FEDERAL COURT OF AUSTRALIA

Hadid v Lenfest Communications Inc [2000] FCA 628

COSTS – application by respondents for an order that an unsuccessful applicant pay their costs on an indemnity basis – whether and, if so, how an offer by one party to litigation to the other, in the Calderbank form, made after the commencement of the trial and not accepted, is relevant to questions of costs where the offeree does not achieve at trial a result at least as favourable as the offer

COSTS – application by respondents for an order pursuant to FCR O 62 r 4(2)(c) that they be entitled, instead of to their taxed costs, to payment by the unsuccessful applicant of a specified gross sum – circumstances in which it will be appropriate for the Court to exercise its discretion to order the payment of a gross sum – method of calculation of the gross sum

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

Donnelly v Edelsten (1994) 49 FCR 384, followed

Donnelly v Edelsten (Northrop J, 27 October 1992, unreported), referred to

Black v Lipovac (Full Court, 4 June 1998, unreported), followed

Coshott v Learoyd [1999] FCA 276, referred to

Multicon Engineering Pty Ltd v Federal Airports Corporation (1996) 138 ALR 425, not followed

Re Wilcox; Ex parte Venture Industries Pty Ltd (No 2) (1996) 72 FCR 151

Beach Petroleum NL v Johnson (1995) 57 FCR 119, followed

Sparnon v Apand Pty Ltd (von Doussa J, 4 March 1998, unreported), followed

ALBERT HADID v LENFEST COMMUNICATIONS INC AND GERRY LENFEST AND BAIN CAPITAL MARKETS LIMITED AND WAYNE BURT AND AUSTRALIS MEDIA LIMITED AND RODNEY PRICE

NG 36 OF 1995

LEHANE J

15 MAY 2000

SYDNEY

IN THE FEDERAL COURT OF AUSTRALIA
NEW SOUTH WALES DISTRICT REGISTRY	NG 36 OF 1995

BETWEEN:	ALBERT HADID Applicant
AND:	LENFEST COMMUNICATIONS INC First Respondent GERRY LENFEST Second Respondent BAIN CAPITAL MARKETS LIMITED Third Respondent WAYNE BURT Fourth Respondent AUSTRALIS MEDIA LIMITED Fifth Respondent RODNEY PRICE Sixth Respondent
JUDGE:	LEHANE J
DATE OF ORDER:	15 MAY 2000
WHERE MADE:	SYDNEY

THE COURT ORDERS THAT:

1. The applicant pay the costs of the proceedings, other than the costs of the cross‑claim of the first and second respondents, of the first and second respondents:

(a) incurred up to and including 24 February 1998 – taxed or assessed on a party/party basis;

(b) incurred after 24 February 1998, on the basis that such costs are to include all costs except in so far as they are of an unreasonable amount or were unreasonably incurred so that, subject to such exceptions, each of the first and second respondents will be completely indemnified by the applicant for its or his costs.

2. The applicant pay the costs of the proceedings of the third, fourth and sixth respondents:

(a) incurred up to and including 24 February 1998, on a party/party basis;

(b) incurred after 24 February 1998, on the basis that such costs are to include all costs except in so far as they are of an unreasonable amount or were unreasonably incurred so that, subject to such exceptions, each of the third, fourth and sixth respondents will be completely indemnified by the applicant for its or his costs.

3. Instead of their taxed costs, the third and fourth respondents shall be entitled to payment by the applicant of the sum of $3,655,192.

4. Instead of his taxed costs, the sixth respondent shall be entitled to payment by the applicant of the sum of $1,105,200.

5. The applicant pay the costs of the first, second, third, fourth and sixth respondents of their respective motions.

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

IN THE FEDERAL COURT OF AUSTRALIA
NEW SOUTH WALES DISTRICT REGISTRY	NG 36 OF 1995

BETWEEN:	ALBERT HADID Applicant
AND:	LENFEST COMMUNICATIONS INC First Respondent GERRY LENFEST Second Respondent BAIN CAPITAL MARKETS LIMITED Third Respondent WAYNE BURT Fourth Respondent AUSTRALIS MEDIA LIMITED Fifth Respondent RODNEY PRICE Sixth Respondent
JUDGE:	LEHANE J
DATE:	15 MAY 2000
PLACE:	SYDNEY

REASONS FOR JUDGMENT

1 On 24 December 1999 I made final orders in this proceeding, including orders that the application be dismissed and that the applicant pay the costs of the proceeding (other than the costs of the cross‑claim of the first and second respondents) of the first, second, third, fourth and sixth respondents. The order dismissing the application has been entered. The costs orders, however, have not. That is because I ordered that the costs orders not be entered before 15 February 2000 (and have since ordered that they not be entered unless the Court otherwise orders), contemplating that certain of the parties might seek special orders as to the basis on which they might recover their costs.

2 All respondents (other than the fifth, Australis, which was wound up while the trial was in progress and took no further part in the proceeding) now seek such special orders. By their amended notice of motion filed on 1 March 2000, the first and second respondents (the Lenfest respondents) seek an order that the applicant pay their costs (other than the costs of their cross‑claim): as to those costs incurred up to and including 24 February 1998, on a party‑party basis; and, as to those incurred after 24 February 1998, on the indemnity basis. By their amended notice of motion filed on 29 March 2000, the third and fourth respondents (the Bain respondents) seek a similar order; they also seek an order pursuant to O 62 r 4(2)(c) of the Federal Court Rules (FCR) that they be entitled, instead of to their taxed costs, to payment by the applicant of a specified gross sum (two gross sums are claimed in the alternative, the larger if an order is made for payment on the indemnity basis of costs incurred after 24 February 1998, the smaller if no such order is made).

3 By his amended notice of motion filed on 26 April 2000, the sixth respondent, Mr Price, seeks similar orders to those sought by the Bain respondents. Mr Price’s position is, however, in one respect somewhat different: the evidence is that until 6 May 1998, when Australis withdrew its instructions from the solicitors who, until then, had represented both Australis and Mr Price, Australis was responsible for meeting, and did in fact meet, all costs incurred in the proceeding by Mr Price. Consequently, Mr Price incurred costs only from 7 May 1998. He seeks an order that the applicant pay all those costs on the indemnity basis. He also seeks an order pursuant to O 62 r 4(2)(c) for payment of a gross sum, instead of taxed costs, whether or not the applicant is ordered to pay his costs on the indemnity basis; alternatively (and in this respect his amended motion differs from that of the Bain respondents), he seeks orders for the payment of a gross sum in respect of particular items of costs and taxed costs in respect of the remaining items.

Indemnity costs

4 On 10 February 1998, the sixth day of the trial, the solicitors acting for all six respondents delivered to the applicant’s solicitors a letter in the following terms:

“We are instructed that the First to Sixth Respondents in full and final settlement of all claims made by the Applicant against the Respondents and by any Respondent against the Applicant (“the Claims”) offer to settle the Claims by paying to the Applicant the sum of $4,750,000 and in addition to that sum the Applicant’s costs as assessed, taxed or agreed.

This offer is open for acceptance until 5.00pm, 24 February 1998.

This offer is made in accordance with the principles set out in the decision in Calderbank v. Calderbank [1975] WLR 586 [sic]. The Respondents propose to tender this letter on the question of costs should the Applicant reject this offer and not obtain a better result at the hearing.”

The offer in that letter was not accepted. Nor was it expressly rejected. The applicant did not make a counter offer. The applicant’s solicitors responded to the offer, the following day, by asking why it did not take the form of an offer under FCR O 23. The Bain respondents, with the concurrence of the Lenfest respondents, replied the next day to the effect that they were puzzled by the suggestion – and sought an explanation of it – that an offer, to have any effect in relation to the question of costs, must be made in accordance with O 23 rather than in accordance with the Calderbank principle. That elicited no reply until, on 24 February 1998, the applicant’s solicitors wrote to the respondents’ solicitors as follows:

“We refer to the Respondents’ combined offer of settlement that is expressed to expire today.

This offer was received on the sixth day of the trial during the examination‑in‑chief of Mr Hadid. You declined to clarify the basis of it. Mr Hadid has been undergoing cross‑examination for some days now.

Under these circumstances, we are unable to fully and properly advise Mr Hadid about the offer and, in any event, do not regard it as proper, fair or reasonable to seek his final instructions about it.

We do not accept that the Respondents’ combined so‑called Calderbank offer is an appropriate matter to be taken into consideration in relation to costs.”

5 The respondents’ solicitors replied in some detail and with some vigour. It is sufficient to record that the replies made it clear that the respondents considered themselves entitled to rely on the offer on the question of costs and, if the applicant achieved at trial a result no more favourable than the offer or if the respondents succeeded altogether, would do so. It should also be recorded that the applicant, when the offer was given, was in the course of giving oral evidence in chief. His evidence in chief concluded on Friday, 13 February 1998. Cross‑examination began on the morning of Monday, 16 February. There is no reason to think – particularly as the applicant tendered no evidence in relation to the respondents’ motions – that there was any substance in the suggestion that there was a difficulty about obtaining instructions for a response to the offer.

6 Following a trial occupying 141 sitting days, the respondents were wholly successful. I found that none of the causes of action on which the applicant relied was made out. I found also that the applicant had not made good his claim to have suffered loss by reason of the conduct, on the part of the respondents, of which he complained. The order dismissing the application necessarily followed. No notice of appeal has been filed and the time provided by FCR O 52 r 15 for the filing of such a notice has long since expired.

7 The applicant opposed the application for payment of costs on the indemnity basis and filed written submissions in opposition to each of the notices of motion to the extent that it sought such an order. Though the applicant was represented, on the hearing of the motions, by counsel (though not the counsel who had prepared the written submissions) and solicitors, he offered no further oral submissions (I have mentioned that he tendered no evidence; nor did he seek to cross‑examine the deponents of affidavits read by the respondents). In the applicant’s written submissions it was contended that an offer of the kind made by the respondents, made after the commencement of the trial, should be given no effect in relation to orders for costs: only an offer made under FCR O 23 should be given any significance for that purpose. That submission must be rejected. It is well established in this Court that the making of an offer in the Calderbank form, not accepted by the other party, is relevant to questions of costs where the offeree does not achieve a result at least as favourable as the offer. It is sufficient to refer to the decision of the Full Court in Donnelly v Edelsten (1994) 49 FCR 384. The judgment of the primary judge (Donnelly v Edelsten, Northrop J, 27 October 1992, unreported) makes it clear that the offer made on 28 May 1992, on the basis of which the Full Court made an order for payment of indemnity costs in that case, was in the Calderbank form and was made after the commencement of the trial. See also the decision of the Full Court in Black v Lipovac (4 June 1998, unreported). It is clear, too, that O 23, by its terms, does not assist a respondent who, having made an offer in reliance on the Rule, succeeds in having the proceeding dismissed: Coshott v Learoyd [1999] FCA 276 at par 37.

8 A preliminary submission made by the respondents can be quickly disposed of also. They made a formal submission that the Court should hold, following the decision of Rolfe J in Multicon Engineering Pty Ltd v Federal Airports Corporation (1996) 138 ALR 425 at 451, that:

“… the proper approach to take to an offer of compromise, whether made under the Rules or pursuant to a Calderbank letter, is that there should be a prima facie presumption in the event of the offer not being accepted and in the event of the recipient of the offer not receiving a result more favourable than the offer, that the party rejecting the offer should pay the costs of the other party on an indemnity basis from the date of the making of the offer. I proceed on the basis that the unreasonableness was the failure by the offeree to accept the offer, which unreasonableness is demonstrated, prima facie, by the ultimate result.”

Counsel accepted that I am bound, by Black v Lipovac at least, not to adopt that approach though it may well be, as the judgment in Black v Lipovac points out, that in most cases there will be little difference in practice between an application of the principle propounded by Rolfe J and the approach followed in this Court, exemplified in Black v Lipovac itself, which also focuses, but without applying any presumption, on the reasonableness of the offeree’s conduct (while tentatively rejecting, as placing the bar too high, a “plainly unreasonable” test: Black v Lipovac at 43).

9 It is appropriate to turn to the circumstances which faced the applicant when he received the respondents’ offer on 10 February 1998. The applicant claimed, against all respondents, compensatory damages or equitable compensation in excess of $200,000,000 and exemplary damages as well (he made an alternative claim for an account of profits). He had filed expert evidence which appeared to support a claim for damages amounting to substantially more than $200,000,000. His claims were said to result from numerous causes of action arising out of dealings between the applicant and the respondents beginning in August 1993.

10 The claims and the evidence are described in detail in my reasons for judgment delivered on 24 December 1999 (to which I shall refer as “the judgment”) and the description need not be repeated. Two general statements, however, may be made about them. First, the allegations included serious allegations of fraud and conspiracy against all respondents. Secondly, the allegations depended to a large extent on evidence of the applicant and witnesses whom he called about a series of conversations extending over several months; and the applicant was well aware, from outlines of evidence filed by the respondents, that his account, and the accounts of witnesses whom he called, would be contradicted in most important respects. I should interpolate that that finding as to the knowledge of the applicant (for that is what it is) is based on an inference. The witnesses other than expert witnesses gave their evidence in chief orally and the outlines of evidence, statements and affidavits were not read or tendered. But they were, of course, available to be used by cross‑examiners: and nothing was put in cross‑examination of the respondents’ witnesses which suggested that their denials, given orally, of the applicant’s allegations about what was said in conversations and during meetings came as any surprise. Additionally, as to one particularly important episode (the St Louis meetings and events surrounding them – see the section of the judgment commencing at par 233) the only persons who could give direct evidence of what had happened were the respondents and their representatives; again, the applicant must have realised that their evidence was unlikely to be favourable to him so that his case was dependent, to a substantial extent, on inferences which might be drawn from documents and other evidence and, perhaps, on admissions which might be extracted in cross‑examination.

11 So far as liability issues were concerned, it is I think a sufficient summary of the circumstances facing the applicant in February 1998 that they gave him reasonable grounds to think that he had some prospects of success, at least partial success; but that there could be no assurance of success having regard to the conflicts of evidence and, particularly, to the serious nature of the allegations he made.

12 The circumstances (in February 1998) relating to the applicant’s claim that he had suffered substantial loss as a result of the breaches of duty which he alleged were, in my view, much more critical. The applicant’s case on damages, as pleaded, opened and supported by evidence and his case as pressed in final submissions are described and discussed in the section of the judgment commencing at par 1099. To a very large extent, the case as opened depended upon expert evidence given by Mr Ian Ferrier. I need not repeat my discussion of Mr Ferrier’s evidence. It is sufficient to say that it was based on several assumptions, some of which (judgment par 1104) were not supported by evidence and others of which (judgment par 1105ff) were supported by a report prepared by Mr Peter Cox. Well before February 1998, the respondents had filed expert evidence, particularly evidence of Mr Wayne Lonergan and Mr Mark Bryant. Mr Lonergan, especially, pointed to what he considered to be the lack of support for the assumptions relied on by Mr Ferrier and difficulties with the views expressed by Mr Cox. The exposed nature of the first group of assumptions relied on Mr Ferrier might, in any event, have been thought to be obvious; and Mr Cox’s cross‑examination demonstrated, I think, what might have been expected to occur had the applicant, or those representing him, had a serious discussion with Mr Cox about the matters raised by Mr Lonergan.

13 In short, in my view there is no escape from the conclusion that in February 1998 it should have been clear to the applicant and those advising him that there were serious difficulties with the evidence on which the applicant principally relied in support of his claim for substantial damages. There were other aspects of the damages claimed, of course: but there was no reliable evidence supporting a claim for damages based on franchising or leasing opportunities (judgment par 1108); and it could not have been thought that Mr Bradley’s evidence about the potential value of Drama Commissioning Agency (judgment par 1110 and par 1111) was without problems. Of course, exemplary damages were claimed as well; but exemplary damages required not only that particular causes of action of those on which the applicant relied be made out but that the additional element, sometimes described as contumelious disregard for the applicant’s rights, be established as well.

14 Finally, it is noteworthy that, although nothing was formally abandoned, senior counsel for the applicant in final submissions made no attempt to press the claims for damages which he had opened and in support of which he had led expert evidence. Instead, he propounded a quite different claim. That claim is discussed in the section of the judgment beginning at par 1112. It was based on what Mr Bryant had identified as one possible basis – he described it as the “squeeze option” – on which the applicant might claim to have suffered substantial loss, though loss in an amount very much less than he would have established if Mr Ferrier’s report were accepted. It may readily be inferred that the decision to press the claim based on the squeeze option was made late in the trial. Not only was it not opened; questions which would have been appropriate to give it a foundation had not been put to the relevant witnesses in cross‑examination. Thus, in my view, it should be concluded that in February 1998 the applicant had decided not to pursue his claim on a basis which might yield some, albeit relatively modest, substantial damages, but instead to persist in a case the very real difficulties of which should have been clear.

15 The respondents’ offer was, thus, made at a time when the applicant was in a position to make a realistic assessment of his prospects of obtaining damages of anything like the magnitude which he claimed. The offer, in the circumstances which I have described, was a serious and by no means derisory one. Notably, the response from the applicant’s solicitors did not suggest that it was derisory or other than serious. Rather, they made a point about O 23 by which the respondents’ solicitors were, justifiably, puzzled; then, on the day when the offer was expressed to expire, they suggested, without any apparent justification, that the respondents’ solicitors had “declined” to clarify the basis of the offer and to suggest (also without apparent justification) that they were “unable to fully and properly advise Mr Hadid about the offer” and did not “regard it as proper, fair or reasonable to seek his final instructions about it”. A prompt and detailed response to the applicant’s solicitors’ letter of 24 February 1998 brought no reply.

16 It cannot be said that the only reasonable course open to the applicant was immediately to accept the offer. But, in the circumstances, reasonableness in a case already predicted to continue for several months, demanded a response different from that which the applicant made. Instead of taking the opportunity to explore the possibility of a prompt settlement, the applicant chose in substance to ignore the offer and to proceed with a case in relation to which, at least as to damages, substantially the very issues on which the applicant ultimately failed had been clearly identified.

17 That being so, in my opinion it is appropriate to exercise the discretion, in accordance with the principles discussed in the authorities to which I have referred, to make orders in favour of the Lenfest respondents, the Bain respondents and Mr Price substantially in the form of the orders made by the Full Court in Re Wilcox; Ex parte Venture Industries Pty Ltd (No 2) (1996) 72 FCR 151 (see Coshott v Learoyd at par 52). Though, in relation to the exercise of a discretion such as this, other decisions on different facts provide general guidance only, the facts of this case are analogous to those of Coshott v Learoyd.

18 Before leaving this aspect of the case, I should mention one further aspect of the applicant’s written submissions. It was to this effect: if it was asserted on behalf of the respondents (as it was) that the applicant wasted time relying on expert evidence which he should have known to be defective, the necessary implication is that the respondents “consciously engaged in a process which they knew and recognised to be of such a wasteful nature;” no comparative analysis had been made of the time taken by the respective parties in adducing evidence in chief and conducting cross‑examination; some such analysis was necessary in order to establish the necessary “jurisdictional fact” (unreasonable conduct, presumably); and, if the trial was unnecessarily prolonged, the reason was “the resort to unnecessary duplication of effort by the Respondent parties, which it was within their control to minimise”. It was the respondents, the submission continued, who had “engaged in a process which did not accord with the description of a quick, cheap or just disposal of the litigation”.

19 On the basis of those submissions, the applicant contended that either there should be no order for costs or that the aggregate amount of costs recoverable by all respondents should be “limited to such costs as may be awarded to the 5^th Respondent upon a taxation of its costs”. I did not ascertain whether counsel who had prepared the submissions intended to refer to the fifth respondent (Australis) or to Mr Price or, perhaps, to one of the other respondents, and it does not matter. I have in fact already ordered that (apart from costs attributable to the cross‑claim of the Lenfest respondents) the applicant should pay the respondents’ costs. Those orders have not been entered but they have been made, and there is no motion before me to set them aside.

20 In any event, in my view, the submissions must fail. Undoubtedly the respondents were responsible for the form of their response to the applicant’s case; but the applicant, and the applicant alone, was responsible for that to which they had to respond. Thus, as the applicant elected to give evidence himself, and to lead evidence from a number of others, as to a series of meetings and conversations, the respondents hardly acted unreasonably in cross‑examining the witnesses and in leading their own evidence in response. Similarly, if the applicant chose (as he did) to rely on expert evidence in which there were deficiencies, the respondents are hardly to be blamed (or to be deprived of costs) because they called evidence with a view to exposing the deficiencies or cross‑examined with a view to obtaining admissions about them. It is quite true that, on a number of occasions during the trial, senior counsel for the applicant objected to particular cross‑examination on behalf of certain of the respondents on the basis that it amounted – it was said – to duplication or a game of “tag”. But, as I attempted to make clear in a number of rulings which I gave, in my view there was not, to a significant extent, inappropriate duplication; and the appropriateness of particular cross‑examinations had to be considered in the light of the nature of the allegations made by the applicant and the character of the evidence given in support of them.

21 The applicant’s submissions observed – apparently by way of concession – that it is trite to point out that the application was dismissed. Of course it is. It is considerably more significant, however, that the case presented by the applicant in closing submissions, as to liability as well as damages, was significantly different from that propounded in opening: that aspect of the matter is discussed in the judgment, particularly in the section commencing at par 449. If, at the conclusion of the evidence, the applicant took the view that he might do better on a battleground different from that which he first chose, the respondents are not to be penalised because their evidence, and the result of their conduct of the case, suggested that as an appropriate course for the applicant to follow. In short, there is nothing in the applicant’s submissions which should lead to the result contended for or dissuade the Court from ordering that the respondents’ costs, incurred after 24 February 1998, be paid on the indemnity basis.

Gross sum order

22 The Bain respondents and Mr Price have both read evidence of their solicitors and, in each case, of a legal costs consultant both as to the time and expense likely to be involved in a taxation of costs and as to the amount of costs likely to be recovered on taxation, either on an indemnity or on a party/party basis, by those respondents. Senior counsel for Mr Price also tendered documents, produced by the applicant in compliance with a notice to produce, relevant to the applicant’s financial situation. The applicant filed no affidavits and called no evidence. Nor did he file any written submissions on this aspect of the motions; and his counsel, while indicating that the applicant opposed the orders sought, offered no argument in support of that opposition. That means, among other things, that the evidence read by the respondents has not been challenged and no specific objection has been made to any item claimed by the respondents as appropriate for inclusion in the gross sums which they seek or as to the method, for which the respondents contend, by which those gross sums should be calculated.

23 FCA O 62 r 4(2) provides that:

“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 –

…

24 In Beach Petroleum NL v Johnson (1995) 57 FCR 119 at 120, von Doussa J said:

“In Leary v Leary [1987] 1 WLR 72; [1987] 1 All ER 261 the Court of Appeal considered an English rule of court which permitted the award of a gross sum instead of taxed costs. The principles upon which that power should be exercised are there discussed. The purpose of the rule is to avoid the expense, delay and aggravation involved in protracted litigation arising out of taxation. The power is appropriate to be used in complex cases. An order that costs be assessed as a gross sum does not envisage that any process similar to that involved in taxation should take place, but the power must be exercised judicially and after giving the parties an adequate opportunity to make submissions on the matter.”

This was, undoubtedly, a complex case. The trial was protracted and the evidence, both oral (as recorded in the transcript) and documentary, voluminous. The time and expense involved not only in the trial but also in the interlocutory processes plainly were very great. The number and detail of the conversations and meetings of which evidence was given and the bulk of the discovered documents necessarily required, I may safely infer, much time in preparation, both before and during the trial. Each of the two costs consultants who gave affidavit evidence expressed the opinion that the preparation of bills for taxation and taxation itself were likely to be protracted and expensive. There is no reason to doubt that evidence. It was precisely because of such considerations that, subject to a qualification to which I shall come, von Doussa J held in Beach that it was appropriate to make an order for payment of a gross sum.

25 To those considerations another should be added, relating to the applicant’s financial situation. In a judgment delivered on 14 April 2000 I held, in considering a motion for an order that the applicant produce documents in accordance with the notice to produce served by Mr Price, that the applicant’s financial position was relevant to an application for an order for payment of a gross sum instead of total costs. The view which I had formed, and to which I adhere, was stated at par 14 as follows:

“How, then, does evidence of the financial position of a party liable under a costs order fit into that picture? In my view it does so substantially in the way suggested by the sixth respondent. Where the amount of costs likely to be payable is very substantial and where, in any event, taxation is likely to be drawn‑out, burdensome and expensive, the burden borne by the successful party is aggravated if it appears that, in any event, the party obliged to pay costs may not be able to meet a liability of the order likely to be involved. For that reason, in my view, in a case where the liability for costs may be expected to be large and a taxation complex and expensive the financial position of the party liable is a matter relevant to be taken into account in exercising the discretion.”

26 Senior counsel for Mr Price has drawn my attention to a decision of von Doussa J, Sparnon v Apand Pty Ltd (4 March 1998, unreported), in which his Honour proceeded upon substantially the same view. In this case, the documents produced by the applicant in accordance with the notice to produce and his solicitors’ covering letters, which were tendered by Mr Price without objection by the applicant, clearly support an inference that the applicant is unlikely to be able to meet in full – possibly to any substantial extent – any orders for costs in favour of the respondents. No documents were produced in relation to real property owned by the applicant or any personal property, other than shares and bank account balances. He owns a substantial parcel of shares in Australis which, Australis being in liquidation, are likely to be worthless; the documents indicate that he owns shares in a number of proprietary companies and there is nothing to suggest that they are of substantial value; he has relatively small balances, according to the documents, in two bank accounts. As against those matters, the documents indicate that he may owe a substantial sum to another bank (though because the statement produced is nearly two years old there must be an element of conjecture about the present position) and that he owes very substantial sums to the solicitors who acted for him at the trial (and continue to act for him in the proceeding) and to counsel who appeared for him at the trial. In the absence of any evidence led by the applicant, I find, on the basis of the documents produced and the terms of the notice to produce, that the applicant is not in a financial position to pay the respondents’ costs, taxed or assessed on any basis.

27 That being so, subject to the qualification to which I have referred, this is an appropriate case, in accordance with the principles identified in Beach, to make an order under FCR O 62 r 4(2)(c). The qualification was stated in Beach at 123 as follows:

“I agree however with the submission … that before exercising the power to fix a gross fee, the Court should be confident that the approach taken to estimate costs is logical, fair and reasonable. On the one hand the Court must be astute to prevent prejudice to the respondents by overestimating the costs, and on the other hand must be astute not to cause an injustice to the successful party by an arbitrary ‘fail safe’ discount on the cost estimates submitted to the Court: …”

I have already quoted the observation of von Doussa J that, though a process similar to that involved in a taxation is not to be expected, the power to make an order for payment of a gross sum must be exercised judicially and after giving the parties an adequate opportunity to make submissions. It cannot be said in this case that the applicant has not had an opportunity to make submissions. It has not been suggested on his behalf that he lacked such an opportunity. The affidavit of Ms Vine‑Hall, the cost consultant whose evidence is relied on by the Bain respondents, was sworn on 27 March 2000 and filed on 29 March: the hearing of the motions took place on 26 April. Ms Higinbotham’s evidence, relied on by Mr Price, was filed only on 18 April; but its substance was anticipated in an affidavit of Mr Price’s solicitor filed in Court on 4 February 2000, in which the solicitor deposed to opinions expressed to her by Ms Higinbotham. In circumstances where the applicant had filed no affidavit evidence and no written submissions on this aspect of the motions, his counsel announced that he was instructed to oppose the orders sought but to offer no submissions. No explanation was offered as to why counsel who made written submissions concerning the application for indemnity costs was not instructed also to make submissions in relation to the applications for gross sum orders; and although other counsel appeared for the applicant at the hearing, it cannot be said that he lacked the opportunity to lead evidence, make submissions or, for that matter, apply for an adjournment. If I am to make the orders sought I must, of course, be satisfied by the evidence that orders for the payment of particular gross sums are justified. But the circumstances to which I have referred should, I think, engender confidence in, rather than suspicion of, the evidence on which the Bain respondents and Mr Price rely.

28 Ms Deborah Susan Vine‑Hall practised as a solicitor from 1986 to 1989. Since that time she has practised first on her own account as a costs consultant and more recently as a director of DSA Legal Cost Consultants Pty Ltd. She has extensive experience in the preparation and taxation of bills of costs in a number of jurisdictions, including in this Court, and in relation to large commercial matters. She also lectures on matters related to costing. The approach taken by Ms Vine‑Hall to estimating the costs recoverable by the Bain respondents on a party/party basis may be briefly described. Where I refer to the “scale” I mean, as Ms Vine‑Hall evidently did, the scale of costs set out in the second schedule to the Federal Court Rules. In order to estimate the likely extent of recovery, on a party/party basis, of the solicitors’ own professional costs, Ms Vine‑Hall applied the rates provided in the scale increased by 20 per cent for general care and conduct. Plainly this is a case where some allowance of that kind is appropriate. Ms Vine‑Hall allowed $48 per hour for work undertaken by a paralegal up to 14 July 1998 (an increase in the scale took effect on 15 July) and $53 per hour thereafter. She reduced the amounts allowed on those bases, for both solicitors and paralegals, by 15 per cent to take account of the use of the highest scale item; and she made a further reduction of 25 per cent for work which would not be recoverable on taxation on a party/party basis. She explained the process as follows:

“In my opinion, it is possible to obtain a very close estimate of the costs which would be recoverable for the work undertaken by solicitors, by using the amount allowed under scale item 31, that is the hourly rate item. Naturally, as the scale prescribes a lower rate for some types of work (for example, conferences with counsel) and a different basis altogether for other types of work (for example, perusing document or writing letters) it is then necessary to factor a reduction to take account of the fact that the item 31 rate is the highest end of the scale. It is also necessary to factor a further reduction for the work which might be held to be solicitor and client in nature. To that result should be added an amount which is likely to be awarded by the taxing officer for the general care and conduct item of the scale. This amount is discretionary; however, the taxing officers allow an amount within a range so that their decisions while taking into account the specifics of a particular matter, will be consistent.”

29 Mr T E F Hughes QC, Mr L G Foster SC and Mr J V Nicholas appeared for the Bain respondents. According to Ms Vine‑Hall, the rates charged by Mr Foster and Mr Nicholas ($4,500 per day and $2,500 per day respectively) were well within the range usually allowed on taxation for difficult matters. Ms Vine‑Hall expressed the view that the rate charged by Mr Hughes ($6,000 per day) was at the highest end of the range but that, in view of the importance of certain cross‑examination, there was a good chance that “Mr Hughes would be allowed, in principle as a second senior counsel and at the rate claimed or close to those rates.” It may be that that is not quite the way in which those representing the Bain respondents would have described the situation; the effect of the evidence, however, is clear enough. Ms Vine‑Hall proceeded to reduce the rate charged by Mr Hughes to $4,500 in order to arrive at a party/party estimate. She then made a further reduction to take account of the fact that not all work undertaken by counsel might be allowed on a party/party basis:

“Without a detailed analysis of the files it is difficult to estimate the areas where reductions might apply. For the purposes of this estimate I would allow 65% of Mr Foster’s time, 75% of Mr Hughes’s time (but at the lower rate) and 75% of Mr Nicholas’ time, …”

30 Other disbursements were treated as follows. Ms Vine‑Hall took the view that the cost of the transcripts would be allowed in whole; so too would the fees and witness expenses of Mr Bryant and another expert, Mr Borglund (those amounts were, in the scheme of things, relatively small). Other expenses included photocopying, facsimiles, couriers and searches. They amounted to about $129,026. The photocopying was charged at a rate of 20 cents or less per page. Ms Vine‑Hall, in order to make what she described as a conservative estimate, discounted the amounts for facsimile, taxi fares, courier and “miscellaneous” costs entirely, leaving a total of $111,953, and then estimated the recoverable amount at $72,700. The final item was an amount for Dr Burt’s travelling and accommodation costs, incurred when he travelled to Sydney to give evidence. Ms Vine‑Hall estimated the recovery of those expenses at $18,000, slightly more than half the amount actually incurred.

31 Ms Vine‑Hall estimated a total amount recoverable for costs and disbursements incurred up to the conclusion of the trial on a party/party basis; she also provided an estimate of the amount which would be recovered up to 24 February 1998 on a party/party basis and the amount which would be recoverable on the indemnity basis for costs incurred after that date. She proceeded on the basis that, on the indemnity basis, all amounts actually incurred would be recoverable. Her estimate of the total amount recoverable on that footing was $3,930,970.72.

32 It may be observed that by far the largest component of that amount is counsel’s fees incurred after 24 February 1998 ($1,959,250) and the second largest component is the solicitors’ professional costs incurred after 24 February 1998 ($744,075). I have already summarised Ms Vine‑Hall’s comments on the rates charged by counsel. The hourly rates charged by partners and employees of the solicitors for the Bain respondents range from rates of $295 and $280 per hour for the two partners involved to amounts between $80 and $100 per hour for paralegals. There is no reason to think that those rates are by any means excessive in the circumstances. I have mentioned that the amounts of the other disbursements are relatively small components of the total sum. The photocopying rates seem entirely reasonable, and I see no reason to think that any of the other amounts are excessive or unreasonable. I shall, however, defer further comment until I have considered the evidence about the costs incurred by Mr Price.

33 Mr Price incurred costs only from 7 May 1998 and I have held that he is entitled to recover those costs on the indemnity basis. The total costs incurred by Mr Price from 7 May 1998 amounted to $1,163,387. That total is made up of solicitors’ fees ($401,540); senior counsel’s fees ($395,600); junior counsel’s fees ($199,160); travelling expenses ($41,236); transcript ($70,530); fees paid to the firm of which an expert witness, Mr Ziffren, was a member ($19,800); and “miscellaneous general disbursements” ($35,521). The solicitors charged on the basis of hourly rates very similar to those charged by the solicitors for the Bain respondents; senior counsel charged at the rate of $4,000 per day and junior counsel at the rate of $2,400 per day. Ms Higinbotham expressed the view, based on her experience, that the items which were unlikely to involve dispute on taxation were counsel’s appearance in court on hearing days; daily attendance of a solicitor to instruct on hearing days plus one hour’s preparation time per hearing day; the transcript costs; and the travelling expenses.

34 In suggesting that other amounts might be disputable on a taxation (including on an indemnity basis), however, it is plain that Ms Higinbotham was not suggesting that the potentially disputable amounts would be disallowed in whole or even in large part. Her overall conclusion was that:

“… based on my experience and having regard to the rates charged by counsel and solicitors for the Sixth Respondent, if costs were to be awarded to the Sixth Respondent on an indemnity basis, I would expect recovery of between 90% and 95% of the expenditure. I have calculated the likely range of recovery for the whole of the Sixth Respondent’s costs incurred in the period 7 May 1998 up to the conclusion of submissions, if awarded on that basis, at between $1,047,050 and $1,105,200.”

35 The evidence is, I think, sufficient to enable me with reasonable confidence to fix gross sums to be paid both to the Bain respondents and to Mr Price. Plainly it enables me to do so only if I apply a much broader brush than would be applied on taxation, but that, it has been held in Beach, is what the rule contemplates. The form of order for payment of costs on the indemnity basis is to the effect that, subject to two exceptions, the respondents will be completely indemnified by the applicant for their costs as actually incurred. The exceptions are those costs which are of an unreasonable amount or were unreasonably incurred. Ms Higinbotham’s expected discount of between 5 and 10 per cent no doubt arose because of those exceptions and having regard to the presence, among the items of costs actually incurred, of some which, in her experience, were likely to give rise to dispute. No doubt common sense as well as experience suggests that where there are disputes about a number of detailed items, it is unusual for every dispute to be resolved in the same way. It is, however, not possible for me, on the material before me, to consider in detail the potentially disputable items; and I must bear in mind both the omission of the applicant to make any submission on this aspect of the matter and the warning by von Doussa J in Beach at 123, which I have already quoted, that the Court must be astute not to cause an injustice to the successful party by making an arbitrary “fail safe” discount on its cost estimates. Nothing in the evidence suggests that there is anything surprising or excessive about the amount of costs incurred by Mr Price. Although it is right to recognise, as Ms Higinbotham does, that some discount is to be expected, I think a discount at the lower end of the range which she suggests is in the circumstances appropriate. On that basis, the gross sum to which Mr Price would be entitled is $1,105,200. That is the amount which he seeks by his amended notice of motion and I propose to order that he be paid that gross sum.

36 Ms Vine-Hall does not contemplate any discount in relation to the costs incurred, after 24 February 1998, by the Bain respondents. The amount which they claim by the notice of motion is $3,930,970, which is the sum of Ms Vine‑Hall’s estimate of party/party costs up to 24 February 1998 and the full amounts actually incurred thereafter. I see no reason to discount Ms Vine‑Hall’s estimate of party/party costs up to and including 24 February 1998. However, the considerations which suggested at least some discount of the indemnity costs recoverable by Mr Price suggest equally some discount in relation to the costs incurred by the Bain respondents. The more difficult question is how great that discount should be. Ms Vine‑Hall helpfully prepared separate estimates of costs, on both a party/party basis and the indemnity basis, incurred during the trial. A particularly striking aspect of the results of that exercise is that, whereas the solicitors’ actual costs incurred during that period amounted to $744,075, Ms Vine‑Hall’s estimate of the amount recoverable for those costs on a party/party basis is $195,990: her statement of the basis on which she makes that estimate is “141 days @ $870.00 plus say 2 hours per day general work @ $206.00.” The difference between the amounts for counsel’s fees – $1,489,342 on a party/party basis and $2,098,100 on the indemnity basis – is also considerable, but rather less striking. There are two particular matters, in addition to those which I have already identified, which must, I think, be taken into account. One is that Ms Vine‑Hall, whose evidence was unchallenged, expressed the view that it might well be that substantially all the fees charged by counsel might turn out to be recoverable on a party/party basis. That, perhaps, is a somewhat optimistic view but it does indicate, I think, that in the circumstances I should not rush to conclude that substantially less than the whole of counsel’s fees might properly be recovered on the indemnity basis. Secondly – and this applies both to counsel’s fees and the solicitors’ own fees – both cross‑examination and the leading of evidence in chief covered a great number of complex events extending over a substantial period in relation to which varying evidence was given by a number of witnesses; and there was also a considerable volume of contemporaneous documentation to be mastered. This, plainly, was a case in which a great deal of work had to be done out of Court during the trial; and the volume of work undertaken by those representing the Bain respondents was, I should think, substantially greater than that undertaken by the solicitors and counsel for Mr Price. That is reflected in the substantially greater amount claimed by the Bain respondents.

37 Nevertheless, the very substantial differences between the party/party and indemnity estimates suggests, I think, that a greater discount is appropriate in the case of the Bain respondents than in the case of Mr Price. The discount should not be outside the range suggested by Ms Higinbotham in relation to Mr Price’s costs but it should, I think, be at the higher end of that range. Accordingly, I think, the appropriate course is to reduce by 10 per cent the amount of the solicitors’ and counsel’s fees and general disbursements incurred after 24 February 1998. The sum of those items, so reduced, would be $2,481,997 and the total amount recoverable, including the amount for party/party costs up to 24 February 1998, a gross sum of $3,655,192.

Conclusion

38 The outcome is that the Court orders that: