In the matter of Bauhaus Pyrmont Pty Ltd (in liq) [2006] NSWSC 268

1486/06 IN THE MATTER OF BAUHAUS PYRMONT PTY LTD (IN LIQUIDATION) JUDGMENT (On the application for order for payment of reasonable expenses) (Ex tempore; revised 6 April 2006) 1 HIS HONOUR: By notice of motion filed on 31 March 2006 the applicant, Mr Widdup, seeks an order that the defendants (that is to say the issuers of the subpoena to produce issued to the applicant, and the respondents to his application) should pay the applicant the amount of any reasonable loss or expense incurred in complying with the subpoena, under "Part 33 rule 11" (that is, Rule 33.11) of the Uniform Civil Procedure Rules. Ancillary relief is also sought. 2 At the hearing of the application today it emerged that there was some ambiguity in the form of the principal order sought. Counsel for the applicant informed the court, in effect, that the application was merely intended to establish the respondents' obligation under the Rules to pay reasonable expenses of complying with the subpoena as agreed or assessed, that is to say it was intended to establish the obligation as a matter of principle. 3 It is clear from the respondents' submissions in writing and before the court today that they construed the application as seeking an order that would oblige them to pay a specific sum of money or a sum of money within a range, and not merely to establish the principle of the obligation to pay reasonable expenses. 4 The application arose after I had dealt with another application by the recipient of a subpoena for an order about reasonable expenses: Re Bauhaus Pyrmont Pty Ltd (in liq) [2006] NSWSC 253. That was an application by Mr James Byrnes and a company, by notice of motion, for orders requiring the respondents to the present application to pay an amount of $50,000, or such other amount as was considered appropriate by the court, for the applicants' expenses and costs reasonably to be incurred in answering the subpoenas. In other words, it was an application that would quantify the obligation to pay reasonable expenses and make an order for payment, before compliance with the subpoena. 5 I rejected that application, taking the view that in the normal course an application under Rule 33.11 would only be dealt with after the person to whom the subpoena was issued had incurred the expenses for which recovery was sought. I contemplated that under the new Rules, circumstances may arise where the court could make an order for the payment of reasonable expenses before compliance with the subpoena took place, but I took the view that this would not be done unless special circumstances existed. I expressed the view that the source for making an order for payment of estimated expenses before the subpoena was complied with was the inherent jurisdiction. I received submissions today to the effect that Rule 33.11 allows for the order to be made before the expenses are incurred. It is unnecessary for me to take the issue further, because whether it be under the Rule or in the inherent jurisdiction, plainly the power to make such an order exists. 6 The issue before me today depends upon whether an occasion has arisen for the court to make an order establishing, in principle, the respondent's obligation to meet the reasonable expenses of the applicant, without quantifying the reasonable expenses. 7 The evidence before me includes a letter from Sagacious Legal, solicitors, to Clayton Utz of 28 March 2006 and the reply of Clayton Utz on 29 March 2006. Sagacious Legal, acting for Mr Widdup, wrote to Clayton Utz to say that it would not be possible for their client to answer the subpoena by the return date of 30 March 2006, and that some agreement with respect to reasonable costs would be needed. The precise statements concerning the question of costs need to be considered carefully. 8 The letter said: "Prior to our client starting this process we request that an agreement be reached on the reasonable costs to be paid by way of conduct money. Reasonable time spent by our client as well as compensation for rates to be paid for our legal services and payment of disbursements must be fairly compensated. The conduct money provided in the amount of $20 is not adequate." 9 After enclosing a schedule of legal costs and an estimate for the costs of answering the subpoena, which set out hourly rates, categories of disbursements, an estimate of time and the calculation of approximate costs, the total being a range of $29,910 to $59,048, the letter proceeded: "We request that the matter be stood over for a week to Thursday 6 April so that we can endeavour to properly answer the subpoena. In the event that you do not agree with our estimate of costs as enclosed we will make an application to the court by way of notice of motion for an increase in conduct money." 10 In my opinion that letter plainly asserts that Mr Widdup required an agreement to be reached on the quantum, within a range, of the reasonable expenses to be paid to him for compliance with the subpoena, and that if no such agreement was reached there would be an application to the court for an increase in the amount of money tendered as conduct money, namely $20. The thrust of the letter is to concentrate on the quantum of reasonable expenses within a range, rather than simply to establish the principle that the applicant was entitled to reasonable costs to be agreed or assessed when incurred. 11 Clayton Utz replied on 29 March 2006. They said: "We remind you that the usual practice relating to any issue involving the cost of compliance with a subpoena is as follows: 1. You should comply with the subpoena; 2. At that point in time and when you are aware of actually how much compliance with the subpoena has cost your firm, you should write to us with full details of those costs; 3. Should agreement not be able to be reached regarding those fees, then you will be at liberty to file a notice of motion, seeking payment of your costs." 12 As a matter of construction, that letter acknowledges, in my view, that the issuer of the subpoena to produce has an obligation to meet the reasonable expenses of the recipient of the subpoena. Paragraph 2 asserts that the proper procedure is for the recipient of the subpoena to communicate when the actual cost of compliance is known, so that the possibility of an agreement as to that cost can be explored. There is no suggestion in the letter that the issuer of the subpoena has no obligation to meet reasonable costs, only that there is a procedure for dealing with the matter. The final part of paragraph 3 contemplates that if agreement as to what are the reasonable expenses is not reached, then the appropriate course is for the recipient of the subpoena to file a notice of motion (strictly, in the present case, an interlocutory process) seeking payment of the reasonable expenses recoverable under Rule 33.11. 13 Mr Widdup gave evidence that Sagacious Legal advised him that the firm would not take instructions in respect of providing legal services arising out of the production of documents pursuant to the subpoena, unless the firm had either money in its trust account or some form of agreement with the respondents that the costs would be met. That paragraph of Mr Widdup's affidavit was objected to, but in the interlocutory circumstances it was allowed into evidence. It is not clear from that evidence whether Sagacious Legal would be prepared to act, if the respondent's obligation in principle to pay the applicant's reasonable expenses were established without any quantification. However, counsel for the applicant submitted today, on instructions, that the correct interpretation of paragraph 7, and the fact, is that Sagacious Legal will act so long as the principle is established. 14 In these circumstances it seems to me the evidence about the attitude of Sagacious Legal is not evidence showing that the applicant will suffer hardship, as long as it is acknowledged that the respondents are obliged in principle to meet his reasonable expenses. 15 The written submissions provided to my associate on behalf of the applicant made some assertions, particularly in paragraphs 8 and 9, to which my attention was drawn today. It was submitted by the respondents that those paragraphs could only mean that counsel preparing the written submissions had intended today's application to achieve some form of quantification of reasonable expenses and not merely the establishment or reinforcement of the principle of the obligation to pay. I do not agree with that construction of counsel's written submissions. It seems to me that paragraphs 8 and 9 are consistent with the view that the relief being sought was confined to the principle and did not extend to quantification. It is the solicitors' correspondence, rather than counsel's submissions, that makes it clear that the applicant was seeking quantification. 16 Given that, on a proper construction of the correspondence, there was no basis for the applicant to believe that the respondents were denying or acting inconsistently with their obligation under the Rules to meet the reasonable expenses of the recipient of the subpoena, as agreed or assessed, it seems to me there was no justification for the applicant to file a notice of motion seeking to establish against the respondents the principle of their obligation to pay. It is unnecessary for me to consider the circumstances in which an applicant in the position of the present applicant might obtain an order quantifying reasonable expenses prior to discharging the obligation to comply with the subpoena, since relief of that kind has not been sought today. 17 To the extent that paragraph 1 in the notice of motion does no more than establish or declare, in principle, the obligation of the respondents to meet the reasonable expenses of the applicant in complying with the subpoena (and counsel for the applicant informed me that this was the intended effect of paragraph 1) there is no reason to make such an order. The court does not accede to an application for an order that is unnecessary between the parties merely because the order, if made, would assert correctly that an obligation exists. 18 Paragraph 2 of the notice of motion seeks a direction that the costs to which order 1 refers be fixed in accordance with the court's usual practice in relation to costs, being an assessment upon a solicitor/client basis, including a reasonable allowance given in respect of the applicant's own time incurred. 19 I agree with the letter from Clayton Utz that the correct procedure in the normal case is for the parties to seek to reach agreement on the reasonable costs of compliance with the subpoena, before seeking to invoke the mechanism provided under the Rules in the event that agreement cannot be reached. It would therefore be premature to make any such order as contemplated by order 2. Further, it does not seem to me appropriate in the normal case, or here, to adopt as a general assertion the proposition that the legal costs of a person in complying with a subpoena to produce must be paid on the solicitor/client basis. The question always is whether the expenses incurred in complying with the subpoena are reasonable expenses, and solicitor/client costs may or may not satisfy that criterion, depending on the circumstances. 20 On the question of the time for compliance with the subpoena, the notice of motion sought an extension to 13 April. I have not dealt with that application but today the application is for an extension to 21 April. My view is that, given Mr Widdup's affidavit and in all the circumstances, an extension is needed. 21 When counsel on instructions makes what I referred to in argument as a mature assessment of the amount of time needed to comply with the subpoena, my approach is normally, and in this case, to accept that assessment but to hold the producing party to it, in the sense that any application for a further extension would have to be supported by very good reasons. So I order that the time for compliance with the subpoena directed to Ian Widdup and dated 23 March 2006 be extended to 21 April 2006. 22 I direct that the return of the subpoena be at 9.30am on 21 April before me. **********

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