FEDERAL COURT OF AUSTRALIA

Coshott v Prentice (No 3) [2019] FCA 1497

ORDERS

The Court NOTES:

A.     THE AGREEMENT OF THE PARTIES AND MICHELLE LENA PARKER, CHRISTINA MAREE COLLINS, LJILJANA COSHOTT, JAMES COSHOTT, ROBERT GILBERT COSHOTT, THE OFFCIAL TRUSTEE IN BAKRUPTCY AS TRUSTEE FOR THE ESTATE OF MICHAEL PETROVIC LENIN (DECEASED), NICHOLAS CROUCH AND SHABNAM AMIRBEAGGI AS TRUSTEES FOR SALE OF PROPERTY OF 1 BUNYULA ROAD BELLEVUE HILL, AND MAXWELL WILLIAM PRENTICE TRUSTEE OF THE PROPERTY OF ROBERT GILBERT COSHOTT (A DISCHARGED BANKRUPT) THAT BY REASON OF THE ADOPTION OF THE REFEREE REPORT BELOW THE AMOUNTS PAYABLE FOR THE COSTS ORDERS IDENTIFIED IN THE SCHEDULE TO THE ORDERS OF 21 JUNE 2019 HAVE BEEN QUANTIFIED (OTHER THAN IN NSD 2014/2016, WHICH HAS BEEN SEPERATELY QUANTIFIED) (RELEVANT COSTS ORDERS) AND NO FURTHER QUANTIFICATION OF THE RELEVANT COSTS ORDERS COSTS IS TO OCCUR AND THE AMOUNT PAYABLE PURSUANT TO THE RELEVANT COSTS ORDERS IS AS QUANTIFIED UPON THE ADOPTION OF THE REFEREE REPORT;

B.    the UNDERTAKING OF MAXWELL WILLIAM PRENTICE BY HIS COUNSEL THAT HE WILL TAKE REASONABLE STEPS (TO THE EXTENT STEPS ARE LAWFULLY AVAILABLE TO HIM) TO MAKE A CLAIM FOR AN INPUT TAX CREDIT IN RESPECT OF COSTS PAYBALE TO HIM PURSUANT TO THE RELEVANT COSTS ORDERS AND, IF SUCH AN INPUT TAX CREDIT IS ACCEPTED BY THE COMMISSIONER OF TAXATION, HE WILL PROIDE A REFUND OF SUCH AMOUNT TO THE PARTY HAVING THE BURDEN OF PAYING SUCH AMOUNT WITHIN 10 DAYS OF ANY SUCH DECISION BEING COMMUNICATED TO HIM BY THE COMMISIONER OF TAXATION

the court orders (by consent, in relation to orders 2, 3 and 4):

1.    Pursuant to s 54A(3) of the Federal Court of Australia Act 1976 (Cth), the Report of Janet McDonald dated 14 August 2019 be adopted in whole (Referee Report).

2.    The applicants and respondent are each severally to pay 50% of the Referee Report of Janet McDonald dated 14 August 2019 within 10 days, if not already paid.

3.    Each party to the present proceeding pay their own costs of these proceedings including with respect of the reference.

4.    Other than Order 2, there be no order as to costs in relation to the Referee Report and its adoption.

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

REASONS FOR JUDGMENT

Revised from the transcript

LEE J:

1    In Coshott v Prentice [2018] FCAFC 179 the Full Court (Kerr, Farrell and Gleeson JJ) at [4] observed as follows:

There has been extensive litigation over many years between Mr Prentice and entities including James Coshott, Ljiljana Coshott and Fewin [Pty Limited] in connection with the bankruptcy of Robert Coshott. … sometimes Mr Prentice has succeeded and obtained costs orders in his favour, while sometimes a Coshott entity has succeeded and obtained a costs order against Mr Prentice. …

2    The extent of the litigious disputation between these parties has, through judgments of the Court, become notorious. Out of what I have previously described as an orgy of litigation, the various costs orders that have emerged and their quantification have placed very significant demands upon both the taxation processes of the Court and upon the resources of Registrars; moreover, any decisions made by Registrars seem to give rise to disputation or at least the potential of further disputation.

3    This proceeding dealt with the questions of whether a writ of levy on property should issue and another writ of levy on property should be set aside; this dispute brought into focus countervailing costs orders made in various proceedings involving the parties and their privies. Finally, a degree of common sense broke out following the mutual recognition that some final settling of accounts was required as to the large number of costs orders that had been made and had yet to be concluded by way of taxation. Obviously enough, the ultimate position of the settling of accounts upon quantification of the countervailing costs orders, was a relevant discretionary matter relating to whether the execution of any writs should be allowed. To this end, in this proceeding, the parties agreed to a process whereby there would be some expedient quantification of the various outstanding costs orders in an amount to be determined by a referee appointed by the Court (although the identity of the referee and the costs of the reference process were not agreed).

4    On 21 June 2019, pursuant to ss 37P(2) and 54A of the Federal Court of Australia Act 1976 (Cth) (Act) and r 28 of the Federal Court Rules 2011 (Cth) (FCR), the Court made orders, as amended on 26 June 2019, that the question of costs be referred to a referee for the purpose of the referee conducting an inquiry into the relevant question.

5    The rationale of the referee process was to adopt a speedy, efficient and cost-effective mechanism of resolving all the costs issues. Sensibly, all other parties whose interests were affected by the reference did not oppose the proposed course. All such parties either appeared at the time of the adoption hearing or provided submissions indicating that they had no objection to the referee report being adopted and being bound by the findings of the referee if adopted.

6    It followed that a pragmatic course was agreed by which the referee would determine the amounts arising under an identified list of costs orders. Orders 1-8 of the orders made on 21 June 2019 provided as follows:

1.    Pursuant to ss 33ZF and/or 37P(2) and/or s 54A of the Federal Court of Australia Act 1976 (Cth) and r 28 of the Federal Court Rule 2011 (Cth) (FCR) that:

(a)    the question set out in the Annexure to this Order (Relevant Question) be referred to a referee (Referee) for the purposes of the Referee conducting an inquiry into the Relevant Question (Reference) and make a report in writing to the Court on the Relevant Question referred to the Referee stating, with reasons, the Referee's opinion on the Relevant Question (Report);

(b)    the Reference will commence within 7 days of the making of this order or on such other date as ordered by the Referee;

(c)    the Referee is to consider and implement such manner of conducting the Reference as will, without undue formality or delay, enable a just, efficient, timely and cost-effective resolution of the Reference to allow completion of the Report including, if the Referee thinks fit:

     (i)    the making of enquiries in writing;

(ii)    direct communication without intervention of lawyers of any expert retained on behalf of a party and/or any person who the Referee believes may have information relevant to the Reference;

(iii)    in order to facilitate the Referee implementing the just, efficient, timely and cost-effective resolution of the Reference, the Referee is to make such directions as the Referee considers appropriate as to the conduct of the Reference;

(iv)    without limiting (i), (ii) and (iii), to the extent the Referee considers it is necessary or appropriate for the Referee to obtain any submission from any party, the Referee may make any direction the Referee considers appropriate in relation to such submissions including that any submissions be provided wholly in writing and be limited in length and topic;

(v)    without limiting (i), (ii) and (iii), to the extent the Referee considers it is necessary or appropriate, the attendance of any person and the production of documents be compelled by subpoena;

(vi)    the laws of evidence will not apply in relation to the Reference.

(d)    Without limiting the generality of (c), in answering the Relevant Question, the Referee, consistent with the overarching purpose, is to provide an estimate of the party/party costs to which the parties are entitled by adopting such process as is considered to be cost-effective and timely and provides a reasonably accurate estimate without descending into the detail of a taxation.

2.    The Referee appointed is Janet McDonald, barrister, of Level 22 Chambers, 52 Martin Place.

3.    The Referee submit the Report to the Court in accordance with FCR 28.66 addressed to the District Registrar, on or before 31 July 2019.

4.    The costs applicant in each of the proceedings listed in the Schedule is to submit to the Referee, and serve on the costs respondent, details and particulars of each claim within 7 days of the date of this order.

5.    Subject to any contrary direction by the Referee, the costs respondent of the proceedings listed in the Schedule shall deliver to the Referee, and serve on the other parties, any written submissions (limited to 2 pages per claim) regarding any objections to the claim, within 14 days of the costs applicant’s compliance with order 4 above.

  6.    The Referee, in the Report:

(a)    shall, to the extent it was necessary for the Referee to make any findings of fact in order to express her opinion on the Relevant Questions, make a statement of the facts found by the referee from which the Court may draw such inferences as it thinks fit; and/or

(b)    may submit any question arising on the Reference for the decision of the Court and provide alternative opinions on the Relevant Questions which depend upon how the Court determines any question submitted to the Court.

7.    Without affecting the powers of the Court as to costs, the parties are, in the first instance, to be jointly and severally liable to the Referee for the fees payable to her and will, within seven days of this order being made, each pay the amount of $15,000.00 to the Referee’s nominated account.

8.    The parties shall deliver to the Referee forthwith a copy of this order, together with a copy of FCR 28.

7    The relevant question in the Annexure was as follows:

1.    That in each of the matters in the Schedule the Referee is to quantify the party-party costs to which the relevant party is entitled under the corresponding order of the Court and under the Federal Court Rules 2011 (Cth), taking into account relevant matters including the costs indemnity principle.

8    The Schedule attached to the orders was as follows:

Schedule of costs orders referred to Referee

9    Two points should be made about the schedule. First, the costs order (NSD2014 of 2016) was included in the schedule, but the referee did not deal with it, noting it had been mistakenly included (given that it had already been the subject of a lump sum assessment by Bromwich J). Secondly, in NSD39 of 2017, costs were awarded on an indemnity basis, but the referee had been directed to assess all costs, pursuant to the orders of the Court, on a party/party basis. The referee sensibly dealt with the assessment of those costs on an indemnity basis, and no complaint is made by either party in relation to that process.

10    After the report (dated 14 August 2019 (Report)) was distributed to the parties, an application was made by Mr Prentice for the adoption of the Report in full. That application was unopposed by all parties whose interests were affected, save for the position taken by Fewin Pty Limited and the Coshott parties, who were represented by Mr Smith of counsel.

11    Commendably, and despite some earlier, more discursive written submissions, the opposition advanced by Mr Smith was narrowly focussed and appropriately directed to the relevant principles that inform the adoption or rejection of referee reports and the procedure mandated by FCR 28.6. Those principles, of course, were summarised by McDougall J in Chocolate Factory Apartments v Westpoint Finance [2005] NSWSC 784 at [7]. There is no need for me to repeat, yet again, those principles save to draw attention to the following matters:

(1)    The discretion to adopt a report is to be exercised in a manner consistent with both the object and purpose of the Rules and the wider setting in which they take their place and it is undesirable to attempt to closely confine the manner in which the discretion is to be exercised;

(2)    It would undermine the purpose of the reference process for it to be treated as some kind of warm-up for the real contest and a right to be heard does not constitute a right to be heard twice;

(3)    If the referee’s report reveals some error of principle, absence or excessive jurisdiction, patent misapprehension of the evidence or perversity or manifest unreasonableness in fact finding, that would ordinarily be seen as a basis for rejection. In this context, patent misapprehension of the evidence refers to a lack of understanding of the evidence as distinct from the according to particular aspects of it different weight; and perversity or manifest unreasonableness means a conclusion that no reasonable tribunal of fact could have reached.

12    It follows from the above, that the referee’s findings of fact should not be re-agitated in this Court and the Court will not reconsider disputed questions of fact where there is factual material sufficient to entitle the referee to reach the conclusions she did.

13    Against this background, Mr Smith articulated his basis for rejection. It was that a global discount ought to have been applied and the referee’s failure to do so was, in the circumstances, an error of principle or was manifestly unreasonable.

14    In order to understand the argument, something must be said about the way in which the referee approached her task. Despite its length, it is worth setting out the overview of the approach taken by the referee which appears at [6]-[14] of the Report:

6.    Pursuant to Order 1(d) of the 21 June Orders I am required to provide “a reasonably accurate estimate [of the quantum of the costs entitlement] without descending into the detail of a taxation”. I have not therefore followed the taxation procedures set out in Part 40 of the FCR, including the requirement that bills of costs in the form required by FCR 40.18 be submitted and I did not, as might occur on a taxation, require the parties to produce the work product, or other evidence of it, to substantiate that the work was done as claimed. I did however, require the parties to provide me with:

   a.    a copy of the order for costs upon which the costs claim is made;

b.    a copy of any judgment which resulted in the relevant order for costs being made;

c.    a copy of any costs agreement and/or fee disclosure concerning the costs the subject of the claim;

d.    a copy of the tax invoices issued to the Costs Applicants in respect of the costs the subject of the claim;

e.    a copy of the tax invoices or receipts for disbursements paid or payable to third parties included in the costs the subject of the claim, and put the parties on notice that I would not be allowing disbursements, save for internal photocopies, where no tax invoice or receipt was able to be produced;

f.    a chronological schedule showing each item of work done comprising the costs claimed;

g.    a summary of the number of hours spent by each fee earner, their position, practice experience and hourly rate, and total fees incurred by each fee earner, in respect of the costs claimed;

h.    a brief narrative description of the proceedings giving rise to the costs order; and

i.    a verification, signed by a lawyer or costs consultant with a practice certificate, as to the accuracy of the claim for costs, whether the claims for costs are capable of further verification through source material, whether the Costs Applicant is entitled to input tax credits for GST paid or payable on the costs the subject of the claim and compliance with the indemnity principle.

7.    I read and considered all of the material provided to me pursuant to the above request.

8.    In relation to the verification I advised the parties that the form of verification contained in the example bill of costs on the Federal Court’s website, with minor adjustments would suffice and I provided the following form of a suitable verification:

I [name], lawyer for the costs applicant [name], certify that, in respect of the claim for costs made by the costs applicant in [matter no.]:

The costs applicant [is/is not] entitled to claim input tax credits in respect of GST relevant to the claim for costs made by the costs applicant.

The costs applicant is not claiming more than the cost applicant is liable to pay for costs and disbursements.

The calculations made in the documents provided to the Referee in support of the claim for costs, are correct.

The amounts claimed for costs are capable of further verification through source material (such as file records, tax invoices and receipts for payment).

9.    I note that in respect of each costs claim I was provided with a schedule(s) that provided sufficient detail as to each item of work undertaken, including the date the work was undertaken, the identity of the person who undertook the work, a description of the work, the time spent and the amount claimed, to enable me to conduct a line by line analysis of the professional fees claimed which, as explained further below, is the process I adopted to determine the quantum of party-party costs in respect of each costs order.

10.    Pursuant to Order 5 of the 21 June Orders, which was subject to any contrary direction by me, the Costs Respondent(s) in respect of each of the proceedings listed in Schedule C were to deliver to me, and serve on the other parties, any written submissions (limited to 2 pages per claim) regarding any objections to the claim, within 14 days of the Costs Applicant’s compliance with Order 4 of the 21 June 2019. Aside from extending the time for compliance, I did not make any direction contrary to Order 5.

11.    On 16 July 2019 Jim Lyons of Murphy Lyons, on behalf of his Costs Respondent clients, asked for my guidance as to the form of the Costs Respondents’ responses/objections, in circumstances where Order 5 of the 21 June Orders confined any written submissions regarding any objections to the claim to 2 pages per claim, while the material submitted by the Costs Applicants in support of the claim was in some cases voluminous.

12.    In response I advised all the parties, by letter dated 17 July 2019, that it was not expected that the Costs Respondents respond to each cost item in the schedules supporting the Costs Applicants’ claims. I advised that the Costs Respondents may be guided by the approach taken in the Court’s Costs Practice Note (GPN-COSTS) in respect of the provision of a response to a ‘Costs Summary’ in support of a lump-sum claim and drew their attention to paragraph 4.14 of the Practice Note which provides as follows:

Any Costs Response must be clear, concise and direct and briefly summarise the categories of any disputes arising in respect of the Costs Summary. The summary should not resemble formal costs objections (as prepared for a taxation of costs) nor contain submissions on the law. The Costs Response should make clear which of the costs issues arising from the Costs Summary are in dispute and which are not, and should not exceed 4 pages in length (omitting formal parts) or, in large or complex cases, no more than 8 pages.

13.    Although the process I am required to undertake is expressly not to descend into the detail of a taxation, I do not consider that the terms of the Relevant Question or Order 1(d) of the 21 June Orders mean, (as was submitted by Murphy Lyons on behalf of their Costs Respondent clients), that the “referral is on all fours with a lump sum assessment,” at least, in so far as I have not been expressly directed by the Court to follow the lump-sum costs procedure as set out in the Court’s Costs Practice Note (GPN-COSTS), which requires, inter alia, the provision by the costs applicant(s), of a costs summary in the form of an affidavit. That said, my task is not dissimilar to a lump sum assessment, to the extent that such an assessment involves “the application of a much broader brush than that applied on taxation” , but which nevertheless requires an approach which is “logical fair and reasonable”.

14.    Only one of the claims for costs were supported by a bill of costs ostensibly drawn pursuant (sic) Schedule 3 of the FCR (Scale of Costs). This being the case I did have regard to the approach taken by the Court when determining lump sum costs in other matters2, as well my own experience3 as to the quantum of costs allowed by the Court in lump sum assessments and of costs estimated by the Court as likely to be allowed on a full taxation pursuant to FCR, r 40.20. However, as I was able to conduct a ‘line by line’ analysis of the costs claimed in every case, allowing, disallowing or reducing each item using a four step process which I explain below, I did not apply a global reduction as is often applied when determining lump sum costs on the basis that the lump sum claimed would likely include costs that would be disallowed on taxation.

(footnotes omitted)

15    In respect of the bills provided by Mr Prentice to the referee, he provided bills of cost which (save for one) were ostensibly in the form required for filing in this Court and referenced the items in the Scale of Costs, but which claim for work done according to the time spent, at the rates charged by his solicitors, rather than in accordance with the Scale of Costs. This is because these documents had been well advanced prior to the reference. Accordingly, at [19] of her Report, the referee noted that in order to quantify the party/party costs, she considered the rates charged, adjusted them so that they were in line with the rates specified on the current version of the Scale of Costs, and either “allowed, disallowed or reduced each item following [a] four-step process”.

16    This process took place in the light of what was revealed on the face of the item and in the light of what the referee described as her “overall knowledge of the matter” based on all the materials that had been provided, including the Coshott parties’ submissions so that only “costs that were fairly and reasonably incurred by the party in the conduct of litigation” were allowed: at [19].

17    The referee’s four-step process was explained in the Report at [21] as follows:

a.    I determined whether the work/cost claimed fell within the scope of the order for costs (items failing this test have been identified in my reasons in the Schedules using the phrase Outside of Scope).

b.    I then considered the quantum of the item, including whether the charge-out rate applied for professional time was appropriate having regard to the level of seniority of the practitioner, the nature of the work undertaken and Item 1 of the Scale of Costs (items reduced on this basis have been identified in my reasons in the Schedule using the phrase Unreasonable rate);

c.    I then considered whether the work/cost was otherwise reasonably and properly incurred, which involved considerations such as the nature of the work/cost, the manner in which work was undertaken and the amount of time spent (items failing this test or which have been reduced due to concerns with these matters, have been identified in my reasons in the Schedules using the phrase Unreasonable Item); and

d.     In the case of externally incurred disbursements, I confirmed whether or not I had been provided with an invoice, receipt or other documentation to support the claim and disallowed claims for which no supporting material had been provided, consistent with the approach of the Court when conducting taxations.

18    The complaint advanced by Mr Smith in the course of his comprehensive submissions was that this process was unsatisfactory for broadly four reasons. First, the nature of the task was, as the referee herself recognised at [13], to perform a role not dissimilar to that performed on a lump-sum assessment (to the extent that such an assessment involves a broader brush approach than that applied on taxation). Despite this, the four-step process adopted an inconsistent course as it was akin to the process that ought to occur on a taxation. Secondly, the usual practice of the court when making a lump-sum costs assessment is to apply a discount, because without such a discount, there would be some risks that the sum includes costs that would not be recoverable on a taxation: see Hancock v Rinehart (Lump Sum Costs) [2015] NSWSC 1640 at [56]-[57] per Brereton J. Thirdly, there was unfairness occasioned to the costs respondents in each case because the costs claimants were able to provide draft bills of costs with detailed narratives, while the costs respondents were only invited to provide a very summary response to those claims, such that only limited and general objections were able to be made. Given the imbalance in favour of cost claimants, this is said to support the notion that a global discount should have been made. Finally, it was said that there was an overall unfairness by reason of the failure of the referee to directly consider the issues of quantum and proportionality as individual items which led to an outcome where, in a large number of cases, Mr Prentice was allowed 100% of his claimed costs and 90% on other occasions.

19    Despite Mr Smith’s submissions, I do not consider that there is an error of principle or manifest unreasonableness such as would cause me to reject the Report. It is plain that in preparing the very thorough and comprehensive Report, the referee did turn her mind to whether or not particular claims should be allowed, disallowed or reduced by reference to her overall assessment of the matter based on the materials provided, including any submissions. The four-step process outlined did involve an assessment not only of quantum of an item but also rates and, importantly and critically, an assessment of whether the work was reasonably and properly incurred. The whole point of the process was to allow the referee to form assessments in a principled and cost-effective way. She evidently had regard to the material provided by the Coshott parties. I am satisfied that that the process did not miscarry and the findings of fact relating to quantum should not be re-agitated in this court.

20    The flaw in the argument advanced by the Coshott parties is that although global discounts may well be appropriate when there has not been a descent to the detail as would occur on taxation, the referee here was faced with an amalgam of detail depending upon the nature of the claim. In those matters where there was able to be greater specificity, she performed a task which recognised that level of detail and hence was not required, as on a lump sum costs assessment, to form the view that a global discount was necessary in the circumstances. This does not seem to me to be a manifestly unreasonable or perverse conclusion that no referee similarly situated could have reached. Accordingly, I propose to adopt the Report in full.

Associate:

Dated:    17 October 2019