Federal Court of Australia

Australian Securities and Investments Commission v RI Advice Group Pty Ltd (No 4) [2022] FCA 164

ORDERS

THE COURT ORDERS THAT:

1.    The first defendant pay the plaintiff’s costs of the proceeding referable to the claims against the first defendant, other than the costs referable to the claim in paragraph 132(a) of the statement of claim, as agreed or taxed.

2.    The plaintiff pay the first defendant’s costs thrown away by reason of the plaintiff’s abandonment of the claim in paragraph 132(a) of the statement of claim, as agreed or taxed.

3.    The second defendant pay the plaintiff’s costs of the proceeding referable to the claims against the second defendant, as agreed or taxed.

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

REASONS FOR JUDGMENT

MOSHINSKY J:

1    These reasons for judgment deal with issues of costs. They should be read together with the reasons for judgment on liability (Australian Securities and Investments Commission v RI Advice Group Pty Ltd (No 2) [2021] FCA 877 (Liability Judgment)) and the reasons for judgment on penalty and other relief (Australian Securities and Investments Commission v RI Advice Group Pty Ltd (No 3) [2022] FCA 84). I will adopt the abbreviations used in the Liability Judgment.

2    The parties have filed written submissions, and responding written submissions, on the costs issues. They have also filed the following affidavits:

(a)    ASIC has filed an affidavit of Nicholas Kelton, a solicitor employed by ASIC, dated 23 February 2022;

(b)    RI has filed an affidavit of Janet Whiting, a partner of Gilbert + Tobin, the solicitors for RI, dated 16 February 2022; and

(c)    Mr Doyle has filed an affidavit of Liam Young, the solicitor acting for Mr Doyle, dated 17 February 2022.

3    The parties’ positions on costs can be summarised as follows:

(a)    ASIC contends that there should be an order for costs in its favour on the basis that it has succeeded on all significant issues in the proceeding. Noting that ordinarily multiple unsuccessful defendants are made jointly and severally liable for all of a successful plaintiff’s costs, but also that Mr Doyle admitted liability on the second day of the liability hearing (i.e. on 2 March 2021) and thereafter did not participate in that hearing, ASIC contends that the appropriate order is that the defendants pay ASIC’s costs, save that RI alone pay ASIC’s costs of the trial on liability from 3 March 2021 onwards. In its reply submissions, ASIC submits that, if the Court is minded to make a proportionate costs order (i.e. that a specified proportion of the costs of the proceeding be paid by each of RI and Mr Doyle), then an appropriate division would be 80% payable by RI and 20% payable by Mr Doyle.

(b)    RI contends that the Court should make the following orders:

(i)    RI pay ASIC’s costs of and incidental to the relief sought in paragraphs 132(b) and 133 of the statement of claim, limited to one senior counsel and one junior counsel;

(ii)    ASIC pay RI’s costs thrown away by reason of ASIC’s abandonment of paragraphs 83-130 and 132(a) of the statement of claim; and

(iii)    RI should not pay any of ASIC’s costs in relation to the claim against Mr Doyle.

(c)    Mr Doyle accepts that, since he made admissions to ASIC’s pleaded case on the second day of the liability hearing (i.e. on 2 March 2021), he is prima facie liable to pay its costs. However, Mr Doyle relies on service of an offer to compromise under Pt 25 of the Federal Court Rules 2011. On the basis of the offer to compromise, Mr Doyle contends that, in respect of the period from 11.00 am on 2 March 2021, he should not be required to pay ASIC’s costs and ASIC should be required to pay his costs on an indemnity basis. As for ASIC’s costs before 2 March 2021, Mr Doyle submits that these costs should be apportioned in a way that reflects the limited role that Mr Doyle played in the proceeding, and the relative amounts of the pecuniary penalties that RI and Mr Doyle were ordered to pay. On this basis Mr Doyle submits that 98.7% of ASIC’s costs should be payable by RI and 1.3% should be payable by Mr Doyle.

4    The starting point for the consideration of costs in the present case is that ASIC has been substantially successful in its claims against both RI and Mr Doyle. The claims against RI were the subject of the liability hearing and were dealt with in the Liability Judgment. The claims against Mr Doyle were the subject of full admissions by Mr Doyle on the second day of the liability hearing. Those admissions were subsequently formalised in Mr Doyle’s second amended defence, filed on 4 March 2021: see the Liability Judgment at [5].

5    Given that the claims against RI and Mr Doyle were largely distinct, and that the work involved in preparing the claims against RI and Mr Doyle is likely to have been very different (it is likely that much more work was involved in preparing the claims against RI than the claims against Mr Doyle), I do not consider it appropriate to order that the defendants be jointly and severally liable for ASIC’s costs of the proceeding. Rather, subject to consideration of the other issues discussed below, I consider it appropriate to order that RI pay ASIC’s costs of the proceeding referable to the claims against RI, and that Mr Doyle pay ASIC’s costs of the proceeding referable to the claims against Mr Doyle.

6    I note that this will require an assessment of what costs are referable to each set of claims, which may be a time-consuming process. However, I do not consider there to be any realistic alternative based on the material currently before the Court. I note that ASIC has proposed an order that RI pay 80% of its costs and Mr Doyle pay 20% of its costs. However, I consider it preferable to leave the matter to determination on taxation, if the costs cannot be agreed. I also note that Mr Doyle has proposed other percentages, based on the relative amounts of the pecuniary penalties. However, these percentages are unlikely to reflect the costs incurred in relation to each set of claims. If the matter proceeds to taxation, it will be necessary to determine what costs are referable to the claims against RI, and what costs are referable to the claims against Mr Doyle. Where certain work (eg, a conference with counsel) is referable to both sets of claims, it will be necessary to apportion those costs on an appropriate basis. In the absence of further information relating to the specific item of work, it would be permissible to take a general approach to the proportion of costs referable to the claims against RI and the claims against Mr Doyle. In case it assists, my impression based on my consideration of the statement of claim, and the progress of the proceeding through its interlocutory stages, is that the figures provided by ASIC (namely, 80% and 20%) do broadly reflect the likely amount of work referable to the claims against RI and the claims against Mr Doyle respectively in the proceeding generally. However, ultimately this is a matter to be determined on taxation.

7    I will now consider the costs issues as between ASIC and RI.

8    RI relies on ASIC’s abandonment of the case pleaded in paragraph 132(a) of the statement of claim to seek the costs orders set out above. In its outline of opening submissions, filed on 15 February 2021, shortly before the liability hearing (which commenced on 1 March 2021), ASIC stated that it did not press paragraph 132(a) of its statement of claim. That paragraph is set out in the Liability Judgment at [29]. The explanation for ASIC’s decision not to press paragraph 132(a) is set out in [30] of the Liability Judgment.

9    I accept that RI incurred costs in defending the allegation in paragraph 132(a) of the statement of claim that were thrown away by reason of the abandonment of this claim. For example, RI incurred the costs of preparing an expert report of Dominic Alafaci (in response to Paul Green’s expert report). Once ASIC abandoned this part of its case, RI did not seek to rely on Mr Alafaci’s report. I note that in ASIC’s reply submissions, it contends that Mr Alafaci’s report was relevant to other issues in the proceeding (such as whether the structured products were risky) and that RI made a forensic choice not to rely on this report. However, in my view, Mr Alafaci’s report is overwhelmingly concerned with whether or not Mr Doyle contravened the Best Interests Obligations (and thus with ASIC’s claim in paragraph 132(a) of the statement of claim). Accordingly, I consider that the costs of this report were referable to the claim in paragraph 132(a), and were thrown away by reason of ASIC’s abandonment of this claim.

10    While ASIC acted appropriately in abandoning (or not pressing) this claim, I note that it did so only shortly before the trial on liability commenced. The rationale for not pressing this claim was the judgment of Lee J in Australian Securities and Investments Commission v AMP Financial Planning Pty Ltd (No 2) (2020) 377 ALR 55. That judgment was handed down on 5 February 2020, about a year before ASIC decided not the press this claim.

11    In light of the above, I consider it appropriate to make the following orders as regards the costs issues between ASIC and RI:

(a)    RI pay ASIC’s costs of the proceeding referable to the claims against RI, other than the costs referable to the claim in paragraph 132(a) of the statement of claim, as agreed or taxed; and

(b)    ASIC pay RI’s costs thrown away by reason of ASIC’s abandonment of the claim in paragraph 132(a) of the statement of claim, as agreed or taxed.

12    I note that I have referred only to paragraph 132(a) of the statement of claim, and not to paragraphs 83-130 of the statement of claim, which are referred to in RI’s proposed form of order. I consider that the focus should be on paragraph 132(a) of the statement of claim, as this is the paragraph that was abandoned. However, I acknowledge that that paragraph refers to paragraphs 98-101, 109-112, 119-122 and 127-130 of the statement of claim (which were not otherwise relied on against RI). Accordingly, if and to the extent that RI incurred defence costs in relation to those paragraphs of the statement of claim, those costs would also be costs thrown away by reason of the abandonment of the claim in paragraph 132(a).

13    Insofar as RI seeks an order that the costs payable to ASIC be limited to one senior counsel and one junior counsel, I do not consider it appropriate to deal with the question whether the costs should be so limited at this stage. In my view, that is a matter that can be taken up in the process of taxation of costs, if the costs cannot be agreed.

14    I turn now to the costs issues as between ASIC and Mr Doyle. In relation to the period up to 2 March 2021, as indicated above, I consider that Mr Doyle should pay ASIC’s costs of the proceeding referable to the claims against Mr Doyle.

15    In relation to the period on and from 2 March 2021, Mr Doyle relies on an offer to compromise under Pt 25 of the Federal Court Rules. The offer was served on 26 February 2021. The offer stated that Mr Doyle offered to compromise the proceeding. The offer also stated that:

(a)    Mr Doyle would admit all contraventions alleged by ASIC in its statement of claim;

(b)    the amount of the offer in respect of the claim was $150,000, and the amount of interest (if any) was $0; and

(c)    the above offer was in addition to costs, to be fixed in the sum of $100,000 (inclusive of ASIC’s investigation costs).

16    The offer was open for acceptance for 14 days.

17    In an email exchange on 26 February 2021, the solicitor for Mr Doyle made clear that the offer of $150,000 was to pay a pecuniary penalty of that amount.

18    ASIC did not accept the offer.

19    Rule 25.14(1) of the Federal Court Rules provides that, if an offer is made by a respondent and not accepted by an applicant, and the applicant obtains a judgment that is less favourable than the terms of the offer:

(a)    the applicant is not entitled to any costs after 11.00 am on the second business day after the offer was served; and

(b)    the respondent is entitled to an order that the applicant pay the respondent’s costs after that time on an indemnity basis.

20    As indicated in the note under r 25.14, the Court may make an order inconsistent with this rule: r 1.35.

21    Mr Doyle submits that r 25.14(1) applies in this case, as the penalty that Mr Doyle was ordered to pay ($80,000) was less than that offered in the offer to compromise ($150,000).

22    ASIC submits that Mr Doyle’s offer was effectively an “all in” offer to pay $250,000, comprising a penalty of $150,000 and costs of $100,000 (including investigation costs). ASIC submits that it is a statutory body that is responsible for securing compliance with the Corporations Act 2001 (Cth). Thus, ASIC submits, even where ASIC pursues a proceeding after an offer to compromise had been made, and is wholly unsuccessful, the Court will be slow to order indemnity costs against it: Australian Competition and Consumer Commission v Leahy Petroleum Pty Ltd [2007] ATPR 42-200; [2007] FCA 1844 at [24]; Australian Competition and Consumer Commission v Baxter Healthcare Pty Ltd [2005] FCA 860 at [8], [12]. ASIC submits that that does not mean costs orders should not be made against ASIC in appropriate cases, but civil penalty proceedings are not “amenable to commercial settlement as ordinary civil litigation. The issues involved in such litigation extend well beyond commercial considerations and dollars and cents”: Australian Competition and Consumer Commission v Colgate-Palmolive Pty Ltd (No 5) (2021) 151 ACSR 26 at [16]; see also at [13]-[18].

23    ASIC also submits that where an offer is made on an “all in” basis, it is more difficult for the party who receives the offer to make a “comparative assessment of the value of the offer as against the ultimate relief sought to be obtained”: Dr Martens Australia Pty Ltd v Figgins Holdings Pty Ltd (No 2) [2000] FCA 602 at [24]. ASIC submits that, here, Mr Doyle’s offer was less than ASIC’s reasonable assessment of the costs that ASIC would likely recover from Mr Doyle plus any reasonable penalty amount.

24    In response, Mr Doyle disputes the characterisation of his offer as an “all in” offer, noting that it was broken down into two parts. Mr Doyle submits that ASIC could have accepted the penalty part of the offer, and rejected the costs part of the offer, if it wanted to do so.

25    I note at the outset that I have some difficulty with the submission that ASIC could have accepted part only of the offer to compromise. It is expressed as a single offer, and the context of Pt 25 of the Federal Court Rules suggests that it is to be treated as a single offer. I therefore doubt whether, as a matter of construction of the offer, it was open to acceptance in part. However, it may be that Mr Doyle’s submission is intending to say no more than, as a matter of practical reality, ASIC could have indicated its agreement with the penalty, and left open the issue of costs to be dealt with in some other way. If this is the submission, however, it moves away from reliance on the offer as an offer to compromise under Pt 25 of the Federal Court Rules.

26    One of the issues here is whether or not the condition in r 25.14(1), namely that the applicant obtains a judgment that is less favourable than the terms of the offer, is satisfied. There is a question whether this wording is apposite to deal with a pecuniary penalty. Further and in any event, having regard to the affidavit evidence filed by ASIC in relation to the costs it has incurred, it is unclear whether this condition is satisfied.

27    However, even assuming that the condition is satisfied, in my view, it would not be appropriate for the costs consequences set out in r 25.14(1) to apply in the present case. First, the case was one in which ASIC, the regulator, sought a pecuniary penalty order against, relevantly, Mr Doyle. Given that whether or not a pecuniary penalty is to be imposed, and the amount of any pecuniary penalty, are matters to be determined by the Court, it would not have been open to ASIC and Mr Doyle to agree the penalty and bring the litigation to an end; the most that they could have agreed was to jointly propose a pecuniary penalty of a certain amount. Secondly, ASIC has an important role as the regulator responsible for administering the Corporations Act to consider whether any proposed pecuniary penalty is appropriate. In circumstances where (as here) ASIC forms the view that a proposed pecuniary penalty is not appropriate, and there is nothing to suggest that that view was not formed reasonably and in good faith, I do not consider it appropriate for the costs consequence in r 25.14(1) to apply: cf Australian Competition and Consumer Commission v Colgate-Palmolive Pty Ltd (No 5) (2021) 151 ACSR 26 at [13]-[18] per Wigney J; Australian Competition and Consumer Commission v Harris Scarfe Australia Pty Ltd (No 2) [2009] FCA 433 at [10] per Mansfield J.

28    In my view, in respect of the period from 2 March 2021, Mr Doyle should pay ASIC’s costs of the proceeding referable to the claims against Mr Doyle. The costs that are in issue here are largely the costs of the hearing on penalty. Mr Doyle did not participate in the balance of the trial on liability, after making full admissions on the second day. He did, however, participate in the penalty hearing. The outcome of the penalty hearing was, relevantly, an order that Mr Doyle pay a pecuniary penalty of $80,000. Thus, ASIC was successful in obtaining the relief it sought (payment of a pecuniary penalty). I note that the amount of the penalty was much closer to that sought by Mr Doyle ($50,000) than that proposed by ASIC ($250,000). However, Mr Doyle’s primary submission was that he should be relieved from liability, with the effect that no penalty at all would be imposed, and this submission was unsuccessful. Having regard to all the circumstances (including the offer to compromise and ASIC’s non-acceptance of that offer), I consider the appropriate order to be that Mr Doyle pay ASIC’s costs of the proceeding referable to the claims against him, in respect of the period from 2 March 2021.

29    Thus, I have come to the same conclusion as to costs (as between ASIC and Mr Doyle) for the period before 2 March 2021 and the period from 2 March 2021. I will therefore make a single order, namely that Mr Doyle pay ASIC’s costs of the proceeding referable to the claims against him. Pursuant to r 1.35, it is open to the Court to make an order that is inconsistent with the Rules and in that event the order will prevail. The order that I propose to make is inconsistent with r 25.14(1) and therefore will prevail over it.

30    There is one further potential issue that I refer to for completeness. There may be an issue whether ASIC’s costs in preparing its case in relation to paragraphs 83-130 of the statement of claim (i.e. section I of the statement of claim) should be treated as: (a) costs referable to its claims against Mr Doyle alone; or (b) costs referable to its claims against both Mr Doyle and RI. Although that section of the statement of claim is primarily directed at Mr Doyle, it was relied on in paragraph 132(a) of the statement of claim, which was directed at RI. It follows that the correct analysis is that section I of the statement of claim formed part of ASIC’s case against both Mr Doyle and RI. However, I consider it fair to say that that section of the statement of claim was primarily referable to the claims against Mr Doyle. Accordingly, ASIC’s costs in relation to section I of the statement of claim should be treated as primarily referable to the claims against Mr Doyle.

Associate:

Dated:    2 March 2022