Galati v Deans

EJC's submissions

1. EJC argues that the grant of access to the subpoenaed documents was substantially in accordance with a proposal made by EJC to the cross-claimants almost a month prior to the hearing of the motion on 27 September 2019 (the EJC Waiver Proposal).
2. EJC in its written submissions no longer presses for costs orders on an indemnity basis. Rather, it seeks orders that the cross-claimants pay EJC the following costs forthwith (agreed or assessed on an ordinary basis) pursuant to r 42.7(2) of the Uniform Civil Procedure Rules 2005 (NSW) (UCPR): 1. the costs of EJC substantiating its claims for privilege from the date of the service of the Privilege Schedule on 18 July 2019; and 2. the costs of and incidental to the motion from the making of the EJC Waiver Proposal on 27 September 2019.
3. As to the first of those (the costs of proving EJC's privilege claims), EJC says that there was an "expensive, protracted dispute" leading up to the hearing of the access motion as to whether the subpoenaed documents over which EJC claimed privilege were in fact privileged.
4. In that regard, EJC points to the following matters.
5. First, that the subpoena filed on 21 June 2019 was broad, requiring the production of complete files or copies of those files by reference to internal reference numbers. It is noted that NRF produced approximately 800 electronic documents and one hard copy volume. It is submitted that it was inevitable, and must have been clear to the cross-claimants, that a significant proportion of the subpoenaed documents would be subject to legitimate claims for legal professional privilege. Reference is made to the observation by Hallen J in Neal v Neal [2018] NSWSC 1356 (Neal v Neal) (at [15]) that an inference of a valid claim for legal and professional privilege "can, and should be, drawn" where it is made (as was the case here) in the circumstances of the production of a solicitor's entire file.
6. Second, that on 18 July 2019, EJC's solicitors, Johnson Winter & Slattery (JWS), wrote to the cross-claimants' solicitors, FCB Workplace Law (FCB), enclosing a 196 page Privilege Schedule, identifying the document date, from/to, subject and document type information in relation to the documents over which privileged was claimed. EJC notes that it was not until 11 October 2019 (after the exchange of much correspondence and the preparation of the Piesiewicz Affidavit (i.e., the affidavit sworn by EJC's solicitor (Mr Andreas Peter Piesiewicz) on 29 August 2019) which was relied upon at the hearing of the motion), that the cross-claimants conceded that the documents over which EJC claimed privilege would ordinarily be subject to a legitimate claim for privilege (apart from the "Project Magoo" document). EJC says that the preparation of the claim for privilege required a careful review by the relevant JWS partner of hundreds of documents. It is noted that in their submissions on the application, the cross-claimants conceded that "as a matter of common sense, each of the documents set out in the Revised Privilege Schedule would ordinarily be subject to a legitimate claim for [legal professional privilege]". EJC submits that this "common sense" approach ought to have prevailed much earlier.
7. EJC argues that, consistent with the approach observed in Neal v Neal, the cross-claimants were in a position from no later than the service of the Privilege Schedule on 18 July 2019 to concede to EJC's claims to privilege (leaving aside the issue of waiver); and that such a concession would have avoided significant wasted costs (which costs it submits ought to be borne by the cross-claimants and assessable forthwith).
8. As to the second aspect of the costs orders here sought (costs of the waiver dispute), EJC says that the cross-claimants did not raise the issue of waiver in any substantive way until their letter of 12 September 2019, almost two months after the service of the Privilege Schedule, in which it was asserted that by reason of "the material served in the proceeding, including the Vassallo Affidavit and the Dixon Affidavit" there had been a waiver of privilege by EJC over the subpoenaed documents. EJC points to the correspondence in response to this (namely, the letter dated 24 September 2019 from JWS in which the cross-claimants were asked to explain the basis of the asserted waiver, including its scope; and the response by FCB by letter dated 25 September 2019).
9. Complaint is made that the 25 September 2019 letter did not in fact provide particulars of the cross-claimants' claim of waiver but, rather, listed categories of documents for production under "Advice Category 1" and "Advice Category 2" (being categories taken from the Piesiewicz Affidavit at [40] where Mr Piesiewicz summarised the contents of the documents in the Revised Privilege Schedule).
10. It was in response to this that, on 27 September 2019, EJC made the EJC Waiver Proposal in a schedule to a letter of that date. EJC emphasises that the categories of waiver proposed in the EJC Waiver Proposal were adopted by me in dismissing the motion (save for the substitution of the words "tending to prove" where appearing in the fourth column of the schedule were substituted for the words "tending to prove or disprove or tending to prove whether or not").
11. It is submitted that had the cross-claimants engaged properly with the EJC Waiver Proposal (for example, by counter-proposing alternative categories by reference to specific parts of EJC's evidence or modifying the language of the proposal by EJC), the parties would likely have resolved the dispute without the need for a contested hearing; instead, complaint is made that the cross-claimants "continued in correspondence to make vague and unsubstantiated assertions of waiver", while asserting that issues such as the state of mind of EJC's witnesses (Ms Dixon and Mr Vassallo) had little if any bearing on whether EJC had waived privilege in relation to various documents.
12. By contrast, EJC characterises the cross-claimants' approach as being one of: seeking production on the basis of general categories describing the contents of the subpoenaed documents as formulated by Mr Piesiewicz in his affidavit (rather than as categories of "an appropriately formulated waiver"); and of repeatedly failing to identify the paragraphs in EJC's evidence which allegedly gave rise to the waiver, or the scope of any waiver based on that evidence. It is submitted that that approach was plainly erroneous but was persisted with until the conclusion of the hearing of the notice of motion (and, it is said, stifled any prospect that the parties otherwise had of resolving this issue without the need for a contested hearing).
13. As to the submission that costs should be paid forthwith, it is noted that where a party has engaged in unreasonable conduct, costs may be ordered forthwith under r 42.7(2) of the UCPR. It is said that this is particularly so where the unsuccessful party has failed to assist the court to further the overriding purpose of facilitating the just, quick and cheap resolution of the real issues in dispute in the proceedings. EJC maintains that this is such a case.
14. EJC says that it has been required to incur significant costs over and above those which it would have incurred had the cross-claimants acted reasonably; and that those are not costs which EJC should be expected to bear until a proceeding is concluded (noting that the trial of this matter is not scheduled to finish until 11 December 2020).

Cross-claimants' submissions

1. ​The cross-claimants in effect argue for the adoption of the approach that I had indicated was my preliminary view, submitting that the appropriate order is that each party should pay its own costs in relation to the hearing of the notice of motion and that the costs of the motion should otherwise be reserved.
2. The cross-claimants emphasise somewhat different aspects of the process in relation to the claiming of privilege in respect of the production of documents into court under the NRF Subpoena. So, for example, it is said that (after orders were made by consent, requiring EJC to substantiate any claim for privilege by 12 July 2019) various schedules were prepared by EJC identifying around 627 documents over which legal professional privilege was claimed "in a staggered fashion", the latest being the Revised Privilege Schedule served on 29 August 2019; and that EJC relied on a "global" claim for privilege (and, where part of a document contained privileged information, EJC took objection to the production of the document in its entirety).
3. The cross-claimants complain that, in circumstances where EJC was required to substantiate any claim for privilege by 12 July 2019, the Revised Privilege Schedule was "a long time coming". They maintain that EJC's approach to establishing its claims for privilege was unreasonable and caused them unnecessarily to incur costs (those costs, it is said, being substantial). Reference is made to the "voluminous" correspondence between the parties together with the fact that the subpoena was listed before the court on two occasions subsequent to the first return date.
4. As to the complaint in relation to the "global" claim for privilege, the cross-claimants point to FBC's letter dated 1 August 2019, in which the cross-claimants requested additional information concerning the documents that were subject to the claim for privilege. They say that EJC "refused" to provide the requested information, instead (by the Piesiewicz Affidavit) asserting that the documents set out in the Revised Privilege Schedule included four categories of purported legal advice sought by EJC, and legal advice given, to EJC.
5. Complaint is made that EJC made no attempt to identify which of the produced documents fell within each (or possibly several) of the four categories of "purported" legal advice. Further, it is said that EJC's limited description of each document meant that it was impracticable for the cross-claimants to determine, with any real degree of precision, the category of "purported" legal advice. It is further noted that EJC was privy to each of the documents since at least 28 June 2019 whereas the cross-claimants were not.
6. The cross-claimants point out that their notice of motion sought orders in respect of subpoenaed documents falling only within Advice Type 1 and/or Advice Type 2 and that no orders were sought in respect of produced documents falling with Advice Type 3 and/or Advice Type 4 categories.
7. The cross-claimants submit that both parties had mixed success on the notice of motion. They say it is accepted that the subpoenaed documents would ordinarily be subject to a legitimate claim for privilege (other than in respect of the "Project Magoo" document, privilege in which was not conceded); and therefore that the question on the motion was whether EJC had waived that privilege in respect of some or all of the subpoenaed documents in respect of which access was sought (the so-called Disputed Documents).
8. The cross-claimants say that since at least 12 September 2019 EJC was on notice that the cross-claimants considered that EJC had waived privilege in respect of some of the produced documents on the basis of the materials exhibited to the Dixon Affidavit and the Vassallo Affidavit; but, notwithstanding this, EJC continued to maintain that any waiver went no further than the specific documents exhibited to the Vassallo Affidavit and the Dixon Affidavit. It is submitted that, in maintaining this position, EJC rejected any assertion that it had waived privilege in respect of any of the Disputed Documents; and that EJC's position in this regard was not sustainable.
9. The cross-claimants say that, despite not obtaining an order for access to all of the documents sought, the cross-claimants were, in substance, successful on the notice of motion, pointing to the finding that EJC had in fact waived privilege in respect of some of the Disputed Documents and to the fact that they were granted access to so much of the Disputed Documents as fall within the schedule of documents prepared by EJC and put forward in its solicitors' letter dated 27 September 2019.
10. The cross-claimants emphasise that the wording of the categories to which access was ultimately granted expanded the "unduly restrictive 'offer' made by EJC", by reading the words "tending to prove", where appearing in the fourth column of that schedule, as "tending to prove or disprove or tending to prove whether or not"; and also that the grant of access was made without prejudice to their ability later to seek access to further documents if it is claimed that there has been an implied waiver having regard to those reasons. It is submitted that the orders made were significantly better for Mr Deans than EJC's offer.
11. The cross-claimants say that, in the period following 12 September 2019, much of the correspondence between the parties concerned whether EJC had waived privilege in respect of any of the produced documents, not whether EJC had established its claims for privilege in respect of those documents. It is said that it was only by JWS' letter dated 27 September 2019 that EJC put forward a schedule of documents setting out the categories of privileged documents that EJC was prepared to disclose; and that, by their solicitors' response (by letter also dated 27 September 2019), the cross-claimants sought additional information regarding EJC's proposal and EJC provided a reply by its solicitor's letter dated 1 October 2019.
12. It is submitted that EJC's offer was not reasonable for several reasons: that EJC did not concede that it had waived privilege in respect of any of the Disputed Documents (in circumstances where it is said that the concession ought to have been properly made); EJC sought "to sidetrack and narrow the debate" by wrongly asserting that, in order to establish that EJC had waived privilege, the cross-claimants must prove that the disclosures put in issue the states of mind of Ms Dixon and Mr Vassallo (which the cross-claimants argue ignores the "critical concept of inconsistency"); the "tending to prove" formulation insisted upon by EJC was unduly restrictive;
13. It is submitted that EJC's offer was thus "calculatedly by EJC, a 'Hobson's choice'" for the cross-claimants. It is further noted that this was in circumstances where a timetable had been made for the filing of any such motion, and hence that where the parties were not in agreement the motion needed to be filed. Thus, it is submitted that the inability of the parties to reach consensus was attributable to both parties.
14. Insofar as EJC had initially indicated that it sought indemnity costs, the cross-claimants' position was that, being faced as they say they were with a "Hobson's choice" and obtaining a better result than EJC's offer, cannot be seen to have been unreasonable or a relevant delinquency or proceeding in willful disregard of the facts or law so as to warrant an indemnity costs order (referring generally to Chaina v Alvaro Homes Pty Ltd [2008] NSWCA 353 at [106]-[111]; and Macquarie International Health Clinic Pty Ltd v Sydney Local Health District (No 2) [2019] NSWSC 1492).
15. The cross-claimants say that, if EJC had made its offer in a more open fashion it could have been accepted and, failing acceptance, EJC would rightly be entitled to costs of the hearing (albeit not on the indemnity basis); but that the "highly restrictive and final nature" of EJC's offer meant that FBC could not advise its clients to accept it. They say that they achieved a result significantly better than was offered by EJC but accept that their success "still fell well short of what was sought". On that basis it is said that there was a mixed success in respect of the hearing of the motion and that each party should pay its own costs of the hearing of the motion. As to the balance of the costs of the motion, they submit that these should be reserved.

Determination

1. The principles applicable in relation to the exercise of discretion as to costs are well known and have already been referred to in a previous decision on costs in these proceedings and involving the same parties as the present application (Galati v Deans (No 3) [2018] NSWSC 1861 (Galati v Deans (No 3)) - which, ironically, I handed down exactly a year ago to the day of these reasons). The discretion is a wide one (see s 98 of the Civil Procedure Act 2005 (NSW) (Civil Procedure Act)) but must be exercised judicially; and consistently with the overriding mandate provided for under the Civil Procedure Act in respect of the conduct of civil litigation in this Court (see ss 56-59 of the Civil Procedure Act).
2. The general rule is that costs will follow the "event" (r 42.1 of the UCPR) unless it appears to the court that some other order should be made as to the whole or any part of the costs.
3. Where there are multiple issues, then it may be appropriate to make costs orders apportioning costs as between the various issues though (as noted in Galati v Deans (No 3)) there are a number of authorities that advocate caution before so doing. Here, the situation is not one of a multitude of issues, but rather a mixed outcome on the only substantive issue in dispute by the time of the hearing of the notice of motion (the implied waiver of privilege issue) (leaving aside the issue as to the "Project Magoo" document which did not occupy any real hearing time).
4. As I have noted in Galati v Deans (No 3), where there is a mixed outcome in proceedings the question of apportionment is very much a matter of discretion and mathematical precision is illusory; it being dependent on matters of impression and evaluation (see Dodds Family Investments Pty Ltd (formerly Solar Tint Pty Ltd) v Lane Industries Pty Ltd (1993) 26 IPR 261 (at [38])), per Gummow, French and Hill JJ at [272]) (as cited by the Court of Appeal in James v Surf Road Nominees Pty Ltd (No 2) [2005] NSWCA 296 (at [36]) and again in Bostik Australia Pty Limited v Liddiard (No 2) [2009] NSWCA 304)). I would adopt the same approach to the assessment of costs where there has been a mixed outcome albeit on the same issue.
5. That leads to the question as to how to assess the success or otherwise of the parties on the implied waiver issue. As I have noted in other cases, including in Galati v Deans (No 3), a helpful approach to that question is that which was suggested by the English Court of Appeal in Roache v News Group Newspapers Ltd [1998] E.M.L.R. 161 (Roache) at 168-169. There, the question as to who was to be seen as the successful party "in the event" was posed as being a question as to "who, as a matter of substance and reality, has won? Has the plaintiff won anything of value which he could not have won without fighting the action through to a finish? Has the defendant substantially denied the plaintiff the prize which the plaintiff fought the action to win?"
6. In the present case, a number of things should be noted in that context: as EJC notes, the NRF Subpoena in its terms was inevitably going to result in the production of documents over which there was legal professional privilege (such is the nature of a subpoena seeking the provision of the entirety of a lawyer's file); EJC was thus put to the expense of establishing the documents in respect of which privilege subsisted; and the stance seemingly adopted by the cross-claimants meant that there was necessarily some effort devoted by EJC's lawyers to the preparation of privilege schedules setting out the basis of the claim for privilege. Ultimately, that claim for privilege was only challenged in respect of a proportion of the documents produced on subpoena for which privilege had been claimed. The other relevant fact to note is that EJC disputed that there had been an implied waiver of privilege in respect of the disputed subpoenaed documents (and the cross-claimants succeeded in relation to that issue albeit not as broadly as had been claimed by them). Further, it is true that the orders granting access were largely framed by reference to EJC's Revised Privilege Schedule (and hence that one would have hoped that the need for a contested hearing on the motion would not have been necessary. That said, I accepted that there was a reasonable basis for the concern expressed by the cross-claimants as to the manner in which the fourth column of the Schedule was framed in certain respects (even though, to some extent, I considered that this may have been "jumping at shadows"), which is why I redrafted the wording slightly; and I do accept that framing the schedule proposal as a once and for all proposal was a basis for legitimate concern on the part of the cross-claimants.
7. There are, therefore, factors which point in different ways: EJC has been put to what it maintains is considerable expense on an issue of establishing privilege in documents that it says (and I accept) would on the whole be likely to have been privileged; and the cross-claimants have succeeded in establishing that there was an implied waiver of privilege but only in respect of a proportion of the Disputed Documents.
8. If one poses a test of the kind considered in Roache, it seems to me that it can confidently be said that, but for the motion they would not have had access to that portion of the Disputed Documents (which would point - contrary to my preliminary view - if not to an order in their favour, then perhaps to an order for each side to bear its own costs of the hearing of the notice of motion);. whereas, the basis for my preliminary view that the cross-claimants should bear the costs of the argument on 24 October 2019 (on which they were unsuccessful in obtaining the whole of the relief sought in their notice of motion) was that the cost of this hearing would not have been necessary had the offer put forward by EJC been accepted or had some accommodation been able to be reached in relation thereto.
9. On further reflection, and with the benefit of the submissions by the parties, I have concluded that the appropriate costs order is that the costs of the hearing of the motion (and of and incidental to the motion itself) should be reserved. I cannot conclude that the conduct of the cross-claimants in pressing part of the relief sought in the motion was so unreasonable as to warrant an order of the kind that EJC seeks in relation to costs; nor do I consider that the partial success on the implied waiver issue warrants an order for costs at this stage. It seems to me that it is fairer to both sides that these costs be part of the overall wash-up of costs orders made in the proceedings once the substantive issues in the proceedings as between those parties have been determined. It may be that this will be at a different stage to the determination of costs of the substantive proceedings as a whole, since EJC is a cross-defendant and it might be that a costs issue involving it can be determined in advance of costs issues involving the other parties.

Order

1. For the above reasons, I make the following order as to costs of the notice of motion: 1. Order that the costs of and incidental to the motion filed 8 October 2019 by the first and second defendants/cross-claimants be reserved, to be determined as part of the costs orders to be made on the final determination of the substantive dispute between the parties in the proceedings.

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