FEDERAL COURT OF AUSTRALIA

Tamaya Resources Limited (in liq) v Claymore Capital Pty Ltd (No 2) [2015] FCA 637

REASONS FOR JUDGMENT

1    On 21 April 2015, I delivered reasons for judgment in relation to an application by the plaintiffs for recovery of claimed unfair preferences and insolvent transactions in relation to four payments made to the defendant (“Claymore”) between 27 June and 23 September 2008 in an aggregate amount of $472,647.23: Tamaya Resources Limited (in liq) v Claymore Capital Pty Ltd [2015] FCA 357. I determined that Claymore did not make out a defence under s 588FG(2) of the Corporations Act 2001 (Cth) in relation to the third payment of $220,000 made by the third plaintiff (“Tamaya”) on 21 July 2008. I indicated that I would hear the parties at a time convenient to them on the issues of costs, interest and the form of orders. That has proved difficult.

2    In the result, I made orders yesterday as set out in [32] below, and these are my reasons for making those orders.

3    Ms Amanda Banton, a partner of Squire Patton Boggs, the current solicitors for the plaintiffs, swore an affidavit dated 18 June 2015 in support of the plaintiffs’ claim to costs. Ms Banton was formerly a partner of Piper Alderman, the original solicitor of record for the plaintiffs. Unless otherwise indicated, the matters set out below rely on the plaintiffs’ submissions filed on the same date and Ms Banton’s affidavit.

4    On 24 April 2015, the plaintiffs’ solicitors wrote to Claymore’s solicitors, Robinson Legal, inviting Claymore to agree orders for interest and costs. No response has been received to that letter; Robinson Legal ceased to act for Claymore after judgment was delivered.

5    On 1 May 2015, Messrs Alan Hayes and Michael Hogan were appointed as joint and several administrators of Claymore. The plaintiffs’ solicitors advised the Court on 11 June 2015 that at the second meeting of Claymore’s creditors held on 5 June 2015, a proposed deed of company arrangement was withdrawn and control of the company was handed back to its director, Mrs Sharon Rosenberg.

6    An extract of the administrators’ report to creditors of 29 May 2015 indicates that Claymore has a negative asset position (in the order of $4.5 million before the value of Claymore’s shareholding in certain proprietary companies has been determined). It also refers to Mr Anton Rosenberg’s trustee in bankruptcy. It appears that Mr Rosenberg (who was the sole director of Claymore in 2008 and at the time of the hearing) has been replaced as a director of Claymore by Mrs Sharon Rosenberg.

7    Despite many attempts to contact Claymore in relation to any submissions it might wish to make, the only response received was by email from Mr Rosenberg on 17 June 2015. That response appears to have been copied to Mrs Rosenberg. Mr Rosenberg submitted that the parties should each bear their own costs as the plaintiffs were successful in relation to only one of the claimed payments. I note that $220,000 is approximately $32,600 less than the cumulative value of the other three payments. For reasons which follow, I do not accept Mr Rosenberg’s submission.

8    The plaintiffs seek:

(a)    a lump sum award of costs of $440,952.97 under r 40.02(b) of the Federal Court Rules 2011 (Cth) (“Rules”) reflecting the award of costs: (1) on a party-party basis up to and including 7 March 2013, (2) on an indemnity basis in relation to proving the insolvency of Tamaya from 22 February 2012 (to include but not be limited to the costs of obtaining an expert report on solvency); and (3) on an indemnity basis under r 25.14(3) from 8 March 2013 in light of an offer of compromise for $215,000 plus costs made on 5 March 2013 which was made without prejudice save as to costs.

(b)    interest of $54,942 on the judgment sum from 20 October 2011 to 21 April 2015 under s 51A(1) of the Federal Court of Australia Act 1976 (Cth) (“FCA Act”) calculated in accordance with Practice Note CM 16. They submit that no “good cause” has been shown why this interest should not be awarded; and

(c)    interest on the judgment sum from 22 April 2015 under s 52(1) of the FCA Act calculated in accordance with r 39.06. They submit that the interests of justice do not require a lesser interest rate than that prescribed.

9    I note that s 51A(1) of the FCA Act permits a Judge or the Court to order interest for the whole or some part of the period before judgment is entered unless there is “good cause” not to do so. Section 52(1) applies only from the time the judgment is entered.

10    In my view it is appropriate to make an order with effect from the time Tamaya (through its liquidator and Ms Banton) made demand for payment on 20 October 2011 up to the point at which judgment is entered. Although I indicated in my reasons delivered on 21 April 2015 that I would make an order that Claymore pay $220,000 to the plaintiffs, judgment for that amount was not entered on that day. I only made foreshadowed order yesterday. The plaintiffs’ submissions contained a calculation of pre-judgment interest only to 21 April 2015, I infer on the assumption that they took the view that that was when judgment was entered. However, the force of their submissions is that they be entitled to interest to the point that judgment is entered. It is appropriate to make an order under s 51A(1) of the FCA Act that Claymore pay interest in respect of the period from 20 October 2011 to 21 April 2015 in an amount of $54,942 and for the period from 22 April 2015 to 24 June 2015 at the rate of pre-judgment interest applied by the Supreme Court of New South Wales. I will also order that Claymore pay post-judgment interest in accordance with s 52 of the FCA Act and r 39.06 of the Rules.

Principles relevant to exercise of the discretion to fix costs

11    The Court’s discretion to award lump sum costs is not limited to complex litigation and may be exercised whenever the circumstances warrant its exercise: Sony Entertainment (Australia) Limited v Smith (2005) 215 ALR 788; [2005] FCA 228 at [189] per Jacobson J. The Court must, before electing to fix costs, be confident that the approach taken to estimate costs is “logical, fair and reasonable”: see Beach Petroleum NL v Johnson (No 2) (1995) 57 FCR 119 at 123 per von Doussa J. Evidence of the charges rendered to the party claiming costs is highly relevant but not determinative; the charges should be viewed in the context of considerations that inform the determinations of a taxing officer but it is inconsistent with the objective of a lump sum costs award that the costs be subjected to the detailed scrutiny reserved for formal taxations from which it is intentionally distinct. The discretion must be exercised judicially.

12    Of necessity, a broad brush approach is adopted, but caution is required since this potentially comes at the cost of accuracy. In order for a court to be satisfied that the “broad brush” approach is sufficiently just, the court must, at least, have available to it sufficient material on the basis of which it is confident it can arrive at an appropriate sum: see Carey v Korda and Winterbottom (No 2) [2011] WASC 220 (S) at [20]-[23] per Edelman J (“Carey”).

13    Costs should bear some relationship to the size of the applicant’s victory and should be proportionate to the nature, complexity and importance of the case. To this I would add the clear relevance of whether an offer of compromise has been made and refused.

14    The common starting point is evidence of the charges for professional costs incurred and disbursements made by the lawyers of the party to be awarded costs, irrespective of whether the costs are to be estimated on an indemnity basis or on a party and party basis. That figure is then characteristically adjusted to take account of the acceptability of the charges made, the conduct of the proceeding, the measure of success on issues and so on to produce a sum which as a matter of judgment is neither over-compensatory nor prejudicial to the successful party. That adjustment is ordinarily effected through the application of a discount to the figure accepted by the Court on the available evidence: see Ginos Engineers Pty Ltd v Autodesk Australia Pty Ltd (2008) 249 ALR 371; [2008] FCA 1051 at [24] per Finn J. Each award rests on the facts of the particular case and the evidence available. This results in the application of a very wide range of discounts and it is unwise to extrapolate from one piece of litigation to another.

15    See the useful discussion in Dal Pont G E, Law of Costs (3rd edition, LexisNexis Butterworths, 2013) at [15.19]-[15.22] and in particular footnote 109 (“Dal Pont”).

Evidence

16    On 20 October 2011, Ms Banton caused a letter of demand to be sent to Claymore in relation to the four payments in an aggregate amount of $472,647.23. Section 51A(1) of the FCA Act allows the award of pre-judgment interest from the date of demand by the liquidator for repayment: Ferrier & Knight (as liquidators of Compass Airlines Pty Ltd) v Civil Aviation Authority (1994) 55 FCR 28 at 92-93.

17    By a letter dated 27 October 2011 from Robinson Legal, Claymore disputed the plaintiffs’ claim, indicated that Claymore had authorised Robinson Legal to accept service and that Claymore would strongly resist any recovery action.

18    On 21 February 2012, Ms Banton caused to be served on Robinson Legal a Notice to Admit that Tamaya was insolvent at the time each of the four payments were made to Claymore. On 22 February 2012, Robinson Legal served a Notice of Dispute in relation to that issue.

19    The plaintiffs obtained an expert report from Mr Kieran Hutchison in relation to Tamaya’s insolvency and it was served on Claymore on 2 August 2012.

20    At a directions hearing before Emmett J on 9 November 2012, Claymore’s Counsel confirmed that he was “instructed not to contest insolvency”. On 1 February 2013, Robinson Legal confirmed in writing that Claymore would “not be contesting the insolvency of Tamaya Resources at the hearing” and on 6 February 2013, Ms Banton confirmed to Robinson Legal that the plaintiffs would assume that Claymore admitted insolvency.

21    On 5 March 2013, the plaintiffs made an offer of compromise to Claymore pursuant to which Claymore would pay the plaintiffs $215,000 in addition to costs. The offer was expressed to be open for 14 days after service, the amount to be paid within 28 days of acceptance and it was made without prejudice save as to costs. In response to a query from Robinson Legal, Ms Banton advised Robinson Legal by letter dated 13 March 2013 that her clients’ approximate costs to date (GST exclusive) were $296,608. Claymore did not accept the offer. I am satisfied that the conditions to the operation of r 25.14(3) of the Rules were met.

22    The total professional fees and disbursements (including third party payments) incurred by the plaintiffs in relation to the proceedings are $516,328.35 (exclusive of GST), including unbilled work in progress and disbursements up to and including 17 June 2015 and expected costs to completion of $16,782 (excluding GST) (“Legal Costs”). The total of the professional costs of the solicitors who have acted for the plaintiffs is $314,718. Ms Banton has provided copies of tax invoices supporting this evidence. The total of disbursements and third party costs (which also appear to have been provided on a GST exclusive basis) was $201,610.35 primarily comprising court fees ($6,017), counsels’ fees ($56,875) and the insolvency report ($116,608).     

23    The components of the plaintiffs’ claimed lump sum costs of $440,952.97 are:

a.     70% of Legal Costs up to and including 7 March 2013 (but excluding the amount to be referred to in b. below), being $71,820.18;

b.     100% of disbursements and 80% of Professional Costs where they relate to proving the insolvency of Tamaya from 22 February 2012 up to and including 7 March 2013, being $180,202.40; and

c.    100% of disbursements and 80% of Professional Costs from 8 March 2013 onwards, being $188,930.39.

Costs amount

24    Ms Banton submits and I accept that Claymore is not likely to be able to pay an award of costs in full. The incapacity of the respondent to pay an award of costs is a significant factor in favour of the discretion to fix costs rather than putting the successful party to the expense of a taxation of costs which might never be recovered: see Carey at [30]. To put Tamaya, itself in liquidation, to the exercise of taxation of costs would be an unreasonable burden because the costs of taxation are likely not recoverable. I accept that a lump sum costs order is appropriate.

25    The plaintiffs did not provide a report of a costs consultant in relation to the discounts from Legal Costs suggested in [23]; in the context where that cost is likely to be unrecoverable, that is understandable. Ms Banton says that the amounts of Legal Costs detailed in [23] reflect a reduction to account for extracting solicitor/client costs from the total Legal Costs. This is based on her experience as a litigation solicitor in complex matters. I note that Ms Banton was a partner at Piper Alderman from 2007 until she joined her current firm in January of this year.

26    In relation to [23b], the figure is derived from a review of the tax invoices for narrations for professional costs relevant to proving Tamaya’s insolvency amounting to $79,493 (excluding GST) and the costs of the insolvency report of $116,608 (excluding GST).

27    The award of $440,952.97 in costs may well appear disproportionate. It is approximately 90% of the aggregate of the four payments which Tamaya sought to recover from Claymore and it is double the amount in relation to which I have indicated I will give judgment. However, there are a number of factors at play.

28    First, Ms Banton has suggested a discount rate to be applied to invoiced professional costs of 70% in relation to party and party costs and 80% in relation to claimed indemnity costs. Having regard to footnote 109 in Dal Pont and the hourly rates applied under Schedule 3 of the Rules at relevant times in light of the tax invoices issued by Piper Alderman and Squire Patton Boggs, Ms Banton’s suggested discount rates appear fair in relation to the calculation of party and party costs and reasonably generous to Claymore in relation to the calculation of appropriate indemnity costs.

29    Ms Banton did not provide tax invoices supporting Counsels’ fees nor any evidence as to how they might relate to the National Guide to Counsel Fees. It is apparent from the solicitors’ tax invoices that Senior Counsel’s fees for the period were $38,000, $3,000 in relation to an invoice dated 30 July 2013 and $35,000 in relation to the period 19 to 25 September 2013. Junior counsel’s fees were $18,375 in relation to the period from 25 August to 25 September 2013. The National Guide to Counsel Fees which took effect on 1 July 2013 suggests a range for senior counsel from $2,100 to $7,650. Having regard to the fact that the hearing went over two days, and necessary preparation time and some allowance for conferences, I do not consider that it would be appropriate to apply a discount to these fees.

30    Other non-counsel disbursements appear appropriate. I do not consider that the amount of the fee for the insolvency report is excessive having regard to the complexity of Tamaya’s affairs which involved exploration, development and exploitation of mines in Australia, South America and Europe.

31    As indicated at [21] above, I am satisfied that the preconditions of r 25.14(3) were satisfied. The plaintiffs’ claim to indemnity costs for the period from 8 March 2013 is justified. However, I do not accept that it is appropriate to award indemnity costs in relation to Claymore’s failure to admit that Tamaya was insolvent before Mr Hutchison’s insolvency report was delivered; that was a fact that the plaintiffs were required to prove and it is a matter of some complexity. Neither Claymore nor Mr Rosenberg was an officer of Tamaya and therefore they were not in a position to know, rather than to suspect, that Tamaya may be insolvent. Indeed, I found that Claymore did not even have reason to suspect that Tamaya was insolvent at the time of the first two payments. On that basis, the rate to be applied to professional costs in [23b] should be 70% with the result that the amount should be $55,645.10, not $63,594.40.

Conclusion

32    Accordingly, yesterday, I made the following orders:

(1)     Judgment for the plaintiffs against the defendant in the sum of $220,000 (“judgment sum”).

(2)     The defendant pay interest on the judgment sum in accordance with s 51A(1) of the Federal Court of Australia Act 1976 (Cth):

(a)    from 20 October 2011 to 21 April 2015 in the amount of $54,942; and

(b)    from 22 April 2015 to 24 June 2015, at the rates applied by the Supreme Court of New South Wales in calculating pre-judgment interest in that period.

(3)     The defendant pay interest on the judgment sum pursuant to s 52(1) of the Federal Court of Australia Act 1976 (Cth), such interest to be calculated in accordance with r 39.06 of the Federal Court Rules 2011 (Cth).

(4)     The defendant pay the plaintiffs’ costs of and incidental to these proceedings fixed in a lump sum of $433,003.67.

(5)     The application is otherwise dismissed.

Associate:

Dated:    25 June 2015