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Prygodicz v Commonwealth of Australia (No 3) [2022] FCA 826 (23 March 2022)

Last Updated: 18 July 2022

FEDERAL COURT OF AUSTRALIA

Prygodicz v Commonwealth of Australia (No 3) [2022] FCA 826

File number:	VID 1252 of 2019
Judgment of:	MURPHY J
Date of judgment:	23 March 2022
Date of publication of reasons	15 July 2022
Catchwords:	PRACTICE AND PROCEDURE – representative proceedings – application for approval to set aside an amount for future settlement administration costs – principles applicable to adopting costs referee’s report – costs referee’s report not adopted – approved estimate of future settlement administration costs reduced from the amount claimed by the applicants – any amount left over from that set aside to be paid to the peak body for community legal centres providing legal advice in relation to social security benefits
Legislation:	Federal Court of Australia Act 1976 (Cth) s 33V
Cases cited:	Caason Investments Pty Ltd v Cao (No 2) [2018] FCA 527 Kelly v Willmot Forests Ltd (in liquidation) (No 4) [2016] FCA 323; 335 ALR 439 Prygodicz v Commonwealth of Australia (No 2)  [2021] FCA 634 ; 173 ALD 277
Division:	General Division
Registry:	Victoria
National Practice Area:	Administrative and Constitutional Law and Human Rights
Number of paragraphs:	89
Date of last submission/s:	21 March 2022
Counsel for the Applicants:	Mr B Quinn QC and Mr M Guo
Solicitor for the Applicants:	Gordon Legal
Counsel for the Respondent:	Ms Z Maud and Ms E Gill
Solicitor for the Respondent:	Australian Government Solicitor
Counsel for the Contradictor	Ms E Levine

ORDERS

THE COURT ORDERS THAT:

1. Subject to further order, the amount of $1,277,000 be set aside (the Set Aside Amount) from the Settlement Sum for the purpose of paying the reasonable costs and disbursements incurred by Gordon Legal for performing its functions under the Settlement Distribution Scheme including the Costs Referee’s fees for the period 1 February 2022 to the conclusion of the Scheme (the Remaining Period). The Set Aside Amount is to be paid to Gordon Legal, the solicitors for the Applicant, to be held in that firm’s trust account.
2. The reference to the Costs Referee pursuant to Order 11 of the orders made 23 December 2020 be amended to include the following:

(a) as soon as practicable the Costs Referee shall confer with Gordon Legal, and any other person the Costs Referee considers appropriate, and then determine the best method to assess the reasonableness of the costs and disbursements incurred by Gordon Legal for performing its functions under the Settlement Distribution Scheme for the Remaining Period;

(b) the Costs Referee shall provide three short reports (the Reports) to the Court on a periodic basis throughout the Remaining Period providing her opinion as to the reasonableness and proportionality of the costs and disbursements in the invoices rendered by Gordon Legal for the firm’s work throughout the relevant parts of the Remaining Period;

(c) the Costs Referee shall provide a copy of the Reports to Gordon Legal;

(d) the Costs Referee’s reasonable costs shall be paid by Gordon Legal in the first instance, but, shall be claimable by Gordon Legal as costs incurred in relation to the performance of its functions under the Settlement Distribution Scheme. The Court notes that the Costs Referee has agreed to fix her fees at $5,500 (including GST).

3. Upon considering the Reports and any affidavits or submissions filed by Gordon Legal in response, the Court will decide whether to approve such costs on the papers. When any costs and disbursements for the Remaining Period are approved by the Court, they may be paid to Gordon Legal from the Set Aside Amount held in the firm’s trust account.
4. Following payment to Gordon Legal of all Court-approved legal costs and disbursements for the Remaining Period, if it is impractical, inefficient or wasteful, to distribute the remainder of the Set Aside Amount (the Remainder Monies), if any, to those eligible group members entitled to a payment(s) under the Settlement Scheme, the Remainder Monies be paid to Economic Justice Australia, being the peak organisation for social security-focused community legal centres in Australia, for the purpose of facilitating the provision of advice and legal assistance to social security recipients around Australia.
5. The Costs Referee or Gordon Legal may seek directions from the Court in relation to any issue which arises.

REASONS FOR JUDGMENT

MURPHY J:

INTRODUCTION

1. In this matter the applicants sought an order under s 33V(2) of the Federal Court of Australia Act 1976 (Cth) (FCA) to set aside an amount from the settlement sum to meet the settlement administration costs that their solicitors, Gordon Legal, estimate the firm will incur in performing its role under the Settlement Distribution Scheme (Scheme) for the period from 1 February 2022 until the conclusion of the settlement administration (Remaining Period). The Costs Referee opined that Gordon Legal’s costs estimate was not reasonable and recommended that a substantially lower amount be set aside, and the Contradictor submitted that the Costs Referee’s estimate should be adopted by the Court.
2. The application presents a stark example of a common challenge in relation to settlement administration costs; being that the amount sought for approval is only an estimate of the reasonable costs said to be likely to be incurred. Such estimates are required because with many lump sum settlements, the settlement administration costs must be set aside from the settlement sum before each group member’s pro rata share of the settlement can be calculated and distributed. But an estimate of future costs is just that, and depending on the circumstances of the case the estimate might be unreliable. It might prove to be substantially too much or too little.
3. On 23 March 2022 I made orders to set aside $1,277,000 from the settlement sum (the Set Aside Amount) to meet Gordon Legal’s reasonable costs incurred in the Remaining Period. That amount is substantially more than that recommended by the Costs Referee but substantially less than the amount sought by Gordon Legal. The orders provide for the amount to be set aside for Gordon Legal’s costs but the costs are subject to a subsequent supervision regime. Gordon Legal is required to render invoices on a periodic basis throughout the Remaining Period and the reasonableness of the costs will then be assessed by the Costs Referee. Upon receipt of the Costs Referee’s report assessing those costs incurred, the Court will decide whether to approve such costs, and if approved, that amount will be paid to Gordon Legal from the Set Aside Amount.
4. The orders provide that the Set Aside Amount is a cap on costs for the Remaining Period; that is, if the Set Aside Amount does not meet Gordon Legal’s reasonable costs it will be unable to recover more. Alternatively, if the amount exceeds the total costs approved by the Court for the Remaining Period that will be to the group members’ detriment, as it is likely that it will be impractical, inefficient or wasteful to distribute any excess monies (Remainder Monies) to eligible group members. The orders ensure that there will be no windfall gain for Gordon Legal if the Court-approved costs are less than the Set Aside Amount as in that event any Remainder Monies will be paid to Economic Justice Australia, the peak organisation for social security-focused community legal centres in Australia.
5. Having regard to the fact that the substantive proceeding concerned the Commonwealth unlawfully asserting social security debts totalling at least $1.763 billion against approximately 433,000 social security recipients, and pursuing recovery of those wrongly asserted debts from about 381,000 of them, in my view Economic Justice Australia is an appropriate organisation to receive any Remainder Monies.
6. The problem with the estimates of future settlement administration costs in the present case is readily apparent from the table below. It sets out the applicants’ and the Costs Referee’s initial overall estimates of settlement administration costs, and then takes off the costs subsequently approved in respect of the 1^st to 4^th periods of the Scheme (11 June 2021, when the Scheme started, up to 31 January 2022, the day before the Remaining Period commenced).

7. Yet, Gordon Legal’s revised estimate of its costs for the Remaining Period is $2,219,983; $1,822,797 less than the firm previously allowed for. The Cost Referee’s revised estimate of Gordon Legal’s costs for the Remaining Period is $628,276; $2,947,627 less than she previously allowed for (while accepting that the Costs Referee effectively acknowledged that she was unable to say how many group member enquiries Gordon Legal was likely to receive).
8. The Court has an important supervisory role in relation to the settlement administration costs proposed to be deducted from settlement monies. There is an inherent conflict between the interests of lawyers in being paid their costs for performing obligations under a settlement distribution scheme and the interests of group members in minimising the costs, or at least in paying only reasonable costs. There is also a pronounced information asymmetry between such lawyers and group members in relation to costs, and the lawyers are a position of particular dominance: Kelly v Willmot Forests Ltd (in liquidation) (No 4) [2016] FCA 323; 335 ALR 439 at [11] and [333].
9. It is worth noting that, whether the Court approved Gordon Legal’s revised $2.22 million estimate as the Set Aside Amount or the Cost Referee’s revised $628,276 estimate, the cost supervision regime ordered by these and earlier orders has left group members in a substantially better position. Taking into account the costs of $653,633 already approved for the 1^st, 2^nd, 3^rd and 4^th periods and adding the $1,277,000 Set Aside Amount means that Gordon Legal’s costs for its role in the settlement administration will not be more than $1,930,633, and may be less than that. That is significantly less than both Gordon Legal’s and the Costs Referee’s initial estimates. Of course, it still remains to be seen whether fixing the Set Aside Amount as I have will leave Gordon Legal short on the costs it incurs in the Remaining Period, which would also be an undesirable outcome.
10. I now turn to further explain my reasons.

THE EVIDENCE

11. The applicants relied on the following evidence in relation to the appropriate amount to set aside to meet the costs likely to be incurred in the Remaining Period, being:

(a) an affidavit of Andrew Grech, a partner of Gordon Legal, affirmed on 17 February 2022 (Grech Affidavit) in which he referred to and relied upon his earlier affidavits affirmed on 16 December 2019, 25 November 2020, 12 April 2021, 16 April 2021 and 22 April 2021. The Grech Affidavit sets out Mr Grech’s estimate of the costs that Gordon Legal will incur in the Remaining Period in the performance of its role under the Scheme, and the basis for that estimate; and

(b) three affidavits of James Naughton, another partner of Gordon Legal, affirmed on 2 March 2022, 3 March 2022 and 7 March 2022 which respectively expand upon information in the Grech Affidavit relating to the number of calls received by Gordon Legal during the opt-out period; correct some matters and miscalculations in the Grech Affidavit, and contain information about Gordon Legal’s paralegal resources throughout the Remaining Period.

The applicants sought approval of $2,219,983 as the Set Aside Amount.

12. The Court also had before it the Final Costs Referee’s Report dated 24 February 2022, by the Costs Referee, Ms Cate Dealehr of the Australian Legal Costing Group. The report sets out her opinion that Mr Grech’s costs estimate is not reasonable, and that $628,276 should be approved as the Set Aside Amount. The Contradictor, Ms Eugenia Levine of counsel, submitted that the Court should adopt the Cost Referee’s estimate.

BACKGROUND

13. On 11 June 2021 I made orders to approve the settlement of this class action pursuant to s 33V of the FCA, and to approve the costs incurred by Gordon Legal in conducting the proceeding up to and including approval of the settlement.
14. The settlement is substantial, involving a settlement payment of $112 million inclusive of legal costs, on top of an earlier announced program under which the Commonwealth withdrew approximately $1.763 billion in debts which were based on income averaging from ATO data, and promised to refund approximately $751 million that it had received or recovered from social security recipients in relation to such debts. Under the Scheme approximately 394,000 persons are eligible for compensation and the calculation and payment of the settlement payments to eligible group members is complex. Services Australia is performing the great majority of the settlement administration work under the Scheme; but given the Scheme’s size and complexity, Gordon Legal is nevertheless likely to be required to perform a great deal of work in responding to group members’ enquiries.

The amount of settlement administration costs initially sought for approval

15. In the settlement approval application the applicants sought approval of approximately $4.7 million in settlement administration costs that Gordon Legal estimated it would incur in undertaking its role under the Scheme. That costs estimate was based on a prediction that in performing its role the firm would receive approximately 40,000 enquiries from group members, which enquiries could be broken down into 38,000 unexceptional queries and 2,000 difficult queries.
16. By orders made on 23 December 2020 I had appointed the Costs Referee to inquire and provide a report regarding, amongst other things, the reasonableness and proportionality of the settlement administration costs proposed to be charged. By a report dated 1 April 2021 (the First Costs Referee’s Report) the Costs Referee opined that Gordon Legal’s estimate was not reasonable, and concluded that if 40,000 group members made enquiries in the ratios estimated by Gordon Legal, the firm’s reasonable costs would be approximately $2.7 million. In a supplementary report dated 26 April 2021 (the Second Costs Referee’s Report), after correcting some mistakes in her earlier report regarding the applicable charge-out rates, the Costs Referee said that if Gordon Legal’s prediction of receiving 40,000 queries was accepted, then approximately $4.2 million was a reasonable estimate of settlement administration costs. The Costs Referee did not though resile from the position that she was unable to say whether the estimated number of enquiries Gordon Legal said it was likely to receive from group members over the course of the Scheme was reasonable.
17. I was not prepared to approve an estimate of future settlement administration costs in such a large amount without some further checking, and was also unwilling to adopt the Second Costs Referee’s Report which had an uncertain foundation and had significantly changed between her two reports. In Prygodicz v Commonwealth of Australia (No 2)  [2021] FCA 634 ; 173 ALD 277 (Prygodicz (No 2)) at [375]-[377] I explained as follows:

[375] ...I do not presently consider it appropriate to adopt the Cost Referee’s Second Report in relation to Gordon Legal’s future work under the SDS. That is because, at this stage, it is unsafe to assume that Gordon Legal will receive 40,000 enquiries from group members, of which 38,000 queries will be “unexceptional” and 2,000 will be “difficult”. The reality is that it is impossible to know how many group members are likely to raise queries or how long they will take to resolve, but at some point an estimate will have to be made because distributions to group members cannot commence until an amount has been set aside to cover Gordon Legal’s costs associated with its functions under the SDS.
[376] There are real difficulties in reaching a reasonably accurate estimate of the likely costs to be incurred, but I am not satisfied that it is reasonable to fix an amount of $4.22 million in advance. Instead, I have ordered that:

(a) as soon as practicable the Costs Referee shall confer with Gordon Legal, and any other person the Costs Referee considers appropriate, and then determine the best methods:

(i) to assess the reasonableness and proportionality of Gordon Legal’s costs for performing its functions under the Scheme on an ongoing basis, and for such costs to be considered for approval by the Court and paid at either monthly or two monthly intervals as the Costs Referee determines; and

(ii) to permit the Costs Referee to make an updated and more accurate estimate of Gordon Legal’s future reasonable and proportionate costs for performing its functions under the Scheme, intended to assist the Court to consider approval of a lump sum amount for future costs so that the distribution of settlement monies to the Scheme Claimants can proceed without material delay.

(b) the Costs Referee provide short reports to the Court providing her opinion as to the reasonableness and proportionality of the:

(i) costs in the invoices rendered by Gordon Legal for the firm’s ongoing work;

(ii) updated estimate of Gordon Legal’s future costs in a lump sum amount;

and the Court will decide whether to approve such costs on the papers.

[377] An obvious problem with this course is that the Settlement Sum is fixed, and distributions cannot be made to group members until the total amount of future costs are fixed. The applicants expressed concerns as to the difficulties that may arise in taking this course. There is some force in that concern but, as Mr Grech said, it is likely the majority of queries will be from Ineligible Group Members, and the majority of the costs will be incurred when group members are informed as to the category into which they fall. In my view, at some point during the period in which the categorisation process is ongoing, or perhaps after the categorisation process is finished but before distributions begin, the Costs Referee should be in a better position to estimate the further legal work that will be required. For the present, it is appropriate to proceed on the basis that the Court will consider the invoices rendered by Gordon Legal on a monthly or two-monthly basis.

18. In furtherance of the regime put in place pursuant to those orders, the Costs Referee provided interim reports dated 22 September 2021, 9 December 2021, 20 January 2022 and 15 February 2022, which set out her opinion as to the reasonableness of the costs in the invoices rendered by Gordon Legal for the firm’s work over the period between 11 June 2021 and 31 January 2022. Over the course of that period I made various orders to approve Gordon Legal’s invoiced costs in accordance with the Costs Referee’s reports:

19. On 1 February 2022 the Remaining Period of the settlement administration began. It was impossible for Services Australia to calculate the relevant settlement payment for each eligible group member until all deductions from the settlement sum were finalised, and it was therefore necessary to decide what amount was appropriate to set aside from the settlement sum to cover Gordon Legal’s reasonable costs.

The work required to be undertaken by Gordon Legal during the Remaining Period

20. In the Remaining Period Gordon Legal is obliged to provide information and legal advice to group members who request such information and advice in relation to the calculation of their entitlements. The firm is also obliged to assist group members to understand how to request Services Australia to review their calculation, should they wish to do so. Gordon Legal can provide support to eligible group members for 51 days after they receive their settlement payment.
21. It is common ground that the Remaining Period has four phases:

(a) Phase 1, the “Lead Up Phase”, being the period from 1 February 2022 to 14 March 2022 (29 business days). This is the period from 1 February 2022 to the date on which Services Australia (being the Commonwealth’s responsible agency) commences sending notices of the amounts of compensation which will be paid to eligible group members (Payment Letters);

(b) Phase 2, the “Spike Phase”, being the period from 15 March 2022 to 11 April 2022 (20 business days) which immediately follows the Payment Letters being sent to approximately 394,000 eligible group members by Services Australia;

(c) Phase 3, the “Payment Phase”, being the period from 12 April 2022 to 1 July 2022 (55 business days) during which eligible group members are paid compensation; and

(d) Phase 4, the “Tail Phase”, being the period from 4 July 2022 to 24 August 2022 (38 business days), which is the period after payments are made to all eligible group members.

22. The Payment Letters sent to eligible group members in Phase 2 will include explanatory documents to assist the recipient to understand how their settlement payment has been calculated. A more detailed document setting out the individual calculation(s) in respect of each group member’s settlement payment (Settlement Statement) will not accompany the Payment Letter but will be accessible to eligible group members on request to Services Australia or via their MyGov online account. The Settlement Statement contains a detailed table that identifies each asserted debt that is eligible for payment of a settlement amount, the settlement amount, and a table setting out how that settlement amount was calculated.
23. The evidence shows that of the 394,000 group members who are eligible to receive compensation under the Scheme, many have more than one asserted debt. Some of those debts may have been wrongly asserted while others were not and some eligible group members have made numerous small repayments across multiple debts. Mr Grech deposed, and I accept, that the Settlement Statements for some group members are likely to be complex, could be up to 15 pages in length, and are likely to take a significant amount of time to explain.
24. The evidence also shows that eligible group member are entitled to various different amounts of compensation. For example, around 79,833 eligible group members will receive between $2,500 and $5,000; 76,673 will receive between $250 and $500 and approximately 20,000 will receive an amount between $0.01 and $100. Approximately 275 eligible group members will receive an amount between $20,000 and $25,000. I accept Mr Grech’s evidence that this also affects the complexity of the information and assistance that Gordon Legal is likely to be required to provide group members, and the time likely to be taken in doing so.
25. Gordon Legal surveyed eligible group members for the purpose of understanding how they might respond to receiving their Payment Letter, and a number expressed disappointment when they were advised that the payment amount for many people would be in the range of tens to low hundreds of dollars. Some group members indicated that such an amount would not be adequate for the hardship caused by the Robodebt system or the stress caused by their previous interactions with Services Australia. I accept Mr Grech’s evidence that this is likely to require Gordon Legal’s staff to spend more time in explaining the operation of the Scheme.
26. Gordon Legal have 25 paralegals available to respond to group member enquiries through the Remaining Period. The paralegals are instructed to provide information and assistance to group members on the phone and to respond to emails and letters under the supervision and guidance of lawyers with the conduct of the proceeding. The paralegals are instructed to escalate difficult or complicated enquires to a lawyer so that such enquiries can be resolved by staff with the appropriate level of experience.

GORDON LEGAL’S COSTS ESTIMATE

27. The applicants sought approval for a Set Aside Amount of approximately $2.2 million.

The Sample Period

28. In an effort to estimate the legal costs likely to be incurred during the Remaining Period, Mr Grech analysed the volume of correspondence received by Gordon Legal from group members in the period 1 November 2021 to 31 January 2022 (the Sample Period). Within that period there were two periods of increased group member engagement or “spikes”, being:

(a) 8 November 2021 to 24 November 2021, when letters were sent to all group members (approximately 642,000 people) explaining which category they fell into under the Scheme (Categorisation Letters), and therefore whether or not they were eligible to receive compensation (the November Spike); and

(b) 1 December 2021 to 13 December 2021, when a number of media articles were published about the proceeding and the 10 December 2021 deadline fell, being the date by which a group member could request a review of the category into which they had been allocated (the December Spike).

29. Mr Grech said, and I accept, that across the Sample Period, Gordon Legal answered 5,330 telephone calls from group members and sent 1,574 emails to group members; and that the ratio of telephone calls answered to emails sent was 3.38:1. I also accept his evidence that during the November Spike, there was a considerable increase in the volume of telephone calls received and responded to by Gordon Legal. For example, the firm received 239 telephone calls on 15 November 2021, and 207 telephone calls on 16 November 2021.
30. I accept that the calls received during the November Spike related to group members seeking basic information about the class action and their Categorisation Letter. Group members sought advice and information to understand why they had been placed into a particular category under the Scheme and how the different categories were defined; how to challenge the way they had been categorised under the Scheme, and whether they were entitled to a refund or compensation under the Scheme. It was common for group members to have a very limited understanding about the class action prior to contacting Gordon Legal.
31. Mr Grech deposed, and I accept, that in the December Spike there was a further noticeable increase in the volume of telephone calls and emails received and responded to by Gordon Legal. For example, on 7 December 2021 the firm received 334 calls. A significant proportion of the calls were from group members who had read recently published media articles, or had heard about the 10 December 2021 deadline for seeking a review of the category into which they fell and were seeking assistance in relation to that process.

The estimate

32. Mr Grech’s estimate that Gordon Legal would incur approximately $2.2 million in costs during the Remaining Period included three uncontentious inputs, being:

(a) the hours worked by Gordon Legal in liaising with the respondent’s solicitors under the terms of the Scheme ($11,000);

(b) the hours worked by Gordon Legal in preparing affidavit material in respect of costs estimated to be incurred during the Remaining Period ($9,625); and

(c) the total cost of the Costs Referee’s fees from 11 June 2021 to the completion to of the Costs Referee’s Final Report dated 24 February 2022 ($39,737.50).

33. Putting those three uncontentious amounts to one side, the bulk of Gordon Legal’s estimate is based on the cost incurred in undertaking the following tasks within each phase:

(a) paralegals responding to telephone calls from group members;

(b) paralegals responding to emails from group members;

(c) supervision of paralegals by a partner; and

(d) supervision of paralegals by lawyers.

Phase 1

34. In the Lead Up Phase, Mr Grech estimated that Gordon Legal will be required to respond to a similar volume of telephone calls to those received during the Sample Period, excluding the December Spike. The average number of telephone calls answered during that period (being, 1 November 2021 to 30 November 2021 and 14 December 2021 to 31 January 2022) was 69 calls per day. The estimate anticipates that the telephone calls in Phase 1 will largely comprise enquiries relating to what the class action is about, whether the caller is a group member, what category they fall into under the Scheme, why differently categorised group members are treated differently, and whether they are entitled to compensation. Mr Grech estimated that the duration of the telephone calls in this phase will be similar to those made by group members in the weeks prior to the commencement of the Remaining Period: 8 minutes or 2 six-minute-units.
35. In this period Mr Grech estimated that the firm will be required to respond to 25 emails per day, which reflects around the same number of emails sent per day during the Sample Period. It is estimated that the average length of time required for drafting and sending an email throughout all four phases will be the same as the Sample Period: 9 minutes or 1.5 six-minute-units.
36. In respect of supervision in Phase 1, Mr Grech estimated that the firm will be required to provide 5 hours of supervision by a partner per week, and 10 hours of supervision by a lawyer per week.
37. Gordon Legal estimated that its costs in this phase will total approximately $196,709.

Phase 2

38. In the Spike Phase, Mr Grech estimated that Gordon Legal will be required to respond to 500 telephone calls per day (10,000 in total), which is approximately 2.5% of the 394,000 eligible group members who will receive Payment Letters.
39. That estimate is based on a comparison of the number of calls the firm received during the period after the majority of the opt-out notices were sent to group members. In that period, Gordon Legal received approximately 35,000 calls (1,750 per day), which is approximately 5.5% of the 642,000 group members who received an opt-out notice. Around 30,000 of those calls were handled by a third-party call centre (an average of 1,500 per day), and the remainder were dealt with internally by Gordon Legal. All of the costs claimed by Gordon Legal in respect of the charges made by the third-party call centre were earlier allowed as reasonable disbursements by the Costs Referee. A large proportion of the 30,000 telephone calls received by the third-party call centre were dealt with through a pre-recorded interactive voice response (IVR) service, but there were still approximately 461 telephone calls per day answered by a staff member of the third-party call centre throughout the opt-out period. Gordon Legal anticipates that an automated IVR process is less likely to be adequate to answer telephone enquiries during Phase 2 because group members will likely be seeking individualised information about their Payment Letter and compensation calculations.
40. Mr Grech anticipated significant engagement from the eligible group members upon receipt of their Payment Letters. He said that was likely for various reasons including that the letters contain complex information which will require significant explanation; there will likely be media reports about the amount of money people are receiving and some eligible group members may not be satisfied by the amount they are getting paid. He said, and I accept, that based on Gordon Legal’s experience to date eligible group members are more likely to call Gordon Legal than Centrelink for information about their entitlements.
41. Due to the potentially complex nature of the explanation required for an eligible group member to understand how their compensation has been calculation, Mr Grech estimated that each telephone call answered during Phase 2 will take an average of 15 minutes or 3 six-minute-units.
42. He also estimated that Gordon Legal’s paralegals will respond to 148 emails per day during Phase 2 on the basis of the ratio of 3.38 telephone calls answered to 1 email sent (being the ratio which applied throughout the Sample Period).
43. In respect of supervision in Phase 2, Mr Grech estimated that the firm will be required to provide 20 hours of supervision by a partner and 30 hours of supervision by a lawyer per week.
44. Gordon Legal estimated that its costs in this phase will total approximately $1,101,498.

Phase 3

45. In the Payment Phase, Mr Grech estimated that Gordon Legal will be required to respond to about 100 telephone calls a day (5,500 calls in total). This estimate reflects the number of telephone calls that the firm received in the November Spike following the Categorisation Letters being sent to group members. He estimated that the firm will also be required to respond to approximately 30 emails per day (or 1627 in total); this was calculated on the basis of the ratio of 3.38 telephone calls answered to 1 email sent.
46. In respect of supervision, Mr Grech estimated that Gordon Legal will be required to provide 5 hours of supervision by a partner per week and 10 hours of supervision by a lawyer per week.
47. Gordon Legal estimated that its costs in this phase will total approximately $643,998.

Phase 4

48. In the Tail Phase, Mr Grech estimated that the firm will be required to respond to 50 telephone calls per day (or 1900 in total) and 25 emails per day (950 in total). This is based on the prediction that the firm will receive a similar volume of telephone calls and emails to those received during Phase 1. He estimated that each call will be approximately 15 minutes (or 3 units). In respect of supervision, Mr Grech estimated that the firm will be required to provide 2 hours of supervision by a partner per week and 4 hours of supervision by a lawyer per week.
49. Gordon Legal estimated that its costs in this phase will total approximately $217,415.

THE COSTS REFEREE’S ESTIMATE

50. A I have said, the Costs Referee frankly acknowledged that she was not able to say how many group member enquiries would be received by Gordon Legal in undertaking its role in the Scheme administration, and she was not qualified to comment on the anticipated intensity of Gordon Legal’s future work. Having said that, the Costs Referee said that she could assist the Court by verifying the calculations set out in the material relied upon by Gordon Legal; and by providing her opinion as to the likely costs to be incurred in the Remaining Period, by reference to the data she relied upon in her earlier assessments of the applicants’ costs in the proceeding.
51. The Costs Referee estimated that the total reasonable costs likely to be incurred in the Remaining Period were approximately $628,276, which includes the cost of the three uncontentious inputs. Putting those uncontentious amounts to one side, the Costs Referee’s opinion regarding Gordon Legal’s estimate may be summarised as follows.

Phase 1

52. The Costs Referee noted that the period relied upon by Mr Grech for the purpose of estimating the volume of telephone calls and emails that Gordon Legal is likely to receive and respond to in this phase was the Sample Period excluding the December Spike. The Costs Referee said, however, that the Sample Period also contained the November Spike, and there was no explanation given by Mr Grech about why that period of increased engagement was not also excluded from the comparative analysis. The Costs Referee opined that the correct comparative period for Phase 1 was the Sample Period excluding both the December and November Spikes, which produces an estimate of 47 telephone calls per day rather than 69. The Costs Referee however accepted Mr Grech’s estimate of 2 units per telephone call based on her analysis of the length of time taken to respond to telephone calls during the Sample Period.
53. In respect of the number of emails sent per day in this phase, the Costs Referee queried Mr Grech’s reliance on the ratio of 3.38:1, which reflected the number of telephone calls answered for every email sent made during the Sample Period, noting that the ratio did not account for the November and December Spikes within that period. The Costs Referee considered it appropriate to calculate the ratio for the average daily number of emails sent across the Sample Period by excluding the November Spike and December Spikes; this produced a ratio of 2.76 telephone calls answered for each email sent. Applying this ratio, the Costs Referee estimated that Gordon Legal would respond to 17 emails per day during Phase 1.
54. The Costs Referee accepted Mr Grech’s estimate of 1.5 units for drafting and sending each email across all four phases, based on her analysis of the length of time taken to complete the same task during the Sample Period.
55. In respect of supervision, the Costs Referee analysed the time spent by Gordon Legal partners and lawyers conducting supervision and attending to escalated calls during the Sample Period. She concluded that in both the November and December Spikes and the “non-spike” periods of the Sample Period, Gordon Legal partners never spent more than 2 hours per week supervising lawyers; and lawyers never spent more than 5.5 hours per week supervising paralegals in the spike periods, and never more than 2.5 hours per week in non-spike periods. On that basis, the Costs Referee estimated that partners will provide 1.75 hours per week of supervision, rather than the 5 estimated by Gordon Legal; and lawyers will provide 2.5 hours per week of supervision rather than 10.
56. The Costs Referee estimated that the costs in this phase will total approximately $117,463; but that estimate applied to a 30 day period and the correct number of business days in Phase 1 is 29.

Phase 2

57. In respect of the number of telephone calls likely to be taken by Gordon Legal in this phase, the Costs Referee did not accept Mr Grech’s estimate of 500 calls per day. For reasons which are not clear, the Costs Referee did not compare the telephone calls received and responded to during the opt-out period by considering the fact that Gordon Legal (both internally and through the third-party call centre) received 35,000 calls (1,750 per day) during that period. Instead, the Costs Referee analysed the number of telephone calls likely to have been answered in that period by reference to the hours worked by Gordon Legal’s paralegals according to their work rosters; she concluded that they took 152 calls per day during the opt-out period.
58. The Costs Referee also queried why the firm did not rely on the November or December Spikes when estimating the volume of telephone calls likely to be received and responded to in Phase 2. She noted that the average number of calls taken by the firm in the November Spike was 149 per day, and in the December Spike was 167 per day; the greatest number of calls taken by the firm on any one day during the Sample Period was 215. On these bases, the Costs Referee concluded that a more accurate estimate for the number of telephone calls the firm is likely to take in this phase is 160 per day.
59. In respect of the duration of each call during this phase, the Costs Referee rejected Mr Grech’s estimate of 3 units on the basis that the length of telephone calls received during the Sample Period did not increase in the November or December Spikes. The Costs Referee also analysed the telephone calls made by paralegals across earlier periods of time in the proceeding and noted that calls never went for more than 2 units. The Costs Referee therefore concluded that 2 units was a more accurate estimate for the duration of the calls that paralegals will likely take during Phase 2.
60. In respect of the number of emails sent per day in Phase 2, the Costs Referee did not accept Mr Grech’s reliance on the ratio of 3.38:1. She considered that the ratio applicable in the November and December Spikes was likely to be more representative of Phase 2, being 5.08 telephone calls made for each email sent. The Costs Referee applied this ratio to the number of telephone calls she estimated would be made in this phase and produced an estimate of 31 emails being sent per day by the paralegals.
61. In respect of supervision in this phase, on the same basis as with Phase 1, the Costs Referee considered that the partners of Gordon Legal would only need to provide 2 hours of supervision per week, rather than the 20 estimated by Mr Grech; and that lawyers would only need to provide 5.5 hours of supervision per week, rather than 30.
62. The Costs Referee estimated that the costs in this phase will total approximately $216,152; but that estimate applied to a 19 day period, and the correct number of days in this phase is 20.

Phase 3

63. In respect of the number of telephone calls likely to be taken in this phase the Costs Referee did not accept Mr Grech’s estimate that Gordon Legal will take 100 telephone calls per day. The Costs Referee said that reliance on a comparison with the November and December Spikes in inapt in circumstances when the Phase 3 period is much longer than those two periods. The Costs Referee estimated that the average number of telephone calls taken will be 47 per day, which is the same as her estimate for Phase 1.
64. In respect of the duration of each telephone call during this phase, the Costs Referee adopted the same reasoning as in Phase 2 and concluded that a more accurate estimate for the duration of the calls made in this phase is 2 units.
65. In respect of the number of emails sent per day in this phase, the Costs Referee queried Mr Grech’s reliance on the ratio of 3.38:1 and considered that the ratio should instead be 2.08:1. The Costs Referee applied this ratio to the number of telephone calls she estimated would be taken in this phase and concluded that 23 emails would be sent per day by the paralegals throughout Phase 3.
66. In respect of supervision in this phase, on the same basis as with Phase 1, the Costs Referee considered that partners of Gordon Legal will only need to provide 1.75 hours of supervision per week; and lawyers will only need to provide 2.5 hours of supervision per week.
67. The Costs Referee estimated that the costs in this phase will total approximately $234,298; but that estimate applies to a 56 day period, and the correct number of days in this phase is 55.

Phase 4

68. In respect of the number of telephone calls likely to be received and responded to in this phase, the Costs Referee did not accept Mr Grech’s estimate that the firm will receive and respond to 50 telephone calls per day. She estimated that the average number of calls received per day will be 20, reasoning that in the non-spike periods of the Sample Period Gordon Legal received and responded to approximately 47 calls per day, and Phase 4 is likely to be a period of less activity than those periods.
69. In respect of the duration of each telephone call during this phase, the Costs Referee adopted the same reasoning as with Phase 2 and concluded that a more accurate estimate for the duration of the calls in this phase is 2 units.
70. In respect of the number of emails sent per day in this phase, the Costs Referee applied the same ratio of 2.76:1 as in Phase 1; which produced an estimate of 7 emails sent per day.
71. In respect of supervision in this phase, on the same basis as with Phase 1, the Costs Referee considered that partners of Gordon Legal will only need to provide 1 hour of supervision per week; and lawyers will only need to provide 2 hours of supervision per week.
72. The Costs Referee estimated that the costs in this phase will total of $35,921; but that estimate applies to a 20 day period, and the correct number of days in this phase is 38.

THE CONTRADICTOR’S SUBMISSIONS

73. The Contradictor submitted that the Court should adopt the Costs Referee’s estimate of the appropriate Set Aside Amount.
74. Although the Contradictor accepted that the proposed supervision regime meant there was no possibility that Gordon Legal would make a windfall gain if the Set Aside Amount was set too high, she submitted that the firm had a conflict and its estimate should not be accepted. She said that Gordon Legal’s interests were in setting aside an amount sufficient to ensure that the firm’s future costs will be fully recouped, while on the other hand, eligible group members’ interests were in minimising the amount deducted from that sum to cover future costs.
75. As the Contradictor noted, in Caason Investments Pty Ltd v Cao (No 2) [2018] FCA 527 at [132] I set out the principles that apply to adoption of a referee’s report, as follows:

(a) an application contending that a report not be adopted is not an appeal;

(b) the discretion to not adopt a report should be exercised consistently with the purpose of the reference;

(c) where the report shows a thorough, analytical and scientific approach to the assessment of the subject matter of the reference, the Court would have a disposition to accept the report;

(d) where the report reveals some error of principle, patent misapprehension of the evidence or manifest unreasonableness in fact finding, then there would arise reasons for rejecting it; and

(e) the referee should give sufficient reasons to enable the parties and the Court to know that the conclusion is not arbitrary or influenced by improper considerations, and is not affected by the flaws described in (d) above,

: see also Prygodicz (No 2) at [335].

76. The Contradictor acknowledged that the task of arriving at the appropriate Set Aside Amount necessarily involves a degree of imprecision inherent in an estimate; but said that the Costs Referee’s Final Report is reasonable and methodologically sound and the analysis is grounded in data concerning comparable earlier events in this proceeding. The Contradictor submitted that the report does not contain any errors of the kind referred to in Caason. Instead the report methodically extrapolated from known data regarding previous group member enquiries following “mass-contact” events in the proceeding to provide a well-reasoned estimate of the future work that Gordon Legal was likely to be required to undertake in the Remaining Period. In the absence of any relevant error infecting the Costs Referee’s Final Report, the Contradictor argued that adopting the Set Aside Amount arrived at by the Costs Referee is consistent with principle, and is in the interests of group members.

DETERMINATION

77. I accept the Contradictor’s recitation of the principles applicable to the consideration as to whether to adopt a referee’s report. But, having regard to these principles, in the circumstances the present case I consider it appropriate to adopt the Costs Referee in part and to reject it or vary it in other parts.
78. In my view it is appropriate to adopt the Costs Referee’s estimates in relation to the work to be undertaken in Phases 1 and 4, as applied to the correct number of days within each phase; and the Costs Referee’s estimates across all four phases in respect of the duration of each email and telephone attendance and the number of hours required for supervision. The Costs Referee’s methodology in relation to those estimates is sound and properly justified on the basis of comparative analysis with earlier mass-contact events in the proceeding.
79. But in my view it is not appropriate to adopt the Costs Referee’s estimates in relation to the likely volume of telephone calls and emails required to be dealt with by Gordon Legal throughout Phases 2 and 3. As I now turn to explain, I have several concerns about the reliability of the Costs Referee’s estimates and methodology in this part of her report.
80. First, the Costs Referee acknowledged, correctly in my view, that she is not qualified to comment on how many group member telephone and email enquiries would be received by Gordon Legal in undertaking its role in the Scheme administration. While the Costs Referee is well qualified to assess legal costs, in relation to the anticipated future volume of telephone calls and email enquiries she could do no more than endeavour to assist the Court by offering a conclusion based on extrapolation from earlier events involving mass contact between group members and Gordon Legal. For the reasons I explain, this aspect of her report is not soundly based.
81. Second, when calculating the estimated volume of telephone calls likely to be taken by Gordon Legal in Phase 2, the Costs Referee (correctly in my view) used the opt-out period as a comparable event involving mass-contact with group members. But she did not account for the calls received by the third-party call centre, being 1,502 per day, which was the bulk of the telephone calls received. Instead, the Costs Referee considered only the hours worked by Gordon Legal’s internal paralegals who, on Mr Grech’s evidence, dealt with only a small proportion of the calls received during that period. Even accounting for the fact that a significant proportion of the calls received by the call centre were dealt with by a pre-recorded IVR service rather than being answered personally, the Costs Referee did not take account of the calls which were answered by a human, amounting to an average of 461 calls per day in the relevant period. Nor does it appear that the Costs Referee considered Mr Grech’s unchallenged evidence that in Phase 2 group members are likely to have queries regarding their personal payment amount, and therefore they will be less likely to obtain the information that they need through an IVR; they will be more likely to want to speak to a paralegal. In my view the Costs Referee patently misapprehended the evidence by failing to take into account the volume of calls received by the third-party call centre used by Gordon Legal during the opt-out period.
82. Third, the evidence shows that the total number of telephone calls received per day during the opt-out period represented 5.5% of the 648,000 group members that were sent an opt-out notice. If 5.5% of the 394,000 eligible group members who receive a Payment Letter make a telephone call to Gordon Legal during Phase 2, the firm will receive on average 1,083 telephone calls per day. Mr Grech’s estimate of an average of 500 telephone calls per day equates to calls from only approximately 2.5% of eligible group members, and the Costs Referee’s estimate of 160 calls per day equates to calls from 0.77% of eligible group members. It is impossible to know, but the estimate of telephone calls from 2.5% of eligible group members appears to be more soundly based.
83. The Contradictor sought to justify the Costs Referee’s estimate as reasonable on the basis that a substantial proportion of the enquiries received during the opt-out period were likely to have originated from ineligible group members who will not receive a Payment Letter; but that does not have any bearing on the proportion of eligible group members who are likely to seek further information from Gordon Legal after they find out how much compensation they are going to be paid. While I accept that overall group member awareness of the nature of the proceeding and the settlement may have increased at least to some degree since earlier mass-contact events, I accept Mr Grech’s evidence that the Payment Letters will provide eligible group members with information about a quantifiable benefit they are to receive, and that many of those people are likely to seek further information or explanation from Gordon Legal. The Costs Referee’s conclusion that only 0.77% of the persons who receive Payment Letters will call Gordon Legal lacks a sound basis in the evidence.
84. For these reasons, it is appropriate to vary the Costs Referee’s estimate in respect of the number of telephone calls likely to be received during Phase 2. In relation to the number of emails likely to be received and responded to by Gordon Legal in Phase 2, I adopt the Costs Referee’s ratio, being 5.08 telephone calls made for each email sent. The ratio is reasonable and properly justified as it derives from her analysis of the emails sent in the November and December Spikes. I have amended the Costs Referee’s estimate by applying the 5.08 ratio to the varied estimate of the volume of telephone calls in Phase 2.
85. Fourth, in respect of the telephone calls likely to be taken by Gordon Legal in Phase 3, the Costs Referee adopted the same estimate as she did in Phase 1. She rejected Mr Grech’s reliance on a comparison with the volume of calls received during the November and December Spikes on the basis that Phase 3 is much longer than those periods. The Referee concluded that Mr Grech’s estimate of the total number of calls likely to be received in Phase 3 was “disproportionate” to the total number of calls received in the two spike periods. In her view the likely volume of telephone calls per day in Phase 3 were likely to be the same as in Phase 1.
86. I can see no sound basis for the Costs Referee’s rejection of Mr Grech’s estimate. It is plain that Phase 3 contains a larger number of days than the November and December Spikes, but the Costs Referee did not explain why that would lead to the same number of telephone calls per day being received by Gordon Legal in Phase 3 as in Phase 1. In Phase 3 eligible group members are being paid compensation and have a reason to make a telephone call to Gordon Legal, while in Phase 1 there is no specific event to trigger group member enquiries. In my view this aspect of the Costs Referee’s reasoning lacks a sound basis and I have varied estimate of the volume of telephone calls in Phase 3.
87. Fifth, in respect of the emails likely to be sent by Gordon Legal during Phase 3, the Costs Referee applied a ratio of 2.08 calls made for each email sent. As acknowledged by the Contradictor, this ratio does not appear to have a basis in the Costs Referee’s comparative analysis. According to the relevant table in the Costs Referee’s Final Report, the correct ratio should have been 2.76 calls for each email sent. This aspect of the Costs Referee’s report also involved a patent error and it is appropriate to reject her estimate and substitute it for the volume produced by applying the correct ratio. I note that this error caused the Costs Referee’s estimate in respect of the numbers of emails sent per day during Phase 3 to be inflated rather than underestimated.
88. Correcting the various errors to which I have referred led me to conclude that it was appropriate to fix to the Set Aside Amount at $1,277,000, being an amount substantially more than that recommended by the Costs Referee but substantially less than the amount sought by Gordon Legal. Given the uncertainty inherent in the exercise I also considered it appropriate to put in place a regime for supervision of the costs incurred in the Remaining Period, and to make a cy-pres order in relation to any Remainder Monies.
89. I made the attached orders.

Associate:

Dated: 15 July 2022

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