FEDERAL COURT OF AUSTRALIA
Cassimatis v Australian Securities and Investments Commission [2016] FCA 131
ORDERS
First Appellant JULIE GLADYS CASSIMATIS Second Appellant | ||
AND: | AUSTRALIAN SECURITIES AND INVESTMENTS COMMISSION Respondent | |
DATE OF ORDER: |
THE COURT ORDERS THAT:
1. The Certificate of Taxation issued on 24 December 2015 be set aside.
2. The matter be remitted to the Deputy District Registrar for assessment in accordance with these reasons.
3. Prior to remittal, the solicitors for the parties confer about the quantum of any costs thrown away as may be determined by the remitter, with such conferral to take place before 5 March 2016.
4. Costs of the application be reserved.
Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.
EDELMAN J:
1 This is an application by Mr and Mrs Cassimatis for review of a Deputy District Registrar’s taxation of costs under r 40.34(1) of the Federal Court Rules 2011 (Cth). The central issue in dispute arises from an order made by the Full Court in 2014 that ASIC amend its pleading and pay Mr and Mrs Cassimatis’ costs of and resulting from the amendments, including any costs thrown away. One of the major amendments by ASIC was to remove more than 1,200 paragraphs of pleading which concerned 31 “Investors” (which term includes either a single person Investor or a couple who are counted as one Investor). ASIC’s new pleading still relied on the 31 Investors but, with leave, it pleaded their details in highly abbreviated form within two paragraphs of the pleading and in a seven-page truncated Schedule.
2 Before the Deputy District Registrar the submissions were made on an all or nothing basis. The focus was only upon that part of the Full Court’s order that was concerned with the costs “thrown away”. Mr and Mrs Cassimatis sought all of their costs thrown away from the amendment concerning the 31 Investors. ASIC said that they should be entitled to none of them. Both ASIC’s objections and Mr and Mrs Cassimatis’ response to the objections left open the possibility that some costs would have been thrown away but it was unfortunate that neither party made submissions (either before the Deputy District Registrar or on this review) on that open, alternative basis. The Deputy District Registrar determined that costs incurred by Mr and Mrs Cassimatis in relation to consideration of matters in client files concerning these 31 Investors were not costs “thrown away”. Mr and Mrs Cassimatis seek a review of that decision.
3 After the amendment to ASIC’s pleading there remained significant issues concerning the 31 Investors. Every pleading of breach of the Corporations Law in relation to those 31 Investors remained. And there were still some issues of fact in relation to those 31 Investors. This is so even after admissions that have been made in relation to many of those 31 Investors, and after a forensic, and extremely sensible, concession by ASIC that the 31 Investors will not be called at trial. Nevertheless, there is little doubt that Mr and Mrs Cassimatis must have wasted some costs in relation to perusal of the files of those 31 Investors. Even considering the same allegations concerning breach, there is a significant difference between, on the one hand, the time that is required to peruse client files containing many documents which are specifically referred to in the pleading and which relate to around 1,200 paragraphs of pleaded facts, and, on the other hand, the time required to peruse the same client files in relation to breaches involving seven pages of summarised circumstances. This is particularly so if, as I was told from the bar table, the client files contain hundreds, and sometimes thousands, of pages.
4 This review hearing, and the parties’ submissions, were considerably longer than is common in review applications. These reasons reflect that detail. One reason for this seems to be a tendency in these proceedings for every point to be taken. For instance, even independently of the issue of principle on this review, Mr and Mrs Cassimatis also raised issues concerning the quantum of allowances made by the Deputy District Registrar. In the course of exercising a power of review, it was said almost half a century ago by Kitto J that “it must be a very exceptional case in which the Court will even listen to an application to review such a decision [on a question only of quantum]”: Australian Coal and Shale Employees Federation v The Commonwealth [1953] HCA 25; (1953) 94 CLR 621, 628. It may be that this point was raised by Mr and Mrs Cassimatis because the difference in quantum on their argument would be costs of $271,496. But the exceptional nature of this type of review remains.
5 Another reason for the effort involved in this review concerns the sums of costs involved. Mr and Mrs Cassimatis initially claimed more than $2 million in costs thrown away as a result of ASIC’s amendments to its pleading. The quantum of the costs claimed by Mr and Mrs Cassimatis to be thrown away was initially estimated at around $1 million. Nevertheless, the ultimate award made by the Deputy District Registrar for costs thrown away by an amendment was still a staggering $223,335.78.
6 My ultimate conclusion is that there were some costs thrown away as a result of work done by Mr and Mrs Cassimatis in perusing the 31 Investor files. But I do not accept that all of those costs of perusal were thrown away. In the absence of any of the 31 Investor files being able to be put before me, it is impossible to make a meaningful assessment of the extent to which the costs were thrown away. The all-or-nothing manner in which this review was argued requires that the matter be remitted for determination by the Deputy District Registrar in accordance with these reasons.
The Court’s power on a review of a taxation of costs
7 The Court’s power on review arises under r 40.34(1) of the Federal Court Rules 2011 (Cth) which provides that a party who attended a taxation “may apply to the Court for a review of the taxation and any consequential orders”. In light of the dispute between the parties concerning the exercise of the Deputy District Registrar’s discretion in relation to quantum, it is necessary to explain the source and nature of this Court’s power on a review of a taxation of costs. I acknowledge the substantial assistance in this explanation from ASIC’s written submissions, and, in particular, from junior counsel for ASIC who presented the oral submissions on this application.
8 In a number of cases under earlier versions of the Federal Court Rules, a tentative view or an assumption has been expressed that a taxation of costs carried out by the Federal Court is an exercise of Federal judicial power which requires that a review of the Taxing Officer’s decision must be a review de novo: Pacific Dunlop Ltd v Australian Rubber Gloves [1993] FCA 562; Boys v Australian Securities Commission [2001] FCA 1440 [12]-[13] (Carr J). In other cases this view has been rejected: Cachia v Westpac Financial Services Limited [2003] FCA 817 [24] (Hely J); Miller v Wertheim [2004] FCA 988 [16] (Beaumont J). The difference has also been noted, but not decided in other cases: Motor Trades Association of Australia Superannuation Fund Pty Ltd v Rickus (No 5) [2009] FCA 1221 [9] (Flick J).
9 The basis of the view that a review must be conducted de novo is that a taxation of costs by a Registrar involves judicial power. The assumption then is that a delegation of judicial power would be invalid if the delegation were not subject to review de novo because, otherwise, the delegated officer, rather than the Justice appointed under s 72 of the Constitution, would be exercising the original jurisdiction of the Court. This was the approach of McHugh J in Harris v Caladine [1991] HCA 9; (1991) 172 CLR 84, 164 where his Honour concluded that:
a federal court created under s. 71 of the Constitution may be authorised to delegate the exercise of its judicial powers to an officer of that court provided that the exercise of the power is subject to review by way of a de novo hearing by a Justice or judge of that court who has been appointed in accordance with s. 72 of the Constitution.
10 This may also have been the view of Dawson J in Harris, who spoke of a need for the Federal Court to “exercise a real choice for itself over those matters” including by “effective supervision and control” (122). However, the other judges, particularly in the majority in Harris, may not have gone this far. Chief Justice Mason and Deane J (at 95) recognised the sufficiency of an appeal on fact and law. Justice Gaudron (at 151) also referred to the possibility of an appeal on fact and law as an appropriate procedure for supervision by the court. Of course, this might invite questions as to whether their Honours were contemplating any appeal on fact or law (including an appeal in the strict sense, an appeal by hearing de novo, or an appeal by rehearing).
11 In Pattison v Hadjimouratis [2006] FCAFC 153; (2006) 155 FCR 226 the Full Federal Court effectively followed the view of McHugh J in Harris. The Full Court held that a review by a Federal Magistrate of a sequestration order made by a Registrar under the Bankruptcy Act 1966 (Cth) was required to be a review de novo (at 247 [127]; Lander J; Nicholson J agreeing at [6]; Jacobson J agreeing at [41]-[42]).
12 It is well established that a hearing de novo requires that the matter be heard afresh and that a decision be given on the material presented at that fresh hearing: Coal and Allied Operations Pty Ltd v AIRC [2000] HCA 47; (2000) 203 CLR 194, 203 [13] (Gleeson CJ, Gaudron and Hayne JJ). It is also well established that it is not necessary to identify error in order to conduct a review de novo. It can be readily accepted that both of those matters apply to a “review” under r 40.34.
13 Although these requirements exist for a review, matching those of a hearing “de novo”, there is no import in r 40.34 for any further examination of the concept and history of a hearing “de novo”. In particular, there is no warrant for arguments that the court might not recognise the discretion exercised by a registrar on the basis that in a de novo review the “party succeeding below enjoys no advantage”: Turnbull v New South Wales Medical Board [1976] 2 NSWLR 281, 297-298 (Glass JA); Sweeney v Fitzhardinge [1906] HCA 73; (1906) 4 CLR 716, 733-734 (Barton J). One reason why it would be an error to attempt to determine the content of a “de novo” review (beyond the two essential matters mentioned in [12] above) and then to imply any such content into r 40.34 is because the rule consciously refers to a “review” and not to a “review de novo”. The same was the case in the predecessor rule, 62.44 of the Federal Court Rules 1979 (Cth). Another reason is that r 40.34(6) imposes restrictions that do not exist in what might otherwise be thought to be encompassed within a de novo hearing. The restriction is that no further evidence is admissible on the review other than the matters referred to in r 40.34. That matter does not go to the heart of the two matters described in [12] above.
14 Most relevantly for this hearing, r 40.34 does not require the reviewing judge to exclude from consideration at the fresh hearing the relevant record of the proceedings including the conclusion reached by the Registrar. In particular, there is a well-established line of authority that requires the judge to take into account on a taxation review the conclusions reached by the Registrar. In Australian Coal & Shale Employees Federation v The Commonwealth [1953] HCA 25; (1953) 94 CLR 621, the High Court considered a review of a taxation of a bill of costs under the High Court Rules 1952 (Cth). At 628, Kitto J adopted the remarks of Jordan CJ (with the concurrence of Harvey CJ in Eq and Street J) in Schweppes Ltd v Archer (1934) 34 SR (NSW) 178, 183-184. In Schweppes, Jordan CJ had been concerned with an appeal from a Long Inness J who, in turn, had heard a review from a decision of a taxing officer. However, as Kitto J had assumed, Jordan CJ stated the relevant principles as applicable to both reviews and appeals:
In appeals as to costs, the principles to be applied are these. The Court will always review a decision of a Taxing Officer where it is contended that he has proceeded upon a wrong principle, for the purpose of determining the principle which should be applied; and an error in principle may occur both in determining whether an item should be allowed and in determining how much should be allowed. Where no principle is involved, and the question is, whether the Taxing Officer has correctly exercised a discretion which he possesses and is purporting to exercise, the Court is reluctant to interfere. It has undoubted jurisdiction to review the Taxing Officer’s decision even where an exercise of discretion only is involved, and will do so freely on a proper case, using its own knowledge of the circumstances … but it will in general interfere only where the discretion appears not to have been exercised at all, or to have been exercised in a manner which is manifestly wrong; and where the question is one of amount only, will do so only in an extreme case.
15 Other cases have followed this approach: Cachia v Westpac Financial Services Limited [2003] FCA 817 [21] (Hely J); Raybos Australia Pty Ltd v Tectran Corporation Pty Ltd (1987) 62 ALJR 148; (1987) 76 ALR 69, 73 (Toohey J); In Marriage of Locke (1992) 112 FLR 238, 241-243 (Baker J).
16 In one of the cases which followed this approach, Kirby J said that the review contemplated by the High Court Rules is “not a hearing de novo of the decision of the court’s taxing officer” but is a hearing where principles of administrative review apply: Sanders v Snell (No 2) (2000) 174 ALR 53, 56. However, it appears that the point being made by Kirby J was not to deny that the Court’s power to review in the absence of error or even in the absence of any issue of principle. The point his Honour was making by denying the propriety of the label “de novo” seems instead simply to have been to emphasise that the review should take into account, and place weight upon, the discretion of the taxing officer. There is a very good reason why this should be so. As Kenneth Martin J explained in W J Green & Co (1984) Pty Ltd v Tace Pty Ltd (No. 4) [2010] WASC 363 at [23], taxing officers “hold expertise in taxations about costs determinations. They deal in the day-to-day nitty-gritty of assessing the costs in litigation, by reference to scales and allowances at a level of detail that judges do not”. That point is well established. Almost a century ago Rich J remarked that although the court may control any decision of a taxing officer, he was “at all times loath to interfere with the decisions of experienced taxing officers”: Clark, Tait & Company v Federal Commissioner of Taxation [1931] HCA 26; (1931) 47 CLR 142, 145-146. And Kitto J remarked that “it must be in a very exceptional case in which the Court will even listen to an application to review such a decision [on a question only of quantum]”: Australian Coal & Shale Employees Federation v The Commonwealth [1953] HCA 25; (1953) 94 CLR 621, 628.
Background to the pleadings and procedure leading to taxation
17 In order to explain the nature and effect of the costs order by the Full Court and the decision of the Deputy District Registrar, it is necessary to set out the unfortunate background to this protracted matter. ASIC helpfully provided a chronology of much of the background which was not in dispute.
18 I described the nature of the claims in this matter in Australian Securities and Investments Commission v Cassimatis (No 3) [2015] FCA 385 [5]-[9]. In very broad summary, Mr and Mrs Cassimatis were the only executive directors and shareholders of Storm Financial Ltd (Storm), a company engaged in the business of providing financial services, financial product advice, and financial products. Mr and Mrs Cassimatis developed the ‘Storm Model’ of investment advice which involved particular advice to investors. In these proceedings, ASIC seeks declarations against each of Mr and Mrs Cassimatis that they committed numerous contraventions of s 180(1) of the Corporations Act 2001 (Cth). Each of ASIC’s alleged contraventions is based on allegations that Mr and Mrs Cassimatis ‘caused’ or ‘permitted’ Storm to provide financial advice to different investors (individuals or couples).
19 On 21 December 2010, ASIC filed a Statement of Claim in the main proceedings (QUD 574 of 2010). ASIC’s statement of claim was 244 pages long. ASIC pleaded, in full, the circumstances of 10 former clients of Storm, the advice given to those clients and the alleged breaches of the Corporations Act by Storm in relation to that advice. Those investors are described as the Part E Investors.
20 ASIC also alleged breaches of the Corporations Act in relation to advice by Storm given to 2,756 former clients of Storm. These 2,756 clients are described as the Global Investors.
21 On 4 February 2011, at the first directions hearing before the then docket judge, Mr and Mrs Cassimatis criticised ASIC’s plea in respect of the Global Investors.
22 On 17 February 2011, ASIC provided Mr and Mrs Cassimatis with two compact discs. Disc 1 contained a schedule of documents referred to in its statement of claim. There were 880 documents and 319 exhibits in electronic form. Disc 2 contained 10 folders of “client files” for each of the 10 investors referred to in ASIC’s statement of claim.
23 On 24 February 2011, the docket judge ordered that ASIC file and serve any amended statement of claim by 21 April 2011.
The amended statement of claim and the first strike out application
24 On 21 April 2011, ASIC filed and served an amended application and an amended statement of claim. The amended statement of claim was 408 pages long. It removed the pleading of the Global Investors. Instead, ASIC relied upon breaches of the Corporations Act in respect of 40 former clients of Storm whose personal circumstances were pleaded by way of a schedule attached to the amended statement of claim.
25 On 13 May 2011, Mr and Mrs Cassimatis filed a Notice of Motion, applying to strike out the amended statement of claim. At the hearing of the strike out application, the then docket judge ordered that ASIC plead out the Schedule Investors in the same detail that applied to the Part E Investors. ASIC were ordered to pay forthwith Mr and Mrs Cassimatis’ costs, of and incidental to the first strike out application. Those costs (as assessed by the Deputy District Registrar) were paid by ASIC in April 2012.
The further amended statement of claim
26 On 1 August 2011, the then docket judge granted leave to ASIC to file and serve a further amended statement of claim.
27 On 3 August 2011, ASIC filed a further amended statement of claim which was 683 pages long. It pleaded, in detail, the personal circumstances of all of the 10 Part E Investors as well as 36 Investors in Part F (described as the Part F Investors). ASIC produced further compact discs for Mr and Mrs Cassimatis containing folders of client files for each of the Part F investors.
28 On 6 February 2012, Mr and Mrs Cassimatis filed their defence to the further amended statement of claim. Their defence was 322 pages long. The first 279 pages of the defence were responsive. The remaining 42 pages of the defence pleaded 19 additional reasons or defences.
The second strike out application and summary judgment application
29 On 21 February 2012, Mr and Mrs Cassimatis filed an application for summary judgment and a second application to strike out parts of ASIC’s further amended statement of claim.
30 The docket judge dismissed the summary judgment application on 28 June 2013. But on 4 October 2014 the docket judge struck out 57 paragraphs of ASIC’s further amended statement of claim and gave leave to re-plead those paragraphs. His Honour also ordered that ASIC provide particulars of parts of the further amended statement of claim.
31 Mr and Mrs Cassimatis sought leave to appeal from the dismissal of their application for summary judgment and from the decision in relation to the second strike out application. They were granted leave to appeal in respect of one ground only on the summary judgment appeal application. Both applications were otherwise dismissed.
32 On 16 October 2013, ASIC served 65 affidavits of witnesses it intended to rely upon at the trial and an expert report. The expert report was 580 pages long. It covered losses suffered by the 10 former clients of Storm included in the then current edition of the further amended statement of claim.
The second further statement of claim and the appeal
33 On 5 December 2013, ASIC filed a second further amended statement of claim together with a CD containing documents. The second further amended statement of claim was 711 pages. It was contained in 3 volumes and was accompanied by a CD containing highlighted documents. The next week, ASIC filed and served 42 expert reports.
34 On 22 May 2014, the Full Court heard the appeal. It is not entirely clear which version of the statement of claim was before the Full Court. Mr Russell, for Mr and Mrs Cassimatis, submitted that it was the further amended statement of claim, not the second further amended statement of claim. It may be that this was because the second further amended statement of claim had been filed subsequently to the grant of leave to appeal. It would seem, however, that the order of the Full Court, to which I refer below, was concerned with the costs thrown away as a result of the amendments to the second further amended statement of claim since the order was for the filing of a third further amended statement of claim. In any event, Mr Russell properly conceded that there was no relevant difference for the purposes of this application between the further amended statement of claim and the second further amended statement of claim. I will refer to the latter.
35 During the Full Court hearing, the Full Court questioned the manner in which ASIC had pleaded its breach of s 180 of the Corporations Act. In addition to this, the Full Court made certain comments regarding ASIC's pleading as a whole and suggested a wholesale review of ASIC’s pleading in light of its length and complexity. The Full Court indicated that the parties should come to some agreement as to how the pleadings could be reduced so that ASIC could plead its case and the resources of the court would not be wasted.
36 Immediately after the hearing of the appeal, the Full Court made the following orders (emphasis added):
1. by 4 July 2014, the respondent file and serve a third further amended statement of claim inter alia:
(a) identifying the content and source of the duty or power, as the case may be, referred to in subsection 180(1) of the Corporations Act 2001 that the appellants are alleged to have exercised without reasonable care or diligence;
(b) containing the material facts relied on to establish how and when the appellants are alleged to have failed to exercise reasonable care or diligence;
2. the respondents pay the appellants’ costs of and resulting from the amendments, including any costs thrown away;
3. the appeal is otherwise dismissed; and
4. the costs of the appeal are costs in the proceeding below.
37 The effect of order 2 is critical to this review.
The fourth amended statement of claim (there was no statement of claim entitled “third”)
38 On 15 August 2014, ASIC filed and served its fourth amended statement of claim. The statement of claim was reduced to 108 pages. The Part E Investors were reduced from ten to five. Ten Investors were removed from the pleading. ASIC applied for (and subsequently received) dispensation from compliance with rules so that the fourth amended statement of claim could plead in relation to the 31 Part F Investors in a truncated form. That truncated form was set out in [784], [785] and Schedule A of the pleading. I refer to the fourth amended statement of claim in more detail later in these reasons.
39 On 30 September 2014, ASIC filed and served a second version of the fourth amended statement of claim with minor changes arising from issues raised at a directions hearing. The further fourth amended statement of claim was still 108 pages long. However, it abandoned any case concerning advice to 14 investors. Again, it advanced only truncated allegations concerning 31 investors.
40 On 6 February 2015, Mr and Mrs Cassimatis filed and served a defence to ASIC’s second version of the fourth amended statement of claim. The defence is discussed in more detail below.
41 On 3 March 2015, ASIC filed its reply to the Mr and Mrs Cassimatis’ defence.
42 On 1 May 2015, at the directions hearing, ASIC confirmed that it does not intend to call any of the 31 Part F/Schedule investors to give evidence at the trial, or to rely on any of the McMaster Reports in respect of these investors or on any part of the van Homrigh Report that relates to any of the investors.
43 On 24 July 2015, Mr and Mrs Cassimatis filed a Bill of Costs in relation to the costs order to be paid by ASIC in the appeal (i.e. the “costs of and resulting from the amendments, including any costs thrown away”). The Bill contained 633 items totalling more than $2 million.
44 On 26 August 2015, in the main proceeding (QUD 574 of 2010) I ordered that the taxation of the Bill of Costs filed on 24 July 2015 (in this appeal proceeding QUD 460 of 2013) be expedited.
45 On 2 October 2015, an estimate of costs was undertaken by the Deputy District Registrar pursuant to r 40.20(3) of the Federal Court Rules 2011 (Cth) and issued to the parties. The estimate was slightly less than $1 million.
46 Between October and December 2015, ASIC objected to the estimate. The parties attended confidential conferences to resolve the dispute. The dispute was not resolved and the parties filed notices of response to the objections.
47 Prior to the taxation, the parties made the following concessions:
(1) ASIC conceded that the costs incurred by Mr and Mrs Cassimatis in relation to work involving 10 Investors who had been removed from the pleading were costs thrown away; and
(2) Mr and Mrs Cassimatis conceded that for the 36 remaining client files of Investors they had overestimated the number of pages perused by almost 300%.
48 The two main issues before the Deputy District Registrar on the taxation were (i) whether the costs incurred by Mr and Mrs Cassimatis in relation to the 31 Investors in Part F and the Schedule were “costs thrown away” within the terms of order 2 of the Full Court’s orders, and (ii) the appropriate rate for perusal in relation to Mr and Mrs Cassimatis’ review of client files, statements of advice, affidavits and expert reports.
49 On 24 December 2015, following a taxation by the Deputy District Registrar, a Certificate of Taxation was issued for $223,335.78. ASIC has paid this amount, less a small portion which represents half of the costs of an independent barrister’s fee for resolution of a privilege dispute.
The Deputy District Registrar’s Report
50 Shortly before the review hearing, I called for a written report of the taxation from the Deputy District Registrar pursuant to r 40.34(5) of the Federal Court Rules. The Deputy District Registrar’s report was limited to the treatment at the taxation of those items referred to in the review application.
51 There was some argument this morning concerning whether the Deputy District Registrar had erred in his reasoning that the costs were not thrown away because he said that despite the subsequent amendment to the pleadings, Mr and Mrs Cassimatis might ultimately be entitled to a costs order for the cost of perusing the client files of the 31 Investors. As counsel for ASIC pointed out, this comment must be understood in light of the manner in which the matter was argued before the Deputy District Registrar. It may be that the point being made by the Deputy District Registrar was simply that the perusal of the client files of the 31 Investors remained relevant to the existing pleadings and might be a matter to which Mr and Mrs Cassimatis might ultimately obtain a costs order. But it is not necessary on this review to attempt to determine the meaning of words of the Deputy District Registrar in a report requested at short notice to determine if they contained any error. The reason why it is not necessary is because the issue is one of principle and this is a review, not an appeal by rehearing.
52 The Deputy District Registrar’s report said, as I have explained, that the estimate of costs was substantially reduced after Mr and Mrs Cassimatis conceded that the amounts claimed for perusing the client files should be reduced because the files were much smaller than they had estimated. The Deputy District Registrar described the pivotal issue as whether Mr and Mrs Cassimatis’ perusal of the client files of the 36 investors (five in Part E and 31 in the Schedule) were costs of the proceeding that were thrown away. The Deputy District Registrar said:
At the taxation I determined that that despite the subsequent amendment to the pleadings, the appellants would nevertheless be entitled to claim the cost of perusing the client files of those investors referred to in the updated version of the pleadings should the appellants ultimately benefit from a costs order in their favour in the substantive proceeding. Because of this, the costs of perusing the client files were determined not to be costs thrown away. It is this conclusion that is challenged by the application.
53 The Deputy District Registrar also explained that another issue was the appropriate amount that should be allowed for the costs that ASIC had conceded of perusing the client files of 10 investors removed from the statement of claim. The Deputy District Registrar explained his methodology for calculation of those costs:
The costs claimed by the appellants were based on a formula of assuming that a solicitor was able to read 30 pages per hour. I accepted that this was a reasonable rate when reading normal printed documents for the first time. However, I determined that the rate of pages per hour would increase where the nature of the documents were such that they contained less print, where they contained significant portions that were generic and therefore could be scanned on a more cursory basis or where the document had appeared elsewhere in the material and an allowance had already been made for time spent reading the document. A cursory examination of the client files revealed a significant number of documents that were generic and that appeared multiple times within client files and across the files. Others were of a nature that did not require the same attention as a normal printed page containing predominantly paragraphs of words. The costs allowed upon taxation for reading the client files falling within ASIC's concession were calculated on an assumption that it was reasonable to read 90 pages per hour.
Mr and Mrs Cassimatis’ review application
54 Mr and Mrs Cassimatis have brought this review application. The primary orders that they seek are as follows:
1. That the Appellants’ claims in items 261-263, 269-273, 277-286 and 290-302 of the Bill of Costs be allowed in the sum of $407,244.38 or alternatively, the sum of $135,748.04;
2. That the taxed allowance for care and consideration in item 602 of the Bill of Costs (allowed at $17,923.36 being 10% of the total of the professional fees allowed in the Bill of Costs) be increased accordingly;
3. That the Certificate of Taxation issued on 24 December, 2015 be altered accordingly.
55 The 31 challenged items (261-263, 269-273, 277-286, 290-302) concern that costs incurred in consideration of documents held by Storm Financial Limited in respect of the 31 clients in Part F or the Schedule.
56 It is well established that “costs thrown away” are those costs that “have been reasonably incurred that relate to work done and wasted”: Sobey v Commissioner of Taxation [2008] FCA 1621 [21] (Kenny J). See also Fashion Warehouse Pty Ltd v Pola [1984] 1 Qd R 251, 254 (G N Williams J “work done which has become wasted in the circumstances”).
57 The question of whether costs are thrown away involves a causal enquiry. It is necessary to ask whether costs that were incurred would not have been incurred but for the relevant event (in this case, the amendment). In Ziliotto v Dr Hakim (No 2) [2012] NSWSC 1079 [47], Davies J expressed it in this way:
The enquiry must be directed to what costs were expended which would not have been expended had it not been for the adjournment and what prompted the need for the adjournment. I agree with Mukhtar AsJ’s analysis that “costs thrown away” is looking to past costs - compensation for work already done and wasted because of the adjournment, or amendment or error. It does not refer to costs which have not yet been incurred even though they would not have been incurred but for the adjournment.
The costs of perusal of the 31 client Investor files were not entirely thrown away
58 Mr and Mrs Cassimatis say that their costs in relation to perusal of the 31 client Investor files were entirely thrown away because ASIC removed [784]-[1,986] of its second further amended statement of claim. Those approximately 1,200 paragraphs which were removed had pleaded extensive facts, and referred to numerous documents, concerning the details of the 31 clients of Storm. The documents referred to had been the subject of a notice to produce by Mr and Mrs Cassimatis. That notice was answered by the production of the many documents in the client files.
59 Mr and Mrs Cassimatis submit that all their costs of perusing those files of those 31 clients were wasted because the removal of the details in more than 1,200 paragraphs meant that if ASIC had begun its case with the fourth further amended statement of claim:
(1) no client files for these 31 clients would have been referred to in ASIC’s pleadings;
(2) no notice to produce could have required the production of such documents;
(3) no issue on the pleadings would have arisen to render such documents directly relevant; and
(4) the documents would never have been provided to Mr and Mrs Cassimatis.
60 None of these points directly addresses the relevant issue which is whether the costs involved in perusing the client files were thrown away or wasted by reason of ASIC’s amendments. If the work done, or some of it, is still work which would reasonably have been incurred in relation to the fourth further amended statement of claim then, to the extent that the work would have been done, it was not wasted.
61 Although many of the documents in the 1,200 paragraphs pleaded were no longer referred to either expressly or even impliedly in the amended pleading, details concerning the 31 clients that were contained in many, possibly even most, of the documents did not cease to be relevant.
62 Paragraphs 784 and 785 of the fourth further amended statement of claim filed on 15 August 2014 provide as follows:
784. The five Investors referred to in Part E:
(a) were over 50 years old;
(b) were retired or approaching and planning for retirement;
(c) had little or limited income;
(d) had no previous experience of margin lending;
(e) had few assets, generally comprised of:
(i) their home;
(ii) limited superannuation;
(iii) limited savings;
(f) had little or no prospects of rebuilding their financial position in the event of suffering significant loss.
785. In addition to those investors, there were 31 other Investors who:
(a) were in the circumstances pleaded in paragraph 784 above and the Schedule to this pleading;
(b) were given advice by Storm, in accordance with the Storm Model, of the same nature as that given to the above five Investors.
Although it is not relevant to the costs arising from the amendment to the (first) fourth amended statement of claim, it can be noted that [784] and [785] remained substantially the same in the (second) fourth amended statement of claim with the only material difference being the deletion of 784(d) (had no previous experience of margin lending).
63 The Schedule A to the fourth further amended statement of claim was seven pages. It set out the names of each of the 31 Investors (including Investors who are couples). The Schedule set out in summary form references to (i) the dates of their affidavits, (ii) the expert reports which are relevant to their circumstances, (iii) their age, (iv) their employment status, (v) their income, and (vi) their principal assets.
64 This summary pleading in [784] and [785] and Schedule A cannot be read in a vacuum. In the fourth further amended statement of claim, every breach alleged by ASIC was maintained in relation to all the Investors (as defined) which include the 31 Investors in the Schedule. And many details of those Investors were picked up in general terms rather than the very specific terms in the 1,200 removed paragraphs. For instance, the fourth amended statement of claim introduced the definition of all Investors in [22] by reference to factual pleading in relation to all of them:
22 Storm recommended to each of the five investors referred to in Part E below and each of the 31 investors referred to in Part F below (collectively Investors or individually Investor) that they invest in accordance with a model for investment (the Storm Model) which involved:
(a) advice that they take out a bank loan secured by a mortgage over their real property (the home loan) in order to access the available equity in that property to invest in indexed funds recommended by Storm comprising shares in companies listed on the Australian Stock Exchange (Storm Funds);
(b) advice, provided either in conjunction with the advice to take out the home loan or separately from that advice, that they take out a margin loan in order to access further funds to invest in Storm Funds;
(c) subsequent advice to undertake what were referred to as “steps” by which the clients borrowed further money, either by way of increasing their margin loan or increasing the size of their home loan, to invest in Storm Funds.
23 The advice which Storm provided to the Investors to invest in accordance with the Storm Model was commoditised advice created using centralised administration processes as pleaded in paragraphs 33 to 84 below.
65 Some of the many examples in the pleadings of the details of breaches of the Corporations Act which involve allegations in relation to all the 31 Investors (by the inclusive defined term “Investors”) were as follows.
(1) Storm recommended that Investors’ overall debt ratio should be between 40% and 60% of the Investor’s total assets; that the loan to value ratio on a margin loan taken out by the Investor should be not more than 50%; and the loan to value ratio of a home loan taken out by the Investor should be not more than 80% ([24]).
(2) If an Investor wished to pursue an investment with Storm, a Storm representative would record their confidential financial information and send it to the head office of Storm ([39], [41], [44]). This information would be used by the head office to create a ‘cash flow analysis’ which recommended a possible investment plan for the Investor ([45], [48]). The Storm representative would then meet again with the Investor to explain the outcome of the cash flow analysis ([50]).
(3) Once the Investor agreed to accept Storm’s investment recommendation, the Investor was required to execute a pro formal letter of authority authorising the implementation of the recommendations and the disclosure of information between Storm, the recommended bank, margin lender and fund manager ([62]).
(4) Storm would conduct periodic review meetings with the Investor to review the Investor’s investment position ([71]).
(5) Storm would recommend the Investor take further investment steps if their investment fell or increased by 10%, if their loan to value ratios increased or reduced, or if they received an additional source of funds to invest (74]). Storm’s head office also encouraged bulk groups of Investors to take further investments steps if they fell within certain parameters ([77]).
66 Another particular example is paragraphs 1992 and 1993 which rely upon allegations for breaches of s 945A of the Corporations Act of conduct by Storm in relation to “the Investors”.
67 In other words, although the amendments to ASIC’s pleading removed vast swathes of detail in relation to the 31 Investors, I do not accept that all of the costs of perusing the documents in the client files were thrown away. Many of those documents, even if no longer specifically referred to, would have remained relevant to the abbreviated pleading. The work performed for Mr and Mrs Cassimatis in considering some, perhaps many, of these documents was not entirely wasted even if that work had been performed at a level of detail and to a depth that was not required by the considerably abbreviated pleading. The need to have regard to some, perhaps many, of these documents is further reinforced by the fact that ASIC’s reliance on the 31 Investors may be a matter relevant to any penalty to be imposed if ASIC is ultimately successful in establishing contraventions by Mr and Mrs Cassimatis. There is a difference for penalty between contraventions in relation to 5 Investors and contraventions in relation to 36.
68 Although Mr and Mrs Cassimatis ultimately admitted a number of the facts in relation to the 31 Investors, there remain matters in issue concerning these investors. In paragraphs 246 and 247 of Mr and Mrs Cassimatis defence, filed on 6 February 2015, they said the following in relation to paragraphs 784 and 785 including some non-admissions:
Part F – Further clients who invested in accordance with the Storm Model
246. As to paragraph 784 of the Statement of Claim, the Respondents:-
(a) admit subparagraphs (a) and (b);
(b) admit that the nine Part E Investors had the income pleaded in Part E of the Statement of Claim;
(c) say that the Dodsons had the additional income pleaded in paragraph 34(c) above;
(d) otherwise do not admit subparagraph (c);
(e) say that whether the pleaded income should be characterised as ‘little or limited’ is a matter for argument and not a material fact;
(f) admit that the nice Part E Investors had the assets pleaded in Part E of the Statement of Claim;
(g) otherwise do not admit subparagraph (d);
(h) say that whether the pleaded assets should be characterised as ‘few’ is a matter for argument and not a material fact;
(i) admit that the nine Part E Investors were retired or approaching and planning for retirement and had the age, occupation, assets and income pleaded in Part E of the Statement of Claim;
(j) otherwise do not admit subparagraph (e);
(k) say that whether the pleaded facts warrant that conclusion that the Part E Investors ‘had little or no prospects of rebuilding their financial position in the event of suffering significant loss’ is a matter for argument and not a material fact.
247. As to paragraph 785 of the Statement of Claim, the Respondents:-
(a) admit that the 55 individuals listed in the Schedule to the Statement of Claim were clients of Storm;
(b) admit that all 55 individuals were over 50 years of age when they received their first SoA but say that Leanne Galley and Sandra Johnson were under 50 years of age when they completed their confidential financial profile;
(c) admit that the nine persons described as “retired” in the column headed “Employment status” were retired from full-time employment at the date of their first SoA;
(d) admit that David Betts, Rowan and Leanne Galley, Leonard Gordon, Christopher Hainsworth, Denis Harper, Shane and Sandra Johnson, Andrew Kilgallon, Whare Harman, Ian Perkins, Desley Quinton, Glenys Roberts, Gladys Tulloch, John and Delma Williams and Jeff Wilson were planning for their retirement at the date of their first SoA;
(e) save as pleaded above, no not admit that the clients listed in the Schedule were retired or approaching and planning for retirement;
(f) otherwise, to the extent that it appears from the Schedule, admit that these clients were in the circumstances pleaded in paragraph 784 of the Statement of Claim;
(g) admit that these clients were given advice to take out a margin loan and a home loan and to invest in Index Funds recommended by Storm as well as in cash investments;
(h) admit that these clients (other than David and Margaret Betts, Robert and Erna Dolan and Peter and Barbara Madden) were provided with statements of additional advice recommending that they make additional ‘step’ investments;
(i) admit that Storm followed similar procedures in formulating the statements of advice and statements of additional advice for these 55 Investors as were followed in relation to the nine Part E Investors;
(j) otherwise do not admit paragraph 785 as it is unclear what additional allegation or allegations of material fact is or are intended to be conveyed by that paragraph; and
(k) say that whether the pleaded facts warrant the conclusion that the Schedule Investors ‘had little or no prospect of rebuilding their financial position in the event of suffering significant loss’ is a matter for argument and not a material fact.
69 Mr and Mrs Cassimatis’ defence also responds to the pleading by ASIC of all 36 Investors in a number of ways.
(1) In paragraph 248 through to 252 Mr and Mrs Cassimatis respond to the alleged breaches of s 945A of the Corporations Act by Storm, including the breaches pleaded in paragraphs 1992 to 1994 of the fourth further amended statement of claim by providing reasons why no breach occurred including in relation to the Investors as pleaded in the statement of claim (see for instance [251] (i)). These matters are denied in ASIC’s reply.
(2) In paragraph 281 Mr and Mrs Cassimatis plead that ASIC investigated hundreds, if not thousands, of Storm clients but pleaded allegation in relation to only 36 clients or couples;
(3) In paragraph 283 Mr and Mrs Cassimatis plead that the process by which ASIC selected the 36 examples pleaded in the statement of claim was not random.
(4) In paragraph 284 Mr and Mrs Cassimatis plead that the process by which ASIC selected the 36 examples was influenced by one or more 6 pleaded biases.
70 Not only are there matters that remain in issue in relation to the 31 Investors, but the admissions by Mr and Mrs Cassimatis may have benefitted from their costs incurred in perusing the files of the Investors. For instance, paragraphs 784 and 785 have admitted facts such as retirement status and age (247(b)-(d)), or the “step” investments taken (247(h)), or the procedures followed by Storm (247(i)).
Some of the costs were thrown away
71 This review was argued by the parties on an all-or-nothing basis. Mr and Mrs Cassimatis argued that all of their costs of perusal of the 31 client files were thrown away. As I have explained that is incorrect. ASIC argued that none of their costs of perusal of the 31 client files had been thrown away. That cannot be right either.
72 The reason why ASIC’s submission cannot be correct is because there is plainly a difference between perusal of client files in order to assess the strength of, and prepare a defence to, (i) detail amounting to 1,200 paragraphs, and (ii) detail amounting to two paragraphs and a seven page Schedule.
73 An example is Investor number 1. In the second further amended statement of claim her details were pleaded over more than 10 pages and 50 paragraphs. In the fourth further amended statement of claim these allegations were reduced to a claim that can be expressed in a single sentence. Investor Number 1 is 55 years old, employed full time with an income of $46,000 per annum, and has assets (including home, car, contents, and superannuation) of $508,000.
74 Nevertheless, as I have explained, although the fourth amended statement of claim involved a vast reduction in the size and detail of the pleading in relation to the 31 Investors, the amendment still relied on those 31 Investors. The costs of perusal of those Investors’ files were not entirely “thrown away” by reason of the amendment. Even now, there still remains live issues concerning those 31 Investors even though ASIC has, sensibly, made a positive forensic decision not to call them (which decision, itself, ASIC says was prompted only by the admissions made by Mr and Mrs Cassimatis about various circumstances of the 31 Investors which may have required perusal of their files).
75 The extent to which (i) the matters in the fourth further amended statement of claim to which I have referred were in issue, and (ii) would not have required perusal of documents which had previously been specifically pleaded, are not matters that I can determine. It may be that in some cases no perusal was required at all where the documents were no longer specifically pleaded. In may be that in some cases only a cursory perusal would have been necessary. Or it may be that in relation to crucial documents a similar degree of perusal would still have been required. These are matters which can only be assessed after having considered the documents that are contained within the client files, in light of the two relevant pleadings. That task would, in any event, be more appropriately performed by the Deputy District Registrar who has a familiarity with the files that would make the task far more efficient.
The perusal rate adopted by the Deputy District Registrar
76 This issue was raised in two ways. The first was that Mr and Mrs Cassimatis seek an increase in the taxed allowance for care and consideration in item 602 of the Bill of Costs. This is because they say that the amount allowed was $17,923.36 being 10% of the total of the professional fees allowed in the Bill of Costs but that this amount would necessarily increase if the quantum of costs thrown away were to increase. As I explain in the conclusion to these reasons, this is appropriately a matter for the Deputy District Registrar to determine because I consider that he should reconsider the quantum of costs thrown away in light of these reasons.
77 The second way in which the perusal rate issue was raised was a challenge by Mr and Mrs Cassimatis to the Deputy District Registrar’s conclusion that 90 pages per hour was a reasonable rate from which to assess the costs allowed for reading the 10 client files that ASIC had conceded to be costs thrown away. Mr and Mrs Cassimatis sought to have a rate applied of reading 30 pages per hour, which was the rate which the Deputy District Registrar concluded was reasonable for a solicitor who read documents for the first time.
78 There are numerous reasons why I decline to venture any opinion on this issue. Foremost is the extreme unlikelihood of setting aside a decision by a Deputy District Registrar on a matter of pure quantum, in circumstances in which I do not accept that his reasoning was in any way inconsistent with the basic propositions set out in the decision cited by Mr Russell: W & A Gilbey Ltd v Continental Liquers Pty Ltd [1964] NSWR 534, 535 (Asprey J). Another reason why I decline to express any opinion on this matter is the lack of any of the client files before me and my inability meaningfully to assess the nature and substance of their contents. However, it may be (and I express no opinion on whether it would be so) that the Deputy District Registrar’s conclusion about the importance of some or all of the documents in the client files could change upon reconsideration of the extent to which perusal of the 31 Investors in the Schedule was wasted by the amendment to the Second Further Amended Statement of Claim.
79 The parties accepted that one possible course was for me to set aside the Certificate of Taxation and to remit the matter to the Deputy District Registrar.
80 Counsel for ASIC submitted that if I were to conclude that there was a likelihood that some costs had been thrown away in relation to the 31 Investors then I should nevertheless exercise a discretion to dismiss the application rather than remitting it to the Deputy District Registrar. She put this submission as a matter of discretion rather than an objection as to jurisdiction arising from r 40.34(3). I consider that she was right to put the submission in this way. Rule 40.34(3) has the effect that a party must not raise any ground of objection to a Bill of Costs, or response to an objection to a Bill of Costs if that ground or response was not taken in the notice before the Registrar. As counsel properly conceded, it was open on the objections and responses before the Deputy District Registrar for him to conclude that some costs had been thrown away rather than all costs (as Mr and Mrs Cassimatis submitted) or no costs (as ASIC submitted).
81 Counsel for ASIC submitted that I should exercise a discretion to dismiss the application rather than refer it to the Deputy District Registrar essentially because (i) an assessment of whether some costs had been thrown away was not the manner in which the matter had been argued before the Deputy District Registrar nor on this appeal, and (ii) the extent to which any costs would be thrown away would be minimal.
82 As to (i), I accept that the matter was not argued in this way before the Deputy District Registrar or on this review. Nevertheless, the point was open to the Deputy District Registrar and would have been unlikely to have involved much more detail of additional submissions. The question of extent, having regard to the matters explained in these reasons including in broad summary in the introduction, would involve an overall evaluative judgement which is incapable of being reduced to precise submission. Further, although the all-or-nothing submissions persisted by both parties on this review, as I have explained this review is not in the nature of an appeal by way of rehearing. If all of the relevant documents had been able to be before me it would have been open for me to have assessed them in light of the amendments in a broad evaluative manner to reach a conclusion about the extent of costs that were thrown away.
83 As to (ii), it is impossible for me to assess meaningfully the extent to which costs were thrown away in the absence of seeing any of the client files. There is a real possibility that those costs could have been significant for the reasons I have explained.
84 For these reasons, the appropriate order is for the Certificate of Taxation issued on 24 September 2015 to be set aside and for the taxation to be remitted to the Deputy District Registrar. The parties accepted that there is no reason why the assessment cannot be conducted by the same Deputy District Registrar. Indeed, there are many reasons of efficiency why it should. However, the solicitors for the parties must first confer, in light of these reasons, about the extent of the additional costs thrown away in an endeavour to reach agreement. Ultimately, the application of the principles set out in this judgment will involve a broad exercise of discretion. This is the very sort of matter that solicitors should be able to agree, acting objectively and properly, with a common sense, commercial approach to avoiding further unnecessary litigation costs for their clients. At the very least, in circumstances in which the rate (in terms of pages perused per hour) is likely to be the factor which would be the most significant determinant of the ultimate quantum then the parties might consider whether agreement can be reached on the different potential amounts subject only to the application of a rate.
I certify that the preceding eighty-four (84) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Edelman. |
