FEDERAL COURT OF AUSTRALIA

Olivaylle Pty Ltd v Flottweg GMBH & Co KGAA (No 6) [2011] FCA 688

THE COURT ORDERS THAT:

1.    Pursuant to Federal Court Rules, O 62 r 4(2)(c):

(a)    the respondent is entitled, as against the applicant, in respect of all its costs of and incidental to the proceedings in the original jurisdiction, including those ordered to be paid on an indemnity basis, but exclusive of those of and incidental to the application for the fixing of its costs in a gross sum, to a gross sum of $1,102,500.00 instead of taxed costs; and

(b)    the costs as so fixed are subject to the set off provided for by the order of 28 May 2009 in respect of costs awarded in favour of the applicant.

2.    The applicant is to pay the respondent’s costs of and incidental to the application for the fixing in gross of its costs.

3.    Pursuant to Federal Court Rules, O 62 r 4(2)(c), the respondent’s costs of and incidental to that application are fixed in the gross sum of $8,500.00.

4.    Liberty to apply, either in respect of the fixing of such costs as have been awarded in favour of the applicant or otherwise, is reserved to each party (including in respect of the applicant its administrators and any liquidator who may come to be appointed) on two clear business days’ notice.

5.    To the extent that any subsisting order provides for taxation of the respondent’s costs, that order is vacated.

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 Federal Law Search on the Court’s website.

REASONS FOR JUDGMENT

1    On 20 May 2009, following a lengthy trial, I dismissed the application made by Olivaylle Pty Ltd (Olivaylle) against Flottweg GMBH & Co KGAA (Flottweg) in the principal proceeding: Olivaylle Pty Ltd v Flottweg GMBH & Co KGAA (No 4) (2009) 255 ALR 632. After hearing consequential submissions with respect to costs, I made the following further orders on 28 May 2009 - Olivaylle Pty Ltd v Flottweg GMBH & Co KGAA (No 5) [2009] FCA 571:

1.    Without prejudice to costs orders already made in the proceeding but, as to those orders and this, subject to the order made in paragraph 2, the Applicant pay the costs incurred by the Respondent in relation to the proceeding to be taxed:

(a)    up to and including 28 September 2007 on the party and party basis; and

(b)    after 28 September 2007 on the indemnity basis.

2.    The taxed amount of costs awarded in favour of the Applicant by any earlier order in the proceeding be set off from the taxed amount of the costs awarded in favour of the Respondent by the order in paragraph 1 or any earlier order.

2    An appeal by Olivaylle was subsequently dismissed by the Full Court: Olivaylle Pty Ltd v Flottweg GMBH & Co KGAA [2010] FCAFC 62.

3    Here matters rested until earlier this year when Flottweg made application by motion on notice to Olivaylle that its costs of the trial be fixed in a gross sum pursuant to O 62 r 4(2)(c) of the Federal Court Rules. I am satisfied that this application was duly served on Olivaylle.

4    Not coincidentally, but unbeknown either to me or those representing Flottweg on the day, Olivaylle was placed in administration pursuant to Pt 5.3A of the Corporations Act 2001 (Cth) on 28 March 2011, the same day on which Flottweg’s application was heard. There was no appearance on that day by or on behalf of Olivaylle. Upon the fact of Olivaylle being placed in administration coming to the attention of Flottweg’s solicitors they promptly sought and obtained from its administrators their written consent, pursuant to s 440D(1)(a) of that Act, to Flottweg’s further proceeding with its application for the fixing of costs. There is thus no statutory inhibition arising from Olivaylle being placed in administration which prevents the determination of Flottweg’s application. The administrators did not seek to make any substantive submission in respect of that application.

5    In this Court, the root authority in respect of the practice of fixing costs in gross is the judgment of von Doussa J in Beach Petroleum NL v Johnson (No 2) (1995) 57 FCR 119 (Beach Petroleum). Later, in Seven Network Limited v News Limited [2007] FCA 2059, Sackville J helpfully summarised various factors considered pertinent in Beach Petroleum and subsequent cases both in respect of the exercise of the discretion to fix costs in gross. I had occasion recently to consider and apply these factors in relation to such an application in Wide Bay Conservation Council Inc v Burnett Water Pty Ltd (No 9) [2011] FCA 661 (Wide Bay Conservation Council Inc v Burnett Water No 9). A summary of principles to be derived from these earlier cases appears at [31] to [33] of my judgment in that case. Also in that case, I considered at some length the practice of time charging by each branch of the profession in the context of the exercise of the discretion to fix costs in gross. This practice is also evident in this case. I incorporate by reference in these reasons for judgment the discussion which appears in Wide Bay Conservation Council Inc v Burnett Water No 9 in relation to the practice.

6    It is no obstacle to the fixing of costs in gross that Flottweg has made its application even as late in this proceeding as after the dismissal of the appeal and even though, as initially made, the costs orders contemplated a taxation of costs. The Court may exercise its powers and discretions with respect to costs at any stage of proceedings: O 62 r 3(1). Beach Petroleum (57 FCR 119 at 120) offers an example of costs being fixed in gross at a late stage in proceedings and in circumstances where taxation of costs was initially contemplated.

7    I am satisfied that the present is a case where it is appropriate to exercise the discretion to fix costs in gross. The trial of this matter was lengthy and complicated both in fact and in law. There is evidence before me that the taxation of a bill of costs would entail tens of thousands of dollars in additional expense to Flottweg and take between 12 and 18 months to complete from the time of drawing the bill of costs in taxable form to the time of the finalisation of taxation by a registrar; all this at a time when Olivaylle is in administration. Neither before nor after that company’s being placed in administration has it shown any interest in requiring the bill of costs to be taxed by a registrar.

8    Taxation by a registrar would, of course, present the advantage of subjecting Flottweg’s bill of costs to the independent, expert scrutiny of the official of this Court customarily charged under the rules with the determination in the first instance of the amount of costs to be awarded to a successful party. The desirability of that occurring is counter-balanced in this case not only by the considerations already mentioned but also by the considerable opportunity cost in terms of the registrar’s time (between 10 and 20 hearing days) and by the quality of the independent expert evidence adduced by Flottweg in relation to its costs. To require Flottweg to tax its bill would, in my opinion, visit upon it unreasonable delay and expense.

9    Practice Note CM 4 requires that an application for the fixing of costs in gross be accompanied by an affidavit stating:

(a)    the amount of the gross sum sought to be specified in the order; and

(b)    how the gross sum has been arrived at and how it is justified.

10    In this case, the requirements of the practice note are met via a detailed affidavit from Mr A Salgo who, within Baker & McKenzie, the solicitors for Flottweg, was the partner with responsibility for the carriage of the case and an affidavit from an independent legal costs consultant and solicitor, Mr R Nicholas. Unlike in Wide Bay Conservation Council Inc v Burnett Water No 9, it is apparent on the face of the letter of instruction given to this costs expert that care was taken expressly to draw his attention to the requirements of this Court’s expectations with respect to expert witnesses, as set out in Practice Note CM 7.

11    Flottweg did not seek that I sit with a registrar (as an assessor) for the purpose of considering its application to fix costs in gross. As I observe in Wide Bay Conservation Council Inc v Burnett Water No 9 at [39] – [40], in some such applications in the past, judges of the Court have at the request of the parties sat with a registrar when considering such applications and found this “extremely valuable” but it is not the invariable practice of the Court so to do. There is certainly much to recommend the making of such a request in cases where costs are sought to be fixed in gross after lengthy and complex litigation. In this case, such is my confidence in the scrupulous adherence by Mr Nicholas to his duties to the Court as an expert witness and his adherence to principle in expressing his opinions with respect to costs in this case that I am satisfied that the absence of my sitting with a registrar, even in a circumstance where there is no active contradictor, has worked no injustice on Olivaylle. In making that observation concerning Mr Nicholas’ opinions I have also drawn upon my very particular recollection of this case as its trial judge.

12    In his report of 16 February 2011, exhibited to his affidavit, Mr Nicholas summarised (at para 27) his opinions as to the amounts likely to be recovered by Flottweg with respect to its costs, were the matter to proceed to taxation in the following way:

13    As can be seen, Mr Nicholas has, in keeping with so much of the order of 29 May 2009 as was made in Flottweg’s favour, bifurcated his assessment as between the period in which costs were awarded in its favour on a party and party basis and that in which costs were awarded to it on an indemnity basis.

14    I have closely scrutinised the reasoning adopted by Mr Nicholas for reaching these conclusions as to the amounts likely to be allowed in respect of each of the items set out in his summary. Having so done, I find myself in complete agreement with his reasoning. Viewed both in respect of individual components and in total, the amounts he has derived are inherently reasonable. This case involved a trial which ran over 27 sitting days and which concerned, initially, a claim for $26,886,000 (progressively reduced in the course of the trial to, finally, $9,325,283). It required the assimilation and presentation of expert evidence in fields as diverse as olive grove horticultural practice, electrical, mechanical and chemical engineering (the olive oil production line), the olive oil market in Australia and the United States and forensic accounting, and, apart from general questions of contract law and under s 52 of the Trade Practices Act 1974 (Cth), raised what were, for Australia, unusual questions of law with respect to the applicability of United Nations Convention on Contracts for the International Sale of Goods and what constituted a reasonable period of grace under a contractual “withdrawal clause” which owed its provenance to a civil law rather than common law system. Further, it is apparent from the instructions given to Mr Nicholas that Baker & McKenzie have themselves been astute to exclude from their fees costs which are not recoverable under the order made on 28 May 2009.

15    In assessing solicitor’s fees Mr Nicholas has made adjustments both to hourly rates and to the overall sum to take into account the likelihood of reduction were the matter to proceed to taxation because of vices which can attend the employment of time charging. He has also excluded from his total for this component work performed by certain employed solicitors at Baker & McKenzie during periods when, though they were admitted on a State Supreme Court roll of practitioners, their names had not been entered in the roll of practitioners maintained by the Principal Registrar of the High Court pursuant to s 55B of the Judiciary Act 1903 (Cth). It is that provision, not a State or Territory Supreme Court admission, which governs the right to practise before this Court. In this sense, the present case sounds a cautionary note for the profession as to the importance of attention to the requirements of this provision.

16    The fees charged by both senior and junior counsel in this matter were, in my opinion, inherently reasonable in respect of a matter of this kind. They were well within the applicable ranges specified in the National Guide to Counsel’s Fees (National Guide) published by this Court’s Registrar. Even so, in reaching his conclusions, Mr Nicholas has made some adjustment to take account of the contingency of reduction on taxation on account of the employment of time charging. There is no undue generosity to Flottweg in acting on this aspect of Mr Nicholas’ opinions. The case is certainly one where the retention of senior and junior counsel was justified, whether one approaches that subject from the perspective of the period to which party and party costs were awarded or for the later period in respect of which indemnity costs were awarded.

17    In reaching his total Mr Nicholas has made appropriate adjustments to disbursements and in respect of expert and other witnesses. In so doing, he has also taken into account, where necessary, the prevailing exchange rate as between the Euro and the Australian dollar.

18    For these reasons and in lieu of the taxing of its costs, I fix Flottweg’s costs of and incidental to such of this proceeding as was conducted in the Court’s original jurisdiction in the gross sum of $1,102,500.00.

19    The costs orders which I made on 28 May 2009 also provided for a set off in respect of any costs ordered in favour of Olivaylle. It was no part of Flottweg’s application that I fix these at present. However, I reserve liberty to apply both to Flottweg and to Olivaylle (including out of an abundance of caution its administrators and any liquidator who may come to be appointed) in respect of the fixing of such costs.

20    In addition to the amount assessed by Mr Nicholas, Flottweg ought also have the costs of its application. In the circumstances, these, too, should be fixed rather than taxed. As to this, I fix those costs in the gross amount of $8,500, which comprises:

(a)    appearance by counsel on interlocutory application and earlier directions hearing - $3,500;

(b)    solicitor’s fees, including those of a town agent: $3,000;

(c)    expert witness (Mr Nicholas): $2,000.

21    I have approached the fixing of these amounts by reference to the National Guide and the Second Schedule hourly rates and on the basis that, were the costs in respect of the application to proceed to taxation, they would be taxed on a party and party basis, applying the principles enshrined in O 62 r 19.

22    There will be orders accordingly.

Associate:

Dated:    17 June 2011