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Federal Court of Australia · [2026] FCA 556

SMBC Leasing and Finance, Inc. v Flexirent Capital Pty Ltd (Lump Sum Costs)

SMBC Leasing and Finance, Inc. It is not the main ruling on the underlying commercial dispute. 25 million.

Federal Court of Australia

Plain-English explainers, not legal advice. Check the linked official source before you rely on a specific section, and get advice for your situation.

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Quick read

  • If your business is in serious litigation, manage costs with recoverability in mind from the start.
  • SMBC Leasing and Finance, Inc.

Use this to check

  • Whether the applicant's claimed amount was a fair approximation of recoverable costs
  • Whether the Calderbank letter should limit pre-25 July 2025 costs
  • Whether above-scale solicitor rates and above-guide counsel rates should be reduced

Decision snapshot

  1. 1

    What happened

    • SMBC Leasing and Finance, Inc.
    • was the applicant in Federal Court proceedings against Flexirent Capital Pty Ltd and Humm Group Limited.
    • The published decision at [2026] FCA 556 is not the main judgment in that dispute.
    • It is a later ruling dealing only with costs.
  2. 2

    What the court had to decide

    • The issue was how the Federal Court should quantify the applicant's recoverable costs after an earlier order had already established a costs entitlement and directed that, failing agreement, the amount be fixed in a lump sum.
    • The Court had to decide what level of compensation was appropriate on the material before it without allowing the process to become a detailed taxation.
  3. 3

    What the court decided

    • Thawley J ordered the respondents to pay the applicant's costs fixed in the lump sum of $3.25 million.
    • The Court rejected the respondents' argument that the applicant's earlier Calderbank letter should cap pre-25 July 2025 costs, finding the respondents knew the applicant's costs were likely higher and were not prejudiced by the incorrect figure.
    • The Court accepted that it was not bound to apply the Federal Court scale strictly and allowed market-rate counsel fees, but it made specific reductions.

Practical impact

Practical read

  • If your business is in serious litigation, manage costs with recoverability in mind from the start.
  • This case shows that the Court may prefer a practical lump sum approach over a line-by-line assessment, but it will still examine whether the final figure is a fair approximation of what should be recovered.
  • You should ask your lawyers to separate actual spend from likely recoverable costs, identify when any indemnity costs period starts, and explain whether rates materially exceed court scales or guides.
  • The judgment also shows the value of disciplined records.

Useful next steps

  • Whether the applicant's claimed amount was a fair approximation of recoverable costs
  • Whether the Calderbank letter should limit pre-25 July 2025 costs
  • Whether above-scale solicitor rates and above-guide counsel rates should be reduced
  • How to treat the split between party-party costs and indemnity costs
  • Whether generally excessive claims were already addressed by a broad discount

The story

This was a costs decision, not the main ruling on the parties' commercial dispute. The Federal Court had already made an earlier order on 27 February 2026 that the applicant's costs be determined in a lump sum if the parties could not agree the amount. They could not agree, so the Court had to decide what single figure should be paid.

That matters because the judgment does not tell the full story of the underlying business dispute between SMBC Leasing and Finance, Inc., Flexirent Capital Pty Ltd and Humm Group Limited. What it does show is a substantial and hard-fought disagreement about cost recovery after the applicant had already obtained a costs entitlement.

For business readers, this is best understood as a case about litigation economics and court method, not a case explaining the substantive rights and wrongs of the original transaction or dispute.

The numbers were large. The applicant said its actual costs to 14 March 2026 were $7,602,921.44. But it did not seek that full amount as recoverable costs. Instead, it first sought $3,989,857.94, then revised that figure to $3,678,675.26, and later to $3,384,508.87. The respondents argued for much lower figures, first $2,470,771.59 or $2,734,865.82, and later $2,079,865.34 after raising an issue about some lawyers not being on the High Court Register of Practitioners.

So the Court was dealing with a familiar commercial problem in a high-value form: one side had spent a great deal on litigation, the other side challenged how much of that spend should be shifted, and the Court had to produce a practical answer without turning the exercise into a full costs taxation.

What the court had to decide

The legal task was to fix a lump sum amount for the applicant's recoverable costs having regard to the information before the Court. The judge said the applicable principles were not in dispute. Importantly, the process could not devolve into something akin to a taxation of costs. The point of a lump sum process is to facilitate a quick and cheap, yet rational and reasonable, resolution to the issue of costs.

That statement shaped the whole judgment. The Court was not trying to reconstruct every invoice entry or decide every small billing controversy. Instead, it had to decide whether the applicant's proposed figure, after adjustments, fairly approximated the compensation it should receive under the earlier costs orders.

Practical sense check

  • Whether the applicant's claimed amount was a fair approximation of recoverable costs
  • Whether the Calderbank letter should limit pre-25 July 2025 costs
  • Whether above-scale solicitor rates and above-guide counsel rates should be reduced
  • How to treat the split between party-party costs and indemnity costs
  • Whether generally excessive claims were already addressed by a broad discount
  • How to assess fees charged by lawyers who were not on the High Court Register of Practitioners

The Court therefore had to balance speed and practicality against fairness. For businesses, that is the key procedural point. A lump sum costs hearing is not a free pass for rough estimates, but it is also not a promise that every disputed item will be examined in microscopic detail.

How the court approached the disputed items

The first major issue was the Calderbank letter dated 23 July 2025. The respondents argued that because the applicant had stated in that letter that its total costs were $1,993,999, its recoverable costs for the earlier period from 22 November 2021 to 25 July 2025 should be limited to $977,059.51 rather than the much larger amount claimed.

They also argued that the applicant had successfully relied on that same letter to obtain indemnity costs from 25 July 2025, so it should be held to the costs figure it had put forward.

The Court rejected that argument. Thawley J inferred from the material that the respondents knew the applicant's costs were likely to be more than what was stated in the Calderbank letter, and there was no evidence to the contrary. The judge also found that the respondents were in no way prejudiced by the incorrect statement. The starting point, the Court said, was that the applicant was entitled to appropriate compensation calculated by reference to its actual costs.

The second issue was whether the Court should cut down the claim because the applicant's Costs Summary did not strictly apply the Federal Court's Scale of Costs, the National Guide to Discretionary Items in Bills of Costs, or the National Guide to Counsel's Fees. Some solicitor hourly rates were substantially above the scale, and some counsel rates exceeded the guide. The Court said it was not bound to apply any applicable scale strictly.

Having regard to the complexity and conduct of the matter, the judge considered the applicant's approach appropriate, including its use of a general discount to solicitors' fees payable on a party-party basis.

The Court also declined to reduce disbursements for counsel fees. It accepted that the rates charged by counsel were market rates, took into account the experience of the counsel involved, and considered the way the case had been conducted for the applicant.

The third issue concerned the split between party-party and indemnity periods. The respondents said the applicant's disbursements, including counsel fees, did not clearly delineate between the two periods and objected to the applicant claiming 100% of solicitors' fees in the indemnity period and 100% of counsel fees in both periods. The Court did not regard the claim for 100% of counsel fees as highly unusual or inappropriate. It considered that claim reasonable.

But it treated 90% of solicitors' fees in the indemnity period as a closer approximation of what might have resulted on a taxation.

The fourth issue was general excess. The respondents pointed to the cost of briefing and bringing new staff up to speed, the fact that fees were claimed from 22 November 2021 even though proceedings were not commenced until 20 July 2022, and the impressionistically very large actual costs for some work such as pleadings. The Court's answer was not to dissect each complaint separately.

Instead, it said those matters were sufficiently accounted for in a general discount to solicitors' fees payable on a party-party basis.

The fifth issue was the most concrete and technical: some of the applicant's lawyers were not on the High Court Register of Practitioners. The respondents argued this was a bar to recovery of those fees, subject to the Court's discretion to allow them at the rate of a legal clerk. The applicant ultimately accepted that those fees should be accounted for at a lower rate, but the parties disagreed on which rate. The applicant's primary position was to use its firm's actual law clerk rate.

The respondents argued for the Scale of Costs rate for a Clerk or Paralegal under item 1.3. The applicant's alternative was item 1.2 for Law Graduates or Articled Clerks.

The Court chose item 1.2, with the maximum 15% uplift for care and skill, having regard to the significant contribution of the relevant lawyers. That choice materially affected the final calculation.

What the court decided

The Court fixed the applicant's costs in the lump sum of $3.25 million. The order required the respondents to pay that amount. In reaching it, the Court accepted the applicant's claim as generally appropriate, but only after making specific adjustments.

First, the Court rejected the respondents' attempt to use the Calderbank letter as a cap on pre-25 July 2025 costs. Secondly, it accepted that the Court was not bound to apply the Federal Court scale strictly and that, given the complexity and conduct of the matter, the applicant's broad methodology was acceptable. Thirdly, it accepted 100% of counsel fees as reasonable, but reduced indemnity-period solicitor fees by 10%, treating 90% as a closer approximation of what might have resulted on a taxation.

Fourthly, the Court treated the concerns about generally excessive claims as sufficiently addressed through a general discount to party-party solicitor fees. But it did not keep the applicant's chosen 30% discount. Instead, it applied a 22.5% discount for party-party professional fees for the period from 22 November 2021 to 25 July 2025.

Fifthly, for fees earned by practitioners who were not on the High Court Register, the Court applied the Scale of Costs item 1.2 rate for Law Graduates or Articled Clerks, with the maximum 15% uplift for care and skill. Using the table referred to in the applicant's affidavit of 1 May 2026, the Court said this would produce a reduction for non-registered practitioners during the party-party period of $1,112,360.00 rather than $705,025.39, and during the indemnity period of $231,006.61 rather than $146,414.40.

After applying those changes, the Court calculated a revised total of $3,250,937.31 rather than $3,384,508.87. It then fixed the recoverable costs at $3.25 million. The judgment repeatedly emphasises that this was an appropriate level of compensation on a lump sum basis, not a detailed taxation result.

How businesses should read it

The first practical point is that actual legal spend and recoverable legal costs are different things. A business may spend what it considers commercially necessary to run a complex case, but the Court may later award only part of that spend against the other side. Here, actual costs exceeded $7.6 million, while the recoverable lump sum was fixed at $3.25 million.

The second point is that a lump sum process is designed to avoid the time and expense of a full taxation. That can be attractive for businesses because it may produce a faster and more commercially sensible end to the costs fight. But it also means the Court may use broad discounts and approximations. If your records are weak, your staffing changes are hard to explain, or your cost categories are not clearly separated, the Court may deal with those problems through broad reductions rather than item-by-item debate.

The third point is that settlement communications can have later costs consequences, but not always in the way one side hopes. The respondents tried to use the applicant's Calderbank letter against it by arguing that the costs figure stated there should cap earlier recovery. The Court refused because it found the respondents knew the real costs were likely higher and were not prejudiced.

For businesses, that means settlement letters should be prepared carefully, but a mistaken figure will not necessarily be fatal if the surrounding circumstances show the other side was not misled.

The fourth point is that premium legal teams may still be partly accepted. The Court did not insist on strict scale rates and accepted market-rate counsel fees in context. But that did not stop it from making other reductions. Businesses should therefore ask not only whether a legal strategy is commercially justified, but also how much of it is likely to be recoverable if they win on costs.

Practical sense check

  • Ask for litigation budgets that separate actual spend from likely recoverable costs
  • Track the date from which any indemnity costs entitlement may run
  • Keep settlement letters and Calderbank correspondence with clear dates and assumptions
  • Record pre-proceeding work in a way that can later be explained and justified
  • Monitor staffing changes and the cost of bringing new team members up to speed
  • Check whether practitioner registration issues could affect later cost recovery
  • Ask your lawyers to explain any material gap between market rates and court scales or guides

Dates and status

The judgment was delivered by Thawley J in the Federal Court of Australia on 5 May 2026. It was delivered on the papers. The Court referred to its earlier costs ruling made on 27 February 2026, which had directed that the applicant's costs be determined in a lump sum if not agreed.

The reasons also identify the key dates used in the costs analysis. The applicant claimed fees from 22 November 2021. Proceedings were commenced on 20 July 2022. The Calderbank letter was dated 23 July 2025, and indemnity costs ran from 25 July 2025 under the earlier costs orders referred to in the judgment.

Source notes

This page is based on the Federal Court of Australia decision SMBC Leasing and Finance, Inc. v Flexirent Capital Pty Ltd (Lump Sum Costs) [2026] FCA 556. The reasons are confined to the lump sum costs application and should be read that way.

The judgment records the Court's methodology, the competing figures advanced by the parties, the treatment of the Calderbank letter, the Court's approach to scale rates and market rates, the handling of party-party and indemnity periods, and the treatment of work done by practitioners who were not on the High Court Register of Practitioners.

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