Federal Court of Australia Koonara Management Pty Ltd v Rockliff (No 4) [2020] FCA 1201 File number: NSD 1357 of 2016 Judgment of: GLEESON J Date of judgment: 24 August 2020 Date of publication of reasons: 2 September 2020 Catchwords: COSTS – costs of applications for costs of proceeding – effect of deregistration of a successful party between hearing of the costs application and delivery of the costs judgment on costs orders, and subsequent reinstatement – consideration of appropriate lump-sum costs order Legislation: Corporations Act 2001 (Cth) ss 601AD, 601AH Cases cited: Amcus Pty Limited v Hurst Rentals Pty Limited & Ors [No 2] [2010] NSWSC 239 In the Matter of HIH Insurance Limited (In Liquidation); Cuong Ly v HIH Insurance Limited (In Liquidation) [2017] NSWSC 380 Koonara Management Pty Ltd v Rockliff (No 3) [2020] FCA 523 Division: General Division Registry: New South Wales National Practice Area: Commercial and Corporations Sub-area: Corporations and Corporate Insolvency Number of paragraphs: 27 Date of last submissions: 13 July 2020 (Applicant) 26 June 2020, 30 July 2020 (Respondent) Date of hearing: 24 August 2020 Counsel for the Applicants/Cross-Respondents: J Hynes Solicitor for the Applicants/Cross-Respondents: Minter Ellison Counsel for the Respondents/Cross-Claimant: A Avery-Williams (written submissions); the second respondent appeared for the respondents at the interlocutory hearing on 24 August 2020 Solicitor for the Respondents/Cross-Claimant: Rockliff Snelgrove Lawyers ORDERS NSD 1357 of 2016 BETWEEN: KOONARA MANAGEMENT PTY LTD (ACN 082 883 323) First Applicant ROCKY CASTLE FINANCE PTY LTD (ACN 082 858 160) Second Applicant AND: STEPHEN JOHN ROCKLIFF First Respondent MICHELLE RENEE ROCKLIFF Second Respondent AND BETWEEN: STEPHEN JOHN ROCKLIFF Cross-Claimant AND: BURKE ROBERT STANLEY RESCHKE (and another named in the Schedule) First Cross-Respondent order made by: GLEESON J DATE OF ORDER: 24 August 2020 THE COURT ORDERS THAT: 1. Leave be granted to the applicants and the first cross-respondent to rely on the affidavit of the first cross-respondent sworn 8 July 2020 and the affidavit of Christopher Keane sworn 13 July 2020, and on the written submissions filed on 14 July 2020. 2. Leave be granted to the respondents to rely on the written submissions filed on 29 July 2020. 3. Pursuant to s 601AH(3) of the Corporations Act 2001 (Cth), and to the extent necessary, an order be made validating order 2 made on 23 April 2020. 4. The costs of the costs application payable by the respondents to the first applicant, the second applicant and the third cross-respondent be fixed in the sum of $95,000.00. 5. Otherwise, there be no order as to costs. Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011. REASONS FOR JUDGMENT (REVISED FROM TRANSCRIPT) GLEESON J: 1 On 23 April 2020, after hearing argument in October 2019, I made costs orders in this proceeding and ordered the parties to endeavour to agree on an appropriate costs order or orders (preferably a consolidated lump-sum costs order), reflecting the extent of their success or failure on the costs questions determined by the costs orders: Koonara Management Pty Ltd v Rockliff (No 3) [2020] FCA 523 (Koonara (No 3)). I noted that: (1) The respondents (Rockliffs) failed on their application for indemnity costs. (2) The Rockliffs succeeded in obtaining orders in their favour only in an amount that was conceded by the applicants (Koonara and RCF). (3) Koonara, RCF and Burke Reschke (Reschke parties) were substantially successful. 2 Not surprisingly, in view of the history of the proceeding, no such agreement was achieved. 3 Accordingly, the issue for determination is the appropriate cost or costs orders following the parties' respective claims for indemnity, consolidated and lump-sum costs orders. 4 Additionally, there is an issue as to the order or orders, if any, that should be made as a result of the deregistration of RCF, which occurred in November 2019. As appears below, shortly before the Court was to deliver judgment, ASIC reinstated the registration of RCF pursuant to s 601AH of the Corporations Act 2001 (Cth) (Act). Rockliff parties' contentions 5 The Rockliffs accepted that costs should follow the event in relation to the parties' applications for costs that were determined by Koonara (No 3) (costs application). However, they made submissions in respect of: (1) The deregistration of RCF on 3 November 2019 (between the hearing of the costs application and the delivery of Koonara (No 3)). (2) The quantum of the costs of the costs application. 6 The Rockliffs relied on the following affidavits: (1) affidavit of Michelle Rockliff sworn 23 June 2020; and (2) affidavit of Stephen Rockliff sworn 25 June 2020. 7 Ms Rockliff's affidavit deposes to the following matters: (a) the deregistration of RCF; (b) the 11 November 2016 undertaking to the Court provided by Mr Reschke, Reschke Vineyards Pty Ltd and Reschke Pty Ltd, in the following terms: (i) they will pay to Stephen John Rockliff and Michelle Renee Rockliff, and are otherwise jointly and severally liable for, any award of costs which might be ordered, whether fixed or assessed, to be paid to them by the first and second plaintiffs, Koonara Management Pty Ltd and or Rocky Castle Finance Pty Ltd, in Federal Court of Australia proceedings NSD 1357/2016, including any costs order in respect to the consolidated proceedings 2015/00191977 in the District Court of New South Wales transferred to the Federal Court of Australia Sydney Registry by order of Justice Gleeson made on 7 October 2016, which costs orders the Plaintiffs do not pay within 21 days of the date on which the obligation to make payment arises; and (ii) they will ensure that they are in a position to meet the Undertaking in paragraph 1 above or procure that entities within each of their control meet the Undertaking in paragraph 1 above. (c) Correspondence with MinterEllison, the lawyers acting for Koonara and Mr Reschke between 25 May and 1 June 2020. (d) The costs incurred by the Rockliffs on the costs application, which totalled $58,679.43. 8 As to the correspondence with MinterEllison, by letter dated 25 May 2020, MinterEllison noted that the work that went into defending the Rockliffs' claims for costs was complicated and time consuming, and the difficulties were exacerbated by the prolix nature of the affidavit material filed by the Rockliffs. On this basis, MinterEllison proposed on behalf of the Reschke parties that the Rockliffs should pay their costs on a party/party basis, in a lump-sum order in the amount of $108,582.50 comprising: (1) Counsel fees of $45,309.50, principally for Mr Hynes but also including fees for work done by a reader, Mr Tao, and an amount of $562.50 for work done by Mr Stapleton, who had appeared at the trial. (2) 80% of MinterEllison's fees, being $62,018.00. (3) Filing fees of $1,255.00. 9 Mr Rockliff's affidavit annexes company searches of Reschke Vineyards Pty Ltd and Reschke Pty Ltd, disclosing that both companies have been ordered to be wound up. Written submissions about RCF's deregistration 10 The Rockliffs filed written submissions before RCF's reinstatement. In those submissions, the Rockliffs noted that, by s 601AD of the Act, when RCF was deregistered, it ceased to exist. 11 The Rockliffs made contentions about the effect of RCF's deregistration, including that: (1) An order made on 23 April 2020 for the payment of costs by Mr Rockliff to RCF (order 2) should be set aside. (2) The Court should make an additional order that Mr Reschke be jointly and severally liable with Koonara for a costs order made in Ms Rockliff's favour on 23 April 2020, by reason of Mr Reschke's apparent breach of the November 2016 undertaking. Submissions about proposed lump-sum costs order 12 The Rockliff parties submitted: (1) As RCF no longer existed, it was unable to claim its costs in respect of the costs application and, on that basis, the costs should be reduced by at least one-third. (2) The amount claimed by Koonara and Mr Reschke is "remarkable", more than double the Rockliffs' costs and not proportionate as it is more than 10% of the Reschke parties' costs of the entire proceedings. (3) The amount claimed was not supported by tax invoices or timesheets and the Rockliffs ought to have an opportunity to review those documents. (4) Any consolidated costs order must carve out the costs incurred by RCF in obtaining order 2, and would need to take into account earlier costs orders which have not been vacated. These matters should be the subject of agreement between the parties once the costs of the costs application have been quantified. (5) The appropriate order is that the Rockliffs pay the costs of Koonara and Mr Reschke of the application heard on 2 October 2019 as assessed. 13 In reply, the Rockliff parties submitted that an appropriate figure to award Koonara and Mr Reschke for the relevant costs is $44,000.00 having regard to the following matters: (1) Entries in the solicitors' time sheets totalling $5,460.03 do not appear to relate to the costs application. (2) Entries lacking sufficient detail to determine whether they relate to the costs application. (3) The proposed 20% discount for solicitors' fees is more appropriate to an award of indemnity costs than an award of party/party costs. (4) The barristers' invoices do not disclose with sufficient clarity whether the work related to the costs application. (5) It is reasonable to apply a discount for duplication because multiple counsel were retained, and for duplication as between counsel and solicitors. (6) The amount should be reduced by one-third because costs claimable by RCF are not recoverable. Reschke parties contentions 14 The Reschke parties relied on the following affidavits: (1) affidavit of Christopher Keane, solicitor, sworn 13 July 2020; and (2) affidavit of Mr Reschke sworn 8 July 2020. 15 Mr Keane's affidavit purported to set out the basis for a lump-sum costs order in the amount of $104,997.58 for the costs of the applications listed for hearing on 13 September and 2 October 2019. The hearing on 13 September 2019 was a case management hearing in preparation for the 2 October 2019 hearing. 16 As to RCF's deregistration, Mr Keane deposed to, among other things, to the fact that MinterEllison was taking steps to assist Mr Reschke to have RCF reinstated as a matter of urgency. 17 The claim for a lump-sum costs order was supported by a costs summary prepared in accordance with the Federal Court Costs Practice Note (GPN-COSTS). The lump-sum amount was calculated by: (a) applying a 20 % discount to the MinterEllison fees, reducing the amount of the fees by $14,607.96 from $73,039.76 to $58,431.81; and (b) adding Counsel fees (totalling $45,310.77) and the Federal Court filing fee ($1,255.00) to the amount in paragraph 17(a) above, which provided the total figure of $104,997.58. 18 Mr Keane offered the following justification for applying only a 20% discount to the MinterEllison fees: (a) all of the hourly rates applicable to the MinterEllison fees are discounted to reflect the fact that the relevant work concerned the costs application rather than the substantive dispute (even though the costs application involved significant amounts, relative to the substantive dispute); (b) the following hourly rates were applied: (i) Christopher Keane, Special Counsel (Adelaide and Sydney) – $383.00; (ii) Anthony Sommer, Senior Associate (Sydney) – $469.00; (iii) Jeremy Forbes, Lawyer (Sydney) – $300.00; (iv) Jason Leonardis, Associate (Adelaide) – $252.00 before 1 July 2019 and $270.00 thereafter; (v) Olivia Jay, Paralegal (Adelaide) – $150.00; (vi) Shelini Hillier, Law Clerk (Adelaide) – $188.00; (vii) Daina Marshall, Law Clerk (Adelaide) – $165.00; (c) the Court's assessment as to the merit of the Rockliffs' applications (as discussed at [11] and [12] of Koonara (No 3)). Submissions about RCF's deregistration 19 Prior to RCF's reinstatement, Koonara and Mr Reschke submitted that the Court should defer the determination of all outstanding matters in the proceeding to enable Mr Reschke a reasonable time to complete the reinstatement of RCF and to enable the Rockliffs to respond to the material served in support of the lump-sum costs order. As it turned out, the Rockliffs did respond to that material in written submissions, and within minutes of my intended delivery of the judgment in this matter, Koonara and Mr Reschke informed the court that RCF had in fact been reinstated. Consideration RCF's deregistration 20 It is not in dispute that the Court was not informed of RCF's deregistration before Koonara (No 3) was delivered. However, the fact is that the company has now been reinstated. Section 601AH(5) of the Act provides that if a company is reinstated, the company is taken to have continued in existence as if it had not been deregistered. 21 Prior to delivering this judgment, and in the absence of RCF's reinstatement, I would have set aside order 2 which was an order in RCF's favour, on the basis that that order could be characterised as a nullity: In the Matter of HIH Insurance Limited (In Liquidation); Cuong Ly v HIH Insurance Limited (In Liquidation) [2017] NSWSC 380 at [20]. See also Amcus Pty Ltd v Hurst Rentals Pty Ltd (No 2) [2010] NSWSC 239 at [22]. 22 However, I would have also granted leave to RCF to apply for a further order in terms of order 2 on reinstatement in circumstances where it appeared that the deregistration occurred as an oversight and by reason of the non-payment of ASIC fees, and where I was informed that Mr Reschke was taking all appropriate steps to seek the reinstatement of the company. 23 In light of the reinstatement, and having regard to the terms of s 601AH(5), I do not propose to set aside order 2. However, having regard to section 601AH(3), which empowers the court to make orders in the event of a reinstatement, I propose to make an order that order 2 will operate in its terms on the basis that RCF has now been reinstated. 24 I also did not accept that the circumstances warranted the imposition of an order making Mr Reschke personally liable for Ms Rockliff's costs where RCF has been reinstated and I accepted Mr Reschke's evidence that the deregistration occurred as a result of his oversight. Consolidated lump-sum costs order 25 A consolidated lump-sum costs order should be made in favour of the Reschke parties. In determining an appropriate amount, the following matters are relevant: (1) The solicitors' costs should be reduced by an amount reflecting work recorded in relation to an appeal. (2) I accept that MinterEllison's rates are discounted. In particular, Mr Keane's rate is modest. Mr Keane did the bulk of the solicitors' work, which was not inappropriate having regard to the nature and complexity of the matter and his rate. (3) It was not unreasonable for the Reschke parties to retain new junior counsel to argue the costs application. Mr Hynes' fees included discounts of about $6,000.00. Mr Hynes' rates were appropriate for his expertise and seniority. Mr Tao's rates were modest. (4) I accept Mr Keane's evidence that counsels' invoices relate to work completed in relation to the costs application. I do not accept that there should be a significant discount for likely duplication, particularly where Mr Stapleton's invoice reflects only a very small amount of work. (5) Now that RCF has been reinstated, the lump-sum should not be discounted in respect of the fixing of the costs payable to RCF. (6) Having regard to my understanding and experience of this litigation, I consider that the fees comprised in the proposed lump-sum amount reasonably reflect the scope of the issues that it was necessary to determine. In with this regard, and without intending any criticism of Ms Avery-Williams who presented her clients' case admirably, I was greatly assisted by Mr Hynes in addressing relatively complex issues of costs in this case. I do not accept that the Rockliffs' costs provide a useful point of comparison when those costs were not incurred by independent legal practitioners. 26 Taking these matters into account, and noting that I would not apply any discount to the costs incurred in relation to counsels' fees, I will fix the costs payable to Koonara and Mr Reschke for the costs application at $95,000.00. Conclusion 27 The intent of the orders is to conclude the proceeding as between the Rockliffs, Koonara and Mr Reschke. For the avoidance of doubt, and consistent with that intended outcome, I will order that each party bear its own costs of the argument on costs of the costs application. I certify that the preceding twenty-seven (27) numbered paragraphs are a true copy of the Reasons for Judgment of the Honourable Justice Gleeson. Associate: Dated: 2 September 2020 SCHEDULE OF PARTIES NSD 1357 of 2016 Cross-Respondents Second Cross-Respondent KOONARA MANAGEMENT PTY LTD (ACN 082 863 323) ATF KOONARA MANAGEMENT TRUST Third Cross-Respondent ROCKY CASTLE FINANCE PTY LTD (ACN 082 858 160) ATF ROCKY CASTLE FINANCE TRUST