FEDERAL COURT OF AUSTRALIA

Rafidi v Commonwealth Bank of Australia (No 3) [2019] FCA 1182

ORDERS

THE COURT ORDERS THAT:

1.    The applicant is to pay the respondent’s costs of the proceedings on an ordinary basis.

2.    The respondent be awarded a lump sum for its costs instead of any taxed costs in an amount to be determined by a Registrar of the Court.

3.    The Registrar is directed, pursuant to r 1.37 of the Federal Court Rules 2011 (Cth), to determine the quantum of the respondent’s costs in such manner as he or she deems fit including, if thought appropriate, on the papers.

4.    The Registrar is directed at the conclusion of the process to order the applicant to pay whatever sum has been determined within 28 days.

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

REASONS FOR JUDGMENT

BURLEY J:

1.    INTRODUCTION

1    On 3 May 2019 I delivered judgment in Rafidi v Commonwealth Bank of Australia [2019] FCA 620 (primary judgment) in favour of the respondent, the Commonwealth Bank of Australia (CBA). During the proceedings, the CBA indicated that in the event it was successful in the final outcome, it may seek a special costs order against the applicant, Iyad Rafidi. In the primary judgment, I made orders allowing for the CBA to make an application for a special costs order as well as file submissions in support, which it has now done. The parties are content for the costs application to be determined on the papers. These reasons should be read in conjunction with the primary judgment, as well as my reasons in Rafidi v Commonwealth Bank of Australia [2018] FCA 1005 (interlocutory judgment).

2    By way of summary of the proceedings, Mr Rafidi sought declarations and orders setting aside Bankruptcy Notice 212149, issued to him pursuant to s 41 of the Bankruptcy Act 1966 (Cth) by the CBA. The Bankruptcy Notice identified a total debt of $9,331,605.09. This arose from a judgment order entered by the consent of the parties on 4 November 2016, in proceedings conducted between the parties in the Supreme Court of New South Wales (Supreme Court Proceedings).

3    Mr Rafidi commenced the current proceedings on 16 March 2017. His originating process initially included a 23 page document entitled “Statement of Claim” that alleged the judgment order arose from proceedings that did not properly adjudicate on matters, and was obtained by misfeasance. On 28 July 2017, the Court ordered by consent of the parties that the Statement of Claim be struck out. On 16 August 2017, the CBA filed an interlocutory application seeking, among other things, that special costs orders be made against Mr Rafidi with respect to the proceedings to that date (CBA IA). On 13 October 2017, Mr Rafidi filed an interlocutory application dated 29 August 2017 seeking leave to amend his originating process and to rely on further affidavit material (Rafidi IA). The amendments sought to be made by Mr Rafidi related to two broad substantive bases upon which he contended the Court should find in his favour, being what I referred to in the interlocutory judgment as the “vitiated consent allegations” and the “CAM cross-claim allegations”. After hearing submissions from the parties, I delivered the interlocutory judgment on 4 July 2018 in which I dismissed the Rafidi IA, and ruled that Mr Rafidi’s application to set aside the Bankruptcy Notice could proceed on the basis of the vitiated consent allegations as they were set out in his first and second affidavits and the “technical argument” identified in paragraph 1 of his unamended originating process. I also ordered that Mr Rafidi pay the CBA’s costs of the Rafidi IA, but noted that I would deal with the other questions of costs arising from the CBA IA after the final hearing of the matter. In light of my conclusions in the interlocutory judgment, it was not necessary otherwise to address the CBA IA.

4    Following the parties’ agreement that Mr Rafidi’s application to set aside the Bankruptcy Notice should be determined on the papers, I dismissed the application in the primary judgment.

2.    SUBMISSIONS ON COSTS

5    The CBA submits that Mr Rafidi should pay the CBA’s Rafidi IA costs on an ordinary basis, but that he should pay the CBA’s costs incurred during the rest of the proceedings on an indemnity basis (other costs) (excluding the CBA’s costs of attending a Case Management Hearing on 18 July 2018 which have already been finalised between the parties). The CBA further submits that Mr Rafidi pay these costs in a fixed lump-sum award of $149,981, pursuant to r 40.02 of the Federal Court Rules 2011 (Cth). Alternatively, if the Court is not minded to grant an indemnity costs order with respect to the other costs, the CBA submits that a lump-sum award of $139,030 would be appropriate. The CBA relies on an affidavit sworn on 17 May 2019 by a solicitor for the CBA, Justin Bates, which details how those two sums are calculated.

6    Briefly, Mr Bates sets out in his affidavit the CBA’s total costs of the proceedings, and approximates that 20% of those were Rafidi IA costs (to be paid on an ordinary basis). He then applies a 30% discount to the Rafidi IA costs, and a 10% discount to the other costs to be paid on an indemnity basis, and adds those amounts with all counsel fees and other disbursements. He then applies a further one-third discount to the revised total, which results in the two figures in [5], being $149,981 if indemnity costs are awarded, and $139,030 if they are not.

7    The CBA puts the case for indemnity costs on three bases. First, it submits the application made by Mr Rafidi did not have any reasonable prospects of success. Secondly, it submits Mr Rafidi engaged in unreasonable conduct throughout the proceedings, including by conducting the proceedings in the manner of “trolley load litigation”. Thirdly, the CBA submits Mr Rafidi engaged in conduct which caused unnecessary anxiety, trouble or expense, including by failing to adhere to proper procedure.

8    The CBA submits that, despite whether or not the other costs are determined to be paid on an indemnity basis, the Court should order costs be payable by way of a lump-sum for the following reasons:

(a)    The delay, expense and inconvenience of taxing costs in the normal manner would be unduly protracted and unduly expensive to the CBA.

(b)    The financial capacity of Mr Rafidi is such that the additional cost of taxation will impose a significant burden on the CBA without real prospects of recovering those costs.

(c)    The order that costs be paid by way of lump-sum is consistent with the Federal Court’s preferred practice, as set out in the Costs Practice Note.

9    In reply to the CBA’s submissions, Mr Rafidi notes that the indemnity clauses of the underlying loan agreements and the guarantee would support an order for indemnity costs, and that beyond this, he does not seek to be heard on the orders as to costs. He also states that he is not in a position to lead evidence in answer to the CBA’s calculation of $149,981 being an appropriate lump sum costs award, and leaves the matter to the consideration of the Court.

3.    CONSIDERATION

10    There is no dispute that the CBA is entitled to its costs in the proceedings. There may be a dispute as to whether the CBA is entitled to indemnity costs. Mr Rafidi’s somewhat Delphic submission is“[w]e have raised with our friends that it would appear to us (and without more) that the indemnity clauses of the underlying loan agreements and the guarantee would support an order for indemnity costs”, which may suggest that an order for indemnity costs is not opposed. However, without more explicit instruction as to the context or scope of the indemnity clauses, and in the absence of any submission from the CBA raising or embracing the proposition put, I do not consider it safe to rely on this submission as of assistance. Mr Rafidi does not explicitly oppose the award of lump sum costs, but appears to leave it to the Court to determine the matter. Accordingly, the three issues for consideration are whether to award a fixed lump sum of costs, and if so the amount of those costs, and thirdly whether to award indemnity costs to the CBA for the proceedings (excluding the costs of the Rafidi IA).

11    The principles for the award of costs in a lump sum were conveniently summarised by Markovic J in Fewin Pty Ltd v Burke (No 3) [2017] FCA 693:

[10]    The Court’s power to order lump sum costs is discretionary. It is not confined and may be exercised whenever the circumstances warrant it: Su v Australian Fisheries Management Authority (No 3) [2008] FCA 2018 at [1] (per Reeves J).

[11]    In Dunstan v Human Rights and Equal Opportunity Commission (No 3) [2006] FCA 916 Mansfield J set out some of the factors relevant to the exercise of the Court’s discretion to order lump sum costs pursuant to O 62 r 4(2)(c) of the former Federal Court Rules at [23]-[24] as follows:

[23]    There is no particular characteristic of a case which must exist before a gross sum costs order can be made: Australasian Performing Rights Association Ltd v Marlin [1999] FCA 1006. It is a power which may be exercised whenever the particular circumstances of the case warrant it: Beach Petroleum NL v Johnson (1995) 57 FCR 119 (Beach); Harrison v Schipp (2002) 54 NSWLR 738.

[24]    Factors which have been considered when exercising the discretion to make such an order include –

•    where the delay, expense and inconvenience of taxing costs in the normal manner would be unduly protracted or unduly expensive: Beach at 120; Charlick Trading Pty Ltd v Australian National Railways Commission [2001] FCA 629 (Charlick); Foyster v Foyster Holdings (2003) 44 ACSR 705; and

•    where the financial capacity of the party liable to pay costs is such that the additional cost of taxation will impose a significant burden on the party in whose favour costs are ordered without real prospects of recovering those costs: Hadid v Lenfest Communications Inc [2000] FCA 628; Sparnon v Apand Pty Ltd (unreported, von Doussa J, 4 March 1998); Sony Entertainment (Australia) Ltd v Smith (2005) ALR 788.

…

[12]    The Court has also recognised that it is appropriate to use the lump sum costs order procedure in cases which are simple and in which “there would be utility in the [C]ourt cutting the Gordian knot of protracted fights about costs”: Keen v Telstra Corporation Limited (No 2) [2006] FCA 930 at [6] (per Rares J). In that case, Rares J also observed that the purpose of a lump sum costs order is to save the parties the time, trouble, delay, expense and aggravation in having to proceed to a taxation of costs.

[13]    In Clipsal Australia Pty Ltd v Clipso Electrical Pty Ltd [2016] FCA 37 Perram J said in relation to the Court’s power to award lump sum costs at [9]-[10]:

[9]    … The circumstances in which such an order may be made are not closed but include the avoidance of the delay, expense and aggravation arising out of taxation: Beach Petroleum NL v Johnson (1995) 57 FCR 119 at 120 per Von Doussa J. I do not think that that is germane in this case since even if I make the orders sought by the applicants there will still be other costs orders at the conclusion of the trial that will likely require taxation.

[10]    Such an order may also be appropriate where the proceedings are complex and where it may be more efficient for a trial judge to determine the issue of costs than to condemn the parties to a taxation: Sony Entertainment (Australia) Limited v Smith (2005) ALR 788 at [189]ff per Jacobson J. Another reason to make such an order will arise in those cases where there is a basis to think that the costs of the taxation themselves may turn out to be irrecoverable (Sony at [195]) or where one party has been particularly truculent so that it may be thought just to spare the other from the inconvenience of further engagement over the process of taxation: Ariix LLC v Mahilall (No 2) [2014] FCA 494 at [10] per Rares J. Another circumstance sometimes thought relevant is where a party has failed to appear: Sony at [193].

12    The present case is one that has several characteristics warranting the exercise of discretion to award a lump sum. In particular, the proceedings are not complex, but have involved the filing of numerous affidavits and interlocutory applicants largely because of the manner in which Mr Rafidi sought to contest the validity of the Bankruptcy Notice. There is merit in adopting a procedure in relation to costs that ensures that as little further complexity or delay is visited upon the parties, and in particular the CBA, which was wholly successful in defending the application.

13    Further, the financial capacity of Mr Rafidi to pay the costs is such that the additional cost of taxation will impose a significant burden on the CBA, in circumstances where there is little real prospect that it will recover them.

14    In terms of assessing quantum, the Court is aided by the affidavit of Mr Bates, a solicitor with some 25 years of experience, who has deposed to the matters required by the Court’s Costs Practice Note (GPN-Costs). He provides a breakdown of costs as follows:

(a)    Rafidi IA solicitor fees: $20,533;

(b)    Remaining solicitor fees: $83,134;

(c)    Counsel fees: $135,945;

(d)    Disbursements: $6,474;

Total Costs: $245,086.

15    To these amounts, Mr Bates has applied the discounts identified in [6] above.

16    Mr Bates states that he has divided the solicitor fees by reference to work done on the Rafidi IA and the balance of the proceedings, but has not done so for counsel. He has adopted this approach in order to distinguish costs payable on an indemnity basis from costs payable on an ordinary basis. He states that he has not applied a similar approach to counsel’s costs because typically in assessing ordinary costs, all disbursements, including counsel fees, are not discounted.

17    Having regard to the content of Mr Bates’ evidence, and in consideration of the proceedings, the amounts claimed by the CBA seem quite high. Absent a contradictor addressing the amounts proposed, I am not disposed to grant either $149,981 or $139,030 to the CBA, but will order that costs be paid in a lump sum, the amount to be determined by a Registrar of this Court.

18    I now turn to the question of indemnity costs. In support of its contention that Mr Rafidi should pay costs assessed on this basis, the CBA referred to the following factual matters:

(1)    Mr Rafidi filed and served a total of six affidavits, four of which were rejected as having no probative value at all. The two remaining affidavits sworn by Rafidi included numerous affidavits that were not read, and voluminous exhibits which were of little or no probative value;

(2)    The proceedings were unnecessarily prolonged as a result of the initial reliance by Mr Rafidi upon the Statement of Claim, which was some 23 pages in length and made numerous allegations against the CBA, including of misfeasance. It was not ultimately relied upon by Mr Rafidi and he consented to it being struck out. Furthermore, the proceedings were prolonged by the reliance on affidavits in the manner described in (1);

(3)    Mr Rafidi made unfounded allegations of fraud and improper conduct, being allegations of improper conduct against senior counsel for the CBA at the trial in the Supreme Court proceedings that were described in the primary judgment as “risible”, and allegations of forgery against the CBA that were found in the primary judgment not to be sustained;

(4)    Mr Rafidi engaged in conduct causing unnecessary anxiety, trouble or expense including by failing to adhere to proper procedure. In this regard it relies again on the service of the Statement of Claim.

19    The Full Court said the following in Melbourne City Investments Pty Ltd v Treasury Wine Estates Ltd (No 2) [2017] FCAFC 116 (Jagot, Yates and Murphy JJ):

[3]    The Court has a broad power to award costs in proceedings, including indemnity costs, under s 43 of the Federal Court of Australia Act 1976 (Cth) (the Act). In exercising the discretion to award costs, s 37N(4) of the Act requires the Court to take account of any failure by a party to comply with the overarching purpose of the civil procedure provisions, to facilitate the just resolution of disputes according to law as quickly, inexpensively and efficiently as possible: see s 37M(1).

[4]    Usually the Court will award costs to the successful party on a party/party basis, but where the circumstances of the case warrant a departure from the usual course the Court may order indemnity costs.  The principles relevant to an award of indemnity costs are well-established.  There can be no exhaustive list of the circumstances that may warrant the exercise of the discretion.

[5]    In broad terms an order for indemnity costs requires that some special or unusual feature arises: Cirillo v Consolidated Press Property Ltd (formerly known as Citicorp Australia Ltd) (No 2) [2007] FCA 179 at [3] (Finn J). Indemnity costs are not punitive but are designed for “compensating a party fully for costs incurred, as a normal costs order could not be expected to do, when the Court takes the view that it was unreasonable for the party against whom the order is made to have subjected the innocent party to the expenditure of costs”: Hamod v New South Wales (2002) 188 ALR 659 at 665 (Gray J, with whom Carr and Goldberg JJ agreed). Such circumstances may include where allegations are made “which ought never to have been made”, where the case is “unduly prolonged by groundless contentions” (Ragata Developments Pty Ltd v Westpac Banking Corporation [1993] FCA 115 at [15], [17] (Davies J)), and where “the applicant, properly advised, should have known that he had no chance of success” (Fountain Selected Meats (Sales) Pty Ltd v International Produce Merchants Pty Ltd (1988) 81 ALR 397 at 401 (Woodward J)) or “persists in what should on proper consideration be seen to be a hopeless case” (J-Corp Pty Ltd v Australian Builders Labourers Federated Union of Workers (WA Branch) (No 2) (1993) 46 IR 301 at 303 (French J)).

20    Having regard to the position as set out at [13] above, there may be little utility in awarding indemnity costs; however, in my view, in any event such an order is not warranted in the present case. The service of the Statement of Claim identified in (1) in [18] above was addressed and withdrawn by Mr Rafidi after its infelicity was drawn to his attention. It is true that it was procedurally inappropriate, but its asserted purpose was to set out in detail the nature of the claim that Mr Rafidi wished to advance in order to ensure that the parties and the Court were aware of it. In proceedings concerning the issue and setting aside of a Bankruptcy Notice, an applicant is likely to be in a financially disadvantaged position, with the result that all procedural norms are not so readily observed. The same may be said of the matters raised in relation to (4). I am conscious, in this regard, that the respondent was the CBA, an entity that might be less prone to anxiety than many litigants. The filing of irrelevant or inadmissible evidence as summarised in (2) adds to the costs of proceedings, but not in a manner that weighs heavily in favour of an award of indemnity costs. Regrettably, it is a factor common to litigation. Finally, the matters set out in (3) do give pause for thought. It is a serious matter raising such allegations. However, having regard to the respective characteristics of the parties, and the fact that the allegations identified could readily be regarded as unfounded, whilst they weigh somewhat in favour of an order for indemnity costs, this factor is not decisive.

4.    DISPOSITION

21    In the result, I consider that the appropriate orders are as follows:

(1)    The applicant is to pay the respondent’s costs of the proceedings on an ordinary basis.

(2)    The respondent be awarded a lump sum for its costs instead of any taxed costs in an amount to be determined by a Registrar of the Court.

(3)    The Registrar is directed, pursuant to r 1.37 of the Federal Court Rules 2011 (Cth), to determine the quantum of the respondent’s costs in such manner as he or she deems fit including, if thought appropriate, on the papers.

(4)    The Registrar is directed at the conclusion of the process to order the applicant to pay whatever sum has been determined within 28 days.

Associate:

Dated:    31 July 2019