Huang v Union Standard International Group Pty Ltd

Supreme Court of NSW|2020-04-16|Before: Henry J, Hammerschlag J

Judgment

By notice of motion filed on 7 February 2020, the plaintiff, Yao-Ming Huang, sought an order for the Court to appoint an expert accountant to inspect the computer database of the defendant, Union Standard International Group Pty Ltd, and other orders relating to that appointment.
On 13 March 2020, the plaintiff's motion was listed for hearing before me. On that day, the defendant acceded to the appointment of the plaintiff's nominated accounting expert to inspect its database. The substantive disputes related to the terms of the letter of instructions. After argument, the motion was adjourned for a week to enable the parties to contact the expert and agree the precise terms of the orders to be made.
On 20 March 2020, I made orders by consent pursuant to which the Court appointed Neil Gray, forensic accountant and Partner at Deloitte, to inspect the defendant's computer database and report to the Court on the matters identified in the letter of instruction annexed to the orders, and ancillary orders relating to Mr Gray's appointment (Consent Orders).
The only issue that remains in dispute is the cost order to be made in relation to the plaintiff's motion.
The plaintiff contends that, as he was the successful party on the motion, the defendant should be ordered to pay his costs. The defendant submits that, in the circumstances of this case, costs should be costs in the cause or, alternatively, they should be reserved pending receipt of the expert's report.
The parties have provided written submissions on the issue of costs and are content for me to determine that issue on the papers.

Background and issues in dispute at the hearing

The proceedings were commenced in late 2017. In the proceedings, the plaintiff claims the defendant has breached the rights of exclusivity given to the plaintiff pursuant to an agreement under which he was appointed as exclusive general agent to promote certain investment products offered by the defendant.
Orders for production of documents by the defendant were first made in May 2018. Between late 2018 and December 2019, there have been various disputes and appearances before the Court in relation to discovery by the defendant, including as to whether proper discovery had been given and whether an expert should have access to the defendant's database.
On 13 December 2019, the proceedings came before Hammerschlag J. On that occasion, his Honour ordered that: "An independent computer expert will be given access by the defendant to its systems to enable the independent expert to determine whether or not there are in existence the documents for which the plaintiff calls. It is to be agreed there should be a joint brief to an expert, and the experts to provide a report in the first instance to his Honour." His Honour also directed the parties to work out orders to achieve this.
The parties agreed orders which were made by consent on 19 December 2019. The 19 December consent orders provided for the plaintiff to notify the defendant of at least three nominated experts in each discipline in which he sought to have an independent expert appointed for the purposes of inspecting the defendant's computer database and reporting to the Court, to advise the defendant of the issues upon which he seeks to have them report and to provide a draft letter of instructions. They also provided a regime for the defendant to respond to those matters, for the proceedings to be stood over to 14 February 2020 for directions and for any motions to be filed and served with supporting material by 7 February 2020.
Pursuant to the 19 December consent orders, on 23 December 2019, the plaintiff's solicitors sent a letter to the defendant's solicitors which nominated three accounting experts, including Mr Gray from Deloitte, to inspect the defendant's computer database and attached a draft letter of instructions. The plaintiff did not nominate experts in any other discipline because, having spoken to a forensic computer expert, the plaintiff considered an expert accountant had the relevant expertise required for the appointment. The plaintiff also proposed that the expert accountant be able to enlist other expert assistance as required, such as information technology help or a Chinese translator.
By letters dated 10 January 2020 and 15 January 2020, the defendant's solicitors took issue with the plaintiff's nomination of an expert accountant, asserting it was contrary to the regime provided for in the 19 December consent orders. The defendant disagreed with the appointment of any accountant but, if one was to be appointed by the Court, advised that it would select Mr Gray of Deloitte. The defendant's solicitors also raised concerns with the plaintiff's draft letter of instructions and attached a mark-up with the defendant's proposed changes.
Further correspondence between the parties ensued. The plaintiff, by email dated 22 January 2020, pressed for its proposal for an accounting expert to be appointed by the Court with assistance from other experts as needed. The defendant, by letter dated 28 January 2020, continued to take issue with the plaintiff's nomination of only three accountant experts and the terms of the letter of instructions. The plaintiff then filed its notice of motion on 7 February 2020.
At the hearing of the motion, the plaintiff relied on two affidavits and written submissions which attached the competing versions of the letter of instructions and identified concessions the plaintiff was prepared to make based on matters raised by the defendant. The hearing was adjourned for a short time to enable the Court to review those materials and for the defendant's counsel to review the submissions which had only been provided to him that morning.
When the hearing resumed, there were only two issues in dispute relating to the letter of instructions.
The first issue was whether the expert should be instructed to review records relating to client withdrawals for the period 1 July to 31 December 2017, as contended by the plaintiff, or only for the period from 1 September to 31 December 2017, as contended by the defendant. On this issue, I accepted the plaintiff's position. I considered it appropriate for the expert to be instructed to review records in the defendant's database for the longer period based on evidence that suggested there were discrepancies in the accounting records produced by the defendant for the month of July 2017, as well as during the period September to December 2017.
The second issue related to the subject matter of the expert's enquiry and report. Specifically, whether in addition to determining if there were records of the withdrawal of funds being credited to another account, the expert should also consider what was done with funds in respect of which there were no such records. The defendant argued that the plaintiff's proposal amounted to an improper scope creep and went beyond what he had previously sought.
Having heard argument on the issue, I was also persuaded by the plaintiff's submission that the expert should determine whether the defendant's computer system contained records identifying the destination of unmatched withdrawals. In doing so, I accepted that the terms of the letter of instruction prepared by the plaintiff needed to be refined. The proposed modifications to the letter of instructions were accepted by the plaintiff at the hearing.
The defendant also initially objected to the appointment of an accounting expert. After the hearing resumed, the defendant no longer pressed that objection and accepted the plaintiff's proposal of Mr Gray as the Court-appointed expert. The defendant also initially pressed for any other experts to be identified and appointed at the same time, rather than the Court-appointed expert being able to nominate "who they like" if assistance was needed in the fields of information technology and Chinese language. During the hearing, the defendant conceded that it was "safe enough" for Mr Gray to nominate persons within Deloitte if additional expertise was needed.
For reasons that were not fully explained to the Court, the parties had not contacted Mr Gray to determine if he was available to take on the proposed appointment. The parties agreed that the most sensible approach was to adjourn the motion so they could send a joint email to Mr Gray to ascertain his availability and to allow time for the parties to finalise the letter of instructions and proposed orders based on the views expressed during the hearing.
As noted above, the Consent Orders were made on 20 March 2020. In addition to the order appointing Mr Gray as a Court-appointed expert and annexing the letter of instructions, the Consent Orders provide a notification regime in the event Mr Gray requires assistance from others with information technology and/or Chinese language expertise within Deloitte. As sought in the plaintiff's motion, the Consent Orders also include orders relating to the confidentiality of information and the costs of the expert.

Legal principles

The principles applicable to the making of an order for costs are well established.
The starting point is that the award of costs is a matter within the Court's discretion: Civil Procedure Act 2005 (NSW), s 98. While the Court's discretion is broad, it must be exercised judicially and consistently with the overriding mandate provided for in ss 56-60 of the Civil Procedure Act.
The usual rule is that costs follow the event, unless it appears that some other order should be made as to part or all of the costs: Uniform Civil Procedure Rules 2005 (NSW), r 42.1.
Rule 42.7 relates specifically to interlocutory applications and reserved costs. The general position with respect to costs of interlocutory applications is that they should follow the general costs of the proceedings.
A successful party has a "reasonable expectation" of being awarded costs against an unsuccessful party, unless there is good reason for that presumption to be displaced: Oshlack v Richmond River Council (1998) 193 CLR 72; [1998] HCA 11 at [134]. The underlying principle is that costs should be paid in a way that is fair, having regard to what the Court considers the responsibility of each party for the incurring of the costs: Cellarit Pty Limited v Cawarrah Holdings Pty Ltd (No. 2) [2018] NSWCA 266 at [9].
Where a motion has been disposed of by consent, the usual approach is not to make any order for costs except as agreed between the parties, having regard to the desirability of encouraging and not penalising those parties who negotiate a compromise: Gambro Pty Ltd v Fresenius Medical Care Australia Pty Ltd [2002] FCA 581 at [26]; Australian Securities and Investments Commission v Rich [2003] NSWSC 297 at [78].
Where there is no hearing on the merits, the Court is necessarily deprived of the factor that usually determines how it will deal with the question of costs. However, where a party is almost certain to have succeeded if the matter had been fully tried, it may be appropriate to award costs in their favour, although such cases are likely to be rare: Re Minister for Immigration and Ethnic Affairs: Ex parte Lai Qin (1997) 186 CLR 622; [1997] HCA 6 at 624 and 625.

What costs order should be made?

The plaintiff seeks an order that his costs of and incidental to the motion be paid by the defendant. He submits that such an order is appropriate as it was necessary for him to file the motion to resolve the disputes between the parties relating to the inspection of the defendant's database and because, as a matter of substance, the making of the Consent Orders represents success for the plaintiff on his motion.
The defendant disputes this. It submits that the costs of the motion should be costs in the cause or be reserved pending receipt of the expert's report enabling a determination of the justification for the expense incurred.
In support of this contention, the defendant submits that there has been no event of substantial success by the plaintiff or any capitulation by the defendant on the motion. The defendant submits that the costs of the motion have been incurred as part of an ongoing dispute about discovery in respect of which the plaintiff has changed its position over time and reflects a misunderstanding of the defendant's accounts management.
The defendant also argues that, in the absence of any determination supporting the course of appointing an accounting expert to inspect the defendant's database, there is no basis for awarding the plaintiff his costs, relying on the principle in Re Minister for Immigration and Ethnic Affairs: Ex parte Lai Qin (1997) 186 CLR 622; [1997] HCA 6.
While the plaintiff's motion was ultimately the subject of the Consent Orders, in my view, this is a case where it is appropriate to exercise my discretion and order the defendant to pay the plaintiff's costs of the motion.
The 19 December consent orders provided for the defendant to respond to the plaintiff's proposal in relation to the expert(s) to be appointed by the Court and, in the absence of agreement, for the plaintiff to file a new motion by 7 February 2020. As to be expected, the parties sought to negotiate the terms of the orders to be made appointing the expert(s). As they failed to agree, the plaintiff had to file a motion when he did in order to have the Court resolve the issues in dispute.
As is clear from the summary at [7] to [13], at the time the plaintiff's motion was filed, the parties were in dispute as to the nature of the expertise required of any Court appointed expert and the scope of the matters on which the appointed expert was to be instructed to determine.
At the hearing, the Court expressed prima facie views on the issue regarding the appointment of the expert and other experts to assist, in response to which the defendant elected not to press its objection to the appointment of an expert accountant from Deloitte and also accepted, in principle, for additional assistance for the expert from others within Deloitte. The Consent Orders provide for assistance to be provided to Mr Gray, if needed, from others who are identified and consented to by the parties although not as Court-appointed experts. While not in precisely the same terms, the Consent Orders reflect the regime proposed by the plaintiff in correspondence before the motion was filed.
I accept that the proposal for a Court-appointed expert accountant may have represented a change of position by the plaintiff and did not reflect the precise terms of the order made by Hammerschlag J on 13 December 2019 relating to an independent computer expert. But there were good reasons for that change, which the plaintiff notified to the defendant by email in December 2019 and, according to the plaintiff's submissions, again in March 2020, after the motion was filed. The issue of the expertise of the Court-appointed expert and the regime by which they could obtain assistance from others within the same big four accounting firm are also matters which, in my view, could have been resolved between the parties without the need for submissions and debate before the Court.
As to the dispute on the terms of the letter of instructions, I accepted the plaintiff's submissions in relation to the issue of the date range. The other debate was, in substance, resolved in favour of the plaintiff, although some drafting changes proposed by the defendant and the Court during oral argument were required.
Accordingly, while it may be accepted that the Consent Orders were not made following a hearing and determination of all the issues raised by the motion, to the extent there were issues in dispute between the parties, they were, in the main, determined by the Court in favour of the plaintiff or were resolved by the defendant agreeing to what the plaintiff sought.
The defendant argues against a costs order being made in favour of the plaintiff as it says the motion was filed as part of a long-running dispute between the parties regarding discovery and the need for inspection of the defendant's database. The dispute as to whether the defendant's database was to be inspected by an independent expert was, in effect, resolved by way of the 13 and 19 December orders. The plaintiff's motion related to the nature of the expertise of the person to be appointed and the terms on which the inspection was to occur. On those issues, there was controversy between the parties, debate at the hearing and the plaintiff had overall success. It follows that I do not accept the defendant's submission that the parties had varying degrees of success and, on the substantive points of variation of the proposed inspection regime sought in the motion, the defendant had been more successful than the plaintiff.
The defendant's submissions also suggest that it would be inconsistent with the position adopted by the Court on previous occasions if costs were to be awarded to the plaintiff in respect of his 7 February 2020 motion. The defendant argues that, if costs are awarded to the plaintiff, then costs should be awarded to the defendant for the "waste of his previous, abandoned motion(s)". I am not persuaded by that submission. While the Court record indicates that other costs orders have been made in relation to the past discovery motions, it is not readily apparent why those cost orders were made. Irrespective of the reasons, the approach of the Court on those occasions does not dictate the approach to this application, which relates to the costs of a discrete motion filed on 7 February 2020 which has been dealt with in a conclusive way.
In this case, I am satisfied that the plaintiff was the substantially successful party on a motion which was reasonable and necessary for the plaintiff to file when he did. In my opinion, as the plaintiff had overall success, the usual order that costs follow the event should apply.
For these reasons, I order that the costs of the plaintiff's notice of motion filed on 7 February 2020 are to be paid by the defendant.

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: 16 April 2020

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