Federal Court of Australia
LLC BryanskAgrostroy v Mackies Asia Pacific Pty Limited (No 2)  FCA 1419
DATE OF ORDER:
THE COURT ORDERS THAT:
1. The costs ordered to be paid by the respondent to the applicant by order dated 29 September 2021 be assessed and fixed in the amount of $61,532.
1 The applicant obtained an arbitral award in the Russian Federation against Mackies Asia Pacific Pty Limited (ACN 131 762 091) (MAP). The award was issued by the International Commercial Arbitration Court at the Chamber of Commerce and Industry of the Russian Federation. The applicant applied to this Court for orders to enable it to enforce the award as a judgment of this Court. A declaration to that effect was made on 29 September 2021. MAP was ordered to pay the applicant's costs of and incidental to the application to be assessed on a lump sum basis.
2 Fees and certain of the disbursements were incurred in US$. The relevant figures have been expressed in Australian dollars based upon the exchange rate published as at 27 September 2021. For present purposes, given the nature of the assessment to be undertaken, it is sufficient to refer to the AU$ amounts.
3 The applicant seeks an order that the costs be assessed in the amount of $80,176 for fees and disbursements. The disbursements are for an expert who provided a report on relevant Russian law, a process server and court filing fees. The amount claimed for disbursements totals $11,532. The total amount is sought on the basis that there was no liability for the applicant to pay GST because it is incorporated in the Russian Federation. Save for costs associated with the preparation of the report on applicable Russian law, the legal costs have been incurred in Australia.
4 The applicant has filed a costs summary in accordance with Annexure A to Costs Practice Note (GPN-COSTS). The solicitors' fees to be rendered to the applicant have been agreed to be capped at the amount claimed. It is deposed that this represents a reduction of 16% on the level of legal fees actually incurred which would have been rendered to the client but for the agreed cap. Those fees have been calculated based on hourly rates for three practitioners. The rates agreed with the applicant were expressed in US$ amounts. For consistency I will refer to the equivalent AU$ amounts, being $1,373 per hour for the partner (12.3 hours), $810 per hour for the senior associate (41.7 hours) and $398 per hour for a person described as 'trainee' (77.5 hours). The reference to the third practitioner as a trainee appears to be a misdescription as the practitioner identified is admitted to practice and appeared on the hearing of the application.
5 On the application, judgment was entered in favour of the applicant for AU$422,573.15 which included claims for costs and interest.
6 The applicant contends that there are circumstances justifying the assessment of lump sum costs on an indemnity basis. In short, those circumstances are:
(1) A formal offer was made when the application was brought which offered MAP an opportunity to settle the amount the subject of the arbitral award on terms more favourable than the full amount to which the applicant was entitled which offer was not accepted by MAP;
(2) The formal offer was a genuine offer of compromise which it was unreasonable for MAP to refuse;
(3) A formal offer of compromise was made on 20 August 2021 which was not accepted;
(4) MAP's failure to concede the merits of the application was unreasonable in all the circumstances;
(5) MAP indicated to the Court that it would bring an application to annul which, in the result, was not forthcoming but necessitated the preparation of an expert report as to the relevant Russian law bearing upon such a claim which was to the effect that there was no basis for such a claim in the particular circumstances of the case;
(6) MAP delayed the conduct of the application necessitating additional appearances; and
(7) The applicant was required to incur the costs of preparing written submissions on the application when ultimately the application was not opposed in any way.
7 I accept that the applicant has established each of the above matters.
8 The principles to be applied in deciding whether to order costs on an indemnity basis because a formal offer has not been accepted are well known: Stewart v Atco Controls Pty Ltd (in liq) (No 2)  HCA 31; (2014) 252 CLR 331 at , Trustee for The MTGI Trust v Johnston (No 2)  FCAFC 190 at -; and Anchorage Capital Partners Pty Limited v ACPA Pty Ltd (No 2)  FCAFC 112 at . As was emphasised in Clifton (Liquidator) v Kerry J Investment Pty Ltd t/as Clenergy (No 2)  FCAFC 112; (2020) 277 FCR 382 at -, the making of a special costs order is reserved for those instances where the party liable for costs has engaged in conduct in the proceedings that is deserving of criticism and that conduct has resulted in greater expense for the innocent party.
9 MAP was given an opportunity to file submissions concerning the quantum of costs but has not done so. There is no suggestion in the materials filed on the application, which indicates any arguable basis upon which the application in the present case might have been opposed or that may have provided any justification for the stance which MAP adopted. Given the clear terms of the award and the position adopted at the final hearing of the application, I can conclude with confidence that the defence of the application was hopeless and that was a position that MAP should have realised from the time of the formal offer. The offer made offered a real compromise. It was an offer that was extended early on. It did not refer in terms to the prospect of an application for indemnity costs if the offer was not accepted but it did state that it was made in accordance with the principles in Calderbank v Calderbank  3 All ER 333. Further, MAP indicated that it intended to defend the application on the basis that it was to apply to annul the award at the seat of the arbitration. No such application was made and no basis upon which it might have been made was ever articulated. For those reasons, I am satisfied that it is appropriate to assess the lump sum costs on an indemnity basis.
10 Nevertheless, even where it is established that costs should be assessed on an indemnity basis, it remains the case that the assessment is undertaken with the usual proviso that the order does not authorise the recovery of costs of an unreasonable amount or which have been unreasonably incurred: Swansdale Pty Ltd v Whitcrest Pty Ltd  WASCA 129 (S) at . Even where costs are ordered to be paid on an indemnity basis, usually a successful party will not recover a full indemnity of costs actually occurred. It has been suggested that a reduction of 15% on costs actually incurred is typical: Hancock v Rinehart  NSWSC 1640. However, all depends on the particular case.
11 There are two aspects that cause me concern as to whether the amount claimed satisfies the requirement that the fees claimed are reasonable in amount and that they have been reasonably incurred. First, the hourly rates that have been agreed between the applicant and its solicitors substantially exceed those provided for by Schedule 3 of the Federal Court Rules 2011 (Cth). Item 12 of Schedule 3 recognises that charges may be agreed on the basis of a fair and reasonable fee and in the present case there has been a cap placed on the fees charged. Even so, hourly rates have been used to determine the level of fees charged. The maximum hourly rate for solicitors is $650 per hour and the national guide for counsel fees refers to a maximum amount for senior counsel of $740 per hour. These rates are not determinative where costs are assessed on an indemnity basis. However, they do provide broad guidance.
12 Second, the claim for 77.5 hours for the third practitioner is considerable measured by reference to the nature of the application. It represents two weeks work in circumstances where substantial time is also claimed by the partner and the senior associate.
13 In addition, lump sum awards are informed by an assessment of proportionality.
14 As to the disbursements, I am satisfied that they were reasonably incurred.
15 Having regard to the nature of the application, the amount in issue, the number of attendances, the repeated need to follow up MAP for response, the fact that the claim for solicitors fees includes fees for the necessary appearances and the need to prepare submissions and instruct the expert, I assess the amount payable on a lump sum basis at $50,000 plus disbursements of $11,532 being $61,532. There will be an order accordingly.