HIS HONOUR: The plaintiffs move to set aside a notice to produce dated 5 December 2014. The notice to produce was served by the first defendant in connection with a notice of motion filed by the plaintiffs on 2 December 2014 in which the plaintiffs seek a gross sum costs order in respect of a costs order made by Brereton J against the first defendant on 9 October 2013. His Honour made an order by consent that the first defendant pay the plaintiffs' costs on the indemnity basis of their application to remove her as trustee of the Hope Margaret Hancock Trust.
The plaintiffs have served an affidavit of their solicitor, Mr Price, dated 2 December 2014 in support of the application under s 98(4)(c) of the Civil Procedure Act 2005 (NSW) for a gross sum costs order. The amount sought is $2,445,492.76 or such other amount as the Court deems fit. An order is also sought that the first defendant pay interest on those costs at the rate set out in rule 36.7 of the Uniform Civil Procedure Rules from the date of payment of costs by the plaintiff until such time as the costs are paid by the first defendant.
Mr Price exhibits to his affidavit of 2 December 2014 an application that had been prepared for the purpose of seeking an assessment of itemised costs. The application was apparently prepared for the purpose of its being submitted to the Manager, Cost Assessment. It was prepared by a Mr Ramsey-Stuart who is in the business of providing legal costing services to law firms, including the drawing of bills of costs. The document contains statements that the bill had been drawn using minimum time limits and sets out the hourly rates that are "claimed" by professional staff of two of the law firms who have acted for the plaintiffs in the relevant proceedings, namely, Johnson Winter & Slattery, and Yeldham Price O'Brien Lusk.
It contains a detailed statement of thousands of items for which costs are claimed as solicitor's costs, or counsel's fees. It also makes other claims for the recovery of costs in ways which are not itemised in detail. A sum of $172,425 is sought in respect of professional costs of Butcher, Paull & Calder and disbursements said to be due to that firm of $166,242.69, including an amount of a little over $149,000 payable to KD Johns & Co.
There is evidence on this application that a Mr Johns had provided a loan facility to the first plaintiff, Mr John Hancock, for the purposes of funding the litigation.
The notice to produce served by the first defendant sought the production of tax invoices for costs and disbursements claimed in the plaintiffs' application for assessment of itemised costs. It also sought tax invoices and itemised bills for the professional costs of Butcher Paull & Calder and for the disbursements incurred by that firm as disclosed in the plaintiffs' application for assessment of itemised costs, including itemised bills for services provided by KD Johns & Co.
The notice to produce also sought production of the costs agreements that govern the provision of legal and other professional services which are the subject of the plaintiffs' notice of motion and any agreement with the funder, or other third party, in relation to the funding of legal services provided to the plaintiffs, the subject of that notice of motion.
I interpolate here that that last description of documents sought differs slightly from the form of the notice to produce, but it is agreed by counsel for the first defendant that that is how the notice to produce is to be understood.
The first defendant's solicitor, Mr Flitcroft, deposes that he has retained a costs consultant, a Mr Matters, to provide a report on the first defendant's costs liability; and that he is informed by Mr Matters and believes that in order to prepare his report he, Mr Matters, wishes to be provided with the costs agreements relating to the costs claimed by the plaintiffs for three reasons. First, to check whether the plaintiffs' obligation to pay costs was excluded or otherwise modified by the terms of any relevant costs agreement. Secondly, to check whether prior to Ms Welker's withdrawal as a plaintiff the obligation, if there were one, on Mr Hancock, Ms Rinehart and Ms Welker to pay costs was joint or joint and several or purely several, and limited to a portion of the total costs incurred. Thirdly, to verify that the rates used in the assessment are the rates that were contracted for and that the contractual obligation to pay for disbursements corresponds with the disbursements claimed.
Mr Flitcroft deposes that he is informed by Mr Matters and believes that Mr Matters wishes to be provided with the invoices in order to verify the figures claimed and also in order to assess whether the items of work in the itemised assessment are within the scope of the costs orders made by Brereton J. He says that he is informed by Mr Matters that many of the descriptions in the bill of costs are so vague that it is not possible, in Mr Matters' opinion, to form an opinion as to the reasonableness of the charge, or whether the work done is within the scope of the costs order. He also wants the invoices to verify the disbursements and, likewise, to check that they are within the scope of the costs order.
The question whether the amounts claimed are within the scope of the costs order is raised because the first defendant apprehends that work may have been charged for or in relation to matters other than the application for the first defendant's removal as trustee. She contends that such other work would not be within the scope of the order.
Mr Flitcroft deposes that Mr Matters wishes to be provided with any funding agreement to check whether the funding agreement affects the liability of the plaintiffs to pay their lawyers.
Counsel for the first defendant says that there is an additional reason for seeking copies of the funding agreement; that is, that it is possible that the funding agreement might affect the liability of the plaintiffs to pay their lawyers. Secondly, it is said that the terms of a funding agreement will be relevant to the claim for interest on costs. That is to say, if the plaintiffs are not out of pocket because the funder has provided funds to pay their lawyers, then the plaintiffs would not be entitled to interest on costs unless they were liable to pay interest. If they were liable to pay interest on costs to the funder and if they are not themselves out of pocket, then they would only be entitled to recover interest at the rates of interest they were liable to pay, which might differ from and be lower than the court rate claimed in the notice of motion.
The plaintiffs contend that there is no legitimate forensic purpose in the notice to produce. I do not agree with that submission.
But the plaintiffs contend, further, that the documents sought should only be required to be produced if it appears that it is likely that the information in the documents would materially assist the first defendant's case or, alternatively, if it is shown that it is on the cards that the documents would assist the first defendant's case.
It is clear that the plaintiffs have retained lawyers. There seems to be no question that the plaintiffs have some liability to pay their lawyers, although that is the first matter that the first defendant seeks to challenge. In any event, there is a presumption of such a liability. The plaintiffs submit that there is nothing in the evidence adduced that could rebut that presumption. It is said that unless the first defendant can demonstrate that the documents sought would assist her case then the production should be refused.
Complaint is also made that it is likely that the documents sought would be used in an aggravating way.
The plaintiffs point to a line of authorities that says that the approach to an assessment of costs on a lump sum basis is not to be approached on the basis of a line by line taxation but in a more broad-brush manner. They submit that if the documents were produced to the first defendant such production would in all probability lead to a line by line assessment of the bill of costs which provides the evidentiary basis for the application.
Unlike many applications for a gross sum costs order, in this case, the plaintiffs have not simply produced their invoices and deposed to the rates of charge and then submitted that on a gross sum assessment there should be a percentage discount of the amounts actually charged to reflect a fair, logical and reasonable estimate of what sum would be payable under the costs order if the matter proceeded to assessment.
The initial question raised is what is the principle which should be applied to this question. The plaintiffs cited a decision of the Court of Appeal in Victoria in Shaw v Yarranova Pty Ltd [2011] VSCA 55 (Redlich and Mandie JJA). In that case a party which was liable to pay costs sought from the party entitled to the benefit of the costs order a copy of any costs agreement between the solicitor and client. The primary judge ordered production of letters of retainer and any costs agreement but refused an order for production of bills or invoices rendered, or other proof of payment. No documents were produced pursuant to the order for production of retainer letters and costs agreements, and the Court was advised that there were no such documents to be produced, save for the actual bills or invoices rendered as proof of payment. The primary judge held that the party entitled to the costs agreement should not be required to produce such invoices and receipts. That view was upheld on an initial appeal to Beach J of the Supreme Court of Victoria and again on appeal to the Court of Appeal.
The Court of Appeal said that there was no doubt that there was at least an implied retainer and that there was at least an implied obligation on the part of the client to pay the solicitor. Thus it was for the party liable under the costs order to prove either that there was no retainer or that there was an express or implied agreement that the successful party's solicitors were under no circumstances whatsoever liable to pay for their solicitor's fees (at [20]-[24]).
Their Honours went on to say:
"[26] Wood AsJ and Beach J were correct to conclude that this was not a case in which the production of invoices and other indicia of payment should have been ordered. The principles governing an application for an order that documents be produced are not different from those governing applications for access to documents produced in answer to a subpoena. So where an application is made in the Costs Court that the party in whose favour a costs order has been made produce documents asserted to be relevant to the application of the indemnity principle, the applicant must identify a legitimate forensic purpose for which access is sought, and establish that it is 'on the cards' that the documents will materially assist his case. There will be no legitimate forensic purpose if, 'all the party is doing is trying to get hold of the documents to see whether they may assist him in his case.' The court must both be satisfied that the documents are relevant to an issue and that there is something in the material then before the court that makes it appear likely that the documents will materially assist the applicant." (footnotes omitted)
There seems, with respect, to have been an elision in the statement of the principle in paragraph [26] from the requirement that the party seeking production by a notice to produce or subpoena establish that it is "on the cards" that the documents sought would materially assist that party's case to the requirement stated in the last sentence of paragraph [26] that the Court be satisfied that "there is something in the material then before the Court that makes it appear likely that the documents will materially assist the applicant". It is the "on the cards" test that is to be applied in respect of the documents to be produced on subpoena (see Attorney-General (NSW) v Chidgey [2008] NSWCCA 65; (2008) 182 A Crim R 536). That test, as explained in Chidgey's case (at [64]-[80]) does not require a probability that the documents will materially assist the case of the party seeking production.
In any event, it appears to me that the present application is to be approached having regard to the requirements of Practice Note SC Eq 11, paragraph 5 of which provides that there will be no order for disclosure unless disclosure is necessary for the resolution of the real issues in dispute in the proceedings. That is a different test from whether it appears likely that the documents will materially assist the party seeking production.
In the present case, counsel for the plaintiffs say that they will take the risk that they may fail on their application for a gross sum costs order on the basis that it may be impossible, in the absence of the documents sought, fairly to assess the amount of costs that should be assessed as a gross sum. They do not take issue with the proposition that in making a gross sum costs order the Court endeavours, within the constraints of a summary procedure not involving a detailed assessment, to make a logical, fair and reasonable estimate of what sum is payable under the costs order. Nor, I think, do they take issue with what was said by Barrett J in Tim Barr Pty Ltd v Narui Gold Coast Pty Ltd [2011] NSWSC 11 at [21] and [47] that:
"[21] Although the court, upon an application of this kind, does not attempt to emulate a costs assessor or taxing master and applies 'a broader brush' than would be applied on assessment, it must be confident that the material before it enables it to make a sufficiently reliable calculation or estimate of an appropriate costs sum. And a decision as to what is an appropriate sum will depend to a large extent on reaching some kind of view of what the outcome on assessment might be.
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[47] Although the court is not expected to act as a costs assessor would act, it must, of necessity, pay attention to certain fundamental matters. For example, on what basis were solicitors' costs and counsel's fees calculated and charged? Was a time-based system adopted; and, if so, what were the hourly rates for the several professionals who spent time on the matter? Was there, in any of the bills, an additional item for 'care, skill and responsibility'; and, if so, on what basis was that calculated? What were the terms of the respective retainers and costs agreements? These are important considerations in any decision about amounts that should be regarded as reasonable remuneration of legal practitioners."
The corollary of this submission would appear to be that the plaintiffs, on the one hand, and the first defendant, on the other, would be put in the position that one or other of them might wholly fail if evidence which is otherwise relevant to the determination of what is a fair and reasonable and logical estimate of the sum payable under the order is not available. I do not accept that that approach is consistent with a just determination of the real issues in the proceeding, nor consistent with the object of a quick and cheap, as well as just, resolution of those real issues. The prospect that the application for a gross sum costs order might fail because relevant documents have not been produced, so that the parties are then remitted to an assessment under the Legal Profession Act 2004 (NSW), when that result could be avoided, or might be avoided, by the production of documents, is not an outcome which the Court should permit.
There is perhaps some ground for concern that the application for a gross sum costs order has the potential to be derailed into a detailed, almost line by line, assessment of the amounts claimed; although I do not doubt that the judge dealing with the application would do everything possible to avoid that outcome. I think the risk of that outcome is created by the form in which the application is now presented, and I do not think that the plaintiffs can complain if the form in which their application is presented enhances that risk.
I accept the plaintiffs' submission that there is nothing in the evidence that rebuts the presumption which otherwise arises that the plaintiffs have a liability to their solicitors to pay costs in connection with the retainer. There is a possibility that such costs liability might have been several, but it is no more than that. In my view, it is necessary for the just resolution of the issues raised for the plaintiffs to produce the documents that show the rates or basis on which they were liable to pay their solicitors or counsel, which would be expected to be reflected in the costs agreement and in the invoices which are issued.
I accept that the production of the invoices is necessary for the just determination of the question as to whether the work for which costs and disbursements are claimed fall within the terms of the costs order.
I also accept that the issues raised by the first defendant in relation to questions of interest require the production of litigation funding agreements.
It is not suggested that it would be onerous for the plaintiffs to be required to produce the costs agreements, or the invoices, or any funding agreements. Indeed, I understood the plaintiffs' position to be that the only funding agreement to be produced would be the agreement with Mr Johns that was tendered on the present application.
For these reasons I refuse the plaintiffs' application to set aside the notice to produce.
I order that the plaintiffs' notice of motion filed on 23 December 2014 be dismissed.
I order that the plaintiffs pay the first defendant's costs of the notice of motion.
I stand the notice to produce over to the Registrar's list on 8 July 2015.
[3]
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Decision last updated: 07 July 2015