FEDERAL COURT OF AUSTRALIA

Money Max Int Pty Limited (Trustee) v QBE Insurance Group Limited (No 3) [2018] FCA 2101

ORDERS

THE COURT ORDERS THAT:

1.    The costs incurred by PricewaterhouseCoopers in responding to the subpoena issued on 5 January 2017 are assessed at $90,000 (exclusive of GST).

2.    PricewaterhouseCoopers’ costs of preparation of the lump sum costs application are allowed in the sum of $17,000 (exclusive of GST).

3.    The Applicant pay the subpoena costs and the costs of the lump sum costs application.

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

REASONS FOR JUDGMENT

MURPHY J:

1    This dispute concerns the reasonableness of costs incurred by PricewaterhouseCoopers (PwC) in responding to a subpoena seeking production of documents issued at the applicant’s request (subpoena costs). PwC seeks orders that subpoena costs be assessed in the amount of $132,333 through a lump sum costs assessment procedure, and that it be allowed $26,842 for the costs incurred in the preparation of its lump sum costs application. The applicant says that a reasonable lump sum costs assessment would be approximately $39,774.

2    For the reasons I briefly explain, I have made a lump sum costs assessment in the sum of $90,000, and I have allowed PwC costs of that application in the sum of $17,000. All figures are exclusive of GST.

THE EVIDENCE

3    PwC relies on affidavits of:

(a)    Srishti Natesh, a solicitor employed by Ashurst Australia (Ashurst), the solicitors for PwC, affirmed 11 December 2018; and

(b)    Michael Dudman, legal costs consultant, sworn 31 July 2018.

4    The applicant relies on an affidavit of Brooke Dellavedova, a Principal of Maurice Blackburn (MB), the solicitors for the applicant, sworn 7 December 2018.

THE LEGISLATIVE FRAMEWORK AND RELEVANT PRINCIPLES

5    Section 43 of the Federal Court of Australia Act 1976 (Cth) (the Act) empowers the Court to award costs in proceedings before the Court and provides that “except as provided by any other Act, the award of costs is in the discretion of the Court or Judge.” The discretion is unfettered, subject to the requirement that it be exercised judicially.

6    Rule 40.02 of the Federal Court Rules 2011 (Cth) (the Rules) provides that a party or a person entitled to costs may apply to the Court for an order that costs be awarded a lump sum and be determined otherwise than by taxation.

7    Rule 24.22 provides that the Court may fix the amount of any reasonable loss or expense incurred in complying with a subpoena, doing so in accordance with the Court’s usual procedure in relation to costs. It is settled that a person who seeks to resist or comply with a subpoena is entitled to have their costs and expenses reimbursed so that they are not out of pocket as a result: ASADA v 34 Players and One Support Person (No 2) [2015] VSC 14; Prakash v Nationwide News Pty Ltd (Ruling No 6) [2017] VSC 331.

8    The parties have agreed that it is appropriate to fix the reasonable subpoena costs in the present case through a lump sum costs assessment. A lump sum costs assessment procedure is particularly apt in a lengthy and complex case where the process of taxation is likely to be unduly protracted or expensive: Beach Petroleum NL v Johnson (No 2) (1995) 57 FCR 119 at 120 (Beach) (von Doussa J); Charlick Trading Pty Ltd v Australian National Railways Commission [2001] FCA 629 (Charlick) (Mansfield J). The use of a lump sum costs procedure is not, however, limited to such circumstances. Through the Costs Practice Note (GPN-COSTS) issued on 25 October 2016 the Court expressed a preference to avoid making costs orders that might lead to taxation of costs hearings, and instead to encourage the use of more sophisticated costs orders and procedures including lump-sum costs orders: see Part 3.3. The discretion to assess costs on a lump sum basis may be exercised whenever the particular circumstances of the case warrant it.

9    In the present case the simplicity of the dispute makes a lump sum assessment appropriate, as taking this course will save the parties the time, cost and inconvenience of a taxation. The dispute over subpoena costs is one of the last issues holding up distribution of the settlement monies to class members, and it is important that the distribution occurs without further delay.

10    In a lump sum costs assessment the costs are not subject to the detailed scrutiny which occurs in a taxation of costs, and that extent a lump sum costs assessment provides speed and efficiency at the expense of accuracy. It is appropriate for the Court to adopt a broad brush approach to assessing lump sum costs, and it should not approach the task as one of arithmetic calculation or precision. Courts often apply a discount to the amounts claimed, but the amount assessed must depend on the particular circumstances and on the evidence adduced: Auspine Ltd v Australian Newsprint Mills Ltd (1999) 93 FCR 1; [1999] FCA 673 at 21-22 (O’Loughlin J); Ginos Engineers Pty Ltd v Autodesk Australia Pty Ltd (2008) 249 ALR 371; [2008] FCA 1051 (Finn J).

11    Even so, the evidence relating to costs must be sufficiently detailed and must identify the components of the costs incurred and how they have been calculated (Motor Trades Association of Australia Superannuation Fund Pty Ltd v Rickus [2007] FCA 1878 at [26] (Flick J)), and the Court must be sufficiently confident that the approach taken to estimate costs is logical, fair and reasonable: Beach; Seven Network Ltd v News Ltd [2007] FCA 2059 at [29] (Sackville J); WM Wrigley JR Company v Cadbury Schweppes Pty Ltd [2006] FCA 1186 at [9] (Sundberg J).

ANALYSIS

12    PwC claims subpoena costs of $132,333 and the starting point for the fixing of costs in a lump sum is the costs actually charged for the work: Beach at 124. Of the total of $132,333, only $10,520 relates to time spent by PwC itself in reviewing documents and $13,542 relates to disbursements paid to LitSupport to upload, process and produce documents. The balance of $108,271 is made up of legal fees charged by Ashurst representing 82% of the costs Mr Dudman found to be reasonable.

13    Mr Dudman’s affidavit sets out the methodology he used to determine the costs and disbursements he considered to be fair and reasonable. I am satisfied that he was thorough in reviewing the subpoena costs and his affidavit sufficiently deals with the relevant issues in relation to the reasonableness of the claimed costs. There is a basis for his opinion that the subpoena costs of $132,333 are fair and reasonable and I found his evidence useful, but I do not completely concur with his assessment.

14    In submissions PwC criticises the applicant for not adducing evidence from an expert costs consultant and instead relying on the evidence of Ms Dellavedova. That criticism is misplaced. Lump-sum costs applications are intended to expedite and streamline the determination of costs, and the utility of the procedure will be reduced if there is a requirement for a costs expert’s report in every matter. Ms Dellavedova is an experienced litigation lawyer, having practised in a large firm for almost 18 years, and she had conduct of the matter. There is a basis for her opinion that only costs of approximately $39,774 are reasonable and I found her evidence useful, but I do not agree with her assessment.

15    Ashurst charged PwC fees of $128,557 for its work. Mr Dudman undertook what he described as a global analysis of the costs incurred by PwC in complying with the subpoena and he applied various modest reductions or disallowances for costs which he did not consider to be reasonable. Following that analysis he reached the view that the amount of $108,271 was reasonable for Ashurst’s fees, being a reduction of $20,286.

16    Ms Dellavedova contends that the reduction in Ashurst’s fees does not go far enough and that a substantially greater reduction should have been made. She says the subpoena costs incurred by PwC are unusually high particularly when only approximately 1,267 documents were produced by PwC in response to the subpoena.

17    In addition, the applicant points to the fact that Ernst & Young (EY) incurred subpoena costs of only $23,100 (17% of PwC’s claimed amount) in responding to a subpoena in identical terms, and producing a similar number of documents. PwC says this is a false equivalence because, unlike EY, PwC were the auditors of QBE and as a result a large number of documents relating to broader audits of QBE and its subsidiaries were captured by the keywords suggested by MB. It argues that there is no basis for a conclusion that EY’s costs are a comparable reference point for the costs incurred by PwC.

18    PwC says one reason for the level of costs was the width of the subpoena, which initially called for the production of documents that “refer” to broadly framed matters over a period of almost two years, which led to negotiations over two months until the solicitors for the applicant agreed to narrow the categories of documents required PwC to produce. By that time PwC says that it had already incurred costs and disbursements in the order of $66,000.

19    It says that even with the narrowed categories PwC and its solicitors, Ashurst, had to review 9,000 emails and electronic documents. It argues that it was reasonable to engage Ashurst to review the documents for relevance where they needed to be reviewed by lawyers for privilege in any event, and in order to avoid duplication. PwC rejects the suggestion that Ashurst used senior associates to review the documents when the work could have been carried out by paralegals or junior lawyers.

20    PwC also says that there is no proper basis for challenging its internal costs of $10,520. Mr Dudman found that figure to be reasonable and PwC says it had to divert resources to respond to the subpoena during a time of significant client demand, when the resources could have been spent on chargeable matters. In the circumstances it argues that it is not unreasonable or contrary to the current state of authorities to use the charge out rates of PwC employees in calculating its internal costs.

21    While PwC’s contentions are not without force, I do not consider that the claimed subpoena costs to be reasonable, although I do not accept the substantial reduction for which the applicant argues.

22    First, the narrative time entries provided by PwC tend to show that a substantial amount of the time billed by Ashurst was devoted to reviewing documents for relevance, rather than exercising legal judgment about the scope of the subpoena or providing legal advice regarding privilege, confidentiality or other matters.

23    In Taylor v Dixon Advisory Limited (2010) 5 ACTLR 136 at [47]-[48] after reviewing some of the relevant authorities, Reshauge J said:

[47]    Thus, the principles to be applied seem to be that the costs of compliance with a Notice for Non-Party Production, payable on an indemnity basis so long as they have been reasonably incurred, include:

•    if the matter is complex and more so than the ordinary case, the costs of advice about its validity and the extent of compliance required;

•    correspondence or attendances with the issuing party about its terms and whether they can be narrowed or production of the documents completed in a particular way;

•    advice about whether documents are confidential or subject to legal professional privilege;

•    correspondence and attendance to negotiate the terms of access to the documents sought, including the formulation of undertakings as to confidentiality;

•    attendances when the documents are produced, though this will be ordinarily by post;

•    any necessary attendances at court to ensure those arrangements are effected;

•    attendances to ensure undertakings have properly been given and compliance is secured; and

•    preparing, negotiating and having taxed a bill of costs for such costs and attending on such taxation.

Costs of work which is not to be characterised as compliance with the Notice, such as challenges to its validity, the filing of an affidavit under r 664, and correspondence on attendances in relation to other matters, with an enforcement of a costs order following taxation, should be paid on an ordinary party/party basis, unless the court considers in the particular circumstances that some other order is warranted.

[48]    In the ordinary case, however, it is unlikely that respondents to a notice would require advice or legal assistance and, if they did seek and receive it, the cost of it would not be recoverable.

(Emphasis added.)

24    The time entries indicate that Ashurst was largely not providing legal advice and instead PwC simply outsourced the majority of its compliance tasks to Ashurst. The material does not explain why PwC took that course nor does it show that this is anything other than an ordinary case. It is appropriate to reduce the amount allowed on the basis that, consistently with the overarching purpose in s 37M of the Act, the task of reviewing the documents for relevance is likely to have been less expensively and more efficiently performed by PwC itself. It had greater familiarity with the documents and is itself a large, well-resourced and sophisticated organisation with its own internal lawyers. Mr Dudman did not grapple with the extent to which it was reasonable for PwC to completely outsource the basic task of reviewing documents for responsiveness.

25    Second, much of the time billed for legal work performed by Ashurst, particularly the document review work, was recorded in bulk time entries exceeding five hours per entry. That is not a realistic work pattern and I treat those time entries as having reduced reliability.

26    Third, of Ashurst’s time billed from 7 March 2018, approximately $6,467, relates to recovery of compliance costs including a review of all previous correspondence. Two things may be said about that. First, corresponding about the costs of compliance is not a cost incurred in compliance. Second, I accept Ms Dellavedova’s evidence that this work would not have been necessary if PwC’s claim for compliance costs had been adequately particularised when it was first made.

27    Fourth, in the period from 21 March 2017 to 28 March 2017, approximately $5,227 appears to have been incurred through a mistake by Ashurst in producing five documents which fell outside the scope of the subpoena. Those costs are not recoverable from the applicant.

28    Fifth, legal costs must be proportionate. Complying with the subpoena involved the review of approximately 9,000 emails and electronic documents, and in the finish PwC produced only 1,267 documents were produced. At first instance the search would have been electronic, and followed by human review. It should not have been as major an exercise as PwC’s claim would indicate. I do not consider costs of $132,333 are proportionate to the task.

29    Taking a broad brush approach, and without breaking down the reductions by category, as is permissible in a lump sum costs assessment, I will allow subpoena costs in a total of $90,000.

COSTS

30    PwC claims costs for the preparation of its lump sum application of $26,842, which includes $7,000 in respect of Mr Dudman’s fee for his report. It sought leave to file further submissions but I have not allowed that. In my view there has been enough time and money spent on this dispute. Mr Dudman’s fee is reasonable but I do not consider $19,842 to be reasonable and proportionate for the preparation of short (three-page) submissions and a short affidavit which attaches some correspondence. I will allow costs of the lump sum application in the sum of $17,000. I will, however, grant liberty to apply so that the parties may be heard if there is a compelling reason to vary this costs order, such as the existence of an offer of compromise which alters the position on costs.

Associate:

Dated:    20 December 2018