FEDERAL COURT OF AUSTRALIA

COSTS - Federal Court Rules O 62 r 4(2)(c) - application by successful respondent to have costs assessed on a gross sum basis - power of Court to vary costs order previously made - purpose of gross sum rule - avoidance of expense and delay - assessment of appropriate gross sum.

Federal Court of Australia Act 1976 (Cth), s 43

Federal Court Rules, O 62 r 4(2)(c)

Beach Petroleum NL v Johnson (No 2) (1995) 57 FCR 119, followed

Caboolture Park Shopping Centre Pty Ltd  (in liquidation) v White Industries (Qld) Pty Ltd (1993) 45 FCR 224, considered

Donohoe v Britz (No 2) (1904) 1 CLR 652, cited

Southern Cross Exploration NL v Fire and All Risks Insurance Co Ltd (unreported, Supreme Court of New South Wales - Equity Division, Waddell CJ, 14 April 1986), cited

Magna Alloys & Research Pty Ltd v Coffee (No 2) [1982] VR 97, cited

Ralkon Agricultural Company Pty Limited v Aboriginal Development Commission (unreported, Forster J, 11 July 1986), cited

Lumley Life Limited v IOOF of Victoria Friendly Society (unreported,  Lockhart J, 23 April 1992), cited

Wati v Minister for Immigration and Multicultural Affairs (1997) 148 ALR 578, considered

Donkin v AGC (Advances) Ltd (unreported, Full Federal Court, 30 August 1995), cited

Leary v Leary [1987] 1 All ER 261, cited

Colgate-Palmolive Company v Cussons Pty Ltd (1993) 46 FCR 225, cited

IAN WALTER BROOKFIELD and

SEPTIC PRODUCTS AUSTRALIA PTY LTD (IN LIQUIDATION) v

DAVEY PRODUCTS PTY LTD

SG 112 of 1993

BRANSON J

SYDNEY

19 DECEMBER 1997

THE COURT ORDERS THAT:

The costs order of 8 February 1996 be varied to read:

The first applicant pay the respondent’s costs specified in the sum of $380,493.82.

Note:                Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.

REASONS FOR JUDGMENT

INTRODUCTION

This is an application under O 62 r 4(2)(c) of the Federal Court Rules made by notice of motion by the respondent to the proceeding.  The respondent seeks an order specifying that, as to the whole of the costs ordered by me on 8 February 1996 to be paid by the first applicant to the respondent, a gross sum be specified.

Portion of the judgment at first instance in the principal proceeding is reported as Brookfield & Anor v Davey Products Pty Ltd & Ors [Extract] (1996) 14 ACLC 303.  An appeal to the Full Court of this Court was dismissed  (unreported, Full Court, 12 September 1996) as was an application to the High Court for special leave to appeal against the decision of the Full Court ((1997) 8 LegRep SL4a).

The hearing at first instance occupied 24 days (or part days).  Considerable technical as well as lay evidence was called on each side.  Submissions were made orally and in writing.   Complicated issues of fact and law were required to be determined.   As the present application confirms, the costs of the hearing at first instance were substantial.

On 8 February 1996, I delivered judgment in the proceeding dismissing the application and on the same day I made an order as follows:

“That  the applicant pay the respondent’s costs of the application to be taxed if not agreed.”

During the course of the hearing, the first applicant sought the Court’s authority to conduct the litigation using the name of the second applicant.  The authority granted to Mr Brookfield was an authority to use the name of the second applicant “at his own expense and risk as to costs”.  The costs order is to be understood as an order against the first applicant.  

POWER TO VARY ORDER OF 8 FEBRUARY 1996

The respondent characterised the present application as an application for a further order with respect to the costs of the proceeding.  In my view, it must be regarded as an application to vary the order for costs made on 8 February 1996.

Section 43 of the Federal Court of Australia Act 1976 (Cth) gives the Court jurisdiction to award costs in proceedings before the Court and a wide discretion as to the manner in which such jurisdiction is exercised.  Order 62 rule 3(1) provides that the Court may exercise its powers and discretions as to costs at any stage of the proceeding or after the conclusion of the proceeding.  On 8 February 1996, immediately after pronouncing the judgment of the Court, I exercised the Court’s powers and discretions as to costs by making the order set out above.

Order 62 rule 4 of the Federal Court Rules provides as follows:

“(1)     Subject to this Order, where by or under these Rules or any order of the Court costs are to be paid to any person, that person shall be entitled to his taxed costs.

(2)       Where the Court orders that costs be paid to any person, the Court may further order that as to the whole or any part of the costs specified in the order, instead of taxed costs, that person shall be entitled to -

            (a)        a proportion specified in the order of the taxed costs;

            (b)        the taxed costs from or up to a stage of the proceeding specified in the order;

            (c)        a gross sum specified in the order instead of the taxed costs;  or

            (d)        a sum in respect of costs to be ascertained in such manner as the Court may direct.”

The costs order made on 8 February 1996 had the effect that the respondent became entitled to its taxed costs (O 62 r 4(1)).  Taxed costs within the meaning of O 62 r 4 are costs taxed on a party and party basis (O 62 r 12;  Colgate-Palmolive Company v Cussons Pty Limited (1993)46 FCR 225)).  What is now sought is an order that, instead of taxed costs, the respondent is entitled to a specified gross sum.  Such an order will be inconsistent with the order of 8 February 1996.   For such an order to be made, the costs order of 8 February 1996 will either have to be varied or terminated.

Order 35 rule 7 of the Federal Court Rules specifies certain circumstances in which the Court may vary or set aside a judgment or order.   One such circumstance is where the order has not been entered.   It appears that the costs order of 8 February 1996 has not been entered.   The Court thus has a discretion to vary or set aside the costs order of 8 February 1996.

I note that in  Beach Petroleum NL v Johnson (No 2) (1995) 57 FCR 119, von Doussa J made an order for the payment of a specified gross sum instead of taxed costs notwithstanding his earlier order in the proceeding that, as between certain of the parties, costs be paid on a party and party basis and, as between others, costs be paid on an indemnity basis.  His Honour said at 120:

“Pursuant to O 62 r 3(1) the Court may exercise its powers and discretions as to costs at any stage of the proceedings, or after the conclusion of the proceedings.  In my opinion the Court has power to make a gross sum order at this stage notwithstanding that costs orders were earlier made which envisaged taxation in the ordinary way.”

IS THE CASE AN APPROPRIATE ONE FOR THE AWARDING OF COSTS IN A GROSS SUM?

In Leary v Leary [1987] 1 All ER 261, the Court of Appeal gave consideration to a rule of court which relevantly provided:

“(1)     Subject to this Order, where by or under these rules or any order or direction of the Court costs are to be paid to any person, that person shall be entitled to his taxed costs.

            ...

(4)       The Court in awarding costs to any person may direct that, instead of taxed costs, that person shall be entitled ...

            b)         to a given sum so specified in lieu of taxed costs.”

Purchas LJ at 265 described the purpose of the above rule as being -

“the avoidance of expense, delay and aggravation involved in a protracted litigation arising out of taxation”

and concluded that the rule did not envisage that any process similar to that involved in a “taxation” should take place.

In Beach Petroleum NL v Johnson, von Doussa J considered that the principles identified by the Court of Appeal in Leary v Leary as being those upon which the power to direct payment of a given sum should be exercised, were also those upon which the power given by O 62 r 4(2)(c) of the Federal Court Rules should be exercised.  I take the same view.

The evidence of Peter John Norman (“Mr Norman”) is that the material which would have to be incorporated into a traditional bill for taxation in this matter is contained in:

            (a)        the work-in-progress records (“the billing-guide”) of the respondent’s solicitors, which is a 111 page document referring to 1917 separate attendances and containing 1248 individual disbursement records;

            (b)        nine manilla folders, each containing in the order of 500 pages, consisting of correspondence, cost entries, telephone notes, draft documents etc;

            (c)        five lever arch volumes of exhibits;

            (d)        six lever arch volumes containing discovered documents;

            (e)        five lever arch volumes of transcript;

            (f)         seven lever arch volumes containing court documents;  and

            (g)        other unspecified material.

Mr Norman is an acknowledged expert on taxation of legal costs in South Australia.  He estimates that a bill drawn in the traditional way in this matter would contain in the order of 3,000 items, be in the order of 400 pages long and take more than four weeks to draw.   I see no reason to doubt Mr Norman’s estimates.

Mr Brookfield, who appeared personally on this application, opposed the fixing of a gross sum in lieu of taxed costs.   He did so on the basis that -

“... there are simply too many questions and too many points that I have raised in relation to the way the bill of costs is currently presented.”

It seems to me that the fact that any taxation of costs in this matter is likely to be controversial and protracted tends, in the circumstances, to favour, rather than tell against, the making of the order here sought.  It is important to note that, whilst an order that costs be assessed in a gross sum will not result in the respondent’s costs being scrutinised in the same detail as taxation would require, it will allow the points raised by Mr Brookfield to be taken into account in a more general way.   Mr Brookfield has placed material before the Court which carefully identifies his concerns with the costs claimed by the respondent.

I am satisfied that this is an appropriate case for the making of an order pursuant to O 62 r 4(2)(c) of the Federal Court Rules, and that the order of 8 February 1996 should be varied to provide for the payment of a gross sum.

ASSESSMENT OF AN APPROPRIATE GROSS SUM

The respondent has placed before the Court the billing-guide.  I agree with the submission of the respondent that the billing-guide, together with the respondent’s disbursement records, provide an appropriate base upon which consideration can be given to the fixing of a gross sum in lieu of taxed costs.  

By reference to such documents, the respondent has summarised its claim as follows:

            Claim for professional fees by the

            respondent’s solicitors for trial                           ..                      $228,759.60

            Claim for care and conduct at 25% on

            solicitors’ costs but not including

            photocopying or facsimiles                                            ..                      $ 57,189.90

            Claim for office disbursements                           ..                      $  68,955.44

            Claim for counsel fees for trial                           ..                      $102,926.00

            Claim for witness fees, expert reports,

            agents’ fees and some out of pocket

            expenses for trial                                                           ..                      $  92,029.12

            Other disbursements for trial                                         ..                      $  20,996.79

            Claim for counsel and other fees re

            estimating and reconciling costs                         ..                      $   9,480.80

                                                                                                                         _________

                                                                                                                        $580,337.65

Claim For Professional Fees By Respondent’s Solicitors

As Barton J pointed out in Donohoe v Britz (No 2) (1904)1 CLR 662 at 666:

“It is a general rule that, as between party and party, the luxuries of litigation must be paid for by those who indulge in them, the necessaries only are to be paid for by the losing side.”

The claim for solicitors’ fees involves 1440 hours of solicitor’s professional time.  Perusal of the billing guide indicates that on many occasions the time of two solicitors attending on the one person has been claimed.   On some occasions, the time of two or more solicitors to settle the one document or to undertake the one task, has been claimed.  The time taken by solicitors to attend in-house conferences with other solicitors has been claimed. Attendances on a counsel who ultimately took no part in the case are claimed.   I note further that the drafting of documents has been claimed on a time basis;  this has, in a number of instances, in my view, led to claims being made in an amount which would not be sustainable on a taxation.   In addition, in my view, a general perusal of the items recorded in the billing-guide under “Time Recorded” suggests that time over and above that which could be regarded as reasonably necessary for the proper defence of the matter was spent.   In particular I note the significant number of items recording time spent for “perusal” or “consideration” and for “research”. 

A perusal of the billing-guide also suggests that claims are made under this head for the clerical time involved in the photocopying of documents and the sending of facsimile transmissions.  Such claims have in my view, been duplicated under the head claim for office disbursements.  Items 16 and 24 of the scale of costs contained in the Second Schedule to the Federal Court Rules are intended to cover the clerical time necessarily involved in photocopying or sending facsimile transmissions as the case may be.

I must seek to fix a gross amount for the costs claimed under this head, as for all the heads of claim, that is “logical, fair and reasonable”, seeking to prevent on the one hand, prejudice to the applicant by overestimating the costs, and on the other hand, injustice to the respondent by imposing an arbitrary discount on the estimates which it has submitted to the Court  (per von Doussa J in Beach Petroleum NL v Johnson at 123.)

I propose that the sum claimed by the respondent for the professional fees of its solicitors should be reduced by 40% to give a gross sum of $137,255.76.

Claim For Care and Conduct

Item 41 of the Federal Court scale of costs payable on a party/party basis in the Federal Court, provides as follows:

“GENERAL CARE AND CONDUCT

41        if the case or circumstances warrant it, an allowance may be claimed under this item, in addition to any item which appears in this scale, for general care and conduct (where appropriate) including:

            (a)        the complexity of the matter and the difficulty and novelty of the questions raised or any of them;

            (b)        the importance of the matter to the party and the amount involved;

            (c)        the skill, labour, specialised knowledge and responsibility involved in the matter on the part of the solicitor;

            (d)        the number and importance of the documents prepared or perused without regard to length;

            (e)        the time expended by the solicitor;

            (f)        research and consideration of questions of law and fact.”               

In my view, item 41 of Schedule 2 is principally intended to ensure that a scale of costs which is based overwhelmingly on specified fees or rates for items of work does not result in solicitors who represent clients in complex or novel matters being under-rewarded in comparison with those who are involved in more routine matters.  Where a bill is based principally on time costing, the scope of operation of item 41 will, in my view, be limited.  I note that the case of Southern Cross Exploration NL v Fire and All Risks Insurance Co Ltd (unreported, Supreme Court of New South Wales - Equity Division, Waddell CJ,  14 April 1986) upon which the respondent placed reliance is a case in which the bill of costs had been taxed on the basis of specified fees for items of work and not on a time basis.

In this case, I have, to some extent, discounted the amount claimed under the head of solicitors’ fees to take account of its having been calculated on a time spent basis.  In discounting the amount claimed as solicitors’ fees, I have also taken into account the use of two solicitors where, on a party/party taxation, it is likely that the attendance of only one would have been allowed.

I am prepared to allow a modest allowance for general care and conduct.  I fix that allowance at 7%.

Claim For Office Disbursements

The main items under this head are photocopying and facsimile transmissions.  Photocopying has been claimed at $1.00 per sheet and facsimile transmissions at the relevant scale rates.

Counsel for the respondent drew attention to item 16 of the Second Schedule to the Federal Court Rules which allows $1.00 per page for copies.  However, the note to item 16 reads as follows:

“... except that, if allowance for 10 or more pages is claimed in respect of any document or documents, the costs to be allowed for the copies are at the discretion of the taxing officer.”

The total amount claimed for photocopying is $59,513.00.  I consider it appropriate to discount significantly the amount claimed for photocopying to reflect first, economies of scale (bearing in mind that the amount per sheet is intended to make provision for the time of the clerk involved) and secondly, to reflect the real likelihood that not all photocopying could be shown to be reasonable and necessary.

Item 24 of the Second Schedule of the Federal Court Rules allows facsimile transmissions to be charged at a specified rate, or such fee may be allowed as is “reasonable in the circumstances.”   The respondent has claimed $6,918.00 for the sending of 174 facsimiles;  that is, approximately $40.00 per facsimile transmission.  I am not able to assume that all of the 174 facsimile transmissions claimed were required for reasons of urgency.  In any event, in my view, where the total number of  transmissions is large, I do not consider the sum of $40.00 per transmission to be reasonable.  I note that the respondent did not charge its clients for facsimile transmissions at this rate.  I propose to allow the facsimile transmissions in the amount that the respondent charged its clients, namely $2,121.00.

The amount which I allow for office disbursements is $41,000.00

Counsel Fees

Whilst the hourly rates charged by counsel are not, in my view, unreasonable, it must be doubted whether all items charged would be allowed on a party/party taxation.  I refer in particular to the number of conferences charged, and charges for reading, consideration and preparation.

In Magna Alloys & Research Pty Ltd v Coffee (No 2) [1982] VR 97 at 112, Fullagar J stated:

“The time honoured basis of charging counsel’s fees in respect of a court hearing remains the basis of a brief fee and refreshers of two-thirds of that fee, and prima facie this is the basis upon which counsel’s fees will be taxed as between party and party.  There must, in my opinion, be an onus upon the party who seeks a departure on taxation from that traditional and usual basis, and the onus must be one of satisfying the taxing officer that the traditional method of fee marking could not reasonably have been followed in all the circumstances of the case.”

Forster J followed such “time honoured” basis for taxing counsels’ fees in Ralkon Agricultural Company Pty Limited v Aboriginal Development Commission (unreported, Forster J, 11 July 1986).  In Lumley Life Limited v IOOF of Victoria Friendly Society (unreported, Lockhart J, 23 April 1992) Lockhart J indicated that a taxing officer could not be criticised for taking the view that the brief on hearing with refreshers approach was to be preferred in that case, although his Honour noted that the modern tendency is for counsel to charge a flat fee on a daily basis of both preparation and court work.

In this case, the “modern tendency” identified by Lockhart J was followed.  For the purpose of fixing a gross sum I regard it as a satisfactory approach.  However, I consider that the total sum claimed for counsel fees must be reduced to reflect an appropriate amount to be recovered on a party/party basis.

The total amount claimed for counsel fees will be reduced by $10,000.

Claim For Witness Fees and Experts’ Reports

The claim in respect of experts’ reports includes the cost of reports prepared by individuals who did not give evidence and whose reports were not received in evidence.  I consider it appropriate to reduce the amount claimed under this head by excluding such costs.  The total amount claimed will be reduced by $15,575.00.

I am also not satisfied that on a party/party basis it is appropriate to require the applicant to meet legal costs incurred by a witness.   The claim under this head will be further reduced by the amount of $7,227.65 apparently paid to a witness’s solicitors as legal costs.

Claim For Other External Disbursements

Mr Brookfield has, I consider, fairly identified some minor items of extravagance in this claim.  However, I do not accept that business class travel is, in the circumstances, an unwarranted extravagance.   As the other claims identified by Mr Brookfield total less that $100.00, in the circumstance that I am not engaged in a taxation exercise but in the general exercise of fixing an appropriate gross sum for costs, I do not propose to make an adjustment in respect of these items.  To do so would suggest that this exercise is one allowing of greater precision than is the case.

Claim for Estimating and Reconciling Costs

In my view, this claim is reasonably made.

CONCLUSION

I allow a gross sum of $380,493.82 calculated as follows:

            Professional fees of respondent’s solicitors                    ..          $137,255.76

            General care and conduct                                             ..          $    9,608.00

            Office disbursement                                                      ..          $  41,000.00

            Counsel fees                                                                 ..          $  92,926.00

            Witness fees and expert reports                                    ..          $  69,226.47

            Other external disbursements                                        ..          $  20,996.79

            Estimating and reconciling costs                         ..          $    9,480.80

                                                                                                              _________

                                                                                                            $380,493.82

                                                                                                             _________

The costs order of 8 February 1996 will be varied to read:

The first applicant pay the respondent’s costs specified in the sum of $380,493.82.

Associate:

Dated: