the period up to the commencement of the initial trial in the sum of $301,500 by depositing cash with the Court in an interest-bearing account as follows: (a) 12.5% of that amount, being $37,687.50 to be deposited by 19 July 2020; (b) 12.5% of that amount, being $37,687.50 to be deposited by 5 August 2020; (c) 12.5% of that amount, being $37,687.50 to be deposited by 5 October 2020; (d) 12.5% of that amount, being $37,687.50 to be deposited by 5 December 2021; (e) 12.5% of that amount, being $37,687.50 to be deposited by 5 February 2021; (f) 12.5% of that amount, being $37,687.50 to be deposited by 5 April 2021; (g) 12.5% of that amount, being $37,687.50 to be deposited by 5 June 2021; and (h) 12.5% of that amount, being $37,687.50 to be deposited by 5 August 2021; (7-Eleven Security). (3) In default of delivery of the 7-Eleven Security in accordance with paragraph 2 of these orders, the proceeding as against 7-Eleven shall be stayed until such time as the security is provided, or further order of the Court. I certify that the preceding twenty-eight (28) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Middleton. Associate: Dated: 7 July 2020