FEDERAL COURT OF AUSTRALIA

Modtech Engineering Pty Limited v GPT Management Holdings Limited (No 3) [2014] FCA 680

THE COURT ORDERS THAT:

1.    By 4:00pm on 27 June 2014, the Applicant bring in orders to give effect to these reasons for judgment.

Note:    Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011 (Cth).

REASONS FOR JUDGMENT

INTRODUCTION

1    On 26 June 2013, the Court approved settlement of the proceeding pursuant to ss 33V and 33ZF of the Federal Court of Australia Act 1976 (Cth) (the FCA): Modtech Engineering Pty Limited v GPT Management Holdings Limited [2013] FCA 626. Under the approval, the settlement monies were to be paid into the GPT Settlement Account.

2    Pursuant to s 33ZF of the FCA, the Applicant now seeks approval for four categories of costs and disbursements to be deducted from the GPT Settlement Account:

1.    Federal Court hearing fees of $37,396.00 (Hearing Fees);

2.    Costs and disbursements incurred in connection with the administration of the Settlement Distribution Scheme (the Scheme):

2.1    to 30 May 2014 (the Administration Costs); and

2.2    that will be incurred from 31 May 2014 to the conclusion of the Scheme (Future Administration Costs); and

3.    Costs and disbursements on a solicitor and own client basis incurred on and after 26 June 2013. This category of costs and disbursements comprised two sub-categories – (1) costs and disbursements incurred after 26 June 2013 up to and including 30 August 2013 in relation to the Registrar’s review and assessment of the Applicant’s costs the subject of the 26 June 2013 Orders (the Registrar’s Review Costs) and (2) costs and disbursements incurred after 30 August 2013 in preparation for and attendance at the hearing on 19 September 2013 for approval of the Applicant’s costs (September 2013 Hearing Costs).

3    The quantum of costs and disbursements sought to be approved may be summarised as follows:

BACKGROUND

4    The relevant background was addressed in two earlier judgments: Modtech Engineering Pty Limited v GPT Management Holdings Limited [2013] FCA 626 and Modtech Engineering Pty Limited v GPT Management Holdings Limited (No 2) [2013] FCA 1163.

5    For present purposes, it is sufficient to restate the following facts and matters. By orders made on 26 June 2013 (the 26 June 2013 Orders), the Scheme was approved and Slater & Gordon Limited (Slater & Gordon) was appointed Administrator of the Scheme. The Scheme governs the process and responsibilities for the administration and distribution of the GPT Settlement Account. The Scheme distinguishes between the Applicant’s Costs and Administration Costs.

6    Clause 13 of the Scheme entitled “Distribution” relevantly provides:

13.1    … [T]he Administrators must not distribute from the GPT Settlement Account any amounts to Registered Group Members until:

(a)    the quantum of the Applicant’s Costs, and the quantum of the Applicant’s Expense Claim, have been determined by the Court; and

(b)    the period(s) to appeal from any order(s) made in respect of the quantum of the Applicant’s Costs, and the quantum of the Applicant’s Expense Claim, have expired.

13.2.    … [P]rior to any distribution from the GPT Settlement Account to Registered Group Members, the following payments shall be made:

(a)    the amount of Applicant’s Costs, and net interest accrued on the Applicant’s Costs amount after tax, will be deducted from the Applicant’s Costs Sum Account and paid to the Funder;

(b)    the amount of the Applicant’s Expense Claim, plus net interest accrued on the Applicant’s Expense Claim after tax, will be deducted from the Applicant’s Expense Claim Account, and paid to the Applicant;

(c)    any amounts remaining in the Applicant’s Costs Sum Account and the Applicant’s Expense Claim Account after the deductions made in accordance with sections 13.2(a) and 13.2(b) will be transferred to the GPT Settlement Account; and

(d)    Administration Costs, in an amount approved by the Court, will be deducted from the GPT Settlement Account and paid to the Administrators.

13.3.    Any additional Administration Costs incurred or estimated will, subject to Court approval, be paid to the Administrators before any final distribution of the GPT Settlement Account.

(Emphasis added.)

7    Applicant’s Costs is defined to mean “the Applicant’s legal costs and disbursements on a solicitor and own client basis (calculated in accordance with the Retainer) incurred in connection with the Proceeding on its own behalf and on behalf of all Group Members in the Proceeding, in the amount approved by the Court, but does not include Administration Costs” (Emphasis added.): cl 18.1. The Retainer is defined to mean “any of the Costs Disclosure and Costs Agreements between Slater & Gordon and [the Applicant] relating to the Proceeding as amended or varied from time to time”: cl 18.1. Administration Costs are defined to mean “the costs and disbursements incurred by the Administrators (calculated at the rates in the Retainer) in connection with the administration of this … Scheme, including assessing Registered Group Members’ Claims, conducting Reviews or appeals from Reviews to the Court, and administering the … Scheme”: cl 18.1.

8    The Retainer, referred to as the Legal Costs Agreement & Costs Disclosure Statement between Slater & Gordon and the Applicant (the LCA), was in evidence. It relevantly provides:

2.    Relationship between this LCA and the Litigation Funding Agreement (“Funding Agreement”)

2.1.    You have also entered a Funding Agreement with [Comprehensive Legal Funding (CLF)]. [CLF] is providing financial assistance which will enable Us to conduct the Litigation without seeking a contribution to the legal costs and expenses of the Litigation from You.

2.2.    We and [CLF] have agreed to conduct the Litigation in accordance with the Funding Agreement, incorporating the Terms of Engagement (which is annexed to the Funding Agreement).

2.3.    This LCA should at all times be read with the Funding Agreement and the Terms of Engagement. If at any time there is an inconsistency between this LCA and the Funding Agreement or the Terms of Engagement, then the Funding Agreement will prevail.

…

5.    What Slater & Gordon will do under this LCA – Scope of Legal Work

5.1    This LCA relates to litigation connected with GPT Qualified shares and claims of failure to make timely disclosure of material information and disclosure of misleading information in relation to those shares (the “Claims”).

5.2    You instruct Us under this LCA to undertake Legal Work, namely such advice, legal and administrative services as We consider reasonably necessary in order to:

a)    protect Your rights in relation to the Claims; and

b)    conduct the Litigation.

…

7.    Professional Fees & Hourly Rates

7.1    We will charge for work done by reference to the time reasonably and properly spent in accordance with the rates set out below. …

…

7.3    Detailed time records in connection with the performance of Legal Work will be kept by Us.

…

7.7    For the duration of this LCA, We will charge for our Legal Work in accordance with the terms of the Funding Agreement and the Terms of Engagement.

…

10.    Payment of Our Fees, Disbursements & Interest

10.1.    We will be paid by [CLF], in accordance with the Funding Agreement and the Terms of Engagement, up to the amounts specified in the Terms of Engagement. By signing this LCA You expressly authorise Us and [CLF] to deal with the payment of professional fees and Disbursements incurred by Us in the course of the Litigation in accordance with the provisions of the Funding Agreement and the Terms of Engagement.

…

13.    Recovery of legal costs from the Defendants

13.1.    If successful, We will take such steps as may be reasonably necessary to seek to maximise the recovery of legal fees and expenses from those Defendants against whom orders are made requiring them to pay legal costs in the Litigation (“Costs Orders”).

13.2.    You acknowledge, by signing this LCA, that any Costs Orders, even if recovered, may be considerably less than the total amount of the Legal Costs and Disbursements payable under the terms of this LCA.

13.3.    Where it is necessary for Your file to be costed by an independent costing service or costs consultant, the fees charged by the costing service or costs consultant will be charged as a Disbursement. This does not apply if the file is costed in the course of a dispute between You and Us.

(Emphasis added.)

9    Legal Work is defined to mean:

such advice, legal and administrative services as we may consider reasonably necessary in relation to the conduct of the Litigation and the Claims. For the avoidance of doubt this includes but is not limited to the following:

a)    Gathering all necessary evidence to assess Your Claim including all relevant documents and records, expert reports, financial documentation and statements from witnesses

b)    Advising You about whether You should bring or defend a claim, the strengths and weaknesses of Your claim and the likelihood of success of any claim made by You or that may be made against You

c)    Conducting internal conferences to discuss claims and claim strategy

d)    Liaising with [CLF]

e)    Preparing and lodging Your claim with the opposing party or its insurers and engaging in negotiations on Your behalf

f)    Engaging in any necessary pre-issue dispute resolution processes

g)    Enlisting other clients and maintaining such records and databases as are reasonably required

h)    Seeking and responding to media enquiries in order to further the interests of Your claim and advance its resolution

i)    Making political representations on behalf of You and other clients to government and statutory bodies in the interests of Your claim

j)    Commencing court action if necessary to claim compensation on your behalf or defending any claim made against you

k)    Conducting negotiations, whether informally or through a case conference and/or mediation

l)    Performing all work reasonably necessary to prepare your matter for hearing

m)    Conducting the hearing of your matter before a Court/Tribunal

n)    Retaining a barrister (including senior counsel if appropriate) to advise, prepare Court documents, conduct negotiations and/or appear on your behalf at Court/Tribunal

o)    Undertaking work to ensure that settlement is effected

p)    Negotiating, resolving and collecting legal costs recoverable from another party

q)    Applying our special skill and expertise

10    Next, the Funding Agreement. Clause 7 of that Agreement provides that Comprehensive Legal Funding (CLF) will fund the litigation:

7.1    Subject to the Claimant meeting its obligations under this Agreement, [CLF] will fund the Litigation Costs to the extent required by the Terms of Engagement but not to exceed the Funding Limit.

7.2    Any payment in respect of costs made by the Defendants during the course of the Litigation will be made into the Trust Account on trust for [CLF] and may be utilized by [CLF] in paying or reimbursing Litigation Costs and by the Lawyers in paying or reimbursing the Remaining Costs. …

…

11    Under that agreement, cl 9 entitled “Distribution of Recoveries” provides:

9.1    Immediately upon receipt of Recoveries, including Interim Recoveries, the Claimant authorises the Lawyers to pay from the Trust Account, out of the Recoveries:

a.    First, to [CLF], in reimbursement of the Litigation Costs funded by [CLF] (and including the amount of any security posted by [CLF] to secure any Security for Costs which Security for Costs remains in place); and

b.    Second, to the Lawyers, the Remaining Costs that have been incurred under this Agreement and in accordance with the Terms of Engagement, in respect of the performance of legal work to date.

(Emphasis added.)

12    Recoveries is defined in cl 1.1 to mean “the cash proceeds (if any) actually and finally received (including any interest, if any) on behalf of the Claimant in respect of”:

1.    any Settlement, any award of damages or other monetary compensation paid or payable in connection with the Claims or the Litigation; and/or

2.    the disposal or other realisation of all or any part of (or an interest in any part of) the Claims or the Litigation; and/or

3.    any costs recovered from the Defendants pursuant to a Costs Order or otherwise; and/or

4.    any amounts received in respect of the Claims by agreement including any ex gratia payments made to the Claimant in relation to the Claims; and/or

5.    any other amounts received by or on behalf of Claimant in respect of the Claims, however generated.

13    Litigation Costs is defined to mean Expenses and Litigation Taxes. Expenses is relevantly defined to mean:

1.    the actual costs and expenses paid or payable in connection with the prosecution, defence, appeal or appeals of the Litigation and the collection of the Recoveries incurred during the period from the date of this Agreement until the final distribution of any Recoveries;

…

5.    the Lawyer Fees incurred during the period from the date of this Agreement until the final distribution of any Recoveries;

14    Lawyer Fees is relevantly defined to mean “all professional fees, including any GST, charged by the Lawyers in compliance with the LCA and the Terms of Engagement. …”.

15    At cl 10, the Funding Agreement further provides:

10.2    The Claimant will use best endeavours to cause any Recoveries to be received or recovered as quickly as possible and particularly after any Settlement or judgment in respect of the Claims.

…

10.4    The Claimant will not seek any order from any court which may detrimentally affect [CLF]’s rights under this Agreement other than with the consent of [CLF].

…

10.7    [CLF] may at its discretion require that the Lawyers submit any one or more of their invoices forming a part of the Litigation Costs to taxation. If required to do so by [CLF], the Claimant will take all steps necessary to achieve the commencement proceeding and conclusion of that taxation. Any cost of taxation will be paid by [CLF] as part of the Expenses.

16    As is apparent, the Administrator is not entitled to distribute from the GPT Settlement Account any amounts to Registered Group Members until the quantum of the Applicant’s Costs and the Administration Costs are approved by the Court: cll 13.1 and 13.2 of the Scheme extracted at [6] above.

17    The 26 June 2013 Orders included orders and directions for what has become known as the “Registrar’s Review”. The reasons for that review were explained in detail in Modtech Engineering Pty Limited v GPT Management Holdings Limited [2013] FCA 626 at [20]-[54]. That review was conducted as follows:

11.    Subject to further direction, a Registrar (or Registrars) of the Court review and assess:

(a)    on a solicitor / own client basis, the costs and disbursements properly incurred by the Applicant in conducting the proceeding and in obtaining settlement approval (the Applicant’s Costs Sum); and

(b)    the Applicant’s claim for compensation for the time and expenses incurred by it in prosecuting the proceeding on behalf of Group Members (Applicant’s Expense Claim).

12.    As soon as reasonably practicable after the making of these orders, the Registrar (or Registrars) will advise the Applicant’s solicitors of the form and content of the information the Registrar (or Registrars) require to review and assess the Applicant’s Cost Sum and/or the Applicant’s Expense Claim.

13.    The Applicant’s solicitors will provide such information in the form and content requested by the Registrar (or Registrars) within 7 days of receipt of that request.

14.    If the Registrar (or Registrars) request further information to review and assess the Applicant’s Cost Sum and/or the Applicant’s Expense Claim, such request will be made as soon as reasonably practicable and the Applicant’s solicitors will provide such further information within 7 days of receipt of that request.

15.    By no later than 31 July 2013, the Registrar (or Registrars) provide to the Court, and to the Applicant’s solicitors, a report assessing the reasonableness of:

(a)    the Applicant’s Costs Sum; and

(b)    the Applicant’s Expense Claim.

16.    Within 5 business days of receipt of the report referred to at paragraph 15, the Applicant file any submissions in respect of its application for approval of the Applicant’s Costs Sum and the Applicant’s Expense Claim.

(Original emphasis.)

18    Costs and disbursements were incurred in relation to the Registrar’s Review (described as the Registrar’s Review Costs). The work undertaken was the subject of sworn evidence from Mr Benjamin Phi, a solicitor employed by Slater & Gordon. Mr Phi’s evidence was that:

1.    On 27 June 2013, he attended a conference with the Registrar to discuss the costs assessment process and the materials the Registrar required in order to undertake the Registrar’s Review. Ms Odette McDonald from Slater & Gordon and Ms Melanie Crow from Blackstones, also attended that conference;

2.    Ms McDonald and Mr Phi participated in a telephone conference with the Registrar on 2 August 2013 and Ms McDonald participated in a further telephone conference with the Registrar on 16 August 2013;

3.    Slater & Gordon received requests for information from the Registrar’s assistant by phone and by email;

4.    In response to the Registrar’s requests, Slater & Gordon provided numerous source documents and prepared memoranda explaining the work undertaken, the history of the proceeding and aspects of the costs incurred, in particular:

(a)    invoices and ledgers showing unbilled and billed professional fees and billed disbursements;

(b)    invoices received from counsel, experts and other major trade creditors;

(c)    a list of Slater & Gordon personnel that had worked on the matter, their positions and hourly rates;

(d)    invoices from Law Image and information as to discounted rates received from Law Image;

(e)    a breakdown of figures contained in Blackstone’s cost assessment report filed in support of settlement approval relating to ‘other’ disbursements and expert disbursements;

(f)    a chronology of key events spanning the life of the matter;

(g)    a note concerning work undertaken by Slater & Gordon in the pre-commencement period, and information concerning the basis of our original 2008 costs estimate;

(h)    a note concerning Scott Robinson’s income and the calculation of his hourly rate for the purpose of the Applicant’s Expense Claim, together with his 2006 tax return;

(i)    information on outstanding subpoena expense claims;

(j)    invoices concerning professional fees and disbursements incurred in respect of the Registrar cost assessment process; and

(k)    two notes responding to various queries raised by the Registrar.

5.    It was necessary for Slater & Gordon to communicate with the Applicant for information in support of the Applicant’s expense claim and with UBS AG Australia (UBS) and King & Wood Mallesons (on behalf of Standard & Poors (S&P)) to determine the status of subpoena expense claims in respect of subpoenas issued to S&P and UBS during the proceeding, which was one of the disbursements.

19    The Registrar’s Confidential Report of the Assessment of the Applicant’s Costs and Expenses was received on 30 August 2013 (Registrar’s Report). The Registrar’s Review Costs claimed by Slater & Gordon are $45,481.90.

20    After receipt of the Registrar’s Report, Mr Phi’s evidence was that work was undertaken to prepare an application for approval of the Applicant’s costs and that work comprised:

1.    Briefing counsel to appear at the costs application hearing on 19 September 2013;

2.    Reviewing the Registrar’s Report, drafting parts of submissions and supporting affidavit material for the hearing;

3.    Liaising with the Court in respect of the hearing, and with Arnold Bloch Leibler, who had been retained by CLF, the litigation funder in the proceeding; and

4.    Appearing at the hearing, “and related attendances”.

These costs and disbursements are described as the September 2013 Hearing Costs and amount to $123,379.78.

21    On 15 November 2013, the Court approved the sum of $8,565,285.13 for the Applicant’s costs and disbursements in conducting the proceeding (up to but not including 26 June 2013).

22    Next, the Administration Costs and the Future Administration Costs. The Administration Costs amount to $317,835.13. The Administrator (Slater & Gordon) estimates the Future Administration Costs at $137,386.00. Slater & Gordon informed the Court that should the future cost exceed that sum, Slater & Gordon would not seek those additional costs from the GPT Settlement Account. In the event that the future costs are less than $137,386.00, Slater & Gordon informed the Court that it may seek a direction from the Court to donate the balance to the Australian Shareholders’ Association in accordance with cl 13.7 of the Scheme. As a result, Slater & Gordon submitted that the following procedure should be adopted:

1.    The Court approve Future Administration Costs of up to $137,386.00;

2.    After final distribution is made from the GPT Settlement Account to Registered Group Members, Slater & Gordon file with the Court a confidential affidavit annexing its final invoice for Administration Costs, itemising the work conducted; and

3.    If necessary, at that time, Slater & Gordon make any application that it considers necessary in respect of distribution of excess amounts in the GPT Settlement Account.

23    In addition to sworn evidence from Mr Phi, the Applicant also relies upon an expert opinion from Ms Elizabeth Harris of Harris Costs Lawyers Pty Ltd concerning the quantum of the fair and reasonable costs and disbursements as between practitioner and client in respect of each cost category, except of course the Hearing Fees. The amount sought by Slater & Gordon is the amount that in Ms Harris’ opinion is fair and reasonable.

24    It is appropriate to say something about the task undertaken by Ms Harris. Ms Harris is an experienced costs consultant. She was asked to express an opinion on what were the fair and reasonable costs and disbursements, as between practitioner and client, to be allowed in respect of each phase of costs in [2(2)] and [2(3)] above. Her methodology for assessing the quantum of the costs was the same for each phase.

25    What then was that methodology? The task was not a taxation and no itemised bill of costs was prepared. Instead, Ms Harris considered her task by reference to the following principles:

1.    There was a need for an appropriate balance in relation to the level of information available to the court and the costs associated with the provision of that information: Re Medforce Healthcare Services Ltd (in liq) [2001] 3 NZLR 145;

2.    The principles applicable to the assessment of costs on a gross sum basis provided some guidance. When assessing costs in that way the methodology adopted and information provided must enable the Court to be confident that the approach taken is logical, fair and reasonable: Beach Petroleum NL v Johnson (No 2) (1995) 57 FCR 119 at 123; Seven Network Limited v News Limited [2007] FCA 2059 at [35] and [88]; and Leary v Leary [1987] 1 WLR 72;

3.    At a minimum, a statement of the work undertaken together with a sufficiently itemised account to enable the charges made to be related to the work done was required: Re Medforce;

4.    The matters to be taken into account in a review of legal costs under s 3.4.44(1) of the Legal Profession Act 2004 (Vic) (the LPA), which include whether or not it was reasonable to carry out the work to which the legal costs relate, whether or not the work was carried out in a reasonable manner and the fairness and reasonableness of the amount of legal costs in relation to that work, as well as the matters that may be taken into account in considering what costs are fair and reasonable under s 3.4.44(2) of the LPA;

5.    The considerations enunciated in Modtech Engineering Pty Limited v GPT Management Holdings Limited [2013] FCA 626 and Modtech Engineering Pty Limited v GPT Management Holdings (No 2) [2013] FCA 1163.

26    What then did Ms Harris do? First, Ms Harris considered material comprising:

1.    Worksheets comprising records of time entries and billed disbursements. The time and disbursement records considered indicated the identity of the person undertaking the work, a description of the task being undertaken and the time spent;

2.    Invoices evidencing disbursements;

3.    The files of Slater & Gordon, which Ms Harris inspected;

4.    Worksheets calculating estimated future costs;

5.    Letters of instruction and an affidavit sworn by Mr Phi which describes in some detail the work done by Slater & Gordon in administering the Scheme.

27    Next, Ms Harris applied the identified principles to that material. Ms Harris reviewed the fee agreements and the Registrar’s Report and confirmed that the rates charged by Slater & Gordon for staff of certain seniority were the appropriate hourly rates. Ms Harris reviewed the judgments, the Registrar’s Report, the Scheme and her instructions to identify the scope of the work required in each phase. After identifying the scope of work, Ms Harris reviewed the time and disbursement records to identify whether there was any work undertaken outside the required scope of work. She identified some work that was outside the required scope in relation to the September 2013 hearing and consequently did not consider that to be recoverable. Ms Harris reviewed the time records and looked to see whether the time records included time entries relating to multiple tasks (referred to as “lumped entries”) or entries with no, or such a generic, description that no real detail of the work undertaken is identified. She then reviewed the attendances in conference to see whether multiple lawyers attended at the same conferences and hearings. Ms Harris identified one instance where multiple lawyers attended in circumstances that she considered unreasonable. That was at the September 2013 hearing. Ms Harris also compared the time billed with the time records and found a limited number of instances where the billed time exceeded the base time. Ms Harris resolved those discrepancies in favour of the Group Members.

28    Ms Harris then undertook two further exercises. First, she sorted the time records and summarised the total time by fee earner. This identified the percentage of time by level of experience. The bulk of the time was undertaken by a limited number of fee earners with the majority of the work being done by fee earners with lower hourly rates. Ms Harris filtered the time records to identify work that might not have been chargeable or which may have been unreasonable. The time records were filtered using a number of search terms under four headings – administrative, research, conferences and work related to CLF. Next, Ms Harris reviewed the time sheets to identify where more than eight hours had been entered on a particular day and to identify time entries of three hours or more. Ms Harris also identified the work being undertaken at times where the total daily fee peaked.

29    Finally, Ms Harris attended at Slater & Gordon and reviewed the hard copy and electronic file. Ms Harris reviewed the entries she had identified in the steps outlined above. Ms Harris then sought to substantiate the billed work she had identified in her earlier review. Where the daily total time was high she ascertained the purpose of the work being undertaken and whether that the work was effectively undertaken. She also ascertained whether conferences and attendances could be substantiated by file notes or other evidence.

30    As a result of Ms Harris’ assessment, deductions and/or percentage reductions were made for items including:

1.    Internal conferences at Slater & Gordon;

2.    Drafting and settling of documents;

3.    Generic and “lumped”/block time entries;

4.    Specific instances of administrative work;

5.    The attendance by multiple lawyers at the September 2013 hearing;

6.    Research undertaken in respect of the September 2013 hearing;

7.    Work outside the scope of the September 2013 hearing; and

8.    Instances where billed time differed from the base time.

APPLICABLE PRINCIPLES

31    The applicable principles were summarised in Modtech Engineering Pty Limited v GPT Management Holdings Limited [2013] FCA 626 at [31]-[37]. It is unnecessary to restate them.

ANALYSIS

32    Each cost category outlined in [2] above will be addressed in turn.

Hearing Fees

33    These Hearing Fees relate to the trial of the principal proceeding before it was settled. They were disbursements incurred “in connection with the Proceeding” and thereby form part of the “Applicant’s Costs”: see [7] above. The fees should be deducted from the GPT Settlement Account.

Registrar’s Review Costs

34    This cost category raises a question of principle – whether the costs of providing the additional material to the Registrar and addressing his queries should be allowed. As Ms Harris explained it:

On the one hand, the insufficiency of available material was the reason the Court was unable to assess the costs at the hearing in June 2013, and therefore the compilation and provision of such information and material to the Registrar was necessary. However, it is a question as to whether there was additional work incurred as a result of the additional process of review by the Registrar, being work beyond what would have been required to enable sufficient information to have been provided to the Court at first instance.

35    Ms Harris expressed the view that the work was undertaken in accordance with the 26 June 2013 Orders, that the Registrar was seeking information and making enquiries normally sought by an expert providing an opinion on recoverable costs, and therefore the work undertaken by Slater & Gordon in providing information and responding to enquiries would have been required in any event and therefore was properly recoverable. Ms Harris assessed the costs and disbursements at $45,481.90.

36    Counsel for Slater & Gordon accepted that there were two issues – entitlement and if entitled, then reasonableness. In relation to the first, Counsel for Slater & Gordon referred to, and relied upon, three documents – the Scheme, the Retainer (or the LCA) and the Funding Agreement. Slater & Gordon submits that it is contractually entitled to claim these fees and disbursements under those agreements: see [6]-[15] above. Each clause of the agreements referred to and relied upon by Slater & Gordon is set out in this judgment.

37    The proposition advanced by Slater & Gordon that its costs of justifying the costs and disbursements that it proposed to charge were properly recoverable, assumes that Slater & Gordon is entitled to charge and recover from the GPT Settlement Account those costs and disbursements. Under s 3.4.36(5) of the LPA if a client receives a lump sum bill and requests to be given an itemised bill, the practitioner or firm cannot charge the client for the preparation of that bill. So what entitles Slater & Gordon to charge for obtaining approval of its costs and disbursements (the Registrar’s Review Costs) and its entitlement to deduct those amounts from the GPT Settlement Account?

38    Slater & Gordon submits that the 26 June 2013 Orders required the Registrar’s Review Costs to be incurred with the result that the costs were “compulsory” and recoverable. Further, Slater & Gordon submits that these “compulsory” costs had to be considered in context. The context being that the proceedings were a class action where if a lawyer obtained costs for group members as part of a settlement, the costs had to be approved by the Court: see s 33V of the FCA. Counsel for Slater & Gordon submitted that it must be “implicit” that when a client instructs a solicitor in a class action subject to Pt IVA of the FCA, a lawyer must seek court approval for his or her costs and no lawyer can seek that approval without making submissions in support of those costs.

39    Each proceeding, and therefore each class action, needs to be considered individually. History has demonstrated that to be so: see, for example, Australian Securities and Investments Commission v Richards [2013] FCAFC 89. This was and remains a class action subject to the provisions of Pt IVA of the FCA and the contractual arrangements set out above. There is nothing in the FCA which provides for a solicitor to charge group members the costs he or she incurs in seeking approval of the lawyer’s costs and disbursements which are to be paid out of a settlement fund.

40    That brings us to the provisions of the agreements referred to by Slater & Gordon. The drafting is less than perfect. The question is whether those provisions, separately or collectively, provide Slater & Gordon with a contractual entitlement to charge the Registrar’s Review Costs.

41    First, the LCA. It is to be read with the Funding Agreement: see cl 2.3 of the LCA. By the terms of the LCA, a group member authorises Slater & Gordon to charge for work done by reference to the time reasonably and properly spent in accordance with stipulated rates: cl 7.1. Under the LCA, Slater & Gordon is required to keep “detailed time records in connection with the performance of Legal Work”: cl 7.3. For the duration of the LCA, Slater & Gordon is entitled to charge for its Legal Work in accordance with the terms of the Funding Agreement and the Terms of Engagement: cl 7.7. The scope of the Legal Work is addressed in cl 5 of the LCA. Clause 5.2 of the LCA records that each group member had instructed Slater & Gordon to undertake the Legal Work “namely such advice, legal and administrative services” as Slater & Gordon considered reasonably necessary in order to protect the group member’s rights in relation to the “Claims” and “conduct the Litigation”. “Claims” is defined to mean “litigation connected with GPT Qualified shares and claims of failure to make timely disclosure of material information and disclosure of misleading information in relation to those shares”: cl 5.1. “Litigation” is not defined in the LCA. It is defined in the Funding Agreement to mean “any legal proceedings … to prosecute all or some of the Claims on behalf of the Claimant ...”: cl 1.1. Legal Work is a defined term in the LCA: see [9] above. “Legal Work” includes “administrative services … in relation to the conduct of the Litigation and the Claims” and “[u]ndertaking work to ensure that settlement is effected”: see sub-para (o). The definition also includes “[n]egotiating, resolving and collecting legal costs recoverable from another party”: see sub-para (p). Counsel for Slater & Gordon submitted that this includes costs paid by the other party under a settlement. The LCA refers to the settlement approval process pursuant to s 33V of the FCA: cl 15.1.

42    Do the Registrar’s Review Costs fall within the definition of “Legal Work” in the LCA? It is important to recognise that the Registrar’s Review Costs were incurred because the material initially placed before the Court was judged insufficient to support the amount which was then claimed for “Legal Work”: Modtech Engineering Pty Ltd v GPT Management Holdings Limited [2013] FCA 626. The Registrar’s Review Costs were not incurred in performance of Legal Work as defined in the LCA. In essence, Slater & Gordon submits that the amount now claimed for the Registrar’s Review Costs could have been incurred, perhaps even would have been incurred, as “Legal Work” conducted as part of the process when it initially sought the Court’s approval of the Applicant’s Costs, if Slater & Gordon had taken steps necessary to support the claim which it made. But whether or not that is so is not to the point. The amounts now claimed were not incurred except in connection with the Registrar’s Review, a review which did not accept the whole of the claim initially made. The amount now claimed for Registrar’s Review Costs is not a claim for amounts falling within the definition of Legal Work in the LCA.

43    Similarly, the Registrar’s Review Costs are not “actual costs and expenses paid or payable in connection with … the Litigation and the collection of the Recoveries” within the definition of Expenses in the Funding Agreement: cl 1.1. First, the Registrar’s Review Costs are not payable in connection with the Litigation. As noted above, Litigation means “any legal proceedings including legal work … to prosecute all or some of the Claims on behalf of the Claimant …”. The Registrar’s Review Costs were not incurred in prosecution of the Claims against the Defendants in this proceeding. Further, the Registrar’s Review Costs were not incurred on behalf of the Claimant; they were incurred on behalf of Slater & Gordon. Second, the Registrar’s Review Costs were not incurred in connection with the collection of the Recoveries. The Recoveries were cash proceeds received on behalf of the Claimant in respect of various items: see [12] above, and these Recoveries were collected on behalf of the Registered Group Members when the cash proceeds were received under the settlement. The Registrar’s Review Costs were not incurred in connection with this collection.

44    The next document is the Scheme. The “Applicant’s Costs” were to be deducted from the GPT Settlement Account: see 13.2. The “Applicant’s Costs” were assessed by the Registrar and approved by the Court: Modtech Engineering Pty Limited v GPT Management Holdings Limited (No 2) [2013] FCA 1163 and the Orders made in this proceeding on 15 November 2013. The term “Applicant’s Costs” was defined as the Applicant’s legal costs and disbursements incurred “in connection with the Proceeding”: see [7] above. The “Proceeding” is defined in the Scheme by reference to the Federal Court proceeding title and number. Can it be said that the Registrar’s Review Costs are the Applicant’s legal costs and disbursements incurred “in connection with the Proceeding”? For the reasons already given, the amount now claimed is not an amount incurred “in connection with the proceeding”. It is an amount incurred in connection with the steps taken to support the claims for costs and disbursements initially made which were not allowed or reduced following review. Contrary to the submissions made by Counsel for Slater & Gordon, the references in cl 13 of the Scheme to court approval do not “make it implicit” that, when the Scheme is read together with the Funding Agreement, the Applicant’s Costs include the costs of seeking that approval.

45    In all the circumstances, the Registrar’s Review Costs should not be deducted from the GPT Settlement Account.

September 2013 Hearing Costs

46    Slater & Gordon was substantially unsuccessful at the September 2013 hearing: see Modtech Engineering Pty Limited v GPT Management Holdings Limited (No 2) [2013] FCA 1163. Costs should follow the event. There is no basis for Slater & Gordon being entitled to deduct from the GPT Settlement Account either the September 2013 Hearing Costs or any costs for work undertaken in relation to a possible appeal.

47    There is no contractual entitlement to claim these costs: see [6]-[15] above. And that is not surprising. A lawyer claiming costs and disbursements should not be entitled to recover from the client the costs and disbursements the lawyer incurs in unsuccessfully challenging an independent review of the costs and disbursements to be paid by the client. The solicitor who unsuccessfully seeks more costs than the solicitor is found entitled to charge cannot properly expect those clients to pay for the solicitor’s unsuccessful attempts to secure that larger entitlement. The solicitor cannot get through the back door that which it could not obtain through the front door.

Administration Costs

48    As noted above, the Scheme provides that prior to any final distribution of settlement monies to Registered Group Members, costs of administering the Scheme be paid subject to Court approval. Slater & Gordon seeks the costs of administering the Scheme which have been incurred up to 30 May 2014.

49    Mr Phi provided sworn evidence about the administration of the Scheme. The Scheme governs the processes and responsibilities for the administration and distribution of settlement monies to Registered Group Members. So far, administration of the Scheme has involved five major elements – providing information to group members about the Scheme, confirming objective data and calculating group member payment entitlements, reviewing notified assessments and finalising objective data, making preliminary distributions and financial administration. The source of the work, the nature of the work, identification of the staff that undertook that work as well as the issues faced in completing each element were described in detail by Mr Phi.

50    Ms Harris reviewed the claimed Administration Costs by adopting the methodology set out above. The deductions made fell into three categories. First, in relation to the overall fees claimed for “conferences”, Ms Harris reduced that figure by 8%. That reduction was described by Ms Harris in the following terms:

I took into account the overall level of conferences, having regard to the work required in this phase. I also took into account the nature of the conferences, as described in the time records. Finally, I have had regard to my review of the file, and the fact that not all conferences could be substantiated by file notes. The reason for the slightly higher reduction in this Phase … was the number of short internal conferences on the same day. In my experience, these short conferences are unlikely to be allowed in full.

51    The second reduction was in respect of particular items of administrative work. Ms Harris provided a schedule of those items. The total of the items deducted was $3,675.02 out of a total claim of $30,743.03. The third reduction was an overall reduction in the fees claimed of 5%. Ms Harris explained that deduction as follows:

I took into account the level of drafting work involving multiple lawyers and the nature of the documents being drafted and prepared. I also considered the level of time entries where billed time was higher than base time and the fact that there were generic and lumped time entries, which, in my experience, were unlikely to be able to be fully substantiated on a taxation of costs. Whilst I consider that the supervision by Mr Phi and Ms McDonald will largely be allowed, there appeared to be an element of overlap in the work of the more junior lawyers and paralegals.

52    Having reviewed the report of Ms Harris and the affidavit evidence filed in support the Administration Costs, the costs and disbursements up to 30 May 2014 in the sum of $317,835.13 should be approved.

Estimated Future Administration Costs

53    The amount sought is $137,386.00. The terms on which that sum is sought are set out at [22] above.

54    The claim has been reviewed by Ms Harris. Ms Harris described the task she undertook as follows:

In undertaking the assessment of likely future costs, I am informed by the Instructions and the Phi affidavit as to the further work that will be required. However, my assessment is based on my own experience of the likely allowances both as to time spent and to the allocation of work across the legal team.

In considering the estimate of likely future costs set out in the Future Costs Spreadsheet, I have also had regard to the actual costs incurred in the Administration Phase to date, as these indicate the likely future costs of similar work. In my opinion, the matters referred to in paragraphs 85 - 107 of the Phi affidavit are a proper basis for the estimated future costs. If anything, I consider the estimate of future costs to be somewhat conservative, although I note that Mr Phi has had regard to the previous reasons for the underestimates of costs, and has taken these into account in the estimate of future costs.

…

Therefore, it is my opinion that the estimate of future costs … is a reasonable estimate of future costs to the conclusion of the Administration.

55    For those reasons, I will approve the estimated future professional costs, counsel fees and other disbursements identified in [3] above on the terms set out in [22] above.

CONCLUSION

56    Slater & Gordon will be directed to bring in orders to give effect to these reasons for judgment by 4:00pm on 27 June 2014.

Associate:

Dated:    26 June 2014