E Co v Q

Background

1. The applicant is a company which provides accounting and corporate advisory services in a town outside Sydney. Mr Constable describes himself as a principal of the applicant. He acted as an accountant at various times for one or more (and for a period both) of the parties on both sides of the proceedings. He ceased to act for any of the plaintiffs in the course of 2014 by a letter dated 1 September 2014 in which he referred to the possibility of a conflict of interest in light of these proceedings, which were commenced in July 2014. The proceedings (to which the applicant is not a party) relate, in essence, to a dispute between a father (the first defendant) and his three sons (the third, fourth and fifth plaintiffs, to whom I will refer as the "individual plaintiffs") as to extensive rural land holdings in New South Wales.

The subpoenas

1. As already noted, this application relates to three separate subpoenas issued at the request of the plaintiffs during the course of the proceedings.

First subpoena issued 9 October 2014

1. The first subpoena, issued on 9 October 2014, not long after the commencement of the proceedings, was addressed to the applicant. (No issue was taken by the applicant as to the manner in which the first subpoena was addressed.) It required production of the documents listed in the schedule to the subpoena by 24 October 2014.
2. By the first subpoena, production was sought of all documents (as defined in the subpoena) and files created and/or kept by the applicant relating to twelve specified matters: first, meetings between some or all of the individual plaintiffs, the first defendant and two named accountants (one of whom was Mr Constable) in 2002 and 2003 relating to possible corporate or trust structures for holding assets and conducting a cattle grazing business; second, tax advice provided to any or all of the individual plaintiffs and the first defendant in 2002 and 2003 relating to the possible transfer of land by the first defendant; third, the establishment of the first plaintiff, for the period from 1 March 2002 to date; fourth, the establishment of the second plaintiff, for the same period; fifth, the cattle grazing business conducted by the first defendant for the period from 1 July 2001 to date; sixth, the family trust deeds executed by each of the individual plaintiffs and the first defendant in 2002; seventh, the acquisition by the first defendant of four named properties in 2002, 2003, 2005 and 2005 respectively; eighth, advice provided by the applicant in 2002 or 2003 to the first plaintiff and/or the individual plaintiffs and the first defendant in relation to a lease of land between the first defendant as lessor and the first plaintiff as lessee; ninth, advice provided by the applicant in 2009 to the first plaintiff and/or the individual plaintiffs and the first defendant in relation to the potential transfer of land from the first defendant to the individual plaintiffs; tenth, the occupation by the third plaintiff of the house on a particular named property and/or any improvements made to that homestead; eleventh, the business activities of the first plaintiff from 1 September 2002 to date; and twelfth, the business activities of the second plaintiff from 1 March 2003 to date.
3. It is relevant to note, when considering the ambit of the first subpoena, that the applicant had acted on the incorporation of the first and second plaintiffs in the proceedings as well as on the establishment of the family trusts referred to in the subpoena; and that the applicant had prepared financial statements or accounts for the first defendant and the first and second plaintiffs throughout the relevant period. In his affidavit sworn 9 August 2017 in support of the notice of motion, Mr Constable deposes that the applicant has "provided accounting services and advice to [the first defendant in the substantive proceedings] … and his various companies and entities since approximately 2002" (see [3]). (The first and second plaintiffs, though seemingly included in the description by Mr Constable as "[the first defendant's] various companies", are in fact controlled by the individual plaintiffs; the first defendant nevertheless holds shares in those companies.) Thus it may be inferred that at least some of the categories of documents listed in the first subpoena would have been readily to hand or identifiable by Mr Constable.
4. Also relevant at this point to note (as emerged in the evidence at the substantive hearing) is that by the time the first subpoena was issued (in October 2014) Mr Constable had already participated in some discussion (in April/May that year) with a former accounting colleague and principal of the applicant (Mr Arthur Kirk), following contact by the plaintiffs' solicitor and was aware of the potential for the dispute to become litigious. Further, in early May 2014, Mr Constable had already, on his own evidence in the substantive hearing, reviewed the electronic files of the applicant (described by him as a "quick sweep") relating at least to the topic encompassed in the second of the items the subject of the subpoena and had forwarded documents he thought relevant on this topic both to the plaintiffs' solicitor and also (without drawing this to the plaintiffs' attention) to the first defendant's solicitor. He had also at that time forwarded copies of financial information in relation to the first plaintiff both to the plaintiffs' solicitor and (in breach of an express instruction not to do so) to the first defendant's solicitor.
5. One might well infer from this that by the time the first subpoena was served on the applicant, Mr Constable already had some familiarity with at least some of the files or documents held by the applicant that were the subject of the first subpoena (which might have reduced the time otherwise necessary to locate such documents or files). Whether or not that is the case, or whether or not the time (if any) required to comply with the subpoena was thereby reduced, cannot be determined on the evidence before me on the present application. I interpose to note that the position of the applicant is that the reason the notice of motion was sought to be listed before me was on the basis that, as the trial judge, I would have a better understanding of the issues in both the proceedings and the subpoena. It can be assumed, therefore, that the applicant intended that I should take into account my awareneness of matters arising in the litigation.

Second subpoena issued on 2 March 2015

1. The second subpoena was issued on 2 March 2015, addressed to the proper officer of the applicant.
2. This subpoena required production by 17 March 2015 of five categories of documents: first, all documents ("document" being similarly defined throughout this subpoena as in the first) and files created and/or kept by the applicant evidencing and/or referring to and/or relating to, "succession planning" by the first defendant in the period from 1 January 1999 to 31 December 2011; second, all documents and files created and/or kept by the applicant evidencing and/or referring to and/or relating to, the management accounts of the first defendant in the period from 1 July 2001 to date; third, all documents evidencing and/or referring to and/or relating to the formation of a named corporate entity, the purpose of the entity, the financial records of the entity and/or any trust of which that entity might be trustee from 8 July 2013 to date; fourth, all documents of the kind referred to in the third category but in relation to a different named entity from 22 May 2014 to date; and, fifth, the general ledger of a third-named company from 18 October 2002 to date. The company referred to in the fifth item is one which was incorporated using the services of the applicant (hence, again, it might be inferred that the applicant would readily be able to locate any such documents falling within that category).

Third subpoena issued 16 June 2017

1. The third subpoena was issued on 16 June 2017, returnable on 7 July 2017, and was addressed to Mr Constable himself at what would appear to be a residential address. This subpoena required, in respect of certain documents, the production of "any document evidencing or recording the metadata of that document" in addition to the document itself. It also specified two periods: the first from 1 May 2002 to 30 June 2004 and the second from 21 October 2009 to the present (both inclusive).
2. The third subpoena sought seven categories of documents: first, all documents evidencing or recording any communication (written or oral) made during either of the defined periods relating to the provision of professional advice or services (including legal and accounting services) to any of the first defendant and/or the individual plaintiffs (including for the avoidance of doubt five types of documents - those including file notes or diary entries; documents given or sent to the said persons before during or after meetings at which professional advice was given; documents evidencing or recording communications by, from or to the first defendant or one of the individual plaintiffs; documents evidencing or recording communications with either of Mr Constable, a named solicitor or a named accountant; and invoices for payment of professional services; second, all documents referred to in paragraph [4] of the affidavit of Mr Constable affirmed 24 May 2017 in the proceedings; third, all documents evidencing or recording a valuation (formal or informal) of a property owned by any of the first defendant or the individual plaintiffs which valuation was communicated to Mr Constable at any time from 1 May 2002 to the present; fourth, all documents evidencing and/or referring or recording communications made at any time from 1 January 1999 to the present between Mr Constable or the applicant and another named accountant in respect of the first defendant; fifth, all documents annexed, attached or served with any of the documents falling within the preceding paragraphs of the schedule; sixth, each and every copy of a particular document (Annexure A) and any document of which it is a copy; and, seventh, in respect of every document reproducible or accessible on a computer or electronic device falling within the previous paragraph of the schedule, any document evidencing or recording the metadata of that document.

Compliance with the subpoenas

1. There was no application to set aside any of the subpoenas on the grounds that it was oppressive or otherwise. Mr Constable has deposed that the applicant complied with each of the subpoenas and produced the relevant material by the compliance date (see [7] of his affidavit sworn in support of the present application). It appears from some of the correspondence read on the present application that a short extension was sought for compliance by the applicant with one of the subpoenas but nothing turns on this.
2. As to the work undertaken to comply with each of the subpoenas, Mr Constable has annexed to his affidavit various WIP (work in progress) reports, to which I will refer in due course.
3. In his affidavit Mr Constable has set out the position held, and hourly rate charged, by each of the six persons he says were involved in "compiling the work" undertaken to comply with the subpoenas (see [12]) (although I note there is a seventh person whose name appears in the second WIP report). Apart from Mr Constable, the principal of the applicant, the persons to whom he has referred and whose time was recorded in the WIP reports are: Ms Emily Smith (a senior accountant); Ms Bridget Brennan and Ms Natalie Macfarlane (each described as "an accountant"); and Ms Kylie Wanchers (whose surname is however spelt "Wanschers" in the WIP reports) and Ms Fay Weis (each described as "Administration"). The seventh person whose name appears in the WIP reports, "Ms Zia Knorles", is not identified by reference to any particular position in the applicant. However, her charge-out rate (as gleaned from the WIP report) appears to be slightly higher than that of Ms Wanschers, and the time entry for her refers to "help Nat [presumably Ms McFarlane] with BankLink file and generation of old reports" from which it might be inferred that she also held an administrative position.
4. Mr Constable has deposed that the work undertaken to comply with the subpoenas entailed reviewing the files held by the applicant and ascertaining which of the documents contained within the files were covered by the subpoena requirements and that it was not a matter of "merely copying the entire file" (see [13] of his affidavit). (Presumably that comment does not apply to paragraphs in the subpoena schedules calling for all files relating to a particular topic. In those instances, the subpoena on its face appears to call for the entire file.) He does not attempt to apportion the time relevant to such a task of reviewing and ascertaining the status of documents; nor is it clear what overlap there was or may have been in such a task with the work otherwise required by the subpoena.
5. Mr Constable has deposed that most of the files were stored in the applicant's electronic storage system and sourcing the documents required staff to access the material by "pulling up each file on their computer then sorting through to find the relevant documents and print off same" ([14]). He deposes that reviewing the subpoena required the skill level of an accountant to ascertain that the material was consistent with the requirements of the subpoenas ([15]) but that administration personnel assisted with document retrieval and assembled and collated the documentation.
6. Mr Constable says that because of the seriousness and gravity of the subpoenas (and because he might be exposed to contempt orders) he was not prepared to delegate completely all the work and he instructed senior staff to assist with the compilation of the material and oversaw the work himself ([17]). He has deposed that he was also "conscious of complying with the Subpoenas but not breaching confidentiality and other aspects that [he] could not delegate" (which aspects remain unidentified) ([18]).
7. Mr Constable deposes that each of the subpoenas required that the work be undertaken in a short period of time (the first, by virtue of its return date, allowing 11 working days; the second, 10 working days, and the third, 14 working days - that last being a period during the end of the financial year period) ([19]).
8. It appears from the correspondence of the plaintiffs' solicitor that some 4,899 pages of material were produced in answer to the first and second subpoenas; and approximately 500 pages of material were produced in answer to the third (p 33, Ex AL). Presumably Mr Constable would know precisely how many pages were produced, since time was invoiced for counting the pages. Mr Constable points out that no charge was made for photocopying per page - only the time taken by each employee (affidavit of Mr Constable sworn 9 August 2017, [21]).

Invoices

1. The applicant adopted the somewhat surprising course of issuing an invoice for fees in respect of compliance with each of the subpoenas. Moreover, as will be noted shortly, for some reason the second invoice was addressed to the first defendant, care of his solicitor (the second defendant).

First invoice - 31 October 2014

1. The first invoice (dated 31 October 2014) was addressed to the third plaintiff, and was in the sum of $6,000.50 inclusive of GST. The narration was simply: To fees for professional services rendered in connection with your affairs for the period 1 May 2014 to 31 October 2014. Our costs in attending to the subpoena for information as detailed on the attached WIP listing.
2. The WIP listing commenced with the recording of two entries for Mr Constable that pre-dated the issue of the first subpoena and related to phone calls with the fourth plaintiff (the second being noted as "general catch up"). It is conceded that the $132 referable to those entries does not relate to the subpoena at all (though the amount appears, from what I can see, to be included in the amount claimed in the notice of motion in respect of this subpoena).
3. There is a series of entries (under the heading Accounting and Taxation) for Ms Macfarlane for 21 and 22 October 2014 with no narration followed by an entry for Ms Macfarlane (an accountant not one of the administrative personnel involved in the work undertaken for compliance with the subpoena) on 28 October 2014 of 8 units for "counting pages" (the total billed for these entries being $1,092).
4. There is then a heading "2015 General - Timesheets only", which includes time now accepted to be unrelated to the subpoena (Ms Wanschers "forward rego papers etc to [the third plaintiff] - 21 August 2014 - $12.50), and then a series of entries from 21 October 2014 to 28 October 2014 for Ms Brennan, Ms Wanschers, Ms Weis and Mr Constable for "print documents as requested", "print off ITR for court order" and other narrations that appear to relate to printing documents for court, finalising information in relation the subpoena and the like. Leaving aside the entry for "rego papers", those time entries total $3,266.50.
5. There then follows a series of entries headed "Corporate services" that are referable solely to Ms Smith and contain narrations along the lines "assist in collecting and sorting documents", "assist with collection of documents", "assist with printing and sorting documents" and "copy documents" over the period 21 October 2014 to 24 October 2014, totalling $952.00.
6. On the assumption that the entries for printing documents relate to the printing of documents following a review of computer files (as Mr Constable explained), the fact that there are various entries for a senior accountant and other accountants to be printing documents is not on its face unreasonable (whether it is reasonable for a senior accountant, as opposed to administration personnel, to be copying documents is another issue; and why an accountant is counting pages is unexplained).
7. What can be seen is that Mr Constable's time (excluding the general catch-up and phone call before the subpoena was even issued) in relation to the first subpoena is limited to approximately 3.8 hours whereas the bulk of the time entries were for Ms Brennan (10.7 hours), Ms Smith (6.8 hours) and Ms Macfarlane (8.3 hours; 0.8 of which was spent apparently in counting pages).

Second invoice dated 31 March 2015

1. The second invoice, as noted above, is addressed not to any of the plaintiffs but to the first defendant. The evidence of the plaintiffs' solicitor on the present application was that to the best of his and his clients' recollections the first time that this invoice was seen by them was when Mr Constable's affidavit was served in support of the present application. The second invoice, dated 31 March 2015 was in the sum of $2,334.26, with the narration: To fees for professional services rendered in connection with your affairs for the period 1 March 2015 to 31 March 2015. SPECIAL WORK Compilation of information relating to [the first defendant] to satisfy subpoena requests.
2. The WIP report referable to that invoice itemised time for Mr Constable ("subpoena work" or "subpoena") on 10, 11 and 12 March 2015 (four hours in total); Ms Smith ("print general ledgers") on 12 March 2013 (0.4 hours); Ms Brennan (two entries for "subpoena information - myob files from 2014 year back to 2006"; and one for "scan and save subpoena MYOB information) on 11 March 2015 and 12 March 2015 respectively (totalling 2.4 hours); Ms Macfarlane (for "printing") on 10 and 11 March 2015, totalling 2 hours; and Ms Wanschers ("scan and save banklink reports for court", "do title pages for court", "do title pages for subpoena documents", "take documents to Niffys to be couriered to Sydney" and "PC with Emma at Uphill and Schaefer re storage shed and updating contact details") on 11, 12 and 13 March, totalling 0.8 hours. There is also the entry for Ms Knorles to which I have referred above ("help Nat with BankLink file and generation of old reports") on 10 March 2015 - for 0.2 hours. The total time, plus the expense for freight subpoenaed documents of $73.05, amounts to the sum of $2,122.05 (to which GST was added).

Third invoice dated 3 August 2017

1. The third invoice was addressed to the third plaintiff and dated 3 August 2017 totals $1,949.20 inclusive of GST. The narration records: To fees for professional services rendered in connection with your affairs for the period to date. SUBPOENA COMPLIANCE - Case Number 2014/198212 Our time per the attached WIP analysis in complying with the subpoena dated 16 June 2017, served 28 June 2017 for compliance by 7 July 2017.
2. The WIP report seems to commence with a serious of credits but then includes time for Mr Constable "subpoena compliance" on 4 July 2017 (five hours); and on 20 July 2017 "subpoena to lawyer to review" (0.2 hours); as well as time for Ms Weis "printing of invoices for affidavit" and "affidavit information pages" on 4 July 2017 totalling 0.4 hours.

Correspondence

1. At the time the first subpoena was issued, an undertaking was sought from the plaintiffs as to payment of the applicant's "estimated fees for [it] to comply with the subpoena" (those being initially estimated at $1,500 plus GST). The plaintiffs' solicitor responded by noting that the award of costs of compliance with the subpoena was governed by the UCPR and stating that the plaintiffs would comply with their obligations under the UCPR.
2. The correspondence that then ensued between the parties or their legal representatives in relation to the subpoenas is mainly exhibited to the first affidavit sworn 18 August 2017 by the plaintiffs' solicitor, Mr Michael Fitzgerald (Exhibit AL). From that correspondence it appears that there was a two business day delay in providing the documents the subject of the first subpoena (to which extension the plaintiffs consented) and that the plaintiffs also communicated that they were content with the MYOB data files being copied to disk and the disk being tendered to the Court (see p 5 of Ex AL). Following requests from the applicant, in December 2014 and February 2015, for "settling" the fee and payment of the invoice dated 31 October 2014 (which related to compliance with the first subpoena), Mr Fitzgerald sought particulars of that invoice on 24 February 2015 (not at that stage having, it would seem, the WIP listing that was referred to in the invoice) (see pp 6-10 of Ex AL), in response to which "another" copy was forwarded by email the following day.
3. There seems then to have been a gap of about two years in which nothing was done on either side in relation to the subpoena costs. Then, in July 2017 when the third subpoena was served, Mr Constable acknowledged its receipt (requesting additional time to review and comply with it "given the end of financial year and scheduled annual leave") and also inquired whether the first plaintiff had "agreed to settle our previous outstanding account for compliance with the subpoena last year". Given that this email followed on in an email chain from Mr Constable's email of 25 February 2015 in relation to the WIP report for the first invoice, and given the communication on 4 July 2017 from Mr Constable referring to that invoice "being our costs to attend to the previous subpoena", this is consistent with the second invoice not having been sent to the plaintiffs by that stage. That is also the conclusion to be drawn from the email of 3 August 2017 from Mr Constable which refers to "our most recent fee for compliance with your 2nd subpoena" (my emphasis) (p 21, Ex AL).
4. Mr Constable advised in his email of 3 August 2017 that independent legal advice had been taken and that "we … will be pursuing payment of these fees at the commencement of the trial".
5. What seems next to have occurred was that solicitors acting for the applicant then sent a draft notice of motion to Mr Fitzgerald (by letter dated 7 August 2017) advising that if an undertaking to pay their client's reasonable costs and expenses of complying with the subpoenas was not given by 10am the following day they would arrange for the notice of motion to be filed and to be listed on the first day of the hearing. The enclosed draft notice of motion referred to an amount which was the amount of the invoice dated 31 October 2014 for $6,000.50, but attributed that to the cost of complying with the second subpoena (in fact, as set out above, that invoice related to work done in relation to the first subpoena); and to an amount which was the amount of the third invoice, attributing that to compliance with the third subpoena. The orders sought included orders that the amounts be payable forthwith "or in any event within 2 days" and that the matter be stayed generally and the plaintiff [sic] not be entitled to take any further steps in the proceedings until the payments were made.
6. It does not appear that there was a response within the time frame unilaterally imposed by the applicant's solicitors. That may not be surprising given that the whole of the Court day on 7 August 2017 was spent in hearing the evidentiary objections to the affidavits filed in the proceedings (which of course may well not have been known to the applicant's solicitors).
7. Mr Fitzgerald's response, sent by email at 3.49pm on 8 August 2017 was, among other things, to refer to the request that had been made on 24 February 2015 for details as to who did the work and what work was undertaken; and to raise concerns as to the WIP report (that being the report provided in relation to the first invoice). Attention was drawn to the requirements of the UCPR as to an attempt to agree on the amount of the reasonable loss or expenses before seeking an order for costs under the rule. Mr Fitzgerald said that he sought "evidence of fairness and reasonableness" of the expenses so that he could seek instructions and make a properly considered "counter offer" with a view to satisfying the requirements of the rules.
8. The response to this from the applicant's solicitor was to forward an unsealed copy of the notice of motion (by now amended to cover the three subpoenas that had been issued - it being said that the applicant's solicitors' office had inadvertently included only two subpoenas in the earlier draft) and an executed affidavit by way of service; and to rely on the WIP report provided in 2015 as to the work undertaken and who undertook it.
9. Mr Fitzgerald's response, among other things, was to reiterate his view that the WIP report was unintelligible; to complain as to the unreasonableness of providing for the first time (on 3 August 2017) an invoice (i.e., the third invoice) and WIP report only to follow this with a threat four days later to stay the proceedings; and to query, in particular, the need for Mr Constable to charge five hours' professional time to provide 500 pages. By reference to commercial copying rates and assuming a "labour charge of a couple of hours to dig out the material", Mr Fitzgerald indicated he would seek instructions to make an offer of $1,000 for payment of the two invoices (clearly there referring only to the first and third). The applicant's solicitor indicated that such an offer was likely to be rejected. An offer in that amount plus GST was subsequently conveyed at 11.49am on 9 August 2017 (p 37 of Ex AL).
10. By midday on 9 August 2017, the confusion as to the second invoice, which now appeared, together with the other two invoices, as an annexure to the affidavit of Mr Constable sworn 8 August 2017 (sent to Mr Fitzgerald on the afternoon of 8 August 2017), had become apparent. Mr Fitzgerald maintained that an invoice directed to someone else was not his clients' concern.
11. Meanwhile, on 9 August 2017, contact was made with my associate by the city agent for the applicant's solicitor seeking leave to file the applicant's notice of motion at the next directions hearing in the proceedings (thought by the applicant's solicitor to be on 11 August 2017). I gave leave for the filing of the notice of motion and listed it for directions at 9.30am on 14 August 2017, at which time I fixed the motion for hearing on 28 August 2017.
12. It was only following the filing of the notice of motion that the applicant's solicitor provided his comments on the work undertaken in relation to each of the three subpoenas by reference to the three invoices. He did so by letter dated 10 August 2017 (p 85, Ex AL).
13. As to the first invoice: it was conceded that the sum of $132 did not relate to the first subpoena and could not be claimed (and hence that the invoice should be amended to a total of $5,855.30); the work undertaken by Ms Macfarlane was said to related to extracting documents from the applicant's electronic storage system; and the balance of the report was said to be self-explanatory, with the added explanation for the item "print off ITR" as referring to the printing of an Individual Tax Return (a document relevant to the subpoena).
14. As to the second invoice, correction was made to a clerical error in the wording of the second invoice; the work by Mr Constable and Ms Macfarlane was described in general terms; and there was an explanation for the reference to "Uphill and Schaffer" as a reference to the managers of the applicant's storage facility.
15. As to the third invoice, the explanation for the work undertaken by Mr Constable was said to be the "extremely short time" that the applicant could devote to the return of the subpoena.
16. The total amount required to cover the work undertaken in relation to the subpoena was stated in the 10 August 2017 letter to be $10,138.76 (and it was said that the legal costs to date, including that of Counsel, exceeded $6,000 - a figure which seems to me to be extraordinary given that all that appears to have been done by the legal representatives was to draft, and amend twice, the notice of motion; prepare the affidavit in support; attend to correspondence in relation to the issue of the subpoena costs; and arrange for the listing of the notice of motion).
17. That was, in effect, where the matter stood at the time the present application was brought. In summary, as at the time the notice of motion was filed on 10 August 2017: the applicant had issued an invoice for its costs of compliance with the first subpoena; the applicant had been pressed for detail of the work undertaken, in response to which the first WIP report had been provided; the applicant had not responded to the plaintiffs' solicitor's request for further detail to be provided of the expenses claimed; and the matter had there stood with no attempt at all to agree the amount of the costs in the period from the issue of the first invoice to the service in 2017 of the third subpoena; the second invoice had been seen by the plaintiffs for the first time only two days before the notice of motion was filed (there is no reason not to accept Mr Fitzgerald's evidence that it had not come to his or his clients' attention prior to service of Mr Constable's affidavit, which accompanied the copy of the unsealed notice of motion, at 5.42pm on 8 August 2017) and not surprisingly, therefore, there was no evidence of any attempt to agree those costs prior to service of the notice of motion; the third invoice was issued and sent to Mr Fitzgerald on 3 August 2017 and an undertaking for its payment was sought, followed by the draft notice of motion just four days later on 7 August 2017 and the filing of the notice of motion on 10 August 2017.
18. There had been no attempt by the applicant to seek to agree the subpoena costs by that stage. The only attempt made in that regard seems to have been by the plaintiffs' solicitor, against the background of his continued complaint as to lack of sufficient information about the work undertaken in compliance with the only subpoenas for which invoices had then been served, to offer the sum of $1,000 for the two invoices (the first and third) of which he was then aware. That was rejected almost out of hand by the applicant's solicitors, with no attempt to agree the costs even at that stage.

Correspondence after the notice of motion was filed

1. The position after the notice of motion was filed needs also to be noted. Evidence as to this was contained in the affidavit sworn 28 August 2017 by Mr Fitzgerald and relied upon by the plaintiffs only as going to the issue of costs of the motion. Mr Fitzgerald there deposes to the receipt of a letter dated 14 August 2017 from the applicant's solicitor offering to settle the matter on the basis that the respondent to the motion pay it $7,500 plus the costs of the motion on the ordinary basis. (The costs of the motion had, it will be remembered, been indicated as at 10 August 2017 as being in the order of $6,000 - presumably on a solicitor/client basis. Therefore it seems that this offer should be understood as being the order of at least, say, $12,500 if a discount of 20% is allowed on the solicitor/client costs that had been indicated to that time.) It appears that that letter was forwarded by email to Mr Fitzgerald at 9.26am on 15 August 2017, the second day of the substantive hearing. Mr Fitzgerald's response the following day was that he was unable to obtain instructions on that offer until the fourth plaintiff's cross-examination was complete. The offer was subsequently rejected.
2. By email on 21 August 2017 Mr Fitzgerald said that the letter of 10 August 2017 did not address all the matters discussed in a telephone conversation with the applicant's solicitor on 8 August 2017 or the matters identified in his affidavit of 18 August 2017. He conveyed an offer to pay $4,000 to the applicant's solicitor by 4pm that day, calculated on certain stated premises said to apply across all three subpoenas (six hours of Mr Constable's time at his charge out rate; and 16 hours of an accountant's time at a charge out rate equivalent to that of Ms Macfarlane); and on the basis that the parties bear their own costs of the application. Complaint was made of failure to provide sufficient information in a timeous way and that no attempt had been made to negotiate costs or to provide evidence in relation to the second or third invoices before the application had been made.
3. The applicant's response was to reject that offer and to seek $16,500 including legal costs incurred. That was in turn rejected and an offer was made by the plaintiffs to pay $5,120, plus GST if applicable, with each party to pay its own costs. That offer was calculated on the basis "applying across all three subpoenas" of: eight hours of Mr Constable's time (four for the first subpoena, two for the second subpoena and two for the third subpoena); with 20 hours of an accountant's time (12 for the first subpoena, four for the second and four for the third subpoena). That too was presumably rejected by the applicant.

Submissions

1. The matter then was argued before me on 28 August 2017.
2. In essence, what the plaintiffs contend is that they have not been provided with sufficient information in order to be able to assess the reasonableness of the claimed loss and expenses and they maintain that the requirements of r 42.33 of the UCPR have not been satisfied as the parties have not attempted to agree on the amount of costs to be paid. Even if the offers made after the notice of motion was filed could be said to satisfy the requirements of the rule, they submit that this could only be the case in relation to the costs of compliance with the first of the subpoenas and that the claim in relation to the second and third subpoenas should be dismissed.
3. As to the complaint that insufficient detail has been provided of the expenses claimed, the plaintiffs point not only to the initial claim, conceded to be unsustainable, for $132 for expenses incurred before the first subpoena was issued but also to the extraneous entry for the forwarding of "rego papers" and the lack of detail as to what work was done by whom; as well as to the matters set out in Mr Fitzgerald's affidavit of 18 August 2017 (none of which, the plaintiffs say, has been satisfactorily answered).
4. The applicant, on the other hand, points to the recognition in the authorities that a stranger to litigation, compelled to produce documents in answer to a subpoena, should be recompensed for the loss and expenses incurred in so doing (citing Commissioner for Railways v Small (1938) 38 SR (NSW) 564 and Deposit & Investment Co Ltd v Peat Marwick Mitchell (1996) 39 NSWLR 267). In Deposit & Investment, Bainton J said (at 282): I accept that it is in the public interest that strangers to litigation (by that I mean non-parties) may be required to come to court to give evidence, or to search out and produce documents, even though that maybe a time-consuming and unwelcome task. But I am quite unable to see any sensible reason for requiring such a stranger to do so at his own expense.
5. His Honour said later (at 289): I can see no reason why in complex litigation... such loss or expense should be borne by a stranger to the litigation rather than by the party requiring the documents in the first place and in the ultimate the party who is ordered to pay the costs of the litigation. ... ... [I]t would be intolerably unjust to leave the burden of the cost of responding to such subpoenas upon a stranger to the litigation on whom the subpoena is served.
6. The applicant notes that Bainton J considered that the costs would include employee on-costs, photocopying and legal advice. His Honour also said (at 292-293): My view is that a firm required to answer a subpoena duces tecum is entitled to be reimbursed in respect of a partner's time spent on that task at his ordinary charge-out rate. If the work is done by an employed solicitor, the reimbursement should be at that solicitor's charge-out rate provided of course in both cases that the partner or employee would be otherwise devoting that time to chargeable work, as I would expect would usually be the case. That may at first sight be to treat a partnership differently from a corporation. But I do not think that it does. It would be rare that a corporation's income is derived from or includes a specific charge for the activities of a specific employee. But the income of a professional partnership is substantially derived from charges for the work done by the partners or employed practitioners (plus photocopying). That enables a reasonably precise calculation to be made of a loss or expense. A trading corporation's income can rarely be attributed directly to the activities of one or more individuals. A calculation of its loss or expense resulting from having to comply with a subpoena is not capable of such precise quantification. That simply means that the Court must make its best estimate of the appropriate amount.
7. In J Aron Corporation v Newmont Yandal Operations [2004] NSWSC 996, Campbell J, at his Honour then was, said at [18] (referring to his earlier judgment in Foyster v Foyster Holdings [2003] NSWSC 881) that the notion of loss includes reasonable reimbursement for time spent in complying with the subpoena that would otherwise have been spent in productive activities.
8. More recently, in Re Dovico; Ex parte Mayne Wetherall [2012] NSWSC 822, Young AJ, permitted the applicant to recover profit costs for time spent in complying with a subpoena (at [49]), having at [44] expressly referred to solicitors and accountants. At [48], his Honour said: … 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.
9. Here, Counsel for the applicant submits that the applicant is a corporation whose income is derived from or includes specific charges for activities of specific employees; that it faces fixed costs; and that it may be inferred that it may suffer loss of goodwill or reputational damage as a result of clients being disappointed at the applicant's inability to act for them while time was occupied in compliance with the subpoena. (There was, it must be said, no evidence whatsoever of the latter. All that can be said is that the applicant has a small business and, in relation to the third subpoena, it was required to comply with the subpoena towards the end of the financial year, which might be inferred to be a busy time of year for an accounting practice.) It is submitted that in assessing what is reasonable one can take into account that no separate charge was made by the applicant for photocopying.

Determination

1. Rule 42.33 of the UCPR provides as follows: Unless the court otherwise orders, an order as to costs is not to be made under rule 21.13, 33.11 or 34.3 if the court is not satisfied that the parties concerned have attempted, but failed, to agree on the amount of costs to be paid in relation to the matter for which such an order may be made under that rule.
2. In Franklins Pty Ltd v Endeavour Holdings Pty Ltd [2013] NSWSC 1204, Pembroke J dismissed an application for expenses incurred in complying with a subpoena in not dissimilar circumstance. There, the applicants had submitted two invoices to the solicitor for the issuing party, the defendant, and asked for agreement as to costs; the defendant's solicitor had responded at midday the following day stating that he had passed on the letter to his client and was awaiting instructions; and later that day, the applicants filed their motion (see his Honour's reasons at [4]). His Honour said that, by doing so, they applicant had engaged the resources of the court, and committed themselves and the defendant to further expense, which might have been avoided. His Honour went on to say (from [5]-[6]): I do not accept that such an incomplete, unresolved and inconclusive exchange could possibly amount to a failed 'attempt to agree' within the meaning of Rule 42.33. There must be a genuine bid to arrive at a figure that is satisfactory to both parties. The requirement of Rule 42.33 is not a mere formality. It is not satisfied when the party seeking to recover costs has not even waited for a response. Nor is it satisfied simply because it is suspected that the claim is so high that it is likely to be rejected. The court should not be troubled when the applicants have failed to wait. And the applicants should not be heard when they have flouted an important requirement which is intended to condition the power of the court to make a costs order. In this case, 'an attempt to agree' would have required the applicants, at the very least, to afford the defendant a reasonable opportunity to respond to their letter that set out the costs sought. One day was insufficient, especially when the solicitor said that he had passed on the letter to his client and was awaiting instructions. (my emphasis)
3. I consider that the manner in which the application was commenced, prior to there being any (in the case of the second and third subpoenas) or any meaningful (in the case of all the subpoenas) attempt to explain the basis of the charges (other than the provision of a relatively unhelpful WIP report) or to seek to agree a reasonable amount to be paid in respect of the expenses, is most unsatisfactory and is not consistent with the requirements of either r 42.33 or the mandate under s 56(3) of the Civil Procedure Act 2005 (NSW) for litigation to be conducted with a view to the just, quick and cheap resolution of the real issues in dispute.
4. The stance adopted by the applicant seems to have been that, having issued an invoice for the costs (itself a rather odd course to take but perhaps necessary for tax or accounting purposes), the plaintiffs were required simply to accept it and pay those fees and that, the plaintiffs not having done so, the appropriate course was to threaten an application for orders for payment coupled with a stay of the proceedings to force the plaintiffs to do so; and then to commence proceedings (still without the applicant itself having made any attempt to agree the amount of the costs to be paid) when that failed to produce payment of the invoiced fees. Moreover, in all likelihood the second invoice had not even been served when the demand for payment and the draft notice of motion were sent to the plaintiffs on 7 August 2017.
5. I accept that the scope of the subpoenas (particularly insofar as a number of the categories of documents sought would, on the face of the subpoena, require a person answering the subpoena to form an assessment as to whether or not a document evidenced or referred to related to a particular topic) is likely to have required more than a simple task of extracting documents from the electronic records by reference to the date, client or subject fields on an electronic search and that this would have warranted more than an administrative assistant performing the relevant task. However, in a number of instances there was no such requirement on the face of the subpoena (such as where it called for production of a company general ledger or incorporation documents or a copy of documents referred to in an affidavit already served in the proceedings) and there was no attempt to categorise the costs by reference to the complexity of the task involved.
6. I accept that it is not unreasonable for there to be a review of documents to be produced in compliance with a subpoena at a more senior level within a company such as the applicant (in order to cross-check or supervise steps taken by administrative staff and to form a view as to confidentiality or other issues that may impact on the response to be made in respect of the subpoena - such as whether it would be necessary to seek a confidentiality order or to claim legal professional privilege or the like); and that it is appropriate for steps to be taken by administrative staff to collate and/or copy the relevant documents to be produced. However, the reasonableness of expenses of the former kind will depend on matters such as how many times the documents were reviewed for that purpose and whether there was unnecessary duplication of effort in the production of the documents; and, as to expenses of the latter kind, questions may arise as to whether it was necessary or reasonable that there be "title pages" prepared for the subpoenaed documents or for copies of the produced documents to be retained by the applicant if they were stored electronically.
7. It may well be that there is an argument that it was unreasonable to print out electronically stored documents for production to the Court in answer to the subpoena if a digital copy could readily be provided (particularly where there was consent at least to the production of MYOB documents in that form). All those were matters that it appears the plaintiffs' solicitor was seeking to explore in order to seek instructions as to the costs that his clients were prepared to pay in respect of the expenses and which the applicant seems on the whole steadfastly to have ignored - at least until preparation of documents for the present application to be made.
8. It is one thing to say (as the applicant's solicitors' correspondence intimated) that a lawyer with commercial experience would have an understanding of the likely cost of producing documents in answer to a subpoena within a short time frame and the reasonableness of those costs. It is another to suggest that such an assessment should be made without more than the bare information contained in the WIP reports (the accuracy of which, albeit in minor respects, was proven to be suspect) not all of which were provided before an urgent demand for an undertaking for payment was made and a draft notice of motion served in any event. There simply is no explanation as to why the applicant or its solicitor could not have engaged in discussion with the plaintiffs' solicitor to attempt to explain the queries he (not unreasonably) had raised before embarking on the costs of litigation in relation to the costs.
9. The mystery of the second invoice being addressed to the first defendant was also not satisfactorily explained. While the narrations on the WIP report in respect of that invoice certainly support the conclusion that the work related to compliance with the subpoena, what is wholly unclear is what happened if and when (as one would presume was the case) the invoice was sent to the first defendant. If the first defendant had refused at the time to meet that invoice (perhaps on the not unreasonable basis that it did not relate to work for him), it is curious that no attempt was made at a time earlier than the commencement of the present application for a claim for those expenses to be paid by the plaintiffs.
10. What all of that leads me to conclude is that, if it be open to me under the applicable rules to make an order for the reasonable loss or expense of the applicant incurred in compliance with one or more of the subpoenas, then a broad brush approach should be adopted and the amount to be ordered should be assessed on a lump sum basis, applying a discount to reflect my concern that even now there is insufficient material from which to assess the overall reasonableness of those expenses.
11. That brings me to the question whether such an order can or should be made in the present case, which turns on whether I am satisfied that the parties concerned "have attempted, but failed" to agree on the amount of costs to be paid, as required under the rules. There is no doubt that there was no such attempt prior to the filing of the notice of motion. However, r 42.33 does not specify that the attempt at agreement on the amount of costs must take place prior to the filing of an application for those costs (as opposed to the attempt taking place prior to any order being made).
12. The underlying purpose of the rule must be, as Pembroke J recognised in the Franklins case, that the Court's time should not be taken up (and costs should not be unnecessarily incurred) unless there has been a genuine bid to arrive at a figure that is satisfactory to both parties. Consistent with his Honour's view in Franklins, I do not consider that the requirements of the rule are satisfied simply by issuing a demand (here, the invoices) or a request in respect of the claimed costs and then commencing proceedings without engaging in any real attempt to agree the costs. In a very real sense that is what occurred here.
13. It is clear that there was no attempt by the applicant to seek an agreement as to the costs of compliance with any of the subpoenas before the present application was commenced (and indeed the existence of a claim in relation to the second subpoena was notified only very shortly before the commencement of the application). The question is whether the exchange of offers (to settle the claim initiated by the notice of motion) after the filing of the applicant's notice of motion can satisfy what is contemplated by the rules as to an agreement to settle the amount of the costs. The underlying purpose of r 42.33 must in my opinion be to encourage parties to avoid incurring unnecessary cost and wastage of time in applications of the present kind. That purpose is not served by the making of an application to the Court (with the costs necessarily incurred in such a process - and here those were already not inconsiderable relative to the claimed costs even before the filing of the notice of motion) before any attempt to agree the costs has been made.
14. I accept that there was a very belated attempt on the part of the applicant to provide information in relation to the costs claimed in relation to the first subpoena at or about the time that the application was filed. However, that does not change my view that the application was precipitate.
15. In the present case, a proper attempt to agree the costs would in my opinion have required the applicant to address the substance of the complaints made by the plaintiffs' solicitor in relation to the WIP reports; to have explained the circumstances in relation to the second invoice that was not addressed to his clients; to have answered the queries raised by the plaintiffs' solicitor and to have attempted to reach agreement as to what was a reasonable cost or expense in answering the respective subpoenas. That was not done before the notice of motion was filed.
16. What then of the position after the notice of motion was filed? By that stage, by way of the affidavit material served by the applicant, the plaintiffs' solicitor had been provided with each of the WIP reports and Mr Constable's account of the work undertaken. The exchange of offers thereafter revealed, on the plaintiffs' solicitors' part, the basis on which he considered reasonable costs would be quantified. The applicant's solicitor, on the other hand, appeared to treat this as an exercise in what is colloquially known as "horse trading". I am not persuaded that this was a proper attempt at reaching agreement as to the costs on the part of the applicant but, after considerable hesitation, I have concluded that it cannot be said that the parties did not attempt but fail to agree the amount of costs. Therefore I conclude I am not precluded by r 42.33 from making an order in respect of those costs. In the absence of sufficient information to make a more detailed assessment I would allow roughly 60% of the amount claimed - i.e. $6,000.
17. That said, the manner in which the applicant has proceeded is a relevant factor to take into account. Stranger to the litigation though the applicant is, and acknowledging that non-parties should not be subject to orders compelling the production of documents in complex litigation at their own expense, here the applicant had the benefit of legal representation and the attention of its solicitor had expressly been drawn to the relevant rule requiring an attempt at agreement before any order for payment of expenses be made. The Court should not encourage the making of applications of the present kind before there has been any (or any genuine) attempt at reaching agreement as to the costs in question. In this regard, the concern felt for strangers to litigation being forced to incur expense in the production of documents under compulsion must be balanced against the rules now in place which provide that orders for such costs not be made unless there has been an unsuccessful attempt to agree the amount of those costs (rules that are clearly designed to minimise the costs and expense of unnecessary interlocutory applications in court proceedings).
18. In those circumstances, while I propose to make an order for the payment of an amount by way of the reasonable loss and expense incurred by the applicant in complying with the subpoenas, the applicant should bear its own costs of the application.
19. Moreover, as noted above, the notice of motion was filed before any attempt at all on the part of the applicant to agree the costs and only shortly after provision of any information at all in relation to the costs in relation to the second subpoena and the WIP reports in respect of the other subpoenas. The notice of motion was filed only shortly before the commencement of the hearing and it sought a stay of the hearing - which, of itself, would have had a significant disruptive effect not only on the preparation of the case but also on the case management of other matters in this division. It must have been appreciated that such a motion would be likely to distract the plaintiffs' legal representatives from preparation for the conduct of the hearing. Bearing in mind the amount of the costs claimed relative to the amount in issue in the proceedings, it is difficult to avoid the conclusion that the stay order was included in the notice of motion as an in terrorem measure. Given the precipitate (and rather pre-emptory) manner in which the application was brought without any attempt to agree the costs in advance, and to mark the Court's disapproval of such a course, I consider that the applicant should pay the plaintiffs' costs of the notice of motion.
20. On the hearing of the present application, Counsel for the plaintiffs foreshadowed an application for their costs of the notice of motion on an indemnity basis, and Mr Fitzgerald's 28 August 2017 affidavit was read in support of such an application. I am inclined to the view that such an order should be made having regard to the matters set out above.
21. The applicant had prepared written submissions in which the costs of the notice of motion were addressed (albeit there without the outcome of the application being known). In those submissions, three matters were raised.
22. First, complaint as to the amount of conduct money tendered when over 5,000 pages of documents had been produced (this is presumably a reference to the first and third subpoenas). That complaint must be seen in the context of the plaintiffs' solicitors' acknowledgement at the time of the obligations under the rules in relation to an issuing party's liability for the reasonable loss or expense of compliance with the subpoenas.
23. Second, the applicant submits that it was "compelled" to file the notice of motion before the hearing of the proceedings "as there was a possibility that the matter may settle during the hearing or the court would otherwise be functus" and the applicant "may have lost its opportunity" to file a motion in the proceedings to claim its costs. It was said that the notice of motion was listed before the trial judge because the proceedings and the subpoena are complex and detailed and the trial judge would have a better understanding of the issues in both the proceedings and the subpoena.
24. Third, the submission that: … even if the Plaintiffs claim that they received one of the invoices or explanations late, they have now had two weeks and had a reasonable period of time to resolve this issue. In any event, even if the Plaintiffs claim that they received one of the invoices late, Forsyths were compelled to commence proceedings for the invoices and the additional marginal cost of the late invoices was negligible.
25. The second of those matters raises the issue I have referred to above as to the timing of the application. It seems to me that the making of such an application (seeking what I have described as in terrorem stay orders) the week before the commencement of a three week hearing is extraordinary conduct and not to be encouraged. As to the third of those matters, it fails to acknowledge the requirement that there be an attempt to agree costs in advance of such an application being made and before the resources of the Court and the parties are diverted on such an application.
26. Therefore, none of those matters leads me to a different conclusion from that reached above, namely that the applicant should pay the plaintiffs' costs of the notice of motion. As to the indemnity costs issue, I accept that there was limited time for argument on the issue of costs at the hearing of the notice of motion and obviously at that stage the outcome of the application was not known. It may be that the plaintiffs will not seek to press that indemnity costs application or that the applicant will wish to make further brief written submissions on that issue. If the latter, then I will make directions for that to occur.

Orders

1. For the reasons above, I make the following orders: 1. Pursuant to r 33.11(1) of the UCPR order the plaintiffs to pay the sum of $6,000 by way of the reasonable loss and expenses of the applicant in complying with the subpoenas addressed to it and issued by the plaintiffs in these proceedings. 2. Order the applicant to pay the plaintiffs' costs of the notice of motion filed 10 August 2017. 3. If the plaintiffs seek the costs the subject of order 2 on an indemnity basis and the applicant wishes to make further brief written submissions on that issue, direct that those submissions be served and forwarded to my associate within 7 days with a view to determining that issue on the papers.

Amendments 17 April 2019 - Title to judgment 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: 17 April 2019