FEDERAL COURT OF AUSTRALIA

Black & Decker Inc v GMCA Pty Ltd (No 4) [2008] FCA 1737

COSTS – gross sum costs order – urgency of attaining costs figure in light of time limits for application to have fixed and floating charges declared void

Corporations Act 2001 (Cth) ss 9, 588FA, 588FC, 588FE, 588FJ

Federal Court Rules O 34, O 62

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

Harrison v Schipp (2002) 54 NSWLR 738 cited

Leary v Leary [1987] 1 WLR 72 cited

BLACK & DECKER INC and BLACK & DECKER (AUSTRALIA) PTY LTD v GMCA PTY LTD

VID 1262 of 2005

HEEREY J

14 NOVEMBER 2008

MELBOURNE

THE COURT ORDERS THAT:

1.                  There shall be a gross sum assessment of the Applicants’ costs under Order 62 Rule 4(2)(c) and (d) of the Federal Court Rules.

2.                  Ms Meg Gourlay of the Costing Service of the Law Institute of Victoria is appointed by the Court as a court expert under Order 34 of the Federal Court Rules to inquire into, assess and report on such gross sum of the Applicants’ costs, on a party and party basis.

3.                  Ms Gourlay shall file with the Court and serve on the parties by 17 November 2008 a report on the costs as assessed by her.

4.                  The Applicants shall be liable for the remuneration of Ms Gourlay for her report.

5.                  The Respondent shall file and serve any affidavits in response to Ms Gourlay’s report by 25 November 2008.

6.                  The hearing as to the quantum of the gross sum assessment of the Applicants’ costs is adjourned to 28 November 2008.

7.                  Any costs of or incidental to the Applicants’ Notice of Motion filed 31 October 2008 and today’s hearing concerning that motion are reserved.

8.                  These orders shall be signed by a Judge and authenticated forthwith by the Registrar.

Note:    Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.
The text of entered orders can be located using eSearch on the Court’s website.

REASONS FOR JUDGMENT

1                     The applicants (collectively, Black & Decker) apply for an order under O 62, r 4(2)(c) and (d) of the Federal Court Rules for a gross sum assessment of their costs. 

2                     Black & Decker succeeded in a claim for patent infringement.  On 18 April 2008 I gave judgment in their favour on liability issues and on 19 June 2008, amongst other things, I ordered that the respondent GMCA pay Black & Decker’s costs of the claim and cross-claim, including reserved costs, such costs to be taxed as between party and party except for some items on an indemnity basis.  The costs could be quite substantial.  The trial extended over seven days with senior counsel on each side.  I note that, in the interests of expedition, Black & Decker have now waived their right to any indemnity costs.

3                     The discretion to order gross sum costs is in quite general terms and may be exercised whenever the circumstances warrant it: Harrison v Schipp (2002) 54 NSWLR 738 at [21].  The purpose of the rule is to avoid the expense, delay and aggravation involved in litigation arising out of the taxation process: Leary v Leary [1987] 1 WLR 72; Beach Petroleum NL v Johnson (No 2) (1995) 57 FCR 119 at 120.

4                     The main ground on which Black & Decker rely is what is said to be the dire financial circumstances of GMCA, coupled with certain transactions which may be set aside if Black & Decker are able to obtain a winding up order reasonably promptly.  The relevant events can be summarised as follows.

5                     On 25 June 2008, that is less than a week after costs orders were made, Messrs Hosking and D’Antonio, who are the sole directors and shareholders of GMCA, registered a fixed and floating charge dated 23 June 2008 in their favour from GMCA.  On the same day GMC Worldwide Pty Ltd, a related company having the same directors and shareholders as GMCA, registered a fixed and floating charge of the same date from GMCA.  Messrs Hosking and D’Antonio have also registered a fixed and floating charge in their favour from GMC Worldwide.  On 24 June GMCA launched appeal proceedings.

6                     On 30 September GMCA’s solicitors, Kahns Lawyers, filed a notice of ceasing to act.  The next day Mr Hosking forwarded to the solicitors for Black & Decker and also to the Registrar of the Federal Court a letter stating, amongst other things, that GMCA wished to “withdraw very shortly” from the appeal and that it did not intend to instruct its solicitors in light of “the extraordinary financial circumstances of the company”.  The letter stated that GMCA was attempting to avoid the need for external administration and as a consequence expenses such as legal fees and court application costs would need to be minimised.  (Kahns Lawyers have subsequently been retained and are now on the record again.)

7                     On 2 October Emmett J made orders dismissing the appeal and application for leave to appeal by GMCA.  In doing so his Honour referred to the letter just mentioned from Mr Hosking and a further email that the Court had received stating that

We want to formally withdraw from this appeal.  Can you send me the paperwork to do this?  It’s pointless for anyone to spend more money as theirs [sic] none to get.

8                     The significance of the timing of the Hosking and D’Antonio charge is that under s 588FJ of the Corporations Act 2001 (Cth) the charge would be void in respect of any previous advances if a winding up order were made within six months, that is by 23 December 2008.  To obtain such an order it is likely that Black & Decker would have to serve a statutory demand requiring payment within 21 days.  The effect of that is that Black & Decker would need to have judgment for some dollar amount by 28 November.  It would be impossible to have costs taxed on a bill in the ordinary way during that time.

9                     Counsel for GMCA points out that under ss 588FA and 588FC of the Corporations Actthe charge could be voidable at the suit of a liquidator of GMCA as an “unfair preference” or “insolvent transaction”, in which case a longer relation-back period would be applicable.  If the charge were found to be an “insolvent transaction”, which requires proof of the transaction being an “unfair preference”, and the transaction resulted in the company becoming insolvent (s 588FC) and a “related entity” is a party to it, then under s 588FE(4) it would be voidable if entered into during a four year period prior to the “relation-back day”, ie the date the winding up application was filed: s 9.  However, such a remedy would be much inferior to that provided by s 588FJ because the onus would be on a liquidator to make out the statutory requirements.

10                  It is true, as counsel for GMCA pointed out, that the gross sum assessment process would not be as accurate as taxation in the normal way, but any theoretical departure from what would be fixed on taxation could just as much favour GMCA as it might Black & Decker.  Gross sum assessment necessarily involves some broad brush treatment.

11                  It is therefore appropriate to make an order in the circumstances of this case.  There has already been a provisional retainer of Ms Meg Gourlay, a costs consultant with the Costing Service of the Law Institute of Victoria, and the expectation is that Ms Gourlay would be able to form the relevant assessment within an appropriate time.  A timetable has been agreed upon.  The attitude of counsel for GMCA, which I must say I think is very sensible, is that they do not oppose the appointment of Ms Gourlay as a court expert under O 34, subject to two conditions, to which Black & Decker agree.  Those conditions are:

1.                  That the costs be paid by Black & Decker, that is that the court otherwise orders for the purposes of O 34, r 5(2).

2.                  That GMCA be at liberty to adduce evidence of any other expert on the question; see O 34, r 6(b).

Associate:

Dated:         20 November 2008