Smart Company Pty Ltd (In Liquidation) v Clipsal Australia Pty Ltd (No 7) [2011] FCA 1359 (1 December 2011)

Last Updated: 1 December 2011

FEDERAL COURT OF AUSTRALIA

Smart Company Pty Ltd (In Liquidation) v Clipsal Australia Pty Ltd (No 7) [2011] FCA 1359

Citation:		Smart Company Pty Ltd (In Liquidation) v Clipsal Australia Pty Ltd (No 7) [2011] FCA 1359
Parties:		THE SMART COMPANY PTY LTD (IN LIQUIDATION) ACN 061 975 344 v CLIPSAL AUSTRALIA PTY LTD ACN 007 873 529, CLIPSAL INTEGRATED SYSTEMS PTY LTD ACN 089 444 931 and CLIPSAL TECHNOLOGIES AUSTRALIA PTY LTD ACN 089 444 931
File number:		WAD 132 of 2004
Judge:		LANDER J
Date of judgment:		1 December 2011
Catchwords:		COSTS – indemnity costs – lump sum assessment – quantifying assessment by reference to discrete periods
Legislation:		Federal Court of Australia Act 1976 (Cth) s 43, s 43(2), s 43(3)(g) Federal Court Rules 1979 O 23 r 11(6), O 62 r 4 Federal Court Rules 2011 r 1.04(3)
Cases cited:		Beach Petroleum NL v Johnson (No 2) (1995) 57 FCR 119 cited Colgate Palmolive Co v Cussons Pty Ltd [1993] FCA 536; (1993) 46 FCR 225 cited Donald Campbell & Co Ltd v Pollak [1927] AC 732 cited Dunstan v Human Rights and Equal Opportunity Commission (No 3) [2006] FCA 916 cited Keen v Telstra Corporation Ltd (No 2) [2006] FCA 930 cited Latoudis v Casey [1990] HCA 59; (1990) 170 CLR 534 cited Preston v Preston [1981] 3 WLR 619 cited Ritter v Godfrey [1920] 2 KB 47 cited Smart Company Pty Ltd (In Liquidation) v Clipsal Australia Pty Ltd (No 6) [2011] FCA 419 related Su v Australian Fisheries Management Authority (No 3) [2008] FCA 2018 cited Trade Practices Commission v Nicholas Enterprises Pty Ltd (No 3) (1979) 42 FLR 213 cited
Date of hearing:	19 August and 19 October 2011
Place:	Adelaide
Division:	GENERAL DIVISION
Category:	Catchwords
Number of paragraphs:	97
Counsel for the Applicant:	Mr M Hoile
Solicitor for the Applicant:	Lynch Meyer
Counsel for the Respondents:	Mr S Doyle and Mr B Doyle
Solicitor for the Respondents:	Kelly & Co

IN THE FEDERAL COURT OF AUSTRALIA
SOUTH AUSTRALIA DISTRICT REGISTRY
GENERAL DIVISION	WAD 132 of 2004

BETWEEN:	THE SMART COMPANY PTY LTD (IN LIQUIDATION) ACN 061 975 344 Applicant
AND:	CLIPSAL AUSTRALIA PTY LTD ACN 007 873 529 First Respondent CLIPSAL INTEGRATED SYSTEMS PTY LTD ACN 089 444 931 Second Respondent CLIPSAL TECHNOLOGIES AUSTRALIA PTY LTD ACN 089 444 931 Third Respondent

JUDGE:	LANDER J
DATE OF ORDER:	1 DECEMBER 2011
WHERE MADE:	ADELAIDE

THE COURT ORDERS THAT:

1. Pursuant to rule 40.02(a) of the Federal Court Rules 2011, the applicant pay the respondents’ costs of the proceedings on an indemnity basis.
2. Pursuant to rule 40.02(b) of the Federal Court Rules 2011, the costs in paragraph 1 above be fixed in the sum of $2,729,525.98 which sum comprises:

(a) $367,315.24 for the period 18 June 2004 to 13 January 2005;
(b) $731,146.57 for the period 14 January 2005 to 21 February 2006; and
(c) $1,631,064.18 for the period 22 February 2006 to 29 April 2011.

3. Pursuant to rule 1.37 of the Federal Court Rules 2011, and in partial satisfaction of the costs in paragraph 2(c) above, the Registrar pay to the respondents the amount of $850,000.00, which amount was secured by bank guarantee from Westpac Banking Corporation in favour of the Federal Court of Australia and provided by the applicant pursuant to the orders of 3 October 2006.
4. The applicant having been credited for any costs orders made in its favour in the assessment of costs under rule 40.02(b) in paragraph 2 above, any and all previous costs orders in the proceeding in favour of the applicant or the respondents be discharged.
   

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

IN THE FEDERAL COURT OF AUSTRALIA
SOUTH AUSTRALIA DISTRICT REGISTRY
GENERAL DIVISION	WAD 132 of 2004

BETWEEN:	THE SMART COMPANY PTY LTD (IN LIQUIDATION) ACN 061 975 344 Applicant
AND:	CLIPSAL AUSTRALIA PTY LTD ACN 007 873 529 First Respondent CLIPSAL INTEGRATED SYSTEMS PTY LTD ACN 089 444 931 Second Respondent CLIPSAL TECHNOLOGIES AUSTRALIA PTY LTD ACN 089 444 931 Third Respondent

JUDGE:	LANDER J
DATE:	1 DECEMBER 2011
PLACE:	ADELAIDE

REASONS FOR JUDGMENT

1. On 29 April 2011 I made an order dismissing the applicant’s proceeding, and a further order that the applicant pay the respondents’ costs of the proceeding. The applicant was then in liquidation, having been ordered to be wound up in insolvency. It remains in liquidation.
2. At that time Mr S Doyle, who appeared for the respondents, sought liberty to apply in relation to the order for costs in order to allow his clients to consider whether they would seek an order for costs more favourable than party/party costs. I reserved to the respondents the right to make an application in relation to the scale upon which the costs should be assessed, and the right to make an application as to whom, apart from the applicant, should pay the costs.
3. On 19 August 2011 the respondents made an application seeking orders that the applicant pay the respondents’ costs on an indemnity basis. They also sought an order that this Court make a lump sum assessment of those costs. Thirdly, they sought an order quantifying that assessment by reference to three discrete periods. Fourthly, they sought an order that an amount presently paid into Court as security for costs be paid to the respondents.
4. For the reasons that follow, the respondents are in my opinion entitled to all four of those orders.

History of the Proceeding

5. I will not in these reasons canvass all of the matters which I canvassed in my reasons in Smart Company Pty Ltd (In Liquidation) v Clipsal Australia Pty Ltd (No 6) [2011] FCA 419, but my reasons for dismissing the applicant’s proceeding are relevant in my determination that it would be appropriate that the applicant pay the respondents’ costs on an indemnity basis.
6. During the course of the long period between the start of the proceeding and its dismissal the applicant’s case both mutated and evolved, such that it was often very difficult to understand how the applicant was putting its case. The applicant prosecuted its proceeding for nearly seven years without ever getting its case in order or preparing itself for trial. It was always inefficient about the prosecution of the proceeding, which put the respondents to significant costs from time to time.
7. The applicant commenced this proceeding on 18 June 2004 in the Western Australia District Registry by filing an originating application, which was accompanied by a statement of claim.
8. On 9 July 2004 Lee J gave the applicant leave to file an amended application and an amended statement of claim by 30 July 2004. Those documents were not filed until 10 August 2004. On 20 August 2004 Lee J gave the applicant leave to file a further amended statement of claim by 15 September 2004. This document was filed on 13 October 2004.
9. On 26 October 2004 the respondents applied to have certain paragraphs of the statement of claim struck out or, in the alternative, that the applicant be ordered to give particulars. On 14 December 2004 Lee J ordered the applicant to file a second further amended statement of claim by 14 January 2005.
10. On 9 December 2004 the respondents’ solicitors wrote to the applicant’s solicitors making an offer to settle the proceeding on the terms and conditions set out in the letter. First, the respondents’ solicitors identified the claim by reference to the originating application. Secondly, the respondents set out why those claims would fail. Thirdly, the respondents’ solicitors summarised the parties’ respective positions. Finally, the respondents’ solicitors made an offer on behalf of the respondents.
11. The offer was made subject to a number of conditions that do not need to be set out here, but the relevant part of the offer was as follows:
    4. Clipsal will pay to Smart upon the execution of a deed of settlement in terms of this offer:
       

(a) the sum of $408,104.51;

(b) interest on that sum of $128,552.91; and

(c) a further amount representing Smart’s costs of the action, to the date of acceptance of this offer, to be agreed or as taxed on a party/party basis by the court.

5. This offer is in complete, full and final satisfaction of all claims that your client or any of its related entities may have against Clipsal, CIS, CTA, any other entities within the “Clipsal group” (as defined in the FASOC), Schneider Electric Australia Holdings Pty Ltd (“Schneider”), and their respective related entities and their officers, servants and agents, relating in any way to the subject matter of the FASOC and the facts alleged therein, and your client releases, as from settlement, the above parties accordingly. In particular, Smart is to acknowledge that it does not have, and has never had, any claim whatsoever to the intellectual property in C-Bus 2 products the subject of the FASOC.
   

...

10. This offer remains capable of acceptance until close of business on a date 28 days after the date of this offer, after which it lapses automatically.
    
12. The respondents set out the basis of the calculation of the monetary offer, which was:

The monetary offer made in paragraph 3(a) (sic) above has been calculated in the following way.

Our clients have calculated an amount which would more than compensate Smart for any damages it would have suffered if there was any substance in its allegations in paragraph 41 of the FASOC (which Clipsal and CIS absolutely deny). Clipsal has made a generous assessment of the increased sales and revenue that Smart could conceivably have generated if the allegations in paragraph 41 of the FASOC were proven.

That amount was calculated by combining:

1. An estimate of the royalty revenue that would have been payable to Smart if there had been 50% greater than actual sales of Smart Products by Clipsal/CIS over the duration of the HOA. This figure comes to $261,118.97.
   
2. An estimate of the extra profit11 Smart would have made if Smart had made 50% greater than actual sales of Smart Products over the same period12. This figure comes to $263,256.12.
   

The total of those two figures is $524,375.09.

Against that amount, our clients have set off an amount in respect of outstanding advances. As discussed above, Smart has disputed the interpretation of clause 7.2 and Clipsal’s obligations in relation to licence fees payable. For the purposes of this offer, our clients are prepared to assume in your client’s favour that Smart remains indebted to Clipsal in the amount of $116,270.58 (rather than $263,808.57).

Thus the total amount of the offer is $524,375.09 - $116,270.58 = $408,104.51.

Our clients have calculated interest on that amount for a period of 3 years (one half of the period between November 1998 and the present) at the rate of 10.5% per annum (simple). That calculation resulted in a figure of $128,552.91.

11 The extra profit to Smart on Smart sales was calculated on the assumption that Smart’s profits on its own sales are approximately 4.1 times the amount of the royalties paid (or payable) by it to Clipsal on such sales.
12 Smart has failed to either sell, or disclose the sales of, any products after June 2001. Accordingly, no profit on Smart sales has been allowed from that time to the date of the termination of the HOA.

13. Lastly, the respondents’ solicitors identified the nature of the offer:

This offer of compromise is expressly made under Order 23 of the Federal Court Rules. In accordance with Rule 3(3) of that Order, it has not been filed.

This offer is made without prejudice save as to costs.

If your client does not accept this offer within the period set out above, our clients intend to rely on this letter in support of an entitlement to a higher than usual costs order in the event of a determination that your client is not entitled to some or all of the relief it seeks in prayers for relief in the FASOC, or in the event that the net result of any determination of the parties’ respective rights and liabilities is less favourable to your client than terms contained in the above offer.

14. As condition 10 of the offer shows, the offer was open for a period of 28 days after the date of the offer, after which time it was to lapse. The applicant replied within the 28 day period on 28 December 2004 in a letter marked “without prejudice save as to costs” rejecting “the contents” of the respondents’ communication, including the offer, “in their entirety”.
15. The applicant nominated that the only basis on which it was prepared to entertain a settlement was as follows:

We would only be prepared to entertain a settlement on the following basis:

A$ 750 million (seven hundred and fifty million Australian dollars) payable within 30 days from the date of this offer, the substantiation of which is contained in our Statement of Claim;

AND

A non-exclusive worldwide distribution and manufacturing licence for ThinkBoxx™ and all related Smart Products which licence shall contain the following terms and other reasonable and usual terms to be negotiated:

∏ Parties:

• Licensor: The Smart Company
  

▪ Licensee:
Clipsal Australia Pty Ltd and the international Clipsal/Gerard Group and associated entities provided such entities are specifically defined;
Schneider Electric and associated entities provided such entities are specifically defined; and
Gold Peak Industries Holdings Limited (Hong Kong) and associated entities provided such entities are specifically defined.

∏ Commencement and duration:

• Commencement Date: 1st February 2005.
• Duration: A fixed term of ten years provided all terms and conditions of the licence have been adhered to.
  

∏ Licence Fee:

• Licence Fee: 100 million (one hundred million Australian dollars) per year payable in advance each year for the right to manufacture and distribute the Smart Products.
  

∏ IP Ownership in Smart Products (as defined in the Heads of Agreement):

Ownership of all IP and/or any improvements or developments in the same to vest in The Smart Company and all existing information in relation to such IP is to be delivered to The Smart Company immediately upon signing of this licence. All future information is to be communicated to The Smart Company immediately upon discovery.

16. The effect of the applicant’s counter-offer was to offer to settle for $1.75 billion, with $750 million payable forthwith and $100 million payable per year for 10 years, and for the respondents to acknowledge that the further ownership of the intellectual property reverted to the applicant after that time.
17. On 14 February 2006 the respondents made a further offer to pay within 21 days of the execution of a deed of settlement the sum of $50,000 together with $100,000 towards the applicant’s legal costs, provided the applicant discontinued the action against the respondents with no further orders as to costs. The first and second respondents offered to discontinue their cross-claim against the applicant with no order as to costs provided the applicant accepted their offer. Other conditions were imposed, but they are unimportant. This offer was to remain open for 28 days, after which it would lapse. In fact the respondents withdrew the offer two days after it was made.
18. The applicant’s summary rejection of the respondents’ first offer and the applicant’s counter-offer indicate the applicant’s unreasonableness in relation to this proceeding.
19. The applicant maintained up until the time that the proceeding was dismissed that its claim was worth $4 billion. However, it never produced any credible evidence to support the claim.
20. The respondents’ offer has a rational basis. The applicant’s rejection of that offer and its counter-offer displayed no process of reasoning, especially where the respondents’ letter went into some detail in putting the respondents’ arguments as to why the applicant’s proceeding would fail. There is no rational basis for the applicant’s counter-offer. The payment of $750 million is not explained. To suggest that the respondents pay $100 million a year for 10 years and then return to the applicant the intellectual property in the products is simply commercially unrealistic. The applicant must have known that the respondents could not have entertained the counter-offer. I can infer that the respondents could never, and would never, have paid the amount sought in the counter-offer.
21. The applicant’s counter-offer indicates that the applicant was not interested in compromising the proceeding. Its behaviour thereafter confirmed its lack of interest in settlement. No other negotiations took place between the parties and, having regard to the offer and counter-offer, that is unsurprising.

The Claim for Indemnity Costs

22. The respondents’ claim for indemnity costs rests on two separate and discrete bases. First, they claimed that the applicant unreasonably refused to accept an offer put by the appellants in circumstances where the applicant’s case was subsequently dismissed. Secondly, they claimed that the applicant’s case was hopeless and always doomed to fail, and that it was inefficiently and inappropriately prosecuted in this Court.
23. On 13 November 2008 the respondent’s counsel sought an order that the matter be referred to mediation. That application was opposed by the applicant, but I made an order that the proceeding be referred to mediation and, in due course, appointed the Hon J W von Doussa QC as mediator. The mediation failed. If I had known of the differences in the two offers made by the parties to each other in December 2004 I would not have ordered that the matter be referred to mediation. That is not meant to be a criticism of the parties because, of course, they could not make known the offers made. I merely note by way of hindsight that the parties were so far apart that a mediation was of no assistance.
24. The first basis for seeking indemnity costs relied upon O 23 r 11(6) of the Federal Court Rules 1979, which provided:

(6) If:

(a) an offer is made by a respondent and not accepted by the applicant; and

(b) the respondent obtains an order or judgment on the claim to which the offer relates as favourable to the respondent, or more favourable to the respondent, than the terms of the offer;

then, unless the Court otherwise orders:

(c) the respondent is entitled to an order that the applicant pay the respondent’s costs in respect of the claim incurred up to 11 am on the day after the day the offer was made, taxed on a party and party basis; and

(d) the respondent is entitled to an order that the applicant pay the respondent’s costs in respect of the claim incurred after that time, taxed on an indemnity basis.

25. That rule gave a respondent who was successful in defending an applicant’s proceeding and who had made an offer of compromise a prima facie entitlement to costs on a party/party basis up to the day after the offer was made, and thereafter a prima facie entitlement to costs on an indemnity basis, subject of course to the exercise of the Court’s discretion.
26. There is no reason why the Court should exercise its discretion against the respondents under this rule and, indeed, every reason why the discretion should be exercised in the respondents’ favour. The respondents have made out the first basis for their offer.
27. However, the respondents went further than seeking costs on a party/party basis up to 10 December 2004, the day after the first offer was made, and thereafter on an indemnity basis. The respondents sought costs on an indemnity basis for the whole of the period after the issue of the proceeding, which meant that the respondents sought indemnity costs for the period 14 June 2004 to 10 December 2004.
28. Order 23 rule 11(6) does not entitle the respondents to indemnity costs between 14 June 2004 and 10 December 2004. Accordingly, the respondents argued that the applicant’s case was always hopeless and bound to fail and was inefficiently and inappropriately prosecuted.
29. The respondents argued that the applicant’s conduct during the whole of the proceeding was such that the applicant should pay the respondents’ costs on an indemnity basis irrespective of the fact that the respondents had made the offers for settlement on 9 December 2004 and on 14 February 2006. In that regard the respondents relied upon the general principles relating to the award of indemnity costs.
30. This Court is empowered to order a party to pay costs by s 43 of the Federal Court of Australia Act 1976 (Cth) (the FCA). The discretion to award costs is unfettered, except that the discretion must be exercised judicially: s 43(2) of the FCA; Donald Campbell & Co Ltd v Pollak [1927] AC 732; Trade Practices Commission v Nicholas Enterprises Pty Ltd (No 3) (1979) 42 FLR 213 at 219 per Fisher J. Ordinarily a party who is successful in a proceeding is entitled to expect that the Court will exercise its discretion in the party’s favour and award that party’s costs on a party/party basis: Ritter v Godfrey [1920] 2 KB 47; Latoudis v Casey [1990] HCA 59; (1990) 170 CLR 534. There are exceptions to the general rule, but they do not need to be discussed here. There could have been no doubt that the respondents in this proceeding were entitled to at least party/party costs in this proceeding.
31. Costs are not awarded against an unsuccessful party by way of punishment. Costs are awarded to compensate the successful party for having been put to the cost of either prosecuting or defending the particular proceeding: Latoudis v Casey at 543 per Mason CJ.
32. The purpose of party/party costs is to compensate the successful party, but it is recognised that an award of party/party costs does not indemnify that party against the whole of the costs to which the successful party has been put.
33. Because an award of party/party costs to a successful party in a proceeding is the usual rule, an award of indemnity costs represents a departure from that usual rule. However, there is no doubt that this Court has power to order a party to pay costs assessed on an indemnity basis: s 43(3)(g).
34. Indemnity costs are awarded as a recognition that the successful party has been put to additional costs by reason of the unsuccessful party’s conduct. For example, O 23 r 11 of the Federal Court Rules 1979 reflects that approach in that it empowers the Court to award indemnity costs in circumstances where the unsuccessful party has not achieved a verdict better than the offer made to that party. If the unsuccessful party had taken the offer the successful party would have been put to less cost.
35. The categories of circumstances where a party may be ordered to pay costs on an indemnity basis are not closed. In Preston v Preston [1981] 3 WLR 619 at 637 Brandon LJ said that before a Court departs from the usual order as to party/party costs and orders costs on a more generous basis the Court must be satisfied that there is some special or unusual feature in the case that would warrant a departure from the usual rule.
36. In Colgate Palmolive Co v Cussons Pty Ltd [1993] FCA 536; (1993) 46 FCR 225 Sheppard J said at 233:

4. In consequence of the settled practice which exists, the Court ought not usually make an order for the payment of costs on some basis other than the party and party basis. The circumstances of the case must be such as to warrant the Court in departing from the usual course. That has been the view of all judges dealing with applications for payment of costs on the indemnity or some other basis whether here or in England. The tests have been variously put. The Court of Appeal in Andrews v Barnes (supra) at 141 said the Court had a general and discretionary power to award costs as between solicitor and client “as and when the justice of the case might so require”. Woodward J in Fountain Selected Meats appears to have adopted what was said by Brandon LJ (as he was) in Preston v Preston (supra) at 637; namely, there should be some special or unusual feature in the case to justify the Court in departing from the ordinary practice. Most judges dealing with the problem have resolved the particular case before them by dealing with the circumstances of that case and finding in it the presence or absence of factors which would be capable, if they existed, of warranting a departure from the usual rule. But as French J said (at p 8) in Tetijo, “The categories in which the discretion may be exercised are not closed”. Davies J expressed (at p 6) similar views in Ragata (supra).

37. That in my opinion still represents the law in relation to the award of costs to a successful party other than on a party/party basis.
38. In this case the respondents rely upon my reasons for dismissing the proceeding. Shortly stated, I dismissed the proceeding because the applicant failed to properly prosecute the proceeding and failed to comply with a number of orders over a period of years. The applicant’s failure to comply with those orders meant that the proceeding was never ready for trial and could never be disposed of. I also thought that the conduct of the directors of the applicant was such that the proceeding could not be maintained.
39. It is not necessary now to recite all of the reasons which I gave, and which because of the absence of the prosecution of any appeal must have been accepted by the applicant, or at least its liquidators. In my opinion, the respondents have made out a claim that they are entitled to indemnity costs on the second basis as well as the first. Because they have made out the second basis, they should be entitled to their indemnity costs from the date upon which they were served, rather than from the date upon which the offer was made. In other words, their entitlement to costs on an indemnity basis is not constrained by the timing of the offer.
40. During the hearing I put to Mr Doyle that it might be argued that the respondents’ offer put in December 2004 showed that the respondents accepted that the applicant had identified a cause of action for damages for the amount of the offer, and that therefore the respondents should not be entitled to costs before the date of the offer because the offer recognised the appropriateness of that part of the proceeding. Mr Doyle answered that proposition by pointing out that that part of the proceeding was never successfully prosecuted and it disappeared into the more general claims made by the applicant which, as I said in my main reasons, became almost unintelligible. I agree with that submission, and in those circumstances the respondents should have their costs of the proceeding on an indemnity basis.

Lump Sum Basis

41. The respondents also sought an order that their costs be assessed on a lump sum basis, rather than being required to submit a bill of costs for taxation.
42. The respondents’ costs are very large, which is not surprising given the period of time over which the proceeding ran. The applicant is in liquidation and will be unable to pay the respondents’ costs in full. The respondents could only expect some form of dividend in the winding up from the applicant. However, the respondents might be able to recover part of their costs from other parties, such as a former director of the applicant who gave a guarantee for a closed period of time and a litigation funder who provided an undertaking for a closed period of time, and by recovering a sum of money paid into Court pursuant to an order of the Court. Nonetheless, it is clear that the respondents will not be able to recover anywhere near the whole of their costs, because even if they can recover part of their costs from the three sources just mentioned they will only recover a fraction of the remainder of their costs.
43. Therefore, if the respondents were obliged to tax their bill they would be put to further significant cost which would not be recouped.
44. Order 62 rule 4 allowed this Court to make an order that instead of taxed costs a party should be entitled to a gross sum specified in the order. In my opinion, because this proceeding was dismissed prior to the repeal of the Federal Court Rules 1979, those Rules should continue to apply without modification: r 1.04(3) of the Federal Court Rules 2011.
45. I do not think that the order made on 29 April 2011 that the applicant pay the respondents’ costs of the proceeding prevents me now from making a further order that the costs be assessed in a lump sum.
46. In Beach Petroleum NL v Johnson (No 2) (1995) 57 FCR 119 von Doussa J said of the relevant rule that the “purpose of the rule is to avoid the expense, delay and aggravation involved in protracted litigation arising out of taxation”: at 120. In that case von Doussa J thought that an order should be made because “the preparation of a bill in taxable form [was] an unrealistic demand which would require quite unreasonable time and expense”: at 123.
47. Subsequently the Court has recognised that orders of this kind are not limited to complex cases and may be made in any case where appropriate, and whenever the circumstances warrant the exercise of the power: Su v Australian Fisheries Management Authority (No 3) [2008] FCA 2018; Dunstan v Human Rights and Equal Opportunity Commission (No 3) [2006] FCA 916. The exercise of the power is enlivened when at least the parties will save “the time, trouble, delay, expense and aggravation in having a taxation proceed on a matter”: Keen v Telstra Corporation Ltd (No 2) [2006] FCA 930 at [4] per Rares J.
48. This is such a case. In the circumstances I am prepared to make an order pursuant to the rule for a lump sum assessment of those costs.

Discrete Periods and the Amount in Court

49. The third order sought by the respondents is that the Court make an assessment of the respondents’ costs in relation to discrete periods from the date of commencement of the proceeding. The respondents apply to have their costs assessed by reference to discrete periods because of guarantees, funding agreements and orders for security of costs which were made during the proceeding.
50. On 2 February 2005 Sotirios Portellos executed a Deed of Guarantee and Indemnity (Deed) to which he and the respondents were parties. Recital C to that Deed provided:

The Guarantor [Mr Portellos] has agreed to bear and pay all legal costs incurred by Smart [the applicant] in the prosecution of the proceedings [being this proceeding] between 18 June 2004 and 13 January 2005.

51. Pursuant to paragraph 1 of the Deed Mr Portellos unconditionally guaranteed payment to the respondents and each of them:

(a) any costs ordered to be paid by Smart to the Respondents or any of them in the proceedings which costs relate to the period 18 June 2004 to 13 January 2005; and

(b) any costs which Smart is required to pay the Respondents or any of them under the Rules of the Federal Court in the proceedings which costs relate to the period from 18 June 2004 to 13 January 2005.

52. Pursuant to paragraph 2 of the Deed Mr Portellos indemnified the respondents in relation to any costs that the respondents were not able to recover from the applicant. The Deed also provided for the circumstances when the costs which were guaranteed, or for which an indemnity was given, were payable.
53. The respondents sought to have their costs calculated for the period 18 June 2004 to 13 January 2005.
54. Having regard to the Deed it seems appropriate to identify the costs payable by the applicant over the period identified in the Deed. The respondents will have to exercise their rights under the Deed if they are to recover the costs from Mr Portellos. It is the Deed that imposes the obligation upon Mr Portellos to pay the respondents. An assessment of the costs payable by the applicant over the period merely identifies the applicant’s liability for costs for that period. Mr Portellos was not heard in relation to any of the first three orders that the respondents have sought. It was not contended by either the respondents or the applicant that he had any right to be heard.
55. On 14 January 2005 the applicant and IMF (Australia) Ltd (IMF) entered into a funding agreement (Funding Agreement). Pursuant to that Funding Agreement IMF agreed to indemnify the applicant in respect of any “Adverse Costs Orders” and to provide an “unlimited unconditional guarantee to the respondents in relation to any costs ordered to be paid by the applicants to the respondents relating to costs incurred during the term of this agreement”. An “Adverse Costs Order” is defined in the Funding Agreement to be “Any costs order made against [the applicant] in the Proceedings in respect of costs incurred during the term of this Agreement, including any GST”. The Funding Agreement was terminated by IMF on 14 February 2006, with effect from 21 February 2006.
56. The respondents applied to have their costs assessed as a lump sum for the period 14 January 2005 to 21 February 2006. Having regard to the terms of the Funding Agreement it seems appropriate to identify the costs payable by the applicant over the period of the Funding Agreement. Again, the respondents will have to exercise whatever rights are given to them by the Funding Agreement if they are to recover any costs from IMF. IMF was not heard on this application.
57. On 3 October 2006 the applicant was ordered to provide the respondents with security for costs up to the first day of the trial in the total amount of $850,000, and the applicant was ordered to make the following payments:

(1) $50,500 by 11 November 2006;

(2) $374,500 by 11 January 2007;

(3) $212,500 by 11 March 2007; and

(4) $212,500 by 11 May 2007.

58. Macquarie Bank Ltd (Macquarie Bank) executed guarantees in favour of the Federal Court of Australia as beneficiary:

(1) in the amount of $50,500 on 12 December 2006;

(2) in the amount of $374,500 on 4 January 2007;

(3) in the amount of $212,500 on 13 March 2007; and

(4) in the amount of $212,500 on 11 May 2007.

59. On or about 11 January 2010 the applicant replaced the Macquarie Bank guarantee with a guarantee executed by Westpac Banking Corporation (Westpac) in favour of the Federal Court of Australia as beneficiary in the amount of $850,000. By that bank guarantee Westpac has unconditionally undertaken to pay on demand any amount or amounts which may from time to time be demanded in writing purportedly signed by or on behalf of the Federal Court of Australia up to a maximum aggregate sum of $850,000.
60. The respondents also apply to have their costs calculated for the third period, being from 22 February 2006 to 29 April 2011, and being the period over which the sum of $850,000 acts as security for the respondents’ costs.
61. Having regard to the reasons for the order for the applicant to provide the respondents with security for costs, it would be appropriate to identify the costs payable over the third period.
62. If the respondents’ costs equal or are greater than the sum of $850,000 then it would be appropriate to make the fourth order sought by the respondents, that is, to order the payment out of the sum of $850,000 to the respondents. That would require the Court making a demand on Westpac for the sum of $850,000 and on receipt of the money paying the money to the respondents.
63. As it happens, I am satisfied that the respondents’ costs exceed the sum of $850,000 by a significant sum and, in those circumstances, the fourth order sought by the respondents will be made.
64. For all of those reasons, I am prepared to make the orders sought by the respondents. However, there still remains the question as to the assessment of the costs over the three separate periods.
65. In seeking an order for a lump sum for the three separate periods the respondents rely upon the evidence of Mr Kennett, which was contained in four separate affidavits sworn on 17 August 2011 (the first affidavit), 22 August 2011 (the second affidavit), 12 October 2011 (the third affidavit), and 24 November 2011 (the fourth affidavit). Mr Kennett is a partner of the firm Kelly & Co Lawyers, and has had the responsibility for the proceeding on behalf of the respondents since the issue of the applicant’s proceeding.
66. In his first affidavit Mr Kennett deposed to the rates of charge for the different levels of legal practitioners and for clerks who were employed by the respondents’ legal team. The rates charged are reasonable and, in my opinion, the amounts sought by the respondents are reasonable.
67. In the first affidavit Mr Kennett said that the total fees (including counsel fees, disbursements and GST) incurred by the respondents in the proceeding is $3,532,985.51. He calculated the fees for:

(a) the period 18 June 2004 to 13 January 2005 at $475,349.13;
(b) the period 14 January 2005 to 21 February 2006 at $946,189.68; and
(c) the period 22 February 2006 to 29 April 2011 at $2,111,446.70.

68. Within the third period and between 24 December 2009 and 4 June 2010, Mr Kennett calculated the respondents’ costs at $402,623.91. He made that last calculation because of particular orders made in the respondents’ favour during that time. However, I think that this sub-period does not need to be further addressed.
69. In arriving at his calculation he said in his first affidavit:
    26. I have, since the commencement of these proceedings, reviewed all items of work that have been billed to the respondents. Items of work that were incorrectly billed to the matter, or that were unnecessarily duplicated or were not directly related to the proceedings were always written off before being billed to the respondents.
        
    27. On or about 12 August 2011, I reviewed the items of work that have been billed to the respondents since the commencement of these proceedings. As a result of that review, and based on my knowledge and experience, I have formed the view that:
        

27.1 the total amount of legal costs billed to the respondents, and set out at paragraph 4 above, is a true and accurate reflection of the work undertaken by Kelly & Co and counsel in relation to these proceedings;

27.2 a very small number of items billed to the respondents were matters that, although related to the respondents’ representation in these proceedings by Kelly & Co, were not relevant to issues in dispute with the applicant; and

27.3 a very small number of items were of the sort that would not be allowed on a taxation of costs.

70. That evidence was not challenged.
71. However, it seemed to me that Mr Kennett’s evidence needed both elaboration and simplification.
72. There were a number of interlocutory applications during the currency of the proceeding. Almost invariably the respondents were awarded their costs. There was however an occasion where the respondents’ application failed and the respondents were ordered to pay the applicant’s costs.
73. It seemed to me when this application was first heard that any costs order of the kind sought by the respondents ought to include all costs orders made in the respondents’ favour, but also ought to recognise the costs order made in the applicant’s favour.
74. I thought the respondents ought to give further detail in relation to the calculation of their costs setting out what legal practitioner did what work over the relevant periods of time. That led to Mr Kennett’s second affidavit, which calculated costs over a different period. The first period was from 18 June 2004 to 31 December 2004; the second period was from 1 January 2005 to 21 February 2006; and the third period was from 22 February 2006 to 29 April 2011.
75. In the second affidavit Mr Kennett identified the costs in relation to the three periods. He also considered adverse costs orders that had been made during the currency of the proceeding. On 9 November 2009 an order was made that the respondents pay the applicant’s costs on an application for security for costs which failed. In respect of that application he said that his client’s costs were in the sum of $94,158.78 and credit should be given to the applicant for that amount. He also assessed the applicant’s costs on a party/party basis for that application at $56,495.27.
76. He claimed that the respondents had been put to the following costs:

(a) Period 1 (18 June 2004 to 31 December 2004): $403,722.15;
(b) Period 2 (1 January 2005 to 21 February 2006): $888,779.17;

(c) Period 3 (22 February 2006 to 29 April 2011): $1,268,244.98 (being $1,918,899.03 less $94,158.78 less $56,495.27);
(d) Total: $3,060,746.30.

77. The third affidavit was filed for two reasons. First, to correct the error which is apparent in paragraph (c) above. The figure of $1,268,244.98 is incorrect and should be $1,768,244.98.
78. Secondly, exhibited to the third affidavit was an offer made by the respondents to the applicant to have the respondents’ costs fixed at 85% of the calculations mentioned above. If this calculation was adopted it would lead to the following figures:

(a) Period 1: $343,163.18;
(b) Period 2: $755,462.29;
(c) Period 3: $1,503.008.23;
(d) Total: $2,601,633.70.

79. These were the figures and periods in respect of which the respondents sought to have their costs assessed in the draft minutes of order provided to me at the second hearing on 19 October 2011.
80. However, during the course of preparing these reasons it became apparent to me that the discrete periods in respect of which the respondents sought to have their costs assessed did not correspond with the period of the Deed or the period of the Funding Agreement. Accordingly there would be no utility in assessing the respondents’ costs with respect to these periods.
81. I instructed my Associate to write to Mr Kennett pointing out that the dates in his second affidavit were different from those in his first affidavit, and indicating that I saw little utility in assessing the respondents’ costs with respect to the periods set out in his second affidavit and the draft minutes of order, given the period of the Deed and the Funding Agreement.
82. My Associate also highlighted apparent inconsistencies between the figures set out in the first and second affidavits, such as the difference between the figure given for the respondents’ total costs for the period 22 February 2006 to 29 April 2011 in the first affidavit, and the figure given for this same period in the second affidavit.
83. This led to Mr Kennett’s fourth affidavit, which was filed on 24 November 2011. In this affidavit Mr Kennett explained that the periods in respect of which the respondents sought to have their costs assessed were those set out in his first affidavit, namely 18 June 2004 to 13 January 2005, 14 January 2005 to 21 February 2006, and 22 February 2006 to 29 April 2011. He confirmed that the periods set out in his second affidavit and the draft minutes of order were not the periods in respect of which the respondents were seeking to have their costs assessed, and that accordingly the figures given in the second affidavit and the draft minutes were incorrect.
84. However, he also explained that the figures in his first affidavit included in-put tax credits, which he subsequently determined that the respondents’ were not entitled to claim from the applicant. Furthermore, he indentified a number of minor arithmetical errors in the figures given in his first affidavit.
85. He corrected these errors and sought to have the respondents’ costs assessed on the corrected basis. However, he noted that the correction of the arithmetical errors led to a slightly higher figure for the respondents’ total costs, and so he deposed that “...to avoid any prejudice to the applicant that may result from the arithmetic errors referred to...above, the respondents are prepared to accept the lower figure from the table...for each of the three periods.”
86. Accepting this lower figure Mr Kennett calculated the respondents’ costs as follows:

	Period	Incurred Amount
(a)	18 June 2004 to 13 January 2005	$432,135.57
(b)	14 January 2005 to 21 February 2006	$860,172.44
(c)	22 February 2006 to 29 April 2011	$1,918,899.03
	TOTAL:	$3,211,207.04

87. The solicitors for the liquidators of the applicant did not object to me receiving Mr Kennett’s fourth affidavit, and I accept it. Because I think that the applicant should not be prejudiced, Mr Kennett’s lower figure should be accepted.
88. However, the draft minutes of order handed up at the second hearing on 19 October 2011 calculated the respondents’ costs at 85% of the figures set out in the second affidavit. This corresponded with a letter of offer sent by Mr Kennett to the applicant’s solicitors on 11 October 2011 that was exhibited to the third affidavit.
89. At the hearing Mr Doyle explained that while in theory the respondents could be entitled to 100% of their total costs for the three periods, experience showed that there could be some items that might be described as unreasonably incurred. For this reason the respondents’ thought it appropriate that they only claim 85% of their total costs, assuming that I was prepared to order that the respondents’ costs be fixed in a lump sum calculated on an indemnity basis.
90. Costs on an indemnity basis are meant to provide a complete indemnity against the costs incurred by the successful party in the proceeding, provided that the costs do not include any amount shown by the party liable to pay them to have been incurred unreasonably.
91. I am satisfied that the respondents were put to very great expense by the manner in which the applicant conducted this proceeding, and by reason of the exorbitant amount to which the applicant claimed to be entitled.
92. Although in the initial stages the respondents were often represented by senior counsel on interlocutory applications, for the last few years the respondents have been represented by junior counsel.
93. The respondents also delayed in retaining experts in an endeavour to keep costs at a minimum. They were able to avoid the very high cost of experts when I ruled that the applicant’s expert evidence was inadmissible.
94. In my view the respondents have conducted their defence reasonably, and there is no evidence to suggest that any of the costs claimed have been incurred unreasonably. In my opinion 85% of the respondents’ costs is an appropriate figure, having regard to the circumstances of the case and the way the litigation was conducted.
95. It can be seen from the calculations that the respondents have only claimed costs up until the time that the proceeding was dismissed. They have been put to a significant cost since that time in making this application. They would otherwise have been entitled to those costs, but those costs have not been claimed.
96. I will fix the respondents’ costs in the sum of $2,729,525.98, being 85% of $3,211,207.04, which comprises:

(a) $367,315.24 for the period 18 June 2004 to 13 January 2005;
(b) $731,146.57 for the period 14 January 2005 to 21 February 2006; and
(c) $1,631,064.18 for the period 22 February 2006 to 29 April 2011.

97. I make the following orders:
    1. Pursuant to rule 40.02(a) of the Federal Court Rules 2011, the applicant pay the respondents’ costs of the proceedings on an indemnity basis.
    2. Pursuant to rule 40.02(b) of the Federal Court Rules 2011, the costs in paragraph 1 above be fixed in the sum of $2,729,525.98 which sum comprises:

(a) $367,315.24 for the period 18 June 2004 to 13 January 2005;
(b) $731,146.57 for the period 14 January 2005 to 21 February 2006; and
(c) $1,631,064.18 for the period 22 February 2006 to 29 April 2011.

3. Pursuant to rule 1.37 of the Federal Court Rules 2011, and in partial satisfaction of the costs in paragraph 2(c) above, the Registrar pay to the respondents the amount of $850,000.00, which amount was secured by bank guarantee from Westpac Banking Corporation in favour of the Federal Court of Australia and provided by the applicant pursuant to the orders of 3 October 2006.
4. The applicant having been credited for any costs orders made in its favour in the assessment of costs under rule 40.02(b) in paragraph 2 above, any and all previous costs orders in the proceeding in favour of the applicant or the respondents be discharged.
   

I certify that the preceding ninety-seven (97) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Lander.

Associate:

Dated: 1 December 2011