FEDERAL COURT OF AUSTRALIA

Mineralogy Pty Ltd v Sino Iron Pty Ltd (No 7) [2018] FCA 1217

ORDERS

THE COURT ORDERS THAT:

1.    The applicant pay the respondents’ costs fixed in the amount of $5,019,857.10.

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

ORDERS

THE COURT ORDERS THAT:

1.    The appellant pay the respondents’ costs fixed in the amount of $881,885.70.

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

REASONS FOR JUDGMENT

MCKERRACHER J:

INTRODUCTION

1    The respondents and cross-claimants (the CITIC parties) seek a lump sum costs order in the amount of $5,577,619 in respect of costs of trial (WAD 110 of 2013) in which it was wholly successful: Mineralogy Pty Ltd v Sino Iron Pty Ltd (No 6) (2015) 329 ALR 1 per Edelman J. In those proceedings on 26 August 2015, his Honour subsequently ordered that, save for the indemnity costs order made on 8 June 2015, the applicant and cross-respondent (Mineralogy), pay all of the CITIC parties’ costs to be taxed if not agreed, including all reserved costs.

2    The CITIC parties also see a lump sum costs order in the amount of $979,873 in respect of the costs of the appeal proceedings (WAD 495 of 2015) in which it was wholly successful: Mineralogy Pty Ltd v Sino Iron Pty Ltd [2017] FCAFC 55. In the appeal, the Full Court (Besanko, McKerracher and Beach JJ) made orders on 30 March 2017 that the appellant (Mineralogy) pay the CITIC parties’ costs of and incidental to the appeal including any reserved costs.

3    In this judgment I deal with both lump sum costs applications.

GENERAL PRINCIPLES

4    The Court’s power to make a lump sum costs order arises by reason of a combination of s 43(3)(d) of the Federal Court of Australia Act 1976 (Cth) and r 40.02(b) of the Federal Court Rules 2011 (Cth). Applications for lump sum costs orders are also addressed by the Costs General Practice Note (GPN-Costs). It is clear from the Practice Note that the Court’s preference, wherever practicable and appropriate to do so, is for the making of a lump sum costs order. This was reinforced by the Full Court in Paciocco v Australia and New Zealand Banking Group Limited (No 2) (2017) 253 FCR 403 where the Full Court (Allsop CJ, Besanko and Middleton JJ) said (at [16]):

On 25 October 2016 the Chief Justice issued the Central Practice Note: National Court Framework and Case Management (CPN-1) (“Central Practice Note”) and the Costs Practice Note (GPN COSTS) (“Costs Practice Note”). The Central Practice Note states that the determination of the quantum of costs of a successful party (in a proceeding) should not be delayed and, to this end, the Court will, where appropriate, facilitate the making of lump sum costs orders. The Costs Practice Note provides that the Court’s preference, wherever it is practicable and appropriate to do so, is to make a lump sum costs order so as to finalise costs and avoid potentially expensive and lengthy taxation hearings. It makes clear that the Court should now proceed on the basis that taxation “should be the exception” and confined to matters which are unable to be determined otherwise: Costs Practice Note at [3.3]. The guiding principles are to reduce delay and cost when quantifying costs: Costs Practice Note at [3.1].

5    At [3.3] of the Practice Note it is stipulated that the Court’s preference is ‘to avoid, where possible, the making of costs orders that lead to potentially expensive and lengthy taxation of costs hearings … [such] hearings should be the exception and be confined to those matters that have genuinely been unable to be otherwise resolved or determined’. This approach accords with s 37M(1)(b) of the Federal Court Act which provides that the overarching purpose of the civil practice and procedure provisions is to facilitate the just resolution of disputes ‘as quickly, inexpensively and efficiently as possible’. It is a policy to be accorded considerable weight: Shape Shopfitters Pty Ltd v Shape Australia Pty Ltd (No 4) [2017] FCA 1277 per Mortimer J (at [26]).

6    The process under the Practice Notice is for the party making a lump sum costs claim to make an application by way of a costs summary in the form of an affidavit. It is contemplated that such an application will ordinarily be made within six weeks of a determination of the costs entitlement question.

7    In the present case the application has been delayed by Mineralogy’s unsuccessful appeal to the Full Court (Mineralogy FCAFC 55) and its further unsuccessful application for special leave to appeal to the High Court of Australia (Mineralogy Pty Ltd v Sino Iron Pty Ltd [2017] HCATrans 189 (P16/2017)). There is no suggestion of delay on the part of the CITIC parties after special leave was refused by the High Court. An application for special leave to the High Court was refused on 15 September 2017 and the CITIC parties’ lump sum costs applications were filed less than one month later on 11 October 2017.

THE TRIAL PROCEEDINGS

Evidence for the CITIC parties

8    Mr Charles Philip Blaxill, a partner in the firm of solicitors acting for the CITIC parties, by an affidavit sworn 17 November 2017 confirmed that he is an experienced commercial litigation solicitor.

9    Relevantly, Mr Blaxill deposed to the following matters:

(a)    the CITIC parties are entitled to claim input tax credits in respect of any GST relevant to the claims in his affidavit, and they have complied with Part 6 of the Practice Note, with all amounts claimed in the costs application being exclusive of GST;

(b)    the CITIC parties are not claiming more than they are liable to pay for costs and disbursements;

(c)    the calculations made are correct and Mr Blaxill has undertaken spot checks to satisfy himself that the data used in the calculations is accurate;

(d)    the matters noted are a fair and accurate summary of the costs and disbursements that the CITIC parties are entitled to claim; and

(e)    the amounts claimed are capable of further verification through source material should such material be required by the Court to be produced.

10    While it would not be the norm, having regard to the magnitude of the claims and the complexity of the underlying material in support of them, and consistent with an application by Mineralogy, I did order production of the source material as requested by Mineralogy and there has been compliance with this order. As will be seen, Mineralogy say that the compliance is inadequate to allow them to properly assess the reasonableness of the costs incurred by the CITIC parties. I will deal with that issue in due course.

11    Mr Blaxill also confirmed that the trial before Edelman J was conducted on 2 to 10 and 17 to 19 June 2015, with reasons being published in Mineralogy (No 6), as referred to above, on 14 August 2015 (Trial Reasons). Mr Blaxill deposed to the fact that the total legal costs (exclusive of GST) incurred by the CITIC parties between April 2013 and August 2015 in defending the proceedings was $8,230,774.02 comprising $6,402,897.21 in the solicitors’ fees and $1,827,876.81 in disbursements. The disbursements were broken up into counsels’ fees of $1,362,530 and other disbursements of $465,346.81. He produced tables breaking down those fees. His estimate was that, of the total costs, the sum of $37,736.19 (comprising $22,375.99 in the solicitors’ fees and $15,360.20 in counsels’ fees) was subject to the indemnity costs order.

12    For the purpose of preparing this costs application the solicitors sought the assistance of an expert as to costs, Ms Deborah Vine-Hall, a costs consultant with DSA Legal Costs Consultants Pty Ltd. Mr Blaxill explained how the solicitors for the CITIC parties arrived at the total sum of $5,577,619 being sought in this lump sum costs application (including the discounts to be applied) and comprising of:

(a)    $37,736.19 subject to the indemnity costs order;

(b)    $3,802,083 in solicitors’ fees;

(c)    $1,212,453 in counsels’ fees;

(d)    $465,346.81 in other disbursement; and

(e)    $60,000 for the preparation of the application.

13    The methodology for discounting the fees is then set out.

14    Mr Blaxill confirmed that, consistent with the Practice Note, regard was had to:

(a)    the usual rate of recovery in contested costs applications, as compared with actual costs incurred;

(b)    the application of the relevant scale of costs under Sch 3 of the Federal Court Rules to the actual costs incurred by the CITIC parties; and

(c)    the appropriate reductions to be applied to reflect the difference between the hours spent on a solicitor/client basis and the likely recovery of those hours for costs between party/party and to reflect the difficulty of adjusting the costs to items in the scale of costs which are not based on an hourly rate.

15    Mr Blaxill has conducted calculations in accordance with the Practice Note for each category of work and has attempted to provide an estimate of the proportion of that category of work compared with the total amount claimed. In making the estimates he considered: first, how much the solicitors’ invoiced the CITIC parties in each month; secondly, the most significant categories of work performed in each month; and finally, the solicitors’ personnel who worked on different aspects of the proceeding.

16    Work done in relation to pleadings, including responding to changes in Mineralogy’s case, constituted about 30% of the total claim; work done on discovery was approximately 14% of the total claim; work done in relation to interlocutory applications and hearings was approximately 14% of the total claim; and work done and preparation of witness evidence for trial was approximately 18% of the total sum claimed. Finally, work done preparing for and conducting the actual trial including submissions, attending court, organising materials, responding to various requests from counsel and the Court constituted approximately 24% of the total claim.

17    Mr Blaxill then indicated that there were special features of the case which had an impact on the level of costs that were incurred by the CITIC parties. He deposed to the fact that the proceeding was unusually complex, significant and time consuming because:

(a)    the dispute concerned a fully integrated mining and export project constructed at a cost of billions of dollars by the CITIC parties in the West Pilbara region of Western Australia (Sino Iron Project) (Trial Reasons at [10]-[11]);

(b)    the dispute involved a wide range of contentions and claims for relief, where Mineralogy:

(i)    claimed it had terminated certain project agreements relevant to the Sino Iron Project (namely, the Facilities Deeds) as a consequence of which Mineralogy claimed the CITIC parties were required to vacate a significant part of the area required for the Sino Iron Project, including the area on which the CITIC parties had built port terminal facilities to access the Port of Cape Preston in order to export iron ore concentrate from the Sino Iron Project; and

(ii)    alternatively, sought possession, control and ownership of these port terminal facilities.

(c)    if the Facilities Deeds had been terminated the ‘multi-billion dollar’ (Trial Reasons at [893]) Sino Iron Project would have come to an end;

(d)    the case presented by Mineralogy was ‘constantly shifting’ and, with several changes of counsel, there were a number of significant changes in Mineralogy’s focus (Trial Reasons at [4]); and

(e)    the case involved numerous legal issues including ‘questions of contractual construction, implication of terms including a protean obligation of good faith, issues of estoppel by convention, relief against forfeiture, the penalties doctrine, and the effect of non-joinder of third parties on a power to grant injunctions or declarations’ (Trial Reasons at [7]), which is evidenced by the Trial Reasons themselves comprising 236 pages and 1088 paragraphs.

18    Mr Blaxill deposed to further complications arising from the fact that there were numerous contested interlocutory hearings, none of which resulted in any adverse costs orders being made against the CITIC parties. A total of 15 interlocutory hearings were conducted in the course of the proceedings, including contested hearings relating to discovery, programming for trial, the arbitration referred to in the proceeding, the intervention of the State of Western Australia, an inspection of the Sino Iron Project, interim injunctive relief following the service of termination notices, amendments to Mineralogy’s reply and objections to evidence.

19    Finally, complications arose by virtue of there being overlapping proceedings also relating to the Sino Iron Project including CIV 1808 of 2013 in the Supreme Court of Western Australia, CIV 3012 of 2012 in the Supreme Court, CIV 2164 of 2013 in the Supreme Court, CIV 1476 of 2014 in the Supreme Court, CACV 37 of 2015 in the Western Australian Court of Appeal, CACV 17 of 2015 in the Court of Appeal, an arbitration between Mineralogy, Sino Iron and Korean Steel under the Commercial Arbitration Act 2013 (Qld), NSD 221 of 2014 in the Federal Court, WAD 234 of 2013 in the Federal Court and subsequently NSD 219 of 2014 in the Federal Court before a Full Court.

20    Mr Blaxill described the relevant titles of legal personnel in his firm and confirmed that throughout the relevant period the core team used by the solicitors for the day-to-day carriage of the proceeding comprised two partners, one special counsel, two senior associates, three associates, one law graduate, and one member of Allens’ Applied Legal Technology Team. Mr Blaxill also explained that the structure of the team was broadly as follows:

(a)    Mr Blaxill was responsible for the matter as a whole;

(b)    Mr Richardson, a senior associate, and he were responsible for the day-to-day management of the matter including client communications, pleadings, communications with Mineralogy’s solicitors, dealing with interlocutory matters and general oversight of the matter;

(c)    Mr Woods was responsible for coordinating and managing the overlap between this proceeding and the other proceedings relating to the Sino Iron Project;

(d)    Ms Nygh, special counsel, and Ms Corby, an associate, were responsible for gathering lay witness evidence and expert evidence;

(e)    Ms O’Brien, Ms Dunicliff, Mr Quinn and Mr Hall were responsible for discovery and the preparation of the documentary evidence; and

(f)    at various stages law graduates assisted in the matter.

21    Mr Blaxill confirmed partnership responsibility for the matter was with Mr McKenna from the commencement of the proceeding until August 2013. Mr McKenna provided assistance on discrete issues in the proceeding after August 2013. Mr Blaxill’s evidence of opinion (that of an experienced litigation solicitor), is that the use of a core team of this nature, and additional personnel when needed from time to time, is not uncommon in large-scale commercial litigation.

22    He produced a table which sets out the name, position, average hourly rates charged to the CITIC parties, the period of involvement and the total hours worked by each of the personnel in the proceeding. The titles of some personnel changed over the course of the proceeding and he explained who was affected by these changes.

23    The scale of costs has varied since the commencement of the matter, but Mr Blaxill used average rates of $563 an hour for partners, $210 an hour for law graduates; and $103 an hour for paralegals.

24    To the total discounted figure of $5,613,674.90, Mr Blaxill deducted a sum for the fees allocated to the indemnity costs order and then applied a discount of 15% to reflect the difficulty of adjusting to accommodate items of work and the scale of costs that are not claimed at an hourly rate. This gave a figure of $4,752,604.07 to which figure he applied a further reduction of 20% to reflect the work which might not be recoverable between party and party. Mr Blaxill provided a rounded down figure of $3,802,083.

25    Mr Blaxill expressed the view that given the size, complexity and commercial significance of the proceeding, notwithstanding all the factors which he considers would justify an uplift for skill, care and responsibility, for the purposes of a lump sum order a figure of $3,802,083, which is approximately 59% of the solicitors’ actual professional costs identified, is fair and does justice between the parties. Further, in accordance with the Practice Note, Mr Blaxill indicated the proportion in percentage terms of the total costs claimed attributed to the solicitors (approximately 68%); their core team (approximately 51%); and each member of their team.

26    In relation to disbursements, which can be dealt with more summarily, there were several counsel retained in behalf of the CITIC parties through the course of the proceeding. Changes were needed due to unavailability of counsel when trial dates were fixed, and a table was attached setting out the titles, rates, total fees and periods of involvement for each of the counsel. Mr Blaxill also described the role of the ‘counsel team’.

27    In calculating the amount of the counsels’ fees to be included in the lump sum costs application he has taken into consideration the fact that the hourly rates charged to the CITIC parties by senior counsel are above the range identified in the Court’s National Guide to Counsel’s Fees, but he considered that the scope and importance of the issues in dispute in the proceeding justified an allowance of counsels’ fees to reflect the complexity. He deducted $15,360.20 for the time spent by counsel on the indemnity costs order and applied a further reduction of 10% on the possibility that, on a detailed investigation, some of the narratives on counsels’ invoices would not be claimable on a party and party basis, reducing the claim to $1,212,453 for counsels’ fees (rounded down).

28    The steps taken at trial, the very considerable scale of the proceeding and the proceeding’s chronology were described by Mr Blaxill. He provided a detailed description of the numerous changes to Mineralogy’s case as the proceeding unfolded.

29    Mr Blaxill also described in detail the steps taken, the personnel involved, and the time required in discovery. (Mr Blaxill understood the number of documents collected for review for discovery was over 3 million.) He described the steps taken to minimise the cost involved in that exercise. In contrast, Mineralogy discovered 41,771 documents.

30    Mr Blaxill also set out the extent of witness preparation for trial, including the drawing of witness statements. The reference to indemnity costs above related to the application following the first week of trial by Mineralogy to seek leave to amend its reply. That was opposed and written reasons were delivered by Edelman J: Mineralogy Pty Ltd v Sino Iron Pty Ltd (No 4) [2015] FCA 570.

31    For the preparation for this costs application alone Mr Blaxill set out the steps taken and claimed $60,000 (rounded down). He gave evidence of the attempts taken to resolve costs and produced an opinion by Ms Vine-Hall on the likely cost and time of a taxation of costs. I accept the expertise of Ms Vine-Hall. In her view it was likely that a taxation process would take at least 12 months if there was no objection to the estimation and possibly 30 months if there was a taxation hearing. Her estimate was that the total costs which would be incurred in that period would be between $693,800 and $823,800. She set out her reasoning.

32    Ms Vine-Hall also swore a separate affidavit in this costs application proceeding. She has considerable familiarity with the processes for the determination of an application for a lump sum costs order. She described the usual processes and confirmed that the evidence from Mr Blaxill conforms with those usual processes. She agreed with his calculations and his discount methodology and computations. She expressed the view, from her experience in recent recovery of costs on bills filed for taxation, that the outcome is usually in the range of 75% to 85% of the costs claimed, thus rendering Mr Blaxill’s estimate, representing a reduction to 59% of the total solicitors’ fees, a conservative figure when compared with the usual range. She expressed a view, based on over 27 years’ experience in specialist legal costing, that the amount claimed for a lump sum by the CITIC parties was logical, fair and reasonable and would do fair justice to the parties.

33    More importantly and specifically for the argument between the parties, she expressed the view, which I generally accept, that it is not possible to prepare a bill of costs for taxation by transposing work in progress or time reports as the preparation of a bill requires the itemisation of every document produced or received calculated on a word count basis and the detailed explanation of the work, which is rarely included in the work in progress or time reports, which are generated for a completely different purpose.

Evidence for Mineralogy

34    Mr Kane Jones, solicitor for Mineralogy, produced correspondence exchanged with the solicitors for the CITIC parties. This correspondence sets out a number of complaints by Mineralogy and the response from the solicitors. The first complaint, which is repeated throughout Mineralogy’s submissions, is that there has been a redaction of itemised invoices making it impossible for Mineralogy’s costs expert to make a determination as to the reasonableness of the costs the CITIC parties are seeking under the lump sum costs order. The correspondence advised that it would defer the provision of its costs response (which has never been provided) due to the inability of its expert to comment on the invoices due to the redaction. In responding letters the CITIC parties’ solicitors rejected the suggestion that the redaction made it impossible for the costs expert to make a determination as to the reasonableness of the costs being claimed, making the point that advice had been given on a multiplicity of proceedings (referred to at [19]), and that the entries redacted related only to advice and services given in relation to the other proceedings rather than those in respect of which the source material was provided pursuant to my earlier orders.

35    Mr Jones suggested that a ‘short form assessment’ or ‘informal assessment’ would be useful in lieu of drafting a bill of costs and submitting the matter to the formal assessment process. It was proposed that a costs assessor be appointed to act in an independent capacity and be instructed to consider the material on a confidential basis. Mineralogy’s position was that on the information provided neither it nor its costs expert could make a determination of the reasonableness or otherwise of the amounts claims because ‘the material does not provide for scrutiny of each task or the amount [of] costs claimed for those tasks’.

36    The response for the CITIC parties was that the matters raised were, in reality, complaints about the lump sum procedure itself rather than the specific application. The CITIC parties reiterated that a lump sum costs amount was not a process akin to a taxation and rather its very purpose was to avoid the expense, delay and aggravation involved in protracted litigation arising out of taxation.

37    By further affidavit of Mr Jones for Mineralogy, affirmed 12 April 2018, he made the point that the claims made were unrealistic, unmeritorious or ‘ambit claims’. He asserted that there was no basis for concluding that the lump sum costs sought was fair and reasonable. He also took issue as to whether:

(a)    time costed on an hourly basis was appropriate;

(b)    the choice of a 20% deduction from actual costs was appropriate;

(c)    the amount sought to be recovered for counsels’ fees was appropriate having regard to the numbers and changes of counsel;

(d)    the other outlays were fair and reasonable; and

(e)    the $60,000 was reasonable for the cost of the lump sum application.

38    The affidavit itself confirmed that Mineralogy had engaged its own costs consultant, Mr Gregory Ryan, who expressed the view that he was unable to advise on the appropriate ‘logical, fair and reasonable’ approach for costs based on Mr Blaxill’s affidavit. Specific complaints pointed to by Mr Jones in his affidavit were:

    the redaction of source material referred to above;

    apparent duplication or overlap of work;

    the percentage breakdown of categories of work;

    the totality of the costs summary not enabling Mr Ryan to establish what work was undertaken by each person;

    the impossibility of understanding what each work author was doing during the recorded hours and the extent to which work was duplicated;

    Mr Blaxill’s involvement in the proceedings, commencing some four months after the proceeding was commenced, such that the parts of the costs summary relating to that period could not have been matters within his personal knowledge;

    the absence of identification of the most significant categories of work performed each month; and

    the absence of the methodology of quantification when hourly rates were not employed.

39    Mr Ryan also affirmed an affidavit on 19 April 2018 saying that he had spent in excess of eight hours attempting to understand the CITIC parties’ material but could not come to a conclusion about it specifically by reason of the redactions. He took issue, but not majorly, with the CITIC parties’ evidence of the cost and duration estimated for the preparation of a conventional taxation of costs.

40    Mr Jones affirmed a further affidavit dealing with exchanges, which amongst other things, went to the question of whether the lump sum costs application hearing should be adjourned to allow further compliance with Mr Ryan’s request and a further opportunity for Mr Ryan to examine the material.

41    Mr Ryan was cross-examined on his affidavit. He explained that he considered there would be no difficulty in converting the solicitors’ electronic files into a bill of costs using his own software. He thought that using a team of three or four costs lawyers he could pull it together in a couple of months. However, if the matter was approached by examination of the hard file rather than the electronic version (as suggested by Ms Vine-Hall) it would be an enormous task.

42    In cross-examination Mr Ryan explained that to prepare a bill of costs in accordance with the Federal Court’s scale involved an exercise of applying the scale assessment and the amounts allowed in the scale to the work which has been done and the services performed. According to Mr Ryan, pursuant to the scale, certain work is allowed on a time basis but other work is allowed on a per item basis, such as correspondence under 100 words. So in order to decide which was the applicable allowance one would have to look at the file to determine whether the claims were for such correspondence or otherwise. Mr Ryan admitted that were he looking at an email, he would have to count the number of words in the email and, therefore, to prepare a bill of costs he would need the file, be that in electronic or hard copy form. The work in progress record would be of assistance, but it is only a step and would not take it all the way.

43    Mineralogy complains that the CITIC parties have not produced any retainers or costs agreements and have not identified what was done to warrant the charging ‘of a particular fee’.

44    Mineralogy complains that it knows only what the CITIC parties appear to have charged in respect of solicitors, that is, the cost of 72 different work authors with a total time charge exceeding $6,400,000.

45    Similarly, in respect of counsels’ fees, it is said that the only information about the fees is the number of invoices and the total amount of them.

46    Mineralogy complains about the absence of tax invoices and other records which would reveal the work or task undertaken during the time claimed and/or the fact that the redaction ‘prevents any disclosure of such information’. This is despite a number of requests being made for such evidence.

47    Mineralogy complains that given the different ‘matter titles’ included amongst the redacted invoices used to compile the costs total, the Court cannot be certain that the total does not include costs raised by the proceeding against Mineralogy or other ‘commercial’ advice given to the CITIC parties. Mineralogy complains it is not possible to determine whether all of the preparation for the trial concerned witnesses actually called or evidence actually tendered nor can it be seen whether more than one solicitor or counsel undertook the same work or whether work was done by a more senior solicitor or counsel when it could properly have been performed by a more junior one.

48    According to Mineralogy, given the large nature of the claim there is a greater potential for duplication or over-supervision and a higher risk that a larger percentage of the professional costs would not be recoverable on a party and party basis. Mineralogy also say that although the CITIC parties consulted a costs assessor they have not attempted to place before the Court an opinion of a costs assessor or other cost expert unconnected with the proceedings as to the necessity of the work undertaken or its recoverability on a party and party basis, determined even on a sampled basis. Mineralogy notes, although very late, the CITIC parties have obtained further comments from the costs assessor, but that Ms Vine-Hall has been similarly restricted in the provision of information and so cannot offer sufficient assistance to the Court to overcome the short comings in the evidence.

Consideration

49    As the cases make abundantly clear, the purpose of the power to make lump sum costs orders is to avoid the expense, delay and aggravation involved in protracted litigation arising out of a taxation: see Paciocco (at [15]) and Beach Petroleum NL v Johnson (No 2) (1995) 57 FCR 119 per von Doussa J (at 120). The Court does not apply a process similar to a taxation of costs, but a much broader brush: see Seven Network Limited v News Limited [2007] FCA 2059 per Sackville J (at [25]).

50    The Court must be satisfied that any lump sum costs order is made on the basis of a logical fair and reasonable estimate of costs and should be astute to avoid both overstating the recoverable costs and underestimating the appropriate account by applying some arbitrary discount to the amounts claimed: Beach Petroleum (at 123). The onus is on the moving party to demonstrate there is a logical, fair and reasonable basis for the order.

51    The power to make an order for lump sum costs is appropriate for application in complex cases where a taxation is likely to result in additional time, trouble, aggravation and expense: Paciocco (at [20]) and Beach Petroleum (at 120).

52    It would be completely pointless if the evidence produced in a lump sum application was the same as the evidence in the taxation process. The object of avoiding the need to adduce all that evidence is to save the time and cost to the parties and the public’s resource – the Court. The cost to the CITIC parties in proceeding to conventional taxation in this instance have been estimated at between $690,000 and $800,000 approximately.

53    The successful parties are entitled to be adequately compensated for the expense in conducting litigation in accordance with these measures.

54    My impression is that the complaints by Mineralogy go to the inability to satisfy itself as to each individual item, but this confuses the purpose, objective and nature of a lump sum costs estimation with a taxation of costs. There is quite detailed information from Mr Blaxill setting out how the various costs were incurred and that the costs were necessarily incurred in dealing with the very substantial litigation instituted and prosecuted by Mineralogy.

55    Having sat on the appeal, I am reasonably familiar with the nature and dimensions of the litigation, both at trial and on appeal. I consider the description of the litigation given by Mr Blaxill to be appropriate.

56    Mineralogy relies upon the observations of Logan J in Wide Bay Conservation Council Inc v Burnett Water Pty Ltd (No 9) (2011) 194 FCR 250, where his Honour said (also citing Sackville J in Seven Network) (at [31]-[34]):

31    A survey of past authority discloses that, though occasions for the wider exercise of the power have been infrequent, it has been exercised even in respect of lengthy and complicated commercial litigation, eg Seven Network Ltd v News Ltd [2007] FCA 2059 (Sackville J) (Seven Network). Indeed, one reason given for the exercise of the power in such cases has been that a taxation of costs in such a case would be likely to involve unreasonable delay and expense: Beach Petroleum NL v Johnson (No 2) (1995) 57 FCR 119 at 120 (Beach Petroleum). As von Doussa J notes in Beach Petroleum, that has been regarded in the United Kingdom as the purpose of such a rule: Leary v Leary [1987] 1 WLR 72. By reference to that British authority, his Honour further observed of the power (Beach Petroleum at 120) that, “An order that costs be assessed as a gross sum does not envisage that any process similar to that involved in taxation should take place, but the power must be exercised judicially and after giving the parties an adequate opportunity to make submissions on the matter”.

(Emphasis added.)

32    Later, in Seven Network, at [25] Sackville J summarised principles which had emerged in respect of the fixing of costs in gross. I gratefully adopt his Honour’s summary:

25    The authorities establish a number of principles applicable to a claim for a gross sum costs order to be made pursuant to FCR, O 62 r 4(2)(c):

(i)    The purpose of the subrule is to avoid the expense, delay and aggravation involved in protracted litigation arising out of taxation: Beach Petroleum v Johnson (No 2), at 120, per von Doussa J, applying Leary v Leary [1987] 1 All ER 261; Harrison v Schipp (2002) 54 NSWLR 738, at 742 [21] per Giles JA.

(ii)    An order that costs be assessed as a gross sum does not envisage that any process similar to that involved in taxation should take place. On the contrary, the Court applies a much broader brush than would be used on a taxation of costs pursuant to O 62: Beach Petroleum v Johnson (No 2), at 120, 124, per von Doussa J; Harrison v Schipp, at 743 [22], per Giles JA.

(iii)    The Court should be confident that the approach taken to the estimate of costs is logical, fair and reasonable. The Court should be astute to avoid both overestimating the recoverable costs and underestimating the appropriate amount, for example by applying an arbitrary discount to the amounts claimed: Beach Petroleum v Johnson (No 2), at 123, per von Doussa J.

(iv)    Although the power to assess a gross sum for costs involves the exercise of a discretion, it is necessary to bear in mind fundamental principles applicable to an assessment of costs on a party and party basis. These include the principles contained in O 62 r 19 (embodying the “necessary or proper” test) and those stated in Stanley v Phillips (1966) 115 CLR 470, at 478, per Barwick CJ (on a party and party taxation the emphasis is upon obtaining adequate representation to enable justice to be done, not upon the propriety of steps taken to ensure maximum success in the cause): Auspine Ltd v Australian Newsprint Mills Ltd (1999) 93 FCR 1, at 4-5 [12]-[15], per O’Loughlin J; Charlick Trading Pty Ltd v Australian National Railways Commission [2001] FCA 629, at [6]-[8], per Mansfield J.

(v)    Although the methodology permitted by O 62 r 4(2)(c) initially involves a broader approach than on a normal taxation, the provisions of O 62 and Schedule 2 provide assistance in fixing an appropriate gross sum: Charlick Trading Pty Ltd v ANRC, at [10], per Mansfield J.

33    To this summary, his Honour added the following, at [26]-[30]:

26    The last point should be developed a little further. FCR, O 62 r 4(2)(c) authorises the Court to order that, instead of taxed costs, the successful party should be entitled to a gross sum costs order. The subrule contains no express direction that the Court is to apply the detailed criteria that are laid down in O 62 and Schedule 2. On the contrary, the subrule apparently leaves the question of quantification at large.

27    Rule 4(2)(c) is, however, located within an Order that makes detailed provision for the assessment of party and party costs. It would be extremely odd if the more expeditious procedure contemplated by r 4(2)(c) resulted in either a successful or an unsuccessful party being exposed to an assessment of costs which simply ignores or overrides the basic principles applicable to a taxation of costs. I accept Mr Sheahan’s submission that it would be an error for a Court to use its power under r 4(2)(c) to assess a gross sum clearly higher than that which would be allowed on a taxation of costs.

28    On the other hand, it must be borne in mind that r 4(2)(c) establishes a procedure that applies instead of taxed costs. As the cases have stressed, the object of the procedure is to avoid the expense, delay and aggravation that would be involved in a taxation of costs, especially in a lengthy and complex case such as this. The procedure is intended to replace the potentially elaborate process contemplated by O 62 and Schedule 2, whereby a taxing officer meticulously analyses a specially prepared bill of costs by reference to individual items, some of which have distinctly Dickensian overtones.

29    It is necessary for the Court to have sufficient information to enable it to make a logical, fair and reasonable estimate. In this respect, as the parties agreed, Telstra bears the onus of establishing that its claim to a gross sum satisfies the applicable test. In practice, this may involve the parties adducing evidence from expert costs assessors addressing whether the costs claimed by the successful party were “necessary or proper for the attainment of justice or for maintaining or defending the rights of a party” (O 62 r 19) or, in more general terms, whether the amounts sought would have been recoverable on a taxation of costs.

30    Care should be taken, however, to ensure that the process does not take on too many of the characteristics of a taxation of costs …

(Emphasis in original.)

34    I respectfully agree with these further observations of Sackville J, subject to one qualification arising from his Honour’s reference to some items which may fall for the analysis by a taxing officer of a bill of costs having “Dickensian overtones”.

57    Mineralogy also referred to the difficulties implicit in hourly rates and time costing as discussed by Logan J in Wide Bay Conservation Council (at [95]-[104]). However, I also would draw attention to what his Honour said at [43], where it was noted that, as with this case, but to a significantly smaller degree, considerable costs and delay would arise in proceeding to taxation and that this was a good reason for fixing a lump sum costs order. However, the observations made in Wide Bay Conservation Council preceded the introduction of the Practice Note, but in any event a lump sum costs order was made in that case.

58    I am unable to accept the submission from Mineralogy that it has not been given a reasonable opportunity to understand the basis of the costs claimed by the CITIC parties. Mr Blaxill’s affidavit is extensive and detailed. In my view, he articulates a logical, fair and reasonable basis for the making of a lump sum costs order. He does so generally in accordance with material of the kind required under the Practice Note. It sets out costs that have been incurred by the CITIC parties in the proceeding, work that was done in relation to the proceeding, and the reasoning for the quite substantial discount supplied to those costs in order to arrive at a claimed lump sum. As noted, Mineralogy has not filed a costs response at any stage and while it has set out in submissions filed in opposition to the relief sought the complaints referred to above, it has not, in my view, sought to engage with the substance of the claims set out in Mr Blaxill’s affidavit. No attempt has been made to identify any aspect of the claimed costs which is unfair or unreasonable or any aspect of the process used in arriving at a lump sum which was illogical, unfair or unreasonable.

59    In Coshott v Burke (No 2) [2018] FCAFC 81, the Full Court (Logan, Kerr and Farrell JJ) said (at [47]):

The Court accepts the submissions put by the appellants that a respondent faced with a Costs Summary that does not identify with precision each item that is claimed necessarily encounters some difficulty in establishing the reasonableness of those items with the same precision as in a taxation. However, in adopting the ‘broad-brush’ approach to quantification of lump sum costs orders, the Court accepts that the benefits of the process (timeliness and avoidance of costs incurred on contested taxation) outweighs loss of absolute accuracy in the outcome.

60    My impression is that the CITIC parties have described, at a level of detail appropriate for a lump sum costs application, the nature of the work performed and who was performing the work. There is also an adequate explanation as to the methodology in converting the costs incurred into the claimed lump sum amount. The general complaints of Mineralogy appear to be referrable more to a taxation process. Mineralogy seems to be seeking an assessment of the reasonableness of each individual item of work. In litigation of this very considerable scale, such an approach defeats the point of having a lump sum costs procedure and in my opinion is not consistent with the objectives of the Practice Note. Because of the amount of the costs claimed and the complexity of the litigation the steps taken by the CITIC parties have already gone further than would normally be the case in a lump sum costs claim. For example, it does not require expert evidence to be adduced in support of the lump sum costs application, rather the Practice Note suggests that the costs summary should clarify whether it has been prepared with the assistance of an expert as to costs. That is what Mr Blaxill has said. That has been independently confirmed. Mineralogy has not entered into this process in the sense contemplated by the Practice Note. The affidavit of Mr Ryan was served more than five months after the date scheduled of 21 December 2017 for filing a costs response. This is despite the fact that he was engaged from early November 2017, as he explained in his affidavit.

61    Further, in Coshott, the Full Court said (at [53]-[54]):

53    In circumstances where the appellants had had the opportunity to be heard with respect to the costs claimed but had declined to do so, it was open to and appropriate for the primary judge to make the orders sought.

54    Once the discretion to award costs in a lump sum was enlivened, and the lump sum costs applicants had produced, by way of affidavit, evidence as to the costs that were incurred, it was incumbent on the appellants to challenge that evidence.

62    I am not aware of any lack of independence on the part of Ms Vine-Hall for the purposes of her evidence. She was not required for cross-examination. Ms Vine-Hall, who is very experienced, made clear that the approach taken by Mr Blaxill in his affidavit was logical, fair and reasonable, particularly confirming his approach to:

(a)    the reduction of the rates of the solicitors to the sale of costs rates in Sch 3 of the Federal Court Rules;

(b)    applying a discount of 15% to reflect the difficulty of adjusting to accommodate items of work in the scale of costs which are not claimable at an hourly rate;

(c)    applying a further reduction of 20% to reflect the work which might not be recoverable as between party and party;

(d)    in relation to counsel invoices, applying a reduction to counsels’ fees of 10% to account for the possibility that a detailed investigation into the narratives on counsels’ invoices may lead to further reduction; and as I will discuss next,

(e)    in relation to the appeal a reduction of 52% of the fees charged by lead senior counsel to bring those to the rates charged by other senior counsel in the appeal.

63    I am not persuaded that the redactions posed the difficulty of which Mineralogy complains in the context of a lump sum costs order, nor am I persuaded that it is inappropriate for there to be such redactions. The redactions are referable to other material (prima facie, privileged) in proceedings between the parties other than those in respect of which this application is made.

64    As I recently noted in Australian Mud Company Pty Ltd v Coretell Pty Ltd (No 7) [2017] FCA 1469 (at [26]):

The Costs Practice Note provides that the Court’s preference, wherever it is practicable and appropriate to do so, is to make a lump sum costs order so as to finalise costs and avoid potentially expensive and lengthy taxation hearings. It makes clear that the Court should now proceed on the basis that taxation ‘should be the exception’ and confined to matters which are unable to be determined otherwise.

(Emphasis in original.)

65    I raised with senior counsel for each of the parties in the course of the hearing whether the application for a lump sum costs order only in a fixed amount rather than with provision for some further modest discount by the Court would prevent the Court from making a further discount. Mineralogy took objection to a determination other than on the basis claimed or nothing at all, however, I am more inclined to accede to the argument for the CITIC parties that a technical view should not be taken to the application, especially in circumstances where the Practice Note does not even contemplate that there would normally be a written application filed in most matters. I propose, therefore, to make a further pragmatic discount.

Conclusion on trial costs

66    My view in this matter is that the evidence and materials and arguments marshalled by the CITIC parties is certainly sufficient to warrant a lump sum costs order broadly in the sum claimed. I particularly take into account the discounts applied. I take into account the experience of, and what is now a significant body of cases as to, the likely recovery rate compared with costs actually charged. Of course, I take into account the immense complexity and the cost of this proceeding.

67    Notwithstanding all of that, it seems to me that the appropriate order should further take into account the benefit of a finite sum being fixed at this point, albeit against an already discounted figure. I would therefore reduce the sum claimed by 10% and make an order that there be a lump sum costs order in favour of the CITIC parties in the sum of $5,019,857.10.

68    Finally, it is necessary to say something about the costs of the costs application. The CITIC parties indicated the estimates of $60,000 and $10,000, for the preparation of the costs applications for the trial and the appeal respectively, needed to be updated. They requested that I deduct those sums from the lump sum costs award and that they would file additional materials dealing with the question of the costs application itself. I am unattracted to that suggestion. There needs to be finality in this matter. I appreciate that the CITIC parties may have incurred additional costs beyond the sums referred to in the last day of the hearing of the matter but the award of costs is very substantial and having been given no indication as to what the additional amounts would be I am not in a position to guess at what further amounts ought be added to the claims. The interests of finality dictate that I should fix the costs of the lump sum applications by the sums claimed in the materials. I do not propose making further adjustment or receiving further submissions on costs.

THE APPEAL PROCEEDINGS

69    In the appeal, the CITIC parties claim a lump sum costs order of $979,873.

Evidence in the appeal

70    The CITIC parties rely on an affidavit of Mr Blaxill sworn on 11 October 2017 and a further affidavit of Ms Vine-Hall of 26 April 2018. Mineralogy relies on the same affidavit and submissions of Mr Jones. It also relies upon an affidavit of Mr Ryan dated 19 April 2018 and an affidavit of Mr Jones of 2 May 2018 explaining Mr Ryan’s circumstances.

71    It is unnecessary to refer at any length to the content of the main Blaxill affidavit other than to say it confirmed that the appeal was heard from 9 to 12 May 2016 with reasons being published in Mineralogy FCAFC 55. The appeal was wholly dismissed and costs were awarded against Mineralogy in favour of the CITIC parties. The CITIC parties incurred total legal costs exclusive of GST between September 2015 and May 2016 in defending the appeal in the amount of $1,589,591.69, comprising $610,906.90 in solicitors’ fees and $978,684.79 in disbursements being almost exclusively counsels’ fees of $941,009.98 with $37,674.81 in other disbursements. The solicitors’ fees again were set out in a table annexed and described in similar manner to the fees on the trial. Mr Blaxill also confirmed that the solicitors have sought the assistance of an expert as to costs, Ms Vine-Hall, in relation to preparing the Blaxill affidavit in support of the appeal costs. He explained the reduction between actual costs and those sought in the application being allocated in the following way:

(a)    $387,059 in solicitors’ fees;

(b)    $545,140 in counsels’ fees;

(c)    $37,674.81 in disbursements; and

(d)    $10,000 for preparing the application.

72    Otherwise the content of the affidavit confirmed the same process of general preparation and estimates in the following percentages:

(a)    work done in relation to the preparation of the notice of contention including reviewing grounds of appeal, reviewing trial judgment and drafting notice of contention - about 12% of the total work claimed;

(b)    work done in relation to settling the appeal book index and reviewing the appeal book - about 20% of the total work claimed; and

(c)    work done preparing for and conducting the appeal hearing including drafting submissions, drafting a chronology of events, attending court, organising materials and responding to various requests from counsel and court - about 68% of the total amount claimed.

73    As with the trial claim, Mr Blaxill confirmed that the appeal was unusually complex, significant and time consuming. The same factors applied as in the trial. As with the trial claim, he applied a discount of 15% to reflect the difficulty of accommodating items of work in the scale of costs not claimable at an hourly rate that gave a figure of $484,002.75 to which he applied a further reduction of 20% to reflect the work which might not be recoverable between party and party giving a figure of $387,902 (rounded down). That sum was approximately 63% of the solicitors’ actual professional costs. Over and above that, he applied a reduction of 52% to the hourly rate of lead senior counsel to bring his fees down to the rate charged by the other senior counsel appearing on the appeal.

74    Similar delays were incurred pending the outcome of the application by Mineralogy for special leave to appeal and similar attempts were made by the CITIC parties’ solicitors to agree costs.

75    The affidavit of Ms Vine-Hall, sworn on 26 April 2018, also deposed in substance to the same matters which she addressed in her affidavit in support of the lump sum costs claim for the trial.

Submissions

76    The submissions in relation to the lump sum costs application for the appeal were in substance the same, both for and against the award sought.

Conclusion on appeal costs

77    Lump sum costs should be awarded in the appeal proceedings for the same reasons and on the same general basis discussed in relation to the trial. Accordingly, an appropriate disposition of the costs application in respect of the appeal is to apply a 10% discount, but otherwise make orders substantially in the terms of those sought by the CITIC parties.

Associate:

Dated:    15 August 2018

SCHEDULE OF PARTIES