Judgment
1YOUNG AJ: This is a Motion by a New Zealand firm of solicitors who were served with a subpoena to recover the costs and expenses which they claim were incurred in complying with that subpoena. I will refer to the firm as "the applicant".
2The respondent, as plaintiff in litigation in this court, obtained leave under the Evidence and Procedure (New Zealand) Act 1994 (Cth) to issue a subpoena to be served in New Zealand. I will refer to this legislation as the "Australian Act".
3The subpoena was a very wide-ranging one, calling upon the applicant to search for and produce a large number of documents.
4The applicant had been the solicitors for the defendant in the principal litigation. Thus, part of the claim for expenses involves costs for obtaining counsel's advice as to legal professional privilege.
5The applicant complied with the subpoena. However, it claims that in order to do so it suffered loss and expense in the amount of NZ$64,846, which at present rates of exchange is a little over AU$50,000.
6The applicant's claim is under five heads:
- Its own time and fees NZ$44,083.00
- Counsel's fees8,200.32
- Other costs (printing etc)1,104.50
- Future costs3,000.00
- NZ GST8,458.17
7The applicant claims under r 11 in Pt 33 of the Uniform Civil Procedure Rules 2005 (NSW) (UCPR), which empowers the court to order a party issuing a subpoena to pay the person subpoenaed "the amount of any reasonable loss or expense incurred in complying with the subpoena".
8The parties have agreed that I should settle the questions of principle that arise between them and that matters of quantum and what parts of the claim are reasonable should be referred for enquiry before an Associate Judge, who should also assess the amount due to the applicant. I will adopt this course. However, the validity of the claim for New Zealand GST is a question of principle and so I will give some guidance in respect of that issue.
9The problem arises because UCPR r 33.11 is not the only piece of legislation to be considered.
10Section 15(1) of the Australian Act provides that a person complying with a subpoena served pursuant to the Act is entitled to "payment of an amount equal to the reasonable expenses [it] incurred...in complying with the subpoena." Section 15(4) empowers the court to make an order that the person subpoenaed receives the amount of that person's reasonable expenses in so complying.
11It will be noted that r 33.11 uses the words "loss or expense" but the Australian Act simply refers to "expenses".
12There is complementary legislation in New Zealand: the Evidence Amendment Act 1994 (NZ), which I will refer to as the "New Zealand Act." It is in similar terms to the Australian Act.
13Under both the Australian and New Zealand Acts, "expenses" is defined widely as including:
"the reasonable costs of:
...
(b) finding, collating and producing a document or thing..."
14It is noteworthy that Pt 2 of the Australian Act, which deals with Australian subpoenas, provides that an application to set aside the subpoena is to be made to the Australian court which issued it. Section 15(4), referred to above, empowers only the Australian court to order expenses.
15This scheme is complemented by the New Zealand Act because there is no provision in that legislation for a person served with an Australian subpoena to obtain his or her expenses brought about by complying with the subpoena from a New Zealand Court.
16A similar reciprocal scheme applies to New Zealand subpoenas. It is only the New Zealand court that issued the subpoena which is empowered to order payment of expenses (s 9 of the New Zealand Act).
17The questions that arise for my determination are:
A. Do I apply UCPR r 33.11 or s 15(4) of the Australian Act?
B. If s 15(4) applies, which of the five heads of claim fall within the definition of "expenses" in that Act?
C. Is the applicant entitled to profit costs of time spent by lawyers?
D. Is the applicant entitled to reimbursement of its GST payment?
I will deal with each of these questions in turn and then consider:
E. The result of the motion.
18A. The general scheme of the complementary legislation is that a subpoena issued by a superior court in either country is to be enforced in the other country, but that all matters connected with its issue are to be determined by the court which issued it. It is almost as if, for the purpose of subpoenas, Australia and New Zealand are to be considered as the one country.
19This consideration leads to the inference that one treats the complementary legislation as merely procedural. That is, instead of going through the more convoluted process of service in a convention country, almost all formalities are waived between the two countries. The legislation is needed both to carry out the agreement made between the two governments and also to bind Australian recipients of New Zealand subpoenas and New Zealand recipients of Australian subpoenas.
20However, if this were so, why was it necessary to include s 15 in the Australian Act and the corresponding s 9 of the New Zealand Act?
21One answer may be that, without those sections, the order of the court in the other jurisdiction might not be binding in both countries, so as to enable the recipient to have a claim for expenses in the country of receipt. The sections create a liability for debt which can be the subject of a common law claim in the country where the subpoena was served. This is an alternative to seeking orders from the issuing court under s 15(4) of the Australian Act, or s 9(4) of the New Zealand Act, as the case may be.
22Another answer may be that the word "expenses" is to be read as the expenses ordered to be paid under the rules of the court which had jurisdiction to make the order for payment.
23A third answer is that the Australian Act, being a Commonwealth Act, displaces the UCPR.
24In order to examine the second proposition, some assistance may be given by examining the situations where the defined term "expenses" is used in the legislation.
25With reference to the Australian Act, s 11 deals with what is usually called "conduct money" and the definition of expenses is not necessary. Section 15 uses the term "reasonable expenses". It is difficult to pick up the definition of "expenses" in the legislation when applying s 15, as only reasonable costs of finding the relevant documents are expenses as defined, and so the word "reasonable" in s 15 is redundant if the definition applies. However, if it does not apply, the whole definition of "expenses" is redundant. Similar comments can be made with respect to the New Zealand Act.
26 It seems to me that it is fundamental to the operation of the complementary Acts that the focus is on the court which authorises the issue of the subpoena. Each court does so in accordance with its own rules, supplemented by the matters referred to in s 9 of the Australian Act (and s 5 of the New Zealand Act). It would be most odd if the court's rules as to the compensation for expenses was not to be applied. If this were the case, there would be a real difference between a subpoena served locally and one served in New Zealand, which would be against the scheme of the complementary legislation.
27Thus, in my view, the first and second propositions (in paragraphs 21 and 22) are correct and not the third (in paragraph 23).
28In my view, there is no question here as to whether the UCPR provision is inconsistent with a Commonwealth Act that covers the field and neither counsel suggested the contrary.
29The consequence is that, unless a New Zealand recipient of an Australian subpoena sues for debt in a New Zealand Court (in which case the action would be based on s 15 of the Australian Act), the relevant authority for the awarding of expenses is UCPR r 33.11 (at least where that subpoena has been issued by a court of New South Wales - the procedural rules of each State will govern the question in relation to subpoenas issued by courts in other States).
30B. This question does not arise in view of my answer to A.
31The consequence is that I do not need to rule on matters which occupied a considerable part of the argument in the present case, concerning the difference between a legislative provision that entitled the recipient of a subpoena to reasonable expenses and one which provides for loss or expense.
32It is usually expected that trial judges will give reasons with respect to matters which were strongly argued before them and which may be relevant should there be a successful appeal on the issues decided by the trial judge.
33However, I do not consider that that should be done in any expanded way in this case. It is clear that, as a matter of ordinary dictionary meaning of the words "loss" and "expense", there is a clear distinction between the two. "Expense" is limited to a payment made by the person concerned, "loss" is not so limited.
34In the complementary legislation, "expenses" is used in an expanded sense. If that expanded definition is applied to s 15 of the Australian Act, there would not appear to be any substantial difference between that section and the UCPR provision. Even if that definition did not strictly apply, the scheme of the legislation, taken with the intention of the legislature to read the word "expenses" liberally, would lead to much the same result.
35C. I now turn to the matter as to whether the applicant is entitled to profit costs for the time spent by lawyers in complying with the subpoena.
36The predecessor to UCPR r 33.11 was enacted after the unexpected decision of Sheppard J in Bank of New South Wales v Withers (1981) 35 ALR 21; 52 FLR 207. In that case, his Honour held that expenses could not be claimed by the recipient of a subpoena unless provided for by the rules of court. Under the general law, it was the duty of a citizen to comply with the subpoena without charge.
37It is doubtful whether there was ever a principle that a New Zealand citizen owed a duty to comply with an Australian subpoena without compensation. It may be that the complementary legislation imposed such a duty subject to the provision in the legislation for recovery of expenses. It is unnecessary to explore this matter.
38It is significant that, in the instant case, the recipient of the subpoena was a firm of solicitors. Accordingly, it was the solicitors themselves, or their employees or contractors, who were obliged by law to comply with it.
39Rule 33.11 speaks in terms of "any reasonable loss or expense incurred in complying with the subpoena".
40There have been a number of decisions in respect of this rule (and its earlier equivalents) over the previous 20 years. In Danieletto v Khera (1995) 35 NSWLR 684, Bryson J held that this Court has an inherent power to do justice to the recipient of a subpoena in addition to its power under the court rules. As Campbell J (as his Honour then was) pointed out in J Aron Corporation v Newmont Yandal Operations Pty Ltd [2004] NSWSC 996 (at [22]), the existence of this inherent power means that the provision should not be construed in "any narrow fashion".
41In Deposit & Investment Co Ltd v Peat Marwick Mitchell & Co (1996) 39 NSWLR 267 at 289 et seq, Bainton J held that where a firm of solicitors receives a subpoena it is entitled to recover as loss or expense the time spent by the partners and employees at charge out rates.
42This decision has been followed on many occasions in this Court: see for example A Pty Ltd v Z [2007] NSWSC 999 at [45].
43There are two cases where a different approach has been taken. In Mancorp Pty Ltd v Baulderstone Pty Ltd (Unreported, Supreme Court of South Australia, Debelle J, 5 March 1993), it was held that the solicitors should receive merely the cost of looking for and collating the documents, not the profit margin as well, and in the Family Court in Moriarty v Moriarty [2009] FamCA 369; 243 FLR 409; 41 Fam LR 336, Cronin J just refused to follow it for reasons he then gave. I must confess those reasons do not seem to me to be any justification for his Honour's stance, but the decision may be able to be upheld because of the unique cost regime in the Family Court.
44The difficulties in following the Deposit & Investment case are (1) that a different regime may apply to solicitors (and accountants) as opposed to that applying to corporations and to other business people (such as bobcat operators, to borrow the example used by Cronin J in Moriarty) and (2) the solicitors may make a profit out of complying with the subpoena.
45As to this second point, it may be a false assumption to say that a solicitor who receives a subpoena has to put aside time to comply with it and so not do fee paying work in that time. The assumption is that, without the subpoena, the solicitor had so much work on hand that he or she would have been gainfully employed. Not every lawyer is in that position.
46The case of work done by an employee is similar up to a point, but there is the additional consideration that it would seem that the average solicitors' firm has overheads of between 60-70% of fees, so that for every employee, 30-40% of their charge out rate is profit.
47However, Bainton J recognised these problems in the Deposit & Invesment case (as did Cronin J in Moriarty). At 293, Bainton J made it clear that the difficulties in calculation were such that the method he adopted produced the best estimate of loss that the court could make.
48Even apart from the Deposit & Investment case there are good reasons for taking this view. First, the UCPR is not to be narrowly construed. Secondly, solicitors who issue wide ranging subpoenas to professional people know the law as laid down in the Deposit & Investment case and it is far more equitable that their clients should bear the real costs of their action rather than the recipient of the subpoena.
49Thus, in my view, the profit costs should be allowed.
50D. Is the applicant entitled to reimbursement of its GST payment?
51No argument was put to me as to whether the present case involved a supply within the meaning of the New Zealand GST legislation. If there is a supply, then the tax is payable and would be as much an expense in complying with the subpoena as any other necessary disbursement.
52E. Accordingly, the applicant is, subject to the views of an Associate Judge as to the reasonableness of the various items claimed by the applicant, entitled to be paid as claimed.
53It may assist the Associate Judge and the parties, however, if I make one or two comments on what is reasonable.
54There is strong authority that a person who receives a subpoena may claim the cost of getting legal advice: see for example Hadid v Lenfest Communications Inc (1996) 65 FCR 350; 144 ALR 73. However, I affirm what I said in Triotas Pty Ltd v Rohn (Unreported, Supreme Court of New South Wales, 20 May 1993), that this depends on whether it was reasonable to seek the advice and that a person who receives a straightforward demand to produce a document would not be justified in first going to a lawyer to get advice. Nonetheless, in the present case, because of the legal professional privilege question, it may well have been appropriate to obtain counsel's advice. On the other hand, solicitors are presumed to know the law. The Associate Judge will have to decide what was reasonable in all the circumstances of this case.
55It is normally reasonable to provide photocopies of the relevant documents, either for the court or to retain a record of what was produced: see for example the Mancorp case and A Pty Ltd v Z at [45]. The complicating factor in the present case is that the solicitors kept their documents solely in electronic form and had to print off over 10,000 documents so that they could be examined. Was this reasonable, or is it merely a case of modern technology adding to expense, although perhaps one which modern communities would nevertheless consider appropriate?
56The Orders I make are a declaration in terms of paragraph 52 and an order that the respondent pays the applicant's costs of the motion to date. Further costs are reserved. I will give directions for the matter to be listed before the Registrar for mention.