FEDERAL COURT OF AUSTRALIA Caason Investments Pty Limited v Cao (No 4) [2020] FCA 1246 File number: NSD 1558 of 2012 Judge: MURPHY J Date of judgment: 27 August 2020 Catchwords: COSTS – interlocutory applications made by representative applicants seeking payment of amounts from Scheme Funds and from litigation funder – some parts of one application successful and other parts failed – application for payment of further costs incurred by Scheme Administrator Legislation: Federal Court of Australia Act 1976 (Cth) s 33V Federal Court Rules 2011 (Cth) r 25.14 Cases cited: Caason Investments Pty Limited v Cao (No 3) [2020] FCA 91 Caason Investments Pty Ltd v International Litigation Partners No.3 Ltd [2018] FCAFC 176; (2018) 265 FCR 487 Morad v El-Ashey (No 2) [2017] FCA 1612 Re Minister for Immigration & Ethnic Affairs; Ex parte Lai (1997) 186 CLR 622 Ruddock v Vadarlis (No 2) [2001] FCA 1865; (2001) 115 FCR 229 Date of hearing: Determined on the papers Date of last submissions: 3 March 2020 Registry: New South Wales Division: General Division National Practice Area: Commercial and Corporations Sub-area: Corporations and Corporate Insolvency Category: Catchwords Number of paragraphs: 28 Solicitor for the First Applicant: Mr R Flory of Caason Investments Pty Ltd Solicitor for the Second Applicant: Mr T Burke of Wise Plan Pty Ltd Counsel for the Respondents: The Respondents did not appear Counsel for the Scheme Administrator: Ms L Beange Solicitor for the Scheme Administrator: Banton Group Counsel for the Funder: Mr A Byrne Solicitor for the Funder: Cornwalls ORDERS NSD 1558 of 2012 BETWEEN: CAASON INVESTMENTS PTY LIMITED (ACN 089 590 858) First Applicant WISE PLAN PTY LTD (ACN 007 008 577) Second Applicant AND: SIMON XIAO FAN CAO First Respondent CHARLES MAO Second Respondent LARRY MARSHALL (and others named in the Schedule) Third Respondent JUDGE: MURPHY J DATE OF ORDER: 27 AUGUST 2020 THE COURT ORDERS THAT: Costs of the applicants' interlocutory application dated 1 March 2019 1. The First Applicant pay the Scheme Administrator's costs of and associated with the interlocutory application dated 1 March 2019 fixed in the sum of $17,969.62, such costs to be paid into Scheme Funds. Costs of Caason's Variation Letter Costs Claim 2. The First Applicant pay International Litigation Partners No. 3 Pte Ltd and International Litigation Partners No. 3 Ltd costs of and associated with the First Applicant's Variation Letter Costs Claim on a party/party basis, as agreed or assessed. Scheme Administration Costs 3. The costs incurred by the Scheme Administrator in administering the Settlement Distribution Scheme in the period of 29 April 2019 to 24 December 2019 be approved in the sum of $17,184.75 and be paid from Scheme Funds. Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011. REASONS FOR JUDGMENT MURPHY J: 1 These reasons relate to costs incurred in interlocutory applications brought by Caason Investments Pty Ltd (Caason) and Wise Plan Pty Ltd (Wise Plan) (together, the applicants) following Court approval of the settlement of a securities class action brought by the applicants. The class action was funded by International Litigation Partners No. 3 Pte Ltd and/or International Litigation Partners No. 3 Ltd (the Funder). THE PROCEDURAL HISTORY 2 I set out the facts and relevant procedural history of the proceeding in Caason Investments Pty Limited v Cao (No 3) [2020] FCA 91 (Caason (No 3)) (at [6]-[40]) but for clarity it is necessary to briefly again detail some of the procedural history. In doing so I use the same defined terms as in Caason (No 3). 3 On 6 December 2017, I made orders to approve the settlement of the proceeding pursuant to s 33V of the Federal Court of Australia Act 1976 (Cth) (the Act) and delivered reasons on 16 April 2018. 4 Caason sought leave to appeal some limited parts of the settlement approval orders; limited to certain findings in relation to a dispute between Caason and the Funder as to "reasonable legal, accounting and administrative costs" it claimed to have incurred in acting as the representative applicant. Caason's alleged entitlement to such costs arose pursuant to a side letter to the funding agreement it had entered into with the Funder (the Variation Letter Costs Claim). Caason argued that the Court did not have jurisdiction to determine the contractual dispute between it and the Funder and, in the alternative that the Court erred in the exercise of discretion. On 18 June 2018 the Full Court dismissed the appeal and handed down reasons for judgment on 18 October 2018: Caason Investments Pty Ltd v International Litigation Partners No.3 Ltd [2018] FCAFC 176; (2018) 265 FCR 487. 5 The applicants then brought several interlocutory applications, being: (a) an interlocutory application dated 1 March 2019 filed by Caason but made on behalf of Wise Plan as well, which sought orders for amounts be paid to them from the settlement funds (Scheme Funds) held by the Administrator of the settlement distribution scheme (Scheme Administrator). The application sought: (i) reasonable costs of and incidental to their application for Representative Costs pursuant to the settlement approval orders made on 6 December 2017, in the amount of $61,603.85; and (ii) reasonable legal, accounting and administrative costs incurred by the applicants in acting in their representative capacity, including in relation to expenses incurred by Caason associated with the GST Refunds Issue in relation to which Wise Plan had agreed to pay a share, in the amount of more than $508,000; (b) an interlocutory application by Wise Plan dated 3 May 2019 which sought orders for payment of its Variation Letter Costs Claim by the Funder; and (c) an interlocutory application by Caason dated 16 May 2019 which sought leave to file, out of time, an application for orders for payment of its Variation Letter Costs Claim by the Funder. 6 In Caason (No 3) I dealt with those applications as follows: (a) with respect to the interlocutory application dated 1 March 2019 I made orders to approve: (i) $19,224.69 in respect of the applicants' reasonable costs of and incidental to their application for Representative Costs, to be paid to the applicants in the same proportions as they were incurred; and (ii) $28,995.15 in respect of reasonable legal, accounting and administrative costs, including in relation to the GST Refunds Issue, to be paid to the applicants in the same proportions as they were incurred. The application was otherwise dismissed: Caason (No 3) at [41]-[110]; (b) I did not decide Wise Plan's interlocutory application dated 3 May 2019 in relation to its Variation Letter Costs Claim, as that claim settled prior to hearing: Caason (No 3) at [40]; and (c) I refused leave to Caason to file its interlocutory application dated 16 May 2019 in relation to its Variation Letter Costs Claim, because of its repeated failures to comply with orders to file its application and further evidence: Caason (No 3) at [111]-[133]. 7 I said the following in Caason (No 3) at [134]-137] regarding the costs incurred by the applicants in those applications: [134] The question of costs arises in relation to two separate but related interlocutory applications. [135] In relation to the 1 March 2019 interlocutory application: (a) notwithstanding the applicants' success in obtaining an order for $19,224.69 in costs "of and incidental to" their application for Representative Costs, there is a real question as to whether it is appropriate to allow them further costs when they advanced an overstated and disproportionate claim, based on inadequate material, for $61,603.85; and (b) notwithstanding the applicants' success in obtaining an order for payment from the settlement fund of $28,995.15, there is a real question as to whether it is appropriate to allow the applicants their legal costs in the application when they advanced an overstated and disproportionate claim, again based on inadequate material, for more than $508,000. [136] In relation to Caason's Variation Letter Costs Claim, my preliminary view is that the Funder should have its costs thrown away. The quantum of the costs thrown away is likely to depend upon whether Caason commences a fresh Variation Letter Costs Claim within a reasonable time. [137] I direct the parties to confer within 14 days and endeavour to agree in relation to costs. If they cannot reach agreement each party must file short submissions (no more than three pages) within seven days thereafter. THE COSTS OF THE INTERLOCUTORY APPLICATION DATED 1 MARCH 2019 The applicants' submissions 8 Neither Caason nor Wise Plan filed submissions on costs within the timeframe set by the orders made 10 February 2020. My chambers wrote to the applicants to enquire as to whether they intended to file submissions as directed and they responded as follows: (a) Wise Plan wrote: My understanding is that neither, the Scheme Administrator nor ILP, have sought any orders that Wise Plan pay any of their costs. I advise that Wise Plan does not intend to file any further submissions. (b) Caason wrote: Whilst Caason has filed previous submissions in relation to the split of costs given the significant costs impost that it has already borne and the substantial costs already approved in favour of the scheme administrator in this matter I am instructed that it opposes any further costs orders being made in favour of the Scheme Administrator and says that the costs so far in favour of the Scheme Administrator are sufficient and should not be allowed. It otherwise leaves it up to the Court to make a final decision on the matter without it filing any further submissions. The Scheme Administrator's submissions 9 Amanda Banton, the Scheme Administrator, filed submissions in respect of the applicants' interlocutory application dated 1 March 2019. She submitted that although the applicants had some success in the application, and the usual costs order is that costs follow the event, in the special circumstances of the case the applicant should not have their costs, citing Ruddock v Vadarlis (No 2) [2001] FCA 1865; (2001) 115 FCR 229 (Ruddock) at [11]. The Scheme Administrator contended that such circumstances can include where an applicant has "made an exaggerated claim which has occupied a significant proportion of the proceedings and has succeeded only on a minor aspect of its original claim": Ruddock at [15]. 10 The Scheme Administrator pointed to the following matters as providing special circumstances which justified a departure from the usual order as to costs: (a) the applicants advanced "an overstated and disproportionate claim, based on inadequate material": Caason (No 3) at [135]; (b) order 10 of the 6 December 2017 orders provided for the applicants' representative reimbursement to include "a reasonable amount as agreed or as determined by the Honourable Justice Murphy, being costs of and incidental to their application for approval of [Representative Costs]" but the applicants instead sought a further regime for costs to be assessed, in an application made over 12 months later, which the Court rejected: Caason (No 3) at [68]; (c) the applicants failed to properly substantiate their claim: Caason (No 3) at [74]-[76]). That included not only failing to properly articulate their claim at the hearing, but also failing to provide appropriate material to the Scheme Administrator as part of the arrangements agreed between the parties, as the Scheme Administrator deposed in her affidavit of 29 March 2019; (d) the amount the applicants ultimately recovered was not greater than the amounts offered by the Scheme Administrator to the applicants at earlier hearings on 22 March 2019 in respect of the GST costs and on 22 May 2019 in respect of the costs of and incidental to the Representative Costs Claim: Caason (No 3) at [77], [109]). Wise Plan in fact accepted the offer in respect to its costs of and incidental to the Representative Costs Claim, although Caason had not. In Caason (No 3) the Court described the Scheme Administrator's offer as "more than fair"; and (e) the application was made for the applicants' own benefit and the costs they claimed from Scheme Funds were neither reasonable nor proportionate (Caason (No 3) at [75], [107]). In relation to the costs incurred in respect to the GST Refunds Issue they were incurred predominantly for Caason's benefit and without the approval of the Scheme Administrator. 11 The Scheme Administrator submitted that although the applicants were awarded a small part of the amounts they sought, they were substantially unsuccessful, being awarded: (a) less than one third of the amount they sought for the costs of and incidental to their application for the Representative Costs Claim; and (b) less than 5% of the amount they sought for their reasonable legal, accounting and administrative costs, largely in relation to the GST Refunds Issue. Further, the applicants did not press a number of the proposed orders and were unsuccessful in various aspects of the application. 12 Noting that a costs order in favour of the applicants would be met from Scheme Funds, and thus by class members, the Scheme Administrator submitted that it would be unjust for class members to be disadvantaged as a result of the applicants acting in their own self-interest to maximise their Representative Costs, and making overstated and disproportionate claims. The Scheme Administrator argued that not only had the distribution of settlement funds to group members been delayed as a result of Caason's application, but the amount available for distribution had been diminished by the further expense associated with the Scheme Administrator's defence of those claims. 13 Instead, the Scheme Administrator submitted that Caason should pay costs incurred by the Scheme Administrator in the application. She noted that, by orders made 10 February 2020, the Court approved the amount of $56,950.74 be paid to the Scheme Administrator from the settlement fund in respect of the interlocutory application. The order for Caason to pay costs would allow the Scheme Funds to be replenished in that amount. 14 The Scheme Administrator submitted that $1,644.50 of those costs were incurred after Caason rejected the Scheme Administrator's offer of compromise on 28 March 2019, and since then the Scheme Administrator had incurred further costs in respect of the application in the amount of $2,948 (incl. GST). She argued that the Scheme Administrator's costs incurred after 28 March 2019 should be met by Caason on an indemnity basis. This was particularly so when Caason's substantially reduced its claim in the course of the hearing on 21 March 2019 and where Caason again failed to provide appropriate material to substantiate its claim: Morad v El-Ashey (No 2) [2017] FCA 1612 at [9]-[11] (Kenny J); r 25.14 of the Federal Court Rules 2011 (Cth). 15 The Scheme Administrator only sought orders for Caason to pay the Scheme Administrator's costs. The submissions are not entirely clear as to the reasons for that but it appears to be because; (a) the Scheme Administrator had agreed with Wise Plan not to seek a costs order against it; (b) Caason made the bulk of the claims advanced in the application; and (c) Caason refused the Scheme Administrator's settlement offers. Consideration 16 I accept the Scheme Administrator's submissions regarding the applicants' conduct and I need not reiterate those matters. I also accept that in such circumstances it is appropriate to depart from the usual rule in relation to costs. The Court has a broad discretion in relation to costs and in my view the conduct of the application by both applicants was completely unsatisfactory. Class members should not be required to meet the substantial costs incurred by the Scheme Administrator in responding to the overstated and disproportionate claims the applicants made; particularly when each of them owed a duty to act in the interests of class members. 17 As I explained in Caason (No3) the applicants advanced overstated and disproportionate claims based on inadequate material and, in aggregate, they established less than 10% of the claims they made. It is also relevant that of the ten orders they sought in the application they only pressed six, and ultimately they were only successful in obtaining parts of four of the orders, and that much of the material they filed in support of the application was unnecessary, irrelevant or obtuse. 18 I do not though consider it appropriate to order the applicants to pay the Scheme Administrator's costs incurred after 28 March 2019 on an indemnity basis. While the circumstances justify a departure from the usual rule that costs follow the event, they are insufficient to warrant an order for indemnity costs against parties that were successful in the application, albeit only partially. In any event the quantum of the costs incurred after 28 March 2019 are not material. 19 There is a related difficulty with the Scheme Administrator's submissions. The Scheme Administrator sought orders for Caason to meet the totality of the $56,950.74 in costs the Scheme Administrator incurred in defending the application (which the Scheme Administrator has already been paid from Scheme Funds) plus I assume the further $2,948 in costs that the Scheme Administrator subsequently incurred. But to order Caason to pay costs in that amount would be to order indemnity costs. The Scheme Administrator did not advance any submission as to why Caason should pay costs on an indemnity basis where they were incurred prior to 28 March 2019, and the costs incurred after that date are not material. 20 In my view the applicants should only be liable for the party/party costs the Scheme Administrator incurred. Taking a rough and ready approach I would allow 60% of the costs claimed by the Scheme Administrator as party/party costs, being $35,939.24. 21 There is, however, one further difficulty with the Scheme Administrator's submissions. The Scheme Administrator did not seek costs from Wise Plan, notwithstanding that the application was made on behalf of both applicants and the liability to pay the Scheme Administrator's costs should be shared between the applicants. It appears that the Scheme Administrator agreed not to pursue Wise Plan for its costs, but that does not mean that Caason should have to pay Wise Plan's share. Nor am I persuaded that Caason should be made liable for all of the Scheme Administrator's costs: (a) because Caason made the greatest proportion of the claims. While it is true that Caason made the greater claim Wise Plan's smaller claim was also disproportionate and overstated; and (b) because Caason refused the Scheme Administrator's settlement offers. Caason's decision to reject the Scheme Administrator's settlement offers are not significant to the outcome as those offers were made during the hearing and the costs incurred after that were not material. 22 In my view, in circumstances where the Scheme Administrator only seeks costs from Caason, it should only recover half of the costs it would otherwise be entitled to. In the circumstances, I consider it appropriate to order that Caason pay the Scheme Administrator's costs of the application in the sum of $17,969.62, being half of the Scheme Administrator's party/party costs. THE COSTS RELATING TO CAASON'S VARIATION LETTER COSTS CLAIM 23 Caason did not make any submission beyond those noted at [9] above. 24 The Funder submitted that after the Full Court gave reasons for the dismissal of Caason's appeal in October 2018, the following occurred (as set out in Caason (No 3) at [113]): (a) in light of the lack of progress by the applicants in advancing their Variation Letter Costs Claims I listed the proceeding for a case management hearing on 10 December 2018. On that date the Court made orders setting a timetable for the determination of the applicants' Variation Letter Costs Claims. Pursuant to the orders they were required to file and serve any application and evidence by 8 February 2019. The applications were listed for hearing on 26 February 2019. They failed to file their applications and evidence and instead sought an extension of time; (b) I allowed an extension of time and by orders made 19 February 2019 required the applicants to file and serve their application and evidence by 1 March 2019. The applications were listed for hearing on 21 March 2019. The applicants filed the 1 March 2019 application by the extended deadline but that application related only to claims made against Scheme Funds, not the claims made against the Funder; (c) at the hearing at the hearing on 21 March 2019 I proposed a timetable for the hearing of the applicants' Variation Letter Costs Claims against the Funder. By orders made 3 April 2019 each of the applicants was required to file any interlocutory application and any further evidence in relation to their Variation Letter Costs Claim by 3 May 2019. I listed those claims for hearing on 25 and 26 July 2019. Orders 3 and 4 of those orders provided that any applicant that did not file an application and any further evidence by 3 May 2019 was not permitted to later do so without first obtaining leave of the Court (the guillotine order). (d) Wise Plan complied with the orders and filed an interlocutory application and affidavit in relation to its Variation Letter Costs Claim on 3 May 2019. Caason did not ; (e) on 7 May 2019, Caason sent an email attaching a document titled "Memo of Explanation by First Plaintiff and Chronology for Order" to my chambers. I fixed a hearing for 22 May 2019 to deal with the issues raised; and (f) at the hearing on 22 May 2019, Caason applied for leave to file an application and further evidence for the Variation Letter Costs Claim, outside the time provided by the guillotine order. For the reasons I explained in Caason (No 3) I made orders that day to refuse to grant leave to file the application outside the time limit set and for Caason to pay the Funder's costs of the application for leave. The order refusing leave and the effect that Caason's Variation Letter Costs Claim was no longer a matter for determination in this proceeding. 25 Caason is at liberty to pursue its Variation Letter Costs Claim in other proceedings should it wish to do so. The Funder gave an undertaking not to raise Anshun estoppel as a defence to any such claim that Caason later brought. But by the date the costs submissions were filed it was approaching a year since the orders of 22 May 2019 were made and Caason had not commenced any proceeding. 26 The Funder submitted that: (a) the steps that Caason took in relation to its Variation Letter Costs Claim were concerned with the determination of alleged contractual entitlements which Caason sought be met by the Funder. The claim was a 'private' claim by Caason and not in its capacity as the representative applicant in the class action. I accept that submission. It follows that if Caason has an obligation to pay costs there is no proper basis upon which such an order could be met from Scheme Funds; (b) Caason's failure to bring its Variation Letter Costs Claim in a timely way, its failure to comply with various timetabling orders, and then the refusal of leave to file its application and evidence out of time, meant that the interlocutory application had been brought to an end. In circumstances where leave was refused because of Caason's unreasonable conduct, the Funder contended that it should have its costs of defending the claim; (c) the costs the Funder incurred in this proceeding in defending Caason's Variation Letter Costs Claim will not be recoverable should Caason choose to pursue that claim in another Court at some time in the future. The possibility of a future proceeding is not a good reason to decline to order that it have its costs of this proceeding; (d) ordinarily costs follow the event and that in the absence of special circumstances justifying some other order a successful litigant should receive its costs, citing Ruddock at 234-235. It said there were no such special circumstances; (e) on the question of what constitutes an "event" or "success" in litigation, it is not necessary that a claim be determined on its merits: Re Minister for Immigration & Ethnic Affairs; Ex parte Lai (1997) 186 CLR 622 at 624-625 (McHugh J). It argued that the relevant "event" in the present case is the failure of Caason to obtain leave to file its application and evidence in support of the Variation Letter Costs Cap Claim out of time, which had the effect of bringing the claim to an end, at least in these proceedings. It said that Caason failed to obtain leave because of its unreasonable conduct of the claim, involving continuing non-compliance with orders and directions of the Court since 2017; and (f) the Court should order Caason to pay the Funder's costs of Caason's Variation Letter Costs Claim on a party-party basis, as agreed or assessed, up to the hearing on 22 May 2019. 27 I accept the Funder's submissions and have made the order sought. As the Funder acknowledged, there may be a degree of overlap in costs incurred by it in responding to Wise Plan's Variation Letter Costs Claim, and also in relation to the costs order made on 22 May 2019. Any overlap should be accounted for in the assessment process. THE SCHEME ADMINISTRATOR'S FURTHER COSTS 28 The Scheme Administrator informed the Court that since 19 May 2019 further settlement administration costs of $17,184.75 have been incurred. She seeks the Court's approval of these further costs which relate to additional time spent resolving group member queries as a result of the delayed distribution, the applicants' interlocutory applications, the GST Refund Issue and the Scheme tax return. It is appropriate to order that these costs be approved and be paid to the Scheme Administrator. I certify that the preceding twenty-eight (28) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Murphy. Associate: Dated: 27 August 2020 SCHEDULE OF PARTIES NSD 1558 of 2012 Respondents Fourth Respondent: GEORGE SYCIP Fifth Respondent: JI RAN LAURIE KAN Sixth Respondent: IAN RICHARD NEAL Seventh Respondent: ANTHONY JOHN SURTEES Eighth Respondent: SIMON JEREMY NEWTON GRAY Ninth Respondent: JAMES ABERDEEN HARVEY Tenth Respondent: PHILIP SYDNEY PATERSON Eleventh Respondent: DEAN LLOYD MARSH Twelfth Respondent: STEVEN JOHN WESTAWAY Thirteenth Respondent: TIMOTHY WILLIAM MURTON Fourteenth Respondent: DARREN CRAIG KLENK Fifteenth Respondent: MALCOLM STEVEN WIGHT Sixteenth Respondent: DEAN BRIAN CROOK Seventeenth Respondent: DALE JOHN RYAN Eighteenth Respondent: STEPHEN HAROLD KUCHAR Nineteenth Respondent: GEOFFREY ALLAN LLOYD Twentieth Respondent: JUSTIN LUKE HUMPHREY