Carey v Korda & Anor

Judgment 1In this matter, the parties have agreed that certain orders should be made in resolution of an application to establish legal professional privilege over certain documents produced by the Applicant, John Frederick Lord, in response to an order for production in connection with a liquidator's examination in respect of Kevin Jacobsen Pty Ltd (recs and mgrs apptd) (in liq) ("KJPL"). I will make those orders below. 2The question of costs in respect of the order for production generally, and the argument as to legal professional privilege specifically, remained in dispute between the parties. Mr Lord contended that the Respondents, John Sheahan and Ian Lock (who are joint and several liquidators of KJPL) ("Liquidators") should pay his costs of the Interlocutory Process filed on 21 December 2011 in respect of the question of legal professional privilege, and should also pay his costs of the order for production dated 2 August 2011 since 26 September 2011, save as to those costs that are the subject of orders of Barrett J made on 14 December 2011. Mr Lord seeks orders that those costs be paid on an indemnity basis or alternatively on an ordinary basis, as agreed or as assessed. 3The Liquidators contend that each party should pay its own costs of the privilege claim and (although this was not made express) the order for production generally. The Liquidators rely on the fact that Mr Lord did not serve a list of privileged documents prior to the issue of two Interlocutory Processes dated 18 November 2011 and 21 December 2011 and gave the Liquidators no opportunity to determine whether his claim for legal professional privilege had merit prior to the issue of those Interlocutory Processes. Chronology of events 4An order for production was issued to Mr Lord on 2 August 2011 which required production of: "All Documents of Kevin Jacobsen Pty Limited ("Company") in the possession of John Lord and Atle Crowe-Maxwell, the appointed receivers and managers to the Company including: (a) share valuations of the Company's subsidiaries including Jacobsen Holdings Pty Limited, Time of My Life Pty Limited, Jacobsen Venue Management Pty Limited and Consolidated Leisure Holdings Pty Ltd. (b) share valuations of the Company." 5Mr Lord was summonsed to attend for examination under s 596A of the Corporations Act 2001 (Cth) by summons for examination dated 2 September 2011 . The order for production was first returnable on 25 August 2011 and then adjourned to dates in September 2011. Mr Lord's solicitors requested that the orders for production be narrowed by letters dated 5 September 2011 and 22 September 2011 and by email dated 22 September 2011. The Liquidators did not agree to that request. 6Documents were produced to the Court in answer to the order for production on 26 September 2011 (one packet of documents), including valuation documents relating to KJPL. Mr Lord was examined before a Registrar on 28 September 2011. 7Further documents were produced to the Court on 19 October 2011 (three packets of documents) and 2 November 2011 (three packets of documents). Claims for legal professional privilege were made in respect of some of the documents produced on 19 October 2011 and 2 November 2011. 8By email dated 19 October 2011, the Liquidators' solicitors requested Mr Lord's solicitors to provide a list of documents over which legal professional privilege had been claimed in respect of documents produced to the Court on that day. By letter dated 26 October 2011, Mr Lord's solicitors responded that: "We are also unaware of any entitlement that your solicitors have to require our client to produce a list of documents in respect of which privilege is claimed". That response was unhelpful and, in my view, arguably inconsistent with the obligations of Mr Lord and his legal representatives under s 56 of the Civil Procedure Act 2005 (NSW). There is plainly utility, where a claim for legal professional privilege is advanced, in identifying the documents which are subject to that claim and providing information which will allow the party who has the benefit of an entitlement to production of documents to assess whether the claim for legal professional privilege is properly made. 9In the present case, it is unclear whether the identification of the documents over which a claim for legal professional privilege was made and the basis of that claim at this point might have averted the lengthy disputes which followed. On balance, I do not think that it would necessarily have had that result, since the identification of the basis of the claim for legal professional privilege in a detailed form in early 2012 did not do so. Nonetheless, I consider that Mr Lord's unwillingness to respond to a reasonable request for a provision of a list of documents over which legal professional privilege was claimed at this time is a factor which tends strongly against any order of costs in his favour over this period, and a fortiori against any order for indemnity costs in his favour. 10On 17 November 2011, Mr Lord filed an Interlocutory Process seeking orders for dismissal of the order for production issued to him. An affidavit of Mr Lord's solicitor sworn 17 November 2011, which was read before me, indicated that 237 documents had been produced subject to a claim for legal professional privilege comprising 1,490 pages, following a preliminary review for legal professional privilege, and set out the steps that, Mr Lord contended, were likely to be required to bring an Interlocutory Process seeking a claim for privilege. I interpolate that I am not satisfied that the task involved would have been a difficult as Mr Lord then contended. 11Barrett J delivered judgment in respect of that application on 14 December 2011. His Honour did not grant the application to set aside the orders for production and ordered that Mr Lord pay the Liquidators' costs of that application. His Honour noted that the claims to legal professional privilege should be determined and, if it was shown that legal professional privilege attached to a document, there might be an order setting aside the order for production as it relates to that document. 12On 21 December 2011, Mr Lord filed an Interlocutory Process seeking an order that the order for production made on 2 August 2011 be set aside to the extent it required the production of material subject to legal professional privilege or, alternatively, an order that there be no access to documents produced in answer to the order for production over which a claim of privilege had been made. 13An affidavit of Mr Lord's solicitor dated 31 January 2012 attached a schedule of documents over which a claim for legal professional privilege was made by Mr Lord. The documents listed in that schedule were categorised to indicate the basis on which legal professional privilege was claimed, for example, as confidential communications between a solicitor and the receivers and managers; between a solicitor and the chargee; or as confidential communications prepared for the dominant purpose of preparing documents or providing legal services in relation to actual or anticipated legal proceedings. The affidavit set out the persons who provided and received the relevant advices and communications and outlined the basis of the claim and the various proceedings which had given rise to the claim, as well as providing information in respect of the particular documents which were the subject of claims for legal professional privilege. In my view, that affidavit provided a comprehensive and detailed explanation of the basis of the claim for legal professional privilege and should have allowed the Liquidators to make an informed assessment of that claim. 14There followed correspondence between solicitors for the Liquidators and solicitors for Mr Lord debating the question whether a claim for legal professional privilege was available to Mr Lord, where a receiver and manager was for some purposes an agent of the company. The Liquidators did not press a contention that the documents were not open to a claim for legal professional privilege by reason of the receivers' limited role as agent before me, and Mr Lord argued, and I accept, that the decision in Carey v Korda & Anor (in their capacity as receivers and managers of Huntingdale Village Pty Ltd (recs and mgrs apptd) (No 2) [2011] WASC 220; (2011) 85 ACSR 331 does not support that contention, at least so far as legal advice was taken by receivers other than in their capacity as agents for KJPL. 15Further documents were produced to the Court in compliance with the order for production on 5 March 2012. 16By letter dated 18 April 2012, the Liquidators' solicitors first asked Mr Lord's solicitors whether the documents over which legal professional privilege was asserted by Mr Lord related to the share valuations of KJPL's subsidiaries. By letter dated 19 April 2012, Mr Lord's solicitors responded to that question, pointing to the detailed listing of documents subject to a claim for legal professional privilege which had already been provided and noted that documents relating to the various proceedings did not relate to the valuation of shares in the companies specified in the order for production but that a number of the balance of the documents did relate to the valuation of shares held by KJPL in other entities. 17By letter dated 19 April 2012 and by email dated 30 April 2012, solicitors for the Liquidators sought identification of the documents that related to the share valuations in respect of other entities, which was provided by Mr Lord's solicitors by letter dated 3 May 2012. 18By letter dated 3 May 2012, which was without prejudice except as to costs, the Liquidators' solicitors withdrew their objection to Mr Lord maintaining legal professional privilege over the documents over which it was claimed. Orders as to costs 19Section 98 of the Civil Procedure Act 2005 (NSW) relevantly provides that: "Subject to rules of court and to this or any other Act: (a) costs are in the discretion of the court, and (b) the court has full power to determine by whom, to whom and to what extent costs are to be paid, and (c) the court may order that costs are to be awarded on the ordinary basis or on an indemnity basis." 20Rule 42.1 of the Uniform Civil Procedure Rules 2005 (NSW) ("UCPR") in turn provides that, where the Court makes an order as to costs, the Court is to order that costs follow the event unless it appears to the Court that some other order should be made as to the whole or any part of the costs. However, that rule does not apply where there has been no adjudication on the merits: Lake Burrendong State Park Trust v Thompson [2011] NSWSC 1554. 21In an appropriate case, the Court will make such an order for costs even where there has been no hearing on the merits, although it is less likely to do so where this would involve the trial of a hypothetical action between the parties and deprive them of the cost saving which they would have achieved by settlement. In particular, costs may be awarded where a judge is confident that, although both parties have acted reasonably, one party was almost certain to have succeeded if the matter had been fully tried: Re Minister for Immigration and Ethnic Affairs; Ex parte Lai Qin [1997] HCA 6; (1997) 186 CLR 622 at 624-625. 22I do not consider that Mr Lord has established the basis for an order for costs for the period prior to identification of the documents subject to a claim for legal professional privilege and the basis of that claim by the affidavit filed on 31 January 2012. Until that identification was provided, the Liquidators had no basis to assess the legitimacy of Mr Lord's claim for privilege and they were not required to accept that a large number of documents were subject of a proper claim for privilege merely because Mr Lord asserted that matter, without identifying the relevant documents or the basis on which that privilege was claimed. 23I do not accept Mr Lord's submission that the Liquidators have acknowledged that they did not require production of documents other than the share valuations. The correspondence before me establishes, instead, that the Liquidators have accepted Mr Lord's claim for legal professional privilege as set out in the affidavit dated 31 January 2012, in respect of documents which do not relate to the valuation of shares in KJPL or the other companies identified in the order for production. The fact that the Liquidators have chosen to acknowledge that claim for privilege does not, in itself, demonstrate that they did not properly seek production of the wider range of documents, or would not have been entitled to access to such documents had they not been the subject of a proper claim for legal professional privilege. 24I consider that Mr Lord has established a claim for costs on the ordinary basis after identification of the documents subject to a claim for legal professional privilege and the basis of that claim by the affidavit filed on 31 January 2012. That affidavit provided detailed information as to the basis of the claim for privilege. The Liquidators' subsequent opposition to the claim for privilege was based on a proposition that the receiver was agent for KJPL and was not entitled to advance that claim, which (as I have noted above) was not pressed before me and appears to be inconsistent with the decision in Carey v Korda & Anor (in their capacity as receivers and managers of Huntingdale Village Pty Ltd (recs and mgrs apptd) (No 2) above. 25I should add that the Liquidators resisted any order for costs on the basis that Mr Lord only provided notice by the letter dated 3 May 2011 that share valuations in respect of KJPL were not the subject of the privilege application. The Liquidators also contended that, if the Liquidators were advised prior to the filing of the Interlocutory Process, there were no further share valuation documents to produce, they would not have sought to dispute the privilege claim. I do not accept that this matter is either a source of criticism of Mr Lord or a basis on which Mr Lord should not be entitled to recover costs that were otherwise recoverable in respect of the privilege claim. First, it would have been apparent that share valuations in respect of KJPL were not the subject of the privilege claim since they have been produced prior to Mr Lord's examination and he was examined about them. Second, the Liquidators had sought production of all documents held by Mr Lord in his capacity as receiver, although the order for production extended that category specifically to include share valuations. The Liquidators had resisted attempts by Mr Lord to narrow the scope of production, with both those attempts and the Liquidators' resistance to them continuing over a long period. There would have been no reason for Mr Lord to think, as a result of that process, that the Liquidators' interest was limited to the share valuations; had it been, they should have consented to the narrowing of the scope of production as they were requested to do. 26I do not consider that Mr Lord has established that costs for this period should be ordered against the Liquidators on an indemnity basis. It is not necessary to repeat the principles applicable to such an order at length. Those principles were summarised by Sheppard J in Colgate-Palmolive Co v Cussons Pty Ltd (1993) 46 FCR 225; 118 ALR 248 at 256-257 and by McDougall J in White Constructions (ACT) Pty Ltd (in liq) v GB White [2004] NSWSC 303 at [5]-[11], in a passage subsequently quoted in Ingot Capital Investments Pty Ltd v Macquarie Equity Capital Markets Ltd (No 7) [2008] NSWSC 199; (2008) 65 ACSR 324 at [24]. The summary of principles in Colgate-Palmolive Co v Cussons Pty Ltd above was in turn applied in Lahoud v Lahoud [2006] NSWSC 126 at [11] and in Ng v Chong [2010] NSWSC 127 at [18]. 27In Mead v Watson (as liquidator for Hypec Electronics) [2005] NSWCA 133; (2005) 23 ACLC 718 at [8], [156], in the context of a claim for indemnity costs against a liquidator, the Court of Appeal observed that: "[8] In summary, although the discretion to award indemnity costs is absolute and unfettered, it must be exercised judicially in the sense that there is some special or unusual feature in the case justifying such an award. Thus, for instance and relevantly, the discretion is enlivened where a party persists in what should have been seen to be a hopeless case. [156] Various epithets have been used in the cases to justify an award of indemnity costs as appears in the passages from the authorities referred to by the primary judge in [40]-[45] of the costs judgment. Such expressions include "some special or unusual feature", "persisting in what should have been seen as a hopeless case", "the undue prolongation of a case by groundless contentions", "delinquency in the conduct of the proceedings", "delinquency approaching that considered to justify special order as to costs", "knowledge of the party against whom such an award is sought that, promptly advised, he or she should have known their claim would fail", "totally frivolous and thoroughly unjustified defences". Of course, these categories are not closed." 28In Liverpool City Council v Estephan [2009] NSWCA 161 at [100], Giles JA observed that s 56 of the Civil Procedure Act adds emphasis to the occasion to depart from costs on an ordinary basis where a failure to properly conduct the proceedings has caused costs to be incurred unnecessarily, but does not override the need for a rational connection between the reason for that departure and the extent of that departure. 29In Chen v Chan [2009] VSCA 233 at [10], the Court of Appeal of the Supreme Court of Victoria observed that (omitting footnotes): "7. Usually, an order for costs will be made on a party/party basis. But an order for costs on a solicitor/client or indemnity basis may be made where special or unusual circumstances have been demonstrated, for example, by establishing misconduct in the proceeding, that the proceeding was brought for an ulterior purpose, or that it was patently unreasonable to institute, or maintain, the proceeding. Special circumstances may also include the making of an allegation of fraud which is not proved." 30For the reasons noted above, the position adopted by the Liquidators prior to 31 January 2012 does not warrant an order for costs against them, still less an order for indemnity costs, where the basis of the claim for legal professional privilege in respect of the documents in issue had not yet been identified. The Liquidators subsequently took a position which may well not have prevailed, at least before a first instance judge, by reason of the decision in Carey v Korda & Anor (in their capacity as receivers and managers of Huntingdale Village Pty Ltd (recs and mgrs apptd) (No 2) above and did not press that position before me. I do not consider that the course which the Liquidators adopted in that regard could be characterised as involving special or unusual circumstances, delinquency or as "patently unreasonable", for the purposes of an order for indemnity costs. Orders and costs 31By consent, the Court orders that: