Calculating costs: James Hird & ASADA litigation

By Natalie Hickey, February 3, 2015

A penny for your thoughts? Well, if those thoughts are an estimate of James Hird’s legal costs in the ASADA litigation, expect those pennies to vary wildly indeed.

Depending on which source you read, James Hird is liable to pay:

• $60,000 – Michael Warner, Herald Sun
• $200,000 to $500,000 – Mark Stevens, Seven News
• At least $500,000 – com.au
• More than $500,000 after Middleton J judgment and before appeal – Business Insider Australia
• $1 million or more – Me
• $1 million or more – Norrie Ross in September 2014
• A No Win, No Fee arrangement with exposure of $550K – @DanielPitto1989

Who is right? It may help to provide some tools to ensure our guesswork and assumptions have a common foundation.

And let there be no doubt whatsoever: The analysis below is all guesswork!

My own grand totals are at the end of the post. How I have arrived at these figures is explained throughout.

Why courts order costs

The court system is a scarce resource. There are only so many judges, so many courtrooms and so many weeks of the year to hear cases.

We also fund the judicial system as taxpayers. Therefore we do not want our judges spending their time hearing meaningless disputes better resolved over a couple of beers in a bar.

Criminal cases have priority. Costs are less of an issue there.

For civil litigants though, there is a built in disincentive. If you lose the case, the general principle is that you pay the other side’s legal fees.

The hip pocket does help focus the mind on whether the desire to vindicate one’s position is worth risking one’s life savings, the roof over one’s head, one’s children’s education and the like.

If you are thinking about bringing a court case, you therefore must calculate –

• Your own costs (i.e. what you must pay your legal team); and
• Your opponent’s legal costs, which you must generally pay if you lose the case.

Sometimes that financial risk is absolutely worth it. Yet the decision to sue is a very serious one. And so it should be.

Step 1 – Calculate your own costs

It is so much easier to do this in hindsight! If you ever become a litigant, add at least 50% of the quoted costs to arrive at your likely spend (it is just like bidding at auction). Cynics amongst you might suggest that lawyers under quote. Not possible! There are always unforeseen circumstances, which is why a buffer is important.

James Hird’s costs will encompass the hearing before Middleton J, and the subsequent appeal. Because he has lost, these are sunk costs. Assuming there is no successful appeal to the High Court, he cannot get them back.

Here is how the calculation works.

First instance hearing costs

How much you pay your lawyer is up to you. You can choose a sole practitioner who might charge $200 per hour. Or you could choose an international law firm with a legal team comprising a partner (say, $650 to $750 per hour), a senior associate (say, $500 to $600 per hour), and a junior lawyer (say, $350 to $450 per hour).

How you proceed is up to you. The decision will be based on how much you can afford to pay, the novelty and technicality of the legal issues involved, the expertise you are buying, and so on.

James Hird chose to engage Ashurst, an international law firm, instructing (as it is well known) Steven Amendola, the Melbourne team leader of the employment group, and a leading practitioner in industrial relations and litigation (for Steven’s profile, see here). Junior members of the team no doubt helped out, because partner rates are very expensive.

Solicitors must then brief barristers. The advocacy in court is barristers’ work.

James Hird’s barrister team, based on the reported judgments, comprised Peter Hanks QC, Nick Harrington (a ‘senior junior’ as we put it) and Rachel Walsh (a ‘junior junior’). Barrister rates can range from $6,000 to $20,000 per day for a Queens’ Counsel, $3,500 to $6,000 per day for a ‘senior junior’, and $1,800 to $3,000 per day for a ‘junior junior’.

Without going too micro, when calculating legal costs for a client based on a similar analysis to the above, for the hearing and immediate preparation in the weeks beforehand, I would quote $24,000 per day. This is intended to cover the whole team (solicitors and barristers).

Here, the hearing took three days, and immediate preparation involving the whole team likely took two weeks. That leads to a figure of $312,000 dollars.

Of course, one must also calculate the entire lead up period including legal research, document review, witness statements, strategy development, correspondence with the parties and court, attendances on the client, directions hearings, document discovery, subpoenas, written submissions and objections to evidence.

Assume this work involves half the team, often working 50% (because they have other matters). You will recall though, that this preparatory work took months. From experience, the total costs for this phase, in light of the personnel and work involved, will typically be in the range of $500,000 to $800,000. Because I can see your eyes are glazing over at the numbers, let’s pick $500,000.

We now have a sub-total of $812,000.

We need to discount this figure. This is because Essendon Football Club (EFC) was a co-applicant with James Hird. It appears from the written submissions and advocacy (led by Neil Young QC) that EFC did much of the heavy lifting.

James Hird might have therefore tried to keep his legal team as lean as possible in these circumstances, and ceded a substantial amount of work to EFC’s lawyers.

In light of this, let us apply a discount of $250,000. This is based on no scientific principle whatsoever.

Appeal costs

Option 1 – James Hird to pay all appeal costs incurred

Appeals cost less than trials. However, there is more analytical work from the barristers. The barristers need to work out how to convince three skeptical judges that their colleague got it wrong. There also remains plenty of paper shuffling from the solicitors who need to prepare appeal books and the like. There also remain written submissions, immediate preparation and the hearing itself.

The hearing took two days, preparation by the whole team would likely take a week. At our current rate of $24,000 per day, that leads to $216,000.

Now add another $100,000 to cover preparing the Notice of Appeal, the Appeal Books, strategy discussions, attending directions hearings, correspondence with the other side and the like.

Let us now cross-check this against another rule of thumb, namely, that appeals tend to cost about 60% of the trial. 60% of $562,000 would be $337,000. The figure therefore looks acceptable.

Option 2 – James Hird to pay No Win, No Fee component for Appeal

Twitter is a great source of news so it is important to respect the suggestion that James Hird’s costs include a No Win, No Fee arrangement. What I will say though, is that plaintiff firms such as Slater & Gordon and Maurice Blackburn are masters at No Win, No Fee. They have built a business model around it.

Ashurst and other international firms like it are not known for this business model at all.

There are always reasonable exceptions though, and one can see it in this case. Ashurst tends to have corporate clients, and so the financial impact of litigation on an individual client like James Hird might cause it to make an exception. After a first instance loss, given the high profile of the case and perhaps with a sense of moral obligation, the partners might decide it is worth having some skin in the game, so that the litigation can continue.

James Hird lost the appeal, which means ‘No Win, No Fee’ in the most literal sense. There would be no fee.

James Hird’s appeal costs might therefore be $0.

But wait! Could it be the case that James Hird’s barristers would also agree to have skin in the game like Ashurst, based on this scenario?

Some barristers will agree to work on this basis. But many will not. Let us assume James Hird’s barristers are paid their typical daily fee (say, a joint daily total of $12,000):

2 x hearing days + 7 days’ preparation @ $12,000 per day = $108,000.

Now add $35,000 for directions hearings, written submissions and the like.

Costs estimate summary – James Hird’s own legal costs

Option 1 – James Hird to pay all costs incurred

• First instance costs: $562,000
• Appeal costs: $316,000
• TOTAL SUNK COSTS: $878,000

Option 2 – James Hird to pay No Win, No Fee component

• First instance costs: $562,000
• Appeal costs: $143,000*
• TOTAL SUNK COSTS: $705,000

* Assumes Ashurst agree to No Win, No Fee, but Counsels’ fees are paid in the usual way

Step 2 – Calculate costs James Hird to pay ASADA per Middleton J Judgment

James Hird and Essendon Football Club (EFC) were the Applicants. They lost at first instance against ASADA.

In accordance with the general principle, Justice Middleton ordered that they pay ASADA’s legal fees.

One important difference when calculating the costs you must pay your adversary after losing (envisage significant gnashing of teeth), is that the court system has a ‘taxation process’ or scale, which standardizes the costs owed.

In other words, if your opponent chooses to go to the most expensive lawyers in the land, you do not have to pay the premium. You only need to pay costs per the standardized ‘scale’ and not the full rate.

My previous rule of thumb to clients was: “If you lose, expect to pay 50% to 60% of your opponent’s actual costs.” However, from experience, the Federal Court has become quite generous in ordering costs, and that proportion has now increased to about 70% of actual costs.

However, before proceeding to this next step, it is important to note that ASADA’s first instance legal fees might not correspond to James Hird’s legal fees.

This is because ASADA is a statutory authority ably assisted by the Australian Government Solicitor (AGS).

True it is, the AGS charges its ‘clients’ for its services in accordance with Government guidelines. However, it cannot be assumed that this is at normal commercial rates.

So too, whilst Tom Howe is a Queens Counsel, he is also an AGS employee. This means the AGS does not need to pay Mr Howe the kind of rates he could attract as a member of the independent bar.

Those members of the independent bar comprising the ASADA legal team included Sue McNicol QC, and Daniel Star (a ‘senior junior’). They would likely have operated on reduced rates, part and parcel of being briefed by the Government.

It is reasonable to apply a significant discount in light of these matters. Note also that on a taxation of costs, the Federal Court might consider two Queens Counsel to be ‘overkill’, and only allow for one.

On this basis, let us deduct $150,000 from James Hird’s estimate first instance costs of $562,000. That leads to a sub-total of $412,000.

If one assumes the applicants would need to pay 70% of these fees, that would lead to new sub-total of $288,000.

James Hird and EFC are jointly liable to pay these fees. Assume James Hird must pay half. That leads to a total payment of $144,000 for ASADA’s first instance costs.

Step 3 – Calculate costs James Hird to pay ASADA per Full Court judgment

James Hird alone was the Appellant. EFC decided not to appeal. James Hird lost. The Full Court ordered that James Hird pay ASADA’s legal fees.

Therefore the key assumptions to this costs calculation are:

• ASADA’s appeal costs are likely to be about 60% of its trial costs
• James Hird must pay 100% of these costs.

Assume ASADA’s first instance costs were $412,000. 60% of these costs = $247,000. James Hird would be required to pay all these costs.

Step 4 – Arrive at totals

Option 1 – James Hird to pay all his own costs + ASADA costs

• James Hird’s legal fees: $878,000
• ASADA’s first instance costs (@ 50%): $144,000
• ASADA’s appeal costs (@100%): $247,000
• GRAND TOTAL: $1,269,000

Option 2 – James Hird costs have No Win, No Fee component + ASADA costs

• James Hird’s legal fees: $705,000
• ASADA’s first instance costs (@ 50%): $144,000
• ASADA’s appeal costs (@100%): $247,000
• GRAND TOTAL: $1,096,000

A comment on costs recovery

It is one thing to calculate fees, and it is quite another to recover them.

ASADA is bound by model litigant guidelines but this does not preclude it from recovering costs in litigation from opponents.

In this respect, ASADA must weigh up its duties to the taxpayer, which has essentially paid for the litigation via its funding of the Australian Government Solicitor, and its own public relations interests.

For instance, it might not be a good look for ASADA if, say, it pursued James Hird to bankruptcy in an effort to recover its legal fees. That might not make a great headline.

Where costs are not a driving factor in the litigation, it is common for parties to negotiate deals in order to end the dispute once and for all. Anything is open on this basis, from waiving costs recovery, through to accepting a discount on what the court might otherwise order.

Of course, any deal of this nature between James Hird and ASADA would not resolve his own sunk costs in the litigation. They have been paid to his lawyers once and for all.

 

 

 

 

One Response to “Calculating costs: James Hird & ASADA litigation”

1. Chris February 3, 2015

   Not to mention the PR Company fees and QC costs of 2013/14 during the AFL investigation … it’s starting to add up!

   Reply