Baker & Provan Defence Pty Limited v Supacat Pty Limited

Background and issues in dispute at the hearing

1. Before dealing with the submissions of the parties, it is convenient to set out some further background to the proceedings and the issues argued at the hearing of the discovery motion.
2. The proceedings relate to an agreement between Baker & Provan and Supacat for the final assembly and testing of specialised military vehicles and associated kits (Assembly Agreement).
3. Baker & Provan alleges that, by reason of Supacat's breaches of the Assembly Agreement, it was unable to construct the vehicles in the required time and sequence. As a result, Baker & Provan claims to have suffered substantial cost overruns which exceeded the price cap under the Assembly Agreement and for which, it says, Supacat is liable. Baker & Provan also claims that Supacat acted unreasonably and in breach of the Assembly Agreement in making two determinations that attributed responsibility for cost overruns, in part, to Baker & Provan rather than attributing 100% to Supacat.
4. Supacat denies both claims and contends that it acted reasonably in making the determinations as to the allocations of financial responsibility for the cost overruns.
5. Baker & Provan's discovery motion was filed on 9 December 2019. As filed, it sought discovery of documents falling within 34 categories (some of which comprised multiple paragraphs) referred to in schedule 1 of the motion as "not agreed". Prior to filing the motion, the parties had exchanged communications about Baker & Provan's categories for discovery and had agreed a timetable for the filing of any discovery applications.
6. At the hearing of the discovery motion, Baker & Provan pressed for discovery of a sub-set of the categories referred to in schedule 1 to the motion, which were included in a schedule titled "schedule of disputed categories". Baker & Provan's revised schedule identified 18 categories as remaining in dispute, 6 categories as agreed based on limitations previously proposed by Supacat, and 10 categories as no longer pressed.
7. One of the fundamental disputes that arose at the hearing was whether documents caught by some of the categories pressed by Baker & Provan should be discovered as being relevant to the issue of Supacat's determinations as to which party was responsible for the cost overruns. Clause 21.9(c) of the Assembly Agreement required Supacat to make that determination acting reasonably.
8. Baker & Provan argued that documents that were not considered by the relevant decision maker in making the determinations should be discovered as they were relevant to the issue of whether the determinations were reasonable. Supacat disputed this and contended that, as it had already set out the information and documents to which the decision maker had regard in making the determinations, the other documents sought by Baker & Provan were not relevant to a fact in issue in the proceedings.
9. On this issue, I accepted Baker & Provan's submission. As a matter of principle, I considered that discovery should be given of documents which were available to Supacat but were not taken into account by the decision maker in order to test the reasonableness of Supacat's determinations.
10. That said, I accepted Supacat's submission that most of the categories seeking documents of that nature were too broad as they required discovery of a range of documents which may not be relevant to the issues identified as having caused the alleged cost overruns and, therefore, not relevant to the issue of the reasonableness of Supacat's determinations. By way of example, categories 2 and 17 sought discovery of all Contract Change Proposals and Engineering Change Orders irrespective of whether they referred to the particular matters which had been pleaded by Baker & Provan or identified in the evidence as giving rise to the cost overruns, such as defective factory parts.
11. Accordingly, I concluded that the discovery categories should, where applicable, be limited to those documents available to Supacat that dealt with the matters identified in the pleadings and the evidence as having caused the cost overruns.
12. Another dispute at the hearing related to documents in category 11 which sought all tender submissions, budgets, forecasts and schedules prepared by Supacat for the project under the Assembly Agreement. Baker & Provan argued that those documents were relevant to the calculation of the base line target hours in the Assembly Agreement. As there was no pleaded allegation that challenged the adequacy of the base line target hours, the view I expressed during the course of argument was that the documents caught by that category were not discoverable. In response, Baker & Provan's counsel did not press category 11 and category 12.
13. There was also debate about category 35, which sought discovery of all schedules and programmes for the project. I accepted Baker & Provan's submission that documents of that type should be discovered as they were relevant to the issue of Supacat's knowledge and the cause of the cost overruns but discovery should be on a more limited basis than that sought in category 35.
14. Towards the end of the hearing, the parties accepted that the motion should be adjourned to enable Baker & Provan to refine the categories for discovery to reflect the views expressed by the Court. If the parties could not agree on all categories, then the matter was to come back before me for further argument on the morning of 6 March 2020.
15. As to be expected, the parties then engaged in correspondence to seek to agree the final categories for discovery. Baker & Provan sent its revised list of categories to Supacat on 3 March 2020. Supacat's response to the revised list was sent on 5 March 2020, the day before the next scheduled hearing.
16. On the morning of 6 March 2020, I was informed that four categories remained in dispute. The matter was stood in the list to enable Supacat to get instructions and for the parties to confer. That afternoon, the Court was advised that the parties had reached agreement and that consent orders would be prepared and sent to chambers. They were received on 13 March 2020.
17. The consent orders made on 13 March 2020 provide for Supacat to give discovery to Baker & Provan of 16 categories of documents by no later than 3 April 2020.

Legal principles

1. The principles applicable to the making of an order for costs are well established, although the parties did not address them in their submissions as to costs.
2. The starting point is that the award of costs is a matter within the Court's discretion: Civil Procedure Act 2005 (NSW), s 98. While the Court's discretion is broad, it must be exercised judicially and consistently with the overriding mandate provided for in ss 56-60 of the Civil Procedure Act 2005 (NSW).
3. The usual rule is that costs follow the event, unless it appears that some other order should be made as to part or all of the costs: Uniform Civil Procedure Rules 2005 (NSW), r 42.1.
4. Rule 42.7 relates specifically to interlocutory applications and reserved costs. The general position with respect to the costs of interlocutory applications is that they should follow the general costs of the proceedings.
5. Where a motion has been disposed of by consent, the usual approach is not to make any order for costs except as agreed between the parties, having regard to the desirability of encouraging and not penalising those parties who negotiate a compromise: Gambro Pty Ltd v Fresenius Medical Care Australia Pty Ltd [2002] FCA 581 at [26]; Australian Securities and Investments Commission v Rich [2003] NSWSC 297 at [78]. However, where a party is almost certain to have succeeded if the matter had been fully tried, it may be appropriate to award costs in their favour, although such cases are likely to be rare: Re Minister for Immigration and Ethnic Affairs: Ex parte Lai Qin (1997) 186 CLR 622; [1997] HCA 6 at 625.
6. The underlying principle is that costs should be paid in a way that is fair, having regard to what the Court considers to be the responsibility of each party for the incurring of the costs: Cellarit Pty Ltd v Cawarrah Holdings Pty Ltd (No 2) [2018] NSWCA 266 at [9].
7. A successful party has a "reasonable expectation" of being awarded costs against an unsuccessful party, unless there is good reason for that presumption to be displaced, such as some misconduct on the part of the successful party: Oshlack v Richmond River Council (1998) 193 CLR 72; [1998] HCA 11 at [69], [134].
8. An order for indemnity costs is not made to punish an unsuccessful party for persisting with a case that fails, but rather to compensate a successful party for costs incurred, when the Court takes the view that it was unreasonable for the unsuccessful party to have subjected the successful party to the expenditure of costs: Hamod v State of New South Wales (2002) 188 ALR 659; [2002] FCA 424 at [20].

What cost order should be made?

1. Dealing with Supacat's submission first, it argues that an indemnity costs order in its favour is appropriate in this case because Baker & Provan was wholly unsuccessful in obtaining an order that Supacat give discovery of the 34 categories of documents listed in schedule 1 to its motion.
2. Supacat also submits that Baker & Provan's conduct, before and after the hearing, has caused unreasonable delay and expense, arguing that Baker & Provan's revised list of categories sent on 3 March 2020 was the first genuine attempt by Baker & Provan to properly limit discovery to documents relevant to a fact in issue.
3. I am not persuaded by Supacat's submissions that Baker & Provan should pay Supacat's costs of the discovery motion on an indemnity basis. In my opinion, Supacat could not be considered to be the successful party on the motion. I am also of the view that it was not unreasonable for Baker & Provan to have filed the discovery motion when it did and that it did not conduct the application in a way which justifies an indemnity costs order in favour of Supacat.
4. As Baker & Provan's submissions note, at an early stage, Baker & Provan sought to agree discovery categories without the need for any interlocutory dispute. Initially, Supacat rejected that approach on the basis that discovery was unnecessary. That position changed and Supacat later agreed to a timetable for discovery. As to be expected, the parties then sought to negotiate the categories for discovery by each party. Agreement was reached in respect of the discovery sought by Supacat but not in relation to all of the categories sought by Baker & Provan.
5. Supacat points to Baker & Provan filing the motion having not responded to comments made by Supacat on the disputed categories. Those comments were made in a letter dated 4 December 2019 sent by Supacat at 3.33pm on the same day Baker & Provan was due to file its discovery application, according to a timetable which Supacat had requested be extended. Supacat's letter also made clear that it continued to dispute some of the categories because they sought documents which Supacat asserted were not relevant to any fact in issue in the proceedings.
6. Thus, Baker & Provan's discovery motion was filed on 9 December 2019 in the context where the parties had attempted but had failed to reach agreement on the categories and where orders had been made and extended requiring the filing of an application around that time.
7. I also do not consider that Baker & Provan's conduct prior to and at the hearing of the motion was unreasonable or led to delay or further costs. The refinement of its discovery request to 18 disputed categories responded to matters raised, not only in Supacat's letter of 4 December 2019, but also to affidavits served by Supacat earlier in February 2020. While some criticism could be levelled at Baker & Provan for making its refinements late in the day, doing so assisted in confining the issues in dispute at the hearing.
8. As to Baker & Provan's conduct at the hearing, Baker & Provan's oral argument focussed on issues of principle and categories by way of example, in the expectation that the Court's views on those matters might enable the parties to agree the position on the remaining categories. That was a sensible and efficient way to approach the disputes between the parties and assisted in achieving consent orders by way of a final outcome. Baker & Provan also took on board comments from the bench and agreed not to press certain categories of discovery and to revise the others. The arguments it advanced at the hearing were, in my view, plainly arguable and, in some cases, were accepted over Supacat's contentions.
9. After the hearing, the parties exchanged communications in relation to Baker & Provan's refined version of the categories for discovery. Ultimately, the discovery categories were agreed based on what appears to have been compromises by both parties as well as the outcome of the disputes at the hearing.
10. I accept that each of the 16 discovery categories the subject of the consent orders have been redrafted and do not reflect the precise terms of the corresponding categories set out in schedule 1 to the motion. But they are the refinement of categories which Supacat had, in some cases, argued at the hearing should not be the subject of any discovery order at all and which, in earlier correspondence, had been rejected as not being relevant to the issues in the case. As noted above at [16] and [20], the Court was not persuaded by Supacat's submissions on some of those issues.
11. Accordingly, I do not consider this to be a case where Baker & Provan could be said to have unreasonably pursued or persisted with a motion which had no merit. Nor do I consider that Baker & Provan failed in its duty to further the overriding purpose of the Civil Procedure Act of facilitating the just, quick and cheap resolution of the real issues in the proceedings by conducting the application in a way that caused unreasonable delay and expense.
12. Finally, having obtained orders for discovery after a contested motion, in my view, the starting position is that Baker & Provan, rather than Supacat, is the party that might be considered to have had overall success and should have the benefit of a costs order its favour.
13. This is the position adopted by Baker & Provan. It submits that Supacat should be ordered to pay its costs as it had success on the discovery motion, with Supacat being ordered to give discovery of documents falling within the vast majority of the disputed categories.
14. Baker & Provan also argues that Supacat's conduct of the application was unreasonable, pointing to its initial stance that discovery was unnecessary and its position at the hearing that Baker & Provan was not entitled to most of the categories of documents. Pausing here, even if I accepted that Supacat's initial position on discovery was unreasonable, it does not seem to me to justify a costs order in favour of Baker & Provan in relation to the motion. The question to be determined is what cost order is fair and reflects the interests of justice having regard to the outcomes on the motion.
15. The discovery motion has, in effect, been dealt with in a conclusive way with the result that Baker & Provan obtained discovery orders. But those orders were not made following a hearing and determination of all the issues raised by the motion. Rather, the discovery orders were made by consent on terms negotiated by the parties after a hearing on some of the principal issues in dispute in respect of which both parties had success. Baker & Provan had success in obtaining discovery in relation to documents which Supacat had argued at the hearing were not relevant but also failed to satisfy the Court in respect of other categories. Supacat had success in limiting the scope of discovery in respect of most categories.
16. In my view, it is not fair or reflective of the interests of justice for Baker & Provan to recover its costs of the motion as a discrete event where the Court was of the view that the categories it pressed at the hearing were too broad and should be refined to accommodate legitimate concerns which had been raised by Supacat, and some categories sought were considered by the Court to not be discoverable.
17. Equally, I do not consider it to be fair for Supacat to recover its costs as a discrete event. Baker & Provan had to pursue the discovery orders by way of motion and had success on substantive issues argued at the hearing as to whether documents of the type caught by some of the categories were relevant to the facts in issue in the proceedings.
18. Where there is a mixed outcome in proceedings, the Court may make an order apportioning costs between issues on which the party who has overall been successful and those on which that party has failed: Cellarit Pty Ltd v Cawarrah Holdings Pty Ltd (No 2) [2018] NSWCA 266 at [14]. In this case, neither party sought an order apportioning costs between them.
19. Another option would be to make no orders as to costs. However, the costs of the discovery motion have been incurred as part of the ongoing dispute between the parties. In my view, fairness dictates that some cost order should be made to enable recovery of those costs by one party.
20. The proceedings are set down for a final hearing soon, in May 2020. To my mind, sufficient justice would be served in this case by making an order for the costs of the discovery motion to form part of the costs of the proceedings with the result that one party will have awarded to it the costs of the discovery motion as part of the final outcome in the proceedings. That order reflects the 'default' costs order in rule 42.7(1) of the Uniform Civil Procedure Rules 2005 (NSW) for interlocutory applications. It is also, in my view, appropriate given the varying successes each of the parties had on the issues argued at the hearing and because, ultimately, the discovery orders were made by consent after some negotiation and compromise by the parties.
21. I note that Baker & Provan's submissions refer to an open offer it made, at the time the parties reached agreement in relation to the categories of discovery, to forgo the need for submissions on costs and to agree that costs be in the cause in accordance with r 42.7. As no evidence of that offer was before the Court and no submission made that it should be taken into account, I have not done so.
22. For these reasons, I order that the costs of the plaintiff's notice of motion for discovery filed on 9 December 2019 be costs in the cause.

Amendments 09 April 2020 - Change in jurisdiction. DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 09 April 2020