FEDERAL COURT OF AUSTRALIA

Bob Jane Corporation Pty Ltd v ACN 149 801 141 Pty Ltd [2014] FCA 1066

THE COURT ORDERS THAT:

1.    The fourth respondent’s application for review of District Registrar Scott’s decision made on 28 July 2014 be dismissed.

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

REASONS FOR JUDGMENT

introduction

1    This is an application under s 35A(5) and (6) of the Federal Court of Australia Act 1976 (Cth) (“the Act”) and r 3.11 of the Federal Court Rules 2011 (Cth) (“the 2011 Rules”) by the fourth respondent in this proceeding, Mr Robert Frederick Jane, for the review of an exercise of a power of the Court by a District Registrar. The District Registrar made a determination about how a taxation of costs was to proceed before the Court and a decision that it was unnecessary for the applicant (respondent to the application for review) to redraw its bill of costs in accordance with schedules to the Rules of Court. I will continue to refer to the parties by reference to their status in the proceeding. Although the competence of the application is not challenged by the applicant, it is appropriate that I identify the source of the Court’s power to hear the application. One of the powers of the Court which may be exercised by a Registrar (as defined by s 35A(8) of the Act) is a power prescribed by Rules of Court (s 35A(1)(h) of the Act). Rule 3.01 of the 2011 Rules provides that, for the purpose of s 35A(1)(h) of the Act, a power of the Court under a provision of the Act mentioned in column 2 of an item in Schedule 2 may be exercised by a Registrar. Item 26 of Schedule 2 identifies the power in s 37P(2), which is the power of the Court or a judge to give directions about the practice and procedure to be followed in relation to a civil proceeding before the Court.

2    This proceeding has a long history. In the period leading up to the trial in September 2013, the then docket judge made two orders requiring the fourth respondent (among other respondents) to pay certain of the applicant’s costs on an indemnity basis. The first such order was made on 12 July 2011 and the second was made on 3 November 2011. I made final orders on 26 November 2013, including an order that the respondents pay the applicant’s costs of the proceeding (including reserved costs) on an indemnity basis from 2 February 2012, and otherwise on a party/party basis (Bob Jane Corporation Pty Ltd v ACN 149 801 141 Pty Ltd [2013] FCA 1255). There are therefore three orders of the Court requiring the fourth respondent to pay the applicant’s costs on an indemnity basis.

3    On 3 February 2014, the applicant filed a bill of costs and, on 8 April 2014, a Deputy District Registrar made an estimate of the applicant’s costs under r 40.20 of the 2011 Rules. On 29 April 2014, the fourth respondent lodged a notice of objection to the estimate of costs pursuant to r 40.21 of the 2011 Rules.

4    It became clear that there was a dispute between the parties about the basis upon which the applicant had prepared its bill of costs. On 20 June 2014, the fourth respondent filed an outline of his arguments concerning the basis upon which the applicant had prepared its bill of costs. The outline purports to have been filed on behalf of not only the fourth respondent, but also the first, second and seventh respondents. This application for review is brought by the fourth respondent only.

5    On 14 July 2014, the applicant filed an affidavit of a solicitor, sworn on 9 July 2014, which refers to a costs agreement between the applicant and its solicitors, and an affidavit of a second solicitor, sworn on 11 July 2014, which refers to a number of costs agreements between the applicant and its solicitors. The applicant also filed submissions on the issue before the District Registrar. It is unnecessary to set out the evidence in the affidavits. It is sufficient to record the fact that, at all relevant times, the applicant has paid for the legal services provided to it under legal costs agreements between it and its solicitors.

6    On or about 28 July 2014, the District Registrar advised the parties of her decision on what she described as the preliminary issue. The District Registrar provided reasons for that decision in writing on 29 July 2014. She said that the fourth respondent had raised an issue for preliminary determination and that issue was whether the applicant is required by r 40.29 of the 2011 Rules to prepare its bill of costs in accordance with the costs schedule contained in the Rules of Court. The District Registrar answered that question in the negative. She referred to the definition of “costs on an indemnity basis” in the 2011 Rules. She said that the definition of indemnity costs is clear. She described the purpose of r 40.29 as “temporal only”, and that the effect of the rule was not to “impose” the costs schedule on a claim for indemnity costs. The District Registrar said that the taxation would “proceed on the basis of the bill of costs being assessed in accordance with the definition of costs on an indemnity basis and the Applicant will not be required to redraw the bill of costs to refer to the scale in the costs schedule”.

7    By his application dated 26 August 2014, the fourth respondent sought a review of the District Registrar’s decision. The effect of the order sought by the fourth respondent in his application is that the taxation of costs proceed in accordance with Schedule 3 of the 2011 Rules, and, prior to the date when that schedule came into operation, in accordance with the now repealed Schedule 2 of the Federal Court Rules 1979 (Cth) (“the former Rules”).

8    The 2011 Rules replaced the former Rules on 1 August 2011.

9    Rule 40.29 of the 2011 Rules is in the following terms:

40.29    Costs to be allowed on taxation

A taxing officer is to allow costs for the work done:

(a)    before 1 August 2011 – in accordance with Schedule 2 to the Federal Court Rules, for the relevant period mentioned in that schedule; and

(b)    on or after 1 August 2011 – in accordance with Schedule 3, for the relevant period, if any, mentioned in that schedule.

10    Schedule 3 to the 2011 Rules provides for the costs allowable for work done and services performed. Clause 1 in the Schedule sets out the maximum rates for attendances by a lawyer requiring the skill of a lawyer, attendances by a law graduate or articled clerk, and attendances capable of performance by a clerk or paralegal. In the case of each class, a maximum figure for each unit of six minutes is prescribed. Clause 2 sets out maximum figures for the preparation of certain classes of documents. Subsequent clauses in the Schedule provide for other items of work and services. There is also a clause in Schedule 3 providing that additional amounts may be allowed. Clause 11 provides:

11    Skill care and responsibility

11.1    An additional amount may be allowed, having regard to all the circumstances of the case, including the following:

(a)    the complexity of the matter;

(b)    the difficulty or novelty of the questions involved in the matter;

(c)    the skill, specialised knowledge and responsibility involved and the time and labour expended by the lawyer;

(d)    the number and importance of the documents prepared and read, regardless of their length;

(e)    the amount or value of money or property involved;

(f)    research and consideration of questions of law and fact;

(g)    the general care and conduct of the lawyer, having regard to the lawyer‘s instructions and all relevant circumstances;

(h)    the time within which the work was required to be done;

(i)    allowances otherwise made in accordance with this scale (including any allowances for attendances in accordance with item 1.1); and

(j)    any other relevant matter.

11    There is a definition in Schedule 1 of the 2011 Rules of the phrase “costs on an indemnity basis”. It is as follows:

… costs as a complete indemnity against the costs incurred by the party in the proceeding, provided that they do not include any amount shown by the party liable to pay them to have been incurred unreasonably in the interests of the party incurring them.

12    There is also a definition of the phrase “costs as between party and party”. It is as follows:

… only the costs that have been fairly and reasonably incurred by the party in the conduct of the litigation.

13    These definitions are relevant to rr 40.01 and 40.02. Rule 40.01 provides that, if an order is made that a party or person pay costs or be paid costs without any further description of the costs, the costs are to be costs as between party and party. Rule 40.02 provides, among other things, that a party may apply for an order that the costs awarded be paid other than as between party and party, and a note to the rule makes it clear that the Court may order that the costs be paid on an indemnity basis.

14    Under the former Rules, there was a rule which provided that solicitors were not to be allowed higher fees than those set out in the second Schedule to those Rules, except as otherwise ordered. Order 62, Rule 12 was in the following terms:

12    Scale of Costs

(1)    Except as otherwise ordered in all proceedings commenced on and after the date these Rules came into operation, solicitors are, subject to these Rules, entitled to charge and be allowed the fees set forth in the Second Schedule in respect of the matters referred to in that Schedule and higher fees shall not be allowed in any case except such as are by this Order otherwise provided for.

…

The former Rules did not contain a definition of indemnity costs.

15    In Beach Petroleum NL and Another v Johnson and Others (1995) 57 FCR 119 (“Beach Petroleum”), von Doussa J said (at 121):

Where a court makes an order for costs on an indemnity basis against a party, the court may tax the costs so awarded according to a time cost agreement between the successful party and his solicitor unless the taxing officer considers that in all the circumstances it would be unreasonable to do so …

This Court has held that a party awarded costs on an indemnity basis is entitled to all the costs he or she has incurred except those costs that are unreasonable in amount or have been unreasonably incurred …

16    The applicant submitted, correctly in my respectful opinion, that the approach of von Doussa J under the former Rules was consistent with well-established authority (E.M.I. Records Ltd v Ian Cameron Wallace Ltd and Another [1983] Ch 59 at 71 per Megarry VC; Ballato v Co-Operative Bulk Handling Limited (30 January 1990, unreported) per Nicholson J; Singleton and Another v Macquarie Broadcasting Holdings Ltd (1991) 24 NSWLR 103 at 106 per Rogers CJ).

17    The applicant submitted, again correctly in my opinion, that when, under the former Rules, the Court made an order for the payment of costs on an indemnity basis, it otherwise ordered within O 62, r 12 and that, in such a case, the costs were to be assessed in the manner outlined by von Doussa J in Beach Petroleum.

18    The applicant referred to the Explanatory Statement for the 2011 Rules and submitted, again correctly in my opinion, that there is nothing in the Statement which expressly provides that the 2011 Rules effect a change to the position under the former Rules with respect to indemnity costs.

19    The applicant submitted that there is power under the 2011 Rules for the Court to make an order contrary to the Rules and, if it did, that order would prevail (r 1.35). The applicant submitted that the position concerning indemnity costs under the 2011 Rules was even clearer than it was under the former Rules because of the definition of “costs on an indemnity basis” in the 2011 Rules. It submitted that r 40.29 was no more than a transitional provision dealing with a case where work had been done both before and after the 2011 Rules replaced the former Rules. The applicant submitted that, insofar as its bill of costs related to work covered by the indemnity costs orders, it was entitled to prepare it by reference to the costs incurred under the various costs agreements between it and its solicitors.

20    As I have said, the order sought by the fourth respondent in his application for review is that the indemnity costs be assessed in accordance with the schedules (i.e., Schedule 3 under the 2011 Rules and Schedule 2 under the former Rules). On the face of it, such an approach attaches no weight to the definition of “costs on an indemnity basis”. The fourth respondent modified his contention in oral submissions by arguing that the schedules were “the starting point”. How, on that approach, the taxing officer accommodates a claimant’s claims for additional amounts under clause 11 of Schedule 3 and a respondent’s obligation to show that amounts were incurred unreasonably within the definition of “costs on an indemnity basis” was never made clear.

21    The fourth respondent relied on three authorities in support of its contention that the applicant’s claim for indemnity costs must take the schedules as a starting point.

22    In ACN 074 971 109 (as trustee for the Argo Unit Trust) & Anor v National Mutual Life Association of Australasia Limited [2013] VSC 137 (“Argo”), Wood AsJ considered an application by a defendant which had an indemnity costs order in its favour for an order for a gross sum specified in the order instead of taxed costs. In the course of addressing that application, Wood AsJ considered the effect of the indemnity costs order.

23    Rule 63.30.1 of the Supreme Court (General Civil Procedure) Rules 2005 (Vic) (“the Victorian Rules”) was in the following terms:

63.30.1    Indemnity basis

(1)    Subject to paragraph (2), on a taxation on an indemnity basis all costs shall be allowed except in so far as they are of an unreasonable amount or have been unreasonably incurred.

(2)    Any doubt which the Costs Court may have as to whether the costs were unreasonably incurred or were unreasonable in amount shall be resolved in favour of the party to whom the costs are payable.

Rule 63.34(1) at the time of the decision in Argo was in the following terms:

63.34    Charges of a legal practitioner

(1)    Subject to paragraph (3), the solicitor for the party to whom costs are payable shall be entitled to charge and be allowed the fees set forth in Appendix A.

24    His Honour also noted that r 63.34(1) was to be amended to make it clear that a costs order on an indemnity basis was to be on the scale absent an order to the contrary. The Rule was in fact amended so that it now reads:

63.34    Charges of a legal practitioner

(1)    Subject to paragraph (3), a legal practitioner for a party to whom costs are payable (whether the basis of taxation is the standard basis or the indemnity basis) shall be entitled to charge and be allowed costs in accordance with the Scale in Appendix A unless the Court or the Costs Court otherwise orders.

Wood AsJ considered that the position was clear and that the defendant’s entitlement was limited to the scale.

25    There are a number of differences between Argo and this case. First, the terms of r 63.30.1 in the Victorian Rules as to a taxation of costs on an indemnity basis are different from the terms of the definition of “costs on an indemnity basis” in the 2011 Rules. Secondly, in considering the intention behind the indemnity costs order, Wood AsJ was influenced by the fact that the judge who had made the order had, in another case (Sunland Waterfront (BVI) Ltd v Prudentia Investments Pty Ltd (No 3) [2012] VSC 399), made an indemnity costs order which had included the words “calculated by reference to the retainer between each of the defendants and their respective legal advisers”. His Honour said that it was significant that that direction was not included in the indemnity costs order he was considering. Finally, there is the proposed amendment to r 63.34(1) at the time of the decision in Argo that made it clear that indemnity costs were to be assessed by reference to the scale unless there is an order to the contrary.

26    These are points of difference between this case and Argo, but even if they are not material points of difference, I think that the terms of the Rules of this Court are too clear to permit of the same result as was reached by the Court in Argo.

27    In Flotilla Nominees Pty Ltd v Western Australian Land Authority and Another (2003) 28 WAR 95, Pullin J discussed the differences between an indemnity costs order and a special costs order under the then Western Australian costs regime. His Honour favoured the position that, if costs over and above the scale are sought by reason of a costs agreement, then, ordinarily at least, a special costs order, rather than an indemnity costs order, should be made, and the costs agreement should be disclosed to the Court before the order is made.

28    No doubt a judge of this Court could inquire about any costs agreement before making an indemnity costs order, but I am not aware of any authority or Rule of Court that requires the judge to do so. It must be remembered that indemnity costs orders are only made in special circumstances and that costs incurred unreasonably will not be allowed under such orders.

29    The final case relied on by the fourth respondent was Parramatta River Lodge Pty Ltd v Sunman (1991) 5 BPR 12,038. I think that case dealt with a different situation – the relationship between mortgagee and mortgagor in relation to the costs of the mortgagee’s solicitors – and the observations of Young J must be read in that context. The case does not advance the fourth respondent’s arguments.

30    The fourth respondent also referred to Part 19.6, r 19.34 of the Family Law Rules 2004 (Cth), but that cannot control the meaning of this Court’s Rules and, in particular, the definition of costs on an indemnity basis.

31    Finally, the fourth respondent referred to r 40.12 which is the first rule in Division 40.2. That Division is entitled “Taxation of Costs”. Rule 40.12 provides that costs must be taxed in accordance with the Part, unless the amount of costs is agreed between the parties. Rule 40.29 appears in Division 40.2. The suggestion was that r 40.12 reinforced the submission that r 40.29 contained a mandatory direction as to the basis upon which costs were to be assessed. I reject this submission. The first point to note is that r 40.12 refers to the costs being taxed in accordance with the Part, not merely Division 40.2. Part 40 includes r 40.02 (see [13] above). Secondly, r 40.12 reflects what was in the former Rules O 62, rr 2 and 6, and neither of those, alone or together, were held to preclude an assessment of costs awarded on an indemnity basis by reference to a time costs agreement.

32    In my opinion, the position under the former Rules was clear. Where the Court makes an indemnity costs order, the costs may be awarded according to a time cost agreement. The same position applies under the 2011 Rules. That is made clear by the definition of “costs on an indemnity basis”, and, in particular, by the reference in that definition to “a complete indemnity” against the costs incurred. The purpose of r 40.29 is to perform a transitional function in the sense described by the applicant in its submissions ([19] above).

33    The fourth respondent’s application for review of District Registrar Scott’s decision made on 28 July 2014 must be dismissed.

Associate:

Dated:    3 October 2014