(2000) 101 FCR 548
Procter v Kalivis (No 3) [2010] FCA 1194
Re Minister for Immigration & Ethnic Affairs (Cth) Ex Parte Lai Qin [1997] HCA 6
Source
Original judgment source is linked above.
Catchwords
(2000) 101 FCR 548
Procter v Kalivis (No 3) [2010] FCA 1194
Re Minister for Immigration & Ethnic Affairs (Cth) Ex Parte Lai Qin [1997] HCA 6
Judgment (7 paragraphs)
[1]
Judgment
The proceedings concern an application for preliminary discovery. The only outstanding question concerns costs.
[2]
Background
The first to third defendants were the directors of the plaintiff. The plaintiff contended that it may have been entitled to claim relief from the defendants on the basis that they breached their fiduciary duties as directors by diverting business opportunities being pursued by the plaintiff to the fourth defendant, Shartru Capital Pty Limited, a company in which each of them had an interest.
On 29 November 2012, the solicitors for the plaintiff wrote to each of the individual defendants seeking various documents concerning those business opportunities and Shartru Capital's involvement with them. The letters sought a broad range of documents. However, they did not explain what information the plaintiff required to decide whether or not to commence proceedings or how the documents sought would assist in obtaining that information.
The solicitors for the defendants responded on 13 December 2012 suggesting that the solicitors meet "to consider our respective clients' allegations and claims in an attempt to resolve the same without further escalation".
It appears that nothing further happened until 12 July 2013, when the plaintiff's solicitor wrote to the defendants' solicitors saying that "our client seeks to proceed in reliance upon its letter of 29 November 2012" and requiring a response by 26 July 2013. It is accepted that the defendants' solicitors did not receive that letter. There was a further delay and then, on 28 May 2014, the plaintiff commenced these proceedings. The relevant summons was supported by an affidavit sworn on 7 February 2014. The documents sought in the summons were similar to those that had been sought in the letters dated 29 November 2012, although not the same. Again, the affidavit did not explain the information that was required or how the documents sought would assist in providing that information.
The first directions hearing occurred on 16 June 2014. At that time, the court gave directions for the filing of additional evidence by the plaintiff and evidence by the defendants. The plaintiff was late in filing its evidence. Two extensions were granted. The plaintiff was ordered to pay the defendants' costs of the hearing at which the second extension was granted.
The plaintiff filed its further evidence on 11 November 2014. That affidavit gave more evidence concerning the confidential information it was alleged that the individual defendants had obtained concerning projects that were contemplated by the plaintiff and it put other evidence into a form that was more likely to be admitted. However, it did not clearly set out what additional information the plaintiff needed or how it was expected that that information would be provided by the documents it sought.
On 28 November 2014, the defendants' solicitors made an offer to the plaintiff's solicitors to settle, without admission, the application on the basis that the defendants would produce documents falling within a number of categories sought by the plaintiff but would not produce documents falling within category 1(f). That category called for:
All e-mails, letters, faxes, memos, notes, correspondence, records and other communications passing between any of the First, Second, Third and/or Fourth Defendants from 1 March 2012 to 30 June 2012 inclusive.
The offer suggested that the plaintiff pay the defendants' costs if no substantive proceedings were commenced within three months and that the costs be costs of the substantive proceedings if proceedings were commenced within three months.
By email dated 3 December 2014, the plaintiff accepted that offer, except that it proposed that costs be reserved, with either party being at liberty to apply in relation to costs. Following a delay that was caused by neither party, consent orders were made in those terms on 6 February 2015.
The defendants gave preliminary discovery, although two were late. However, the plaintiff claimed that the discovery was incomplete and at a directions hearing on 25 March 2015, the plaintiff was directed to file any application for better discovery and supporting affidavits by 2 April 2015 and the matter was stood over until 9 April 2015.
The application and supporting affidavit were not served until 8 April 2015, with the result that, on 9 April 2015, the matter was stood over until 21 April 2015. The plaintiff was ordered to pay the defendants' costs of that day.
In the meantime, the plaintiff indicated that it may wish to expand its application with the result that, on 21 April 2015, the matter was further adjourned until 7 May 2015. At that time, final orders were made by consent dismissing the plaintiff's motion and the matter was listed for a costs hearing.
The defendants invited the plaintiff to discuss the question of costs on a number of occasions to no avail. There were delays in fixing the hearing in relation to costs for which the plaintiff bears some but not all of the responsibility. Ultimately, the hearing in relation to costs was fixed for 18 September 2015.
[3]
Relevant legal principles
The legal principles relating to costs in applications for preliminary discovery were not substantially in dispute between the parties. They were stated in these terms by Besanko J in Procter v Kalivis (No 3) [2010] FCA 1194 at [17]:
First, the jurisdiction to make an order for preliminary discovery is an extraordinary jurisdiction. There is a sense in which a respondent is entitled to remain passive until the applicant makes out a case for preliminary discovery: Glencore International AG v Selwyn Miners Ltd (2005) 223 ALR 238 at 241 [15] per Lindgren J. Secondly, if the respondent does not take an adversarial approach to the application for preliminary discovery and in fact provides discovery then it may be appropriate to make the type of order sought by the respondents in this case. Thirdly, if the respondent does take an adversarial approach then it may be appropriate to order that it pay the costs caused by that adversarial approach: Re Steffen; Western Bulk Carriers (Australia) Pty Ltd v Cosco Bulk Carrier Co Ltd [2002] FCA 1520. The costs caused by an adversarial approach would not necessarily include the costs of complying with an order for preliminary discovery. I would have thought that those costs ought to be paid by the applicant or at least be the subject of the type of order the respondents seek in this case.
See also Fortress Credit Corporation (Australia) Pty Ltd v William John Fletcher (as liquidator of Octaviar Administration Pty Ltd (in liq) (No 2) [2014] NSWSC 48 at [19] per Robb J.
There is a question of what amounts to the absence of an "adversarial approach" in this context. In my opinion, it encompasses at least two situations. First, it appears to be accepted that a defendant or potential defendant in an application for preliminary discovery should not be required to produce documents simply because a plaintiff asks for them. Rather, a defendant is entitled to wait for the plaintiff to commence proceedings for preliminary discovery and to file its evidence before making an election whether to contest the application. If it does no more than that and then produces documents it could not be said to have adopted an adversarial approach. The second situation is where the defendant does no more than is necessary in order to discharge some duty it owes to a third party in relation to the production of the documents - such as a duty of confidentiality. That may involve the defendant taking some active role in the proceedings but its purpose in doing so is not to resist the production of documents but to discharge some duty it owes, with the intention of producing documents in accordance with a court order and consistently with its duty.
As Besanko J points out, where the defendant does take an adversarial approach and fails, then, consistently with Uniform Civil Procedure Rules 2005 (NSW) r 42.1, it will normally be appropriate for the court to order that costs follow the event unless it appears that some other order should be made; and the "event" in this case is obviously success or failure in relation to the application to produce documents. Where, however, the proceedings are settled, it is generally not appropriate for the court to order that one party pay the other's costs. There is no event which triggers a costs consequence, and it is not appropriate for the court to engage in a notional trial of the case in order to determine what that event might have been. One exception to that principle is where the settlement is properly characterised as a capitulation by one party or the other. Another is where the party from whom costs are sought acted unreasonably: see Re Minister for Immigration & Ethnic Affairs (Cth); Ex Parte Lai Qin [1997] HCA 6; (1997) 186 CLR 622 at 624-5 per McHugh J; One.Tel Ltd v Commissioner of Taxation [2000] FCA 270; (2000) 101 FCR 548 at 553 per Burchett J.
[4]
The claims
In this case, the plaintiff claims its costs on the basis that the settlement that was reached was effectively a capitulation by the defendants. Although it does not concede that it should pay the defendants' costs of compliance with the order for preliminary discovery, it accepts that in the usual course that would be an appropriate order for the court to make.
On the other hand, the defendants contend that the plaintiff should pay their costs of the proceedings and the costs of compliance. In relation to the costs of the proceedings, they contend that they did not take an adversarial position. In the alternative, they submit that the plaintiff acted unreasonably in connection with the proceedings and for that reason it should pay the defendants' costs.
[5]
Consideration
I accept the defendants' primary submission.
In my opinion, the defendants did not adopt an adversarial position in the proceedings. When documents were first sought from them, they suggested a meeting to see whether the matter could be resolved. The plaintiff never replied to that suggestion. Instead, some 18 months later, it commenced proceedings. The affidavit filed in support of those proceedings was inadequate. It gave little information concerning the nature of the case that the plaintiff was considering bringing. It gave no information concerning the additional information it required in order to determine whether to commence proceedings and how it expected the documents sought would be of assistance in that regard. At the first directions hearing, it indicated that it wished to serve additional evidence and a timetable was set to permit it to do so. It was reasonable for the defendants to wait for that additional evidence before making a final decision whether to resist the application or to seek a resolution of it. It is true that the timetable provided for the filing of evidence by the defendants and the defendants indicated that they had done some work in preparing that evidence but could not complete it before the plaintiff had completed its evidence. However, I do not think that that establishes that the defendants had elected to take an adversarial position. Rather, a timetable was set and work was done in anticipation that that might happen.
Shortly after the plaintiff served its additional evidence, the defendants made an offer to settle the case. The offer was plainly a reasonable one, since it was accepted by the plaintiff, except in relation to costs. The fact that the offer was made so soon after the plaintiff served its additional evidence is inconsistent with the notion that the defendants were taking an adversarial approach.
Subsequently, the plaintiff made an application for better discovery. However, that application was abandoned. It is difficult to see why the plaintiff should not be liable for the costs of that abandoned application.
Subsequently also, the defendants sought to meet to negotiate the question of costs, but the offers to do so were not accepted by the plaintiff. On the conclusions I have reached, the defendants are entitled to their costs. It is difficult to see why in those circumstances the defendants should not be entitled to recover any costs they incurred in attempting to reach a resolution of an issue on which they were successful.
Having regard to the conclusions I have reached, it is unnecessary to consider the further ground on which the defendants seek their costs.
The defendants have been successful in relation to the question of costs. There is no reason why they should not have their costs related to that question as well.
[6]
Orders
The orders of the court are:
1. The plaintiff pay the defendants' costs of the proceedings (including the costs of the plaintiff's motion filed on 24 August 2015 and the defendants' motion filed on 24 August 2015);
2. The plaintiff pay the defendants' costs of complying with the orders made on 6 February 2015.
[7]
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Decision last updated: 23 September 2015