Frank Small Nominees Pty Ltd v MCXKL Pty Limited

Category: Procedural rulings

Parties: Frank Small Nominees Pty Ltd (Plaintiff/Applicant)
MCXKL Pty Ltd (First Defendant/First Respondent)
Shelley Sullivan (Second Defendant/Second Respondent)

Representation: Counsel: T Boyle (Plaintiff)
L Cavell (Defendants)
Solicitors: Brown Wright Stein (Plaintiff)
Keypoint Law (Defendants/Respondents)

File Number(s): 2025/00039684

Publication restriction: Nil

EX TEMPORE JUDGMENT (REVISED)

Summary

1. This is an application in relation to the costs of the plaintiff's summons for preliminary discovery against the defendants. The plaintiff, Frank Small Nominees Pty Ltd, represented by Mr T Boyle of Counsel, seeks leave, by notice of motion filed 1 September 2025, to discontinue the proceedings. It also applies for orders either that the defendants pay the plaintiff's costs, or that there be no order as to costs of the proceedings.

2. The defendants, MCXKL Pty Ltd and its director Ms Shelley Sullivan, for whom Mr L Cavell of Counsel appears, resist those costs orders. They submit that the usual costs outcome on discontinuance (being that the discontinuing plaintiff should pay the costs of the defendants) applies in this case. They go one step further to seek their costs on the indemnity basis for part of the proceedings, by reference to an offer which they had made that the proceedings be dismissed with no order as to costs.

3. For the reasons which follow, the Court accepts the defendants' submissions. The usual result on discontinuance will follow and an indemnity costs order will be made for the period after the offer of dismissal.

Facts

4. The history of the proceedings was not in dispute and may be charted by reference to various correspondence.

5. The starting point is a letter dated 28 March 2024 from the plaintiff's solicitors to the defendants' solicitors. That letter asserted that the plaintiff was a shareholder in the defendant, and a unitholder in a trust of which the defendant was trustee. Certain documents were sought by that letter.

6. The letter concluded with a reference to an enclosed draft summons which would be filed if the requests in the letter were not satisfactorily answered. The draft summons sought orders including:

“1 An order, pursuant to s 175 of the Corporations Act 2001 (Cth) and the inherent jurisdiction of the Court, that the plaintiff correct its register of shareholders to include the defendant as a 31.5% shareholder.

2 An order, pursuant to s 247A of the Corporations Act 2001 (Cth), that the defendant permit the plaintiff to inspect and make copies of the books and records of the defendant, including:

(a) any constitution or shareholders agreement of the defendant;

(b) all documents relevant to the receipt and distribution of funds by the defendant in financial years 2018 to 2021.

3 Further, or in the alternative, an order pursuant to the inherent jurisdiction of the Court, that the defendant, in its capacity as trustee of the MCXKL Unit Trust, provide the plaintiff, a unitholder of the MCXKL Unit Trust, with copies of all documents relevant to the receipt and distribution of funds by the defendant in its capacity as trustee of the MCXKL Unit Trust for financial years 2018 to 2021.

4 An order that the defendant pay the plaintiff’s costs of the proceedings.”

7. On 10 April 2024, the defendants' solicitors responded. There was a debate about whether or not the plaintiff had the status of a shareholder, but it was accepted that the plaintiff was a unitholder in the relevant unit trust. The letter of the defendants’ solicitor accepted that some documents were to be provided, some of which were attached, and otherwise disputed why there was an entitlement in the plaintiff for relief of the kind sought in the draft summons. Nothing then happened for approximately four months.

8. On 23 August 2024, the plaintiff's solicitors wrote again to the defendants' solicitors, referring to the latter’s letter of 10 April 2024. The 23 August 2024 letter sought various categories of documents. It included:

"4. Unless we receive the requested documents listed below within 14 days, our clients are likely to commence proceedings without further notice. In addition to the relief previously mentioned, our clients' claims may include claims against individuals for misleading or deceptive conduct."

9. The importance of that statement is that, as far as the defendants would have been concerned, the only likely proceedings of which they were on notice were those set out in the draft summons (see [6] above). To that may be added the claims referred to in the letter of 23 August 2024 for misleading and deceptive conduct. What becomes significant is that the letter made no reference to an application for preliminary discovery.

10. The parties accepted that, after the 23 August 2024 letter, there was complete silence between the protagonists, at least as far as correspondence between their lawyers is concerned, until 31 January 2025. On that date, the plaintiff filed its summons for preliminary discovery.

11. While it may be accepted that nearly all (but not quite all) of the documents sought in the present summons had earlier been requested in the 23 August 2024 letter, it was common ground that the plaintiff had failed to give the defendants any prior warning of these present proceedings for preliminary discovery. This conduct deprived the defendants of any opportunity to provide the plaintiff with the documents specifically sought in the present summons without the need for these proceedings to be commenced. As will become apparent, that is a matter of considerable significance in the just disposition of the question of costs in this case.

12. On 26 February 2025, the defendants' solicitors wrote to the plaintiff's solicitors. That letter included:

“We refer to the Summons issued by your client on 31 January 2025 and the writer's discussion with Ms Arthurson on 20 February 2025.

As discussed, we are instructed to provide all documents sought in the Summons that are in our clients' possession.

A copy of a table of those documents produced is enclosed. The documents are now provided via an external secure link referred to in our covering email with this letter.

Please confirm that the Summons will be dismissed. As for your client's costs, we note that no demand was made for the production of the documents sought in the Summons shortly prior to the issue of the Summons, and that our clients have provided all the documents in their possession prior to the first return date. There should be no order as to costs against any party. As we are yet to file an Appearance in the proceedings, please let us know if you will attend to the dismissal of the Summons without any Appearance needed to be filed by our clients.”

13. On 20 March 2025, the plaintiff's solicitors responded to the defendants' solicitors’ letter and the production of documents under cover of that letter, and the production of some further documents shortly thereafter. It is not necessary for me to set out the 20 March 2025 letter in detail. It is sufficient to observe that the letter took issue with the adequacy of the production which had been given by the defendants. A number of the complaints were in the nature of interrogatories, for example:

“Paragraph 1(c) of the Summons

11. The Schedule states that no general ledgers were "maintained".

12. We are surprised that your clients have no general ledgers of MCXKL to produce. It is common for businesses and trusts to maintain general ledgers which sit behind the transactions recorded in balance sheets and profit & loss statements.

13. Given this:

(a) we are instructed to press for the documents sought in paragraph 1(c) of the Summons;

(b) please also confirm that your clients contacted their accountants or former accountants, including Lawler Partners, PKF and/or Quantaco, to obtain any general ledgers of MCXKL; and

(c) if your clients have no documents to produce, please confirm how MCXKL prepared its financial statements and were able to keep track of the purchases and expenses comprising the amounts recorded. If MCXKL instructed its accountants to prepare those statements, please confirm what documents and/or instructions it provided to its accountants to enable the preparation of such statements.”

14. There is much force in the defendants' submission that, from this point on, the plaintiff was moving into a phase of interrogation, to which it was not entitled under the preliminary discovery regime. Nevertheless, on 10 April 2025, the defendants' solicitors responded and provided what, on their face, appeared to be sensible and comprehensive responses to the issues that had been raised in the plaintiff's solicitors’ letter of 20 March 2025. The defendants' solicitor's letter also included:

“Next steps and costs

Despite there being no requirement for it to do so, our clients have fulsomely responded to the requests for provision of documents sought in the Summons. Your client should now discontinue the Preliminary Discovery Proceedings. As to costs, there is no basis for any costs order against our clients, particularly in circumstances where the draft summons provided under cover of your letter dated 20 March 2024 (exhibit JS-1, p 245) bears no resemblance to the document ultimately filed, both as to information sought and the legal bases of relief.

Indeed, in the usual course, the expenses of complying with the order for discovery, such as the costs of locating and producing the documents and information sought, and any costs of obtaining related legal advice, are recoverable in the same way as those incurred by any person who complies with a subpoena for the production of documents: see Airways Corporation of New Zealand v Present Partners of Price Waterhouse Coopers Legal [2002] NSWSC 521.

We confirm that our client is content not to press for its costs of production in the event that your clients confirm, by 4pm on 14 April 2025, that it will discontinue the proceeding with no order as to costs. Otherwise, we confirm that our clients intend to oppose the Preliminary Discovery Proceedings and, if necessary, will file evidence in opposition (including this letter). Given the scope of these requests, we are also considering an application for security for costs against your client pursuant to UCPR 5.6, as well as general security for costs pursuant to UCPR 42.21 and section 1335 of the Corporations Act 2001. We note that your client is also the corporate trustee of a trust and would not have sufficient assets in its own name to satisfy any adverse costs order against it. If this course is necessitated, and the plaintiff is unsuccessful in the Preliminary Discovery Proceedings, this letter will be relied upon in support of an application for indemnity costs by our clients.” (Emphasis in original).

15. On 9 May 2025, the plaintiff's solicitors replied to the defendants' solicitors, in a letter which may, again, be fairly characterised as being in the nature of further interrogation as to the adequacy of the production of documents.

16. On 5 June 2025, the defendants' solicitors sent this email to the plaintiff's solicitors:

“1. Production by our clients has now been exhausted, as advised in our open letter of 10 April 2025.

2. There is no point (nor any basis) for continued engagement with your interrogatory-style questions arising from the material produced or not produced.

3. If your client instructs you to continue with the proceedings, then we propose that directions be made for the expedient final disposition of the application, along the following lines:

(a) Defendants to file and serve evidence in response by 4 July 2025;

(b) Plaintiffs to file evidence in reply by 18 July 2025;

(c) Proceeding listed for further directions on 23 July 2023 with a view to allocating a final hearing date.”

17. The defendants’ evidence provided pursuant to the timetable included an affidavit verifying that the defendants had given all possible response to the application. That led to the plaintiff taking the position that it had obtained all that to which it might otherwise be entitled pursuant to the present summons, such that it would discontinue these proceedings.

18. There then followed a dispute between the parties as to the terms of the discontinuance, which led to the filing of the motion which is before the Court today for determination.

19. There is one matter of evidence to which I should refer in addition to the correspondence set out in the preceding paragraphs. By an affidavit affirmed on 14 November 2025, Ms Sullivan gave this evidence in answer to the motion:

“1. I am the second defendant in these proceedings. I am the sole director of the first defendant and am authorised to swear this affidavit on its behalf.

…

3. I did not receive a copy of the Summons in these proceedings prior to it being filed. Had I received a copy of the Summons before it was filed, I would have provided instructions for the documents sought in the Summons that were in my possession, custody or control, to be disclosed to the plaintiff. By that stage, the confidentiality period regarding the Karl Lagerfeld "Design Services and Licence Agreement" no longer prevented the disclosure of that document (it having expired on 30 June 2024).”

20. Ms Sullivan was not required for cross‑examination. I should, however, record that something was sought to be made, on behalf of the plaintiff, of the reference in Ms Sullivan's affidavit to the expiry on 30 June 2024 of the confidentiality period regarding the Karl Lagerfeld “Design Services and Licence Agreement”. The plaintiff submitted that some doubt could be cast on the evidence that Ms Sullivan gave when it was understood that, by the time of the letter of 23 August 2024 (see [8] above), the confidentiality period had expired, but that document (and, indeed, no other documents) had been produced in answer to the letter.

21. The Court has no evidence as to why that document or others were not produced in answer to the 23 August 2024 letter. I do not accept that the non‑production, at that stage, is a sufficient basis to doubt the evidence which Ms Sullivan gives in her evidence both of itself and in the absence of cross-examination. Nor, as I discuss in [26(2)(d)] below, do I accept the plaintiff’s submission that such evidence, after the fact, must necessarily be dismissed or given little weight as self-serving.

Consideration

22. An application for preliminary discovery is not an ordinary adversarial proceeding. It has been described as an exceptional jurisdiction: see McColl JA in Liu v The Age Company Ltd (2016) 92 NSWLR 679; [2016] NSWCA 115 at [270].

23. As the Uniform Civil Procedure Rules 2005 (NSW) (UCPR) pt 5, r 5.8 demonstrates, the jurisdiction for preliminary discovery is in some respects closer to the subpoena jurisdiction than discovery in its usual sense (which depends on an identification of issues in dispute by reference to the pleadings and evidence that has been filed). Nevertheless, the costs of applications for preliminary discovery fall to be determined in the usual way, pursuant to s 98(1)(b) of the Civil Procedure Act 2005 (NSW) and UCPR pt 42, as Ward CJ in Eq (as her Honour then was) observed in the preliminary discovery case of Renton v Kelly [2018] NSWSC 1377:

55 “There is no dispute that s 98 of the Civil Procedure Act 2005 (NSW) confers a broad discretion in relation to the making of orders as to costs (and see UCPR 5.8(1), which provides that on any application for an order under that Part, the court may make orders for the costs of the applicant).

56 While r 42.1 of the UCPR provides that the general rule is for costs to follow the event, the authorities referred to by the plaintiffs make clear (and the plaintiffs accept) that there is no conventional or usual rule applicable to preliminary discovery applications, which applications depend on the facts of the relevant case. More relevant are the authorities which deal with the circumstances in which costs will be ordered on an application that has been resolved without a hearing as to the merits (as was the case in Lai Qin). In Lai Qin, McHugh J referred to the situation where it could be concluded that one party had acted “so unreasonably” that the other should obtain the costs of the action; the use of the word “so” indicating a level of unreasonableness which is established by the circumstances in which the costs were incurred.

57 Also relevant to note is that the overriding mandate in respect of the conduct of litigation in this Court (see s 56 of the Civil Procedure Act) is for the just, quick and cheap resolution of the real issues in dispute. There is force to the submission by the defendant on this costs application that, in effect, the plaintiffs’ submissions would require him (if not to engage in adversarial opposition to the application for preliminary discovery), at this stage (after consenting to the preliminary discovery sought) to incur costs in putting on evidence deposing to the existence of the disputes as to the factual matters referred to in his submissions…” (emphasis added).

24. That being said, there is a starting point in this case, because it is an application for leave to discontinue, such that pt 42, r 42.19 applies:

42.19 Proceedings discontinued

(1) This rule applies to proceedings that are discontinued by the plaintiff, as referred to in rule 12.1.

(2) Unless the court orders otherwise or the notice referred to in rule 12.1(2) otherwise provides, the plaintiff must pay such of the defendant’s costs as, at the date on which the notice of discontinuance was filed, had been incurred by the defendant in relation to each claim in respect of which the proceedings have been discontinued.

25. While it may be accepted that r 42.19 does not give rise to a presumption, in my respectful opinion, it means what it says and says what it means: that is, in short, that unless the Court orders otherwise, the plaintiff must pay the defendant’s costs. The onus is on the plaintiff to persuade the Court that there is a proper reason to order otherwise.

26. The plaintiff's first application was that the defendants pay the plaintiff's costs. Mr Boyle candidly accepted that the Court would only make that order if it was satisfied that the plaintiff had no alternative but to commence the proceedings to obtain the requested documents. The Court is not so satisfied, for these reasons:

27. In terms of its possible impact on costs, it was a significant procedural failure, especially after a silence of some five months, not to have sent a draft summons to the defendants with a final request to provide the documents. This was particularly the case when the draft summons would have alerted the defendants to quite a different application to that which had been foreshadowed in the correspondence during 2024; and

28. The Court finds that the defendants would have provided the documents, had such a final request been made, by reference to these matters:

(a) The fact of swift compliance after service of these proceedings; (b) The fact that, thereafter, the defendants' correspondence was clearly focused on compliance and keeping costs to a minimum; (c) The tenor of the defendants' earlier correspondence in 2024 (see [7] above), which was timely and sensible, and provided such documents to which the defendants accepted the plaintiff was entitled; and (d) Ms Sullivan's affidavit evidence (see [19] and the conclusion in [21] above). She was not cross‑examined and I see no reason why I should not accept her evidence. There may be cases where such evidence will be evidently self‑serving and, accordingly, of little or no probative value. However, there is no basis for the Court to treat her evidence in that way, when it is consistent with, and corroborated by, the three matters to which I have referred in the preceding sub-paragraphs.

27. The plaintiff's fallback was to seek an order that there be no order as to costs, relying on Re Minister for Immigration & Ethnic Affairs of the Commonwealth of Australia; Ex Parte Lai Qin (1997) 186 CLR 622; [1997] HCA 6 and its application to what Mr Boyle submitted was the analogous situation in Renton (in which no order as to costs was made). The essential submission was that the proceedings were rendered futile by the defendants' compliance with the summons and then provision of an affidavit verifying.

28. Mr Cavell submitted that Renton should to be distinguished because in that case the parties had agreed to the dismissal of the proceedings, save as to costs. I do not accept this submission. The principles in Lai Qin may be applicable howsoever proceedings are brought to an end before there has been a relevant event in the form of their contested final determination. However, I do not think Lai Qin is of assistance to the plaintiff in this case. That is because the Court has found that the defendants would have provided the documents had a proper final pre-action request been made.

29. In Ken Tugru**l v Tarrants Financial Consultants Pty Limited ACN 086 674 179 [No 5] [2014] NSWSC 437, I said this concerning interlocutory applications:

“75 Seventh, no motion should be filed without the putative respondent being given final, written notice of the relief to be sought, the reason for it and a reasonable opportunity to respond. The Court sees far too many examples of deadlines of a day or less being set in correspondence. My own view, as a rule of thumb, is that three clear business days is reasonable to allow for a response on any matter of substance. If the recipient requires more time to obtain instructions, then they should send a prompt request with an explanation to that effect and an indication of when a proper reply will be provided. …”

30. The same principle applies with equal, if not greater force, in relation to the commencement of proceedings. Depending on the ultimate outcome, the foundation of an entitlement to costs will at least have been firmly laid for a plaintiff if a reasonable opportunity for compliance is passed up by a defendant who has received a draft originating process. This case illustrates the converse risk to a plaintiff that does not give a defendant that opportunity.

31. In short, the Court is satisfied that the costs of these proceedings incurred by the defendants could have been avoided. They were not avoided because the plaintiff failed to do something which it could and, in my respectful opinion, should have done. In those circumstances, and quite apart from r 42.19, the just outcome as to costs is that the plaintiff should pay the defendants' costs. The plaintiff has not demonstrated any reason for the Court to order otherwise under r 42.19.

32. It is then necessary to consider the defendants' application for indemnity costs, based on the offer in the letter of 10 April 2025 (see [14] above). True it is that, in the final paragraph of the letter, it does not address the present situation, because it refers to success in resisting the application for preliminary discovery at a final, contested hearing. However, I accept Mr Cavell's submission that the offer is still relevant to the exercise of the Court's costs discretion, although, in this case, as an order otherwise in favour of the defendants because r 42.19, when read with r 42.2, refers only to costs on the ordinary basis.

33. Mr Cavell submitted that the result which will be obtained today for the plaintiff is worse than had it accepted the offer. That is true. It had, therefore, behaved unreasonably in not accepting the offer. I also accept his submission that the apparent reason for the perpetuation of the proceedings thereafter, being to further interrogate the defendants about the production and, in the end, obtain affidavits verifying, was unreasonable, given the cooperation that had been extended by the defendants in providing the documents.

34. There will be an order that the plaintiff pay the defendants' costs, on the indemnity basis, by reference to the offer. The defendants seek that order from the day after the offer. However, because it was open for acceptance until 14 April 2025, the indemnity period will run from 15 April 2025.

A postscript on accepting information given on instructions

35. There is one final observation I wish to make. It is not intended as a criticism of those involved in this case.

36. It is well‑understood that, as a precondition to obtaining an order for preliminary discovery, the applicant needs to demonstrate that it has taken all reasonable steps to obtain the documents without the assistance of the Court. As happened in this case, that is often done by writing directly to the party and asking for the documents. An unreasonable refusal to provide the documents is certainly often an important step in satisfying the Court that reasonable steps have been taken without success and that an order should be made.

37. However, in the Court's experience, what often happens is that the respondent party will produce the documents sought. As occurred in this case, there is then some correspondence about the adequacy of the production.

38. There will, of course, be cases where there is some proper basis (and not just animosity) for a party to doubt a response made on instructions, by solicitors for the respondent, that their client has no more documents, or has otherwise complied with the request. The Court is not naïve about such matters.

39. Nevertheless, in my respectful opinion, it is not appropriate for those statements to be treated automatically with suspicion or disregarded. To my observation, that happens far too often. While there can be no general rule, the Court has seen too many cases where matters have continued and further costs have been incurred, when there was no serious basis to doubt assurances given on instructions that, for example, no more documents existed, or complete compliance, to the extent it could be done, had been done.

40. Where parties are represented by competent and experienced solicitors, it may be expected that they will have informed their client of the importance of the accuracy of the instructions they are being given and have tested those instructions to the extent they can and that they think necessary. Solicitors do their client a disservice by accepting without question instructions they are given, especially when it is obvious those instructions may be met with scepticism by an opposing party.

41. I emphasise again that I am not to be taken as criticising those involved in this case. However, this case is an example of one where costs could have been saved, had there been a more ready acceptance of what were shown to be (by the provision of affidavit evidence) correct instructions given by the defendants to their solicitors to be passed on to the plaintiff.

Orders

42. The orders of the Court are as follows:

43. Pursuant to UCPR r 12.11, leave is granted to the plaintiff to file a notice of discontinuance.

44. Pursuant to UCPR r 42.19(2), the plaintiff is to pay the defendants' costs of or incidental to the proceedings, as agreed or assessed:

(a) On the ordinary basis, up to and including 14 April 2025; and (b) On the indemnity basis, from 15 April 2025.

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