INPEX OPERATIONS AUSTRALIA PTY LTD -v- AIG AUSTRALIA LTD [No 3] [2023] WASC 332 (29 August 2023)

INPEX OPERATIONS AUSTRALIA PTY LTD -v- AIG AUSTRALIA LTD [No 3] [2023] WASC 332 (29 August 2023) - WASC 2023 case summary — Zoe

[37]

The discovery applications do not rely on O 26 r 6 RSC, which is in any event, subject to O 26 r 7 RSC. The former provision may be invoked by a party to pursue further and better discovery. The discovery disputes in these proceedings are not yet at that stage.
The discovery application filed in the EAR Proceedings is substantially similar to the discovery applications filed in the CAR Proceedings. The differences relate to the additional category in the EAR Proceedings pertaining to 'Further Costs and Expenses'. I will therefore focus these reasons on the discovery applications in the CAR Proceedings and make specific comment only where necessary to deal with the issues arising in the EAR Proceedings.
These reasons should be read together with my earlier reasons in these actions, which were published on 3 March 2023 as Inpex Operations Australia Pty Ltd v AIG Australia Ltd [No 2].[3] Those earlier reasons provide the necessary background to the factual and legal issues which arise in these actions, and will save me from repeating all of the complexities with which these actions are replete. For the purposes of consistency, I will also use the various definitions which appear in those earlier reasons. That said, to ensure these reasons are digestible, I will briefly summarise the context in which the discovery applications have been brought and argued.
Each of the CAR Proceedings and the EAR Proceedings are concerned with claims under a particular insurance policy in respect of damage allegedly suffered at the onshore part of the Ichthys LNG Project (Onshore Facility), which is located near Darwin in the Northern Territory (Ichthys LNG Project). The plaintiff in both the CAR Proceedings and the EAR Proceedings is INPEX Operations Australia Pty Ltd, which I will refer to as Inpex Operations or the plaintiff. Inpex Operations is the project principal. It entered into an engineering, procurement, supply, construction and commissioning contract (EPC Contract) with JKC Australia LNG Pty Ltd (JKC) in relation to the Ichthys LNG Project. In general terms, the plaintiff alleges that damage occurred to the piping, equipment and other apparatus, and to the associated insulation systems, which form part of the liquefied natural gas facility.
There are two insurance policies which underlie these proceedings. Inpex Operations claims an indemnity under both policies against damage to insured property in relation to specified coating and insulation systems on piping and equipment used in the facility.

[53]

The AIG Defendants recognise that the scope of the discovery sought by their application is broad and likely to be expensive and time-consuming. In this regard, the AIG Defendants properly accept the relevance of the principles expressed in Maek Pty Ltd v Ibrahim[8] and in Roe v Western Australia[9] concerning the power of this court to order discovery. The principles collected by Quinlan CJ in Maek Pty Ltd v Ibrahim, which I will apply in dealing with these applications, are as follows:[10]
1. A party does not have a strict entitlement to an order for discovery.
2. The power to order discovery is discretionary.
3. The discretion is to be exercised having regard to the timely and cost effective disposal of litigation.
4. On the other hand, discovery has been described as promoting the ascertainment of truth in litigation and as an essential part of the proper administration of justice.
5. Subject to the rules of privilege, there is a 'public interest in having available all evidence relevant to the issues in litigation'.
6. The ultimate test is whether the discovery is necessary for fairly disposing of the proceedings.
7. Relevance is not the only factor the court must consider in the exercise of the discretion to order discovery. But whether a document relates to a matter in question in the proceedings remains the descriptive criterion in O 26 of what documents should be discovered.
The broad power in O 26 r 7 RSC is subject to these principles, as well as the principles enunciated in O 1 r 4A and r 4B RSC. These rules are focused on the elimination of delays in the progress of matters to a final trial, ensuring that the court's procedures, and the associated costs to the parties and the State, are proportionate to the value, importance and complexity of the subject matter in dispute, and those procedures, and the associated costs to the parties, are proportionate to the financial position of each party. Indeed, O 26 r 7(3) RSC in terms states that the court is to have regard to O 1 r 4B RSC.
Dealing with the concept of proportionality, Martin CJ in Roe v The State of Western Australia explained that:

[59]

The Redfern Schedule prepared by the parties identifies 170 line items of document requests which are the subject of these discovery applications. Putting to one side the categories which relate to the second part of the applications concerning the JKC Assignment, the Redfern Schedule identifies 149 line items which fall within the first part of the applications. There were amendments proposed to the Redfern Schedule during the course of the hearing[14] and after the hearing.
The overall structuring of the categories has been thoughtfully undertaken to follow the life cycle of the Ichthys LNG Project, commencing with the design and construction stages, moving to storage and transportation, then installation, assembly and commissioning, following by operations and maintenance stages. Thereafter, the categories move into stages associated with the existence and cause of the alleged damage, repair and rectification, mitigation, remediation and costs. As I have noted above, the detail of individual subcategories requires scrutiny to ensure the appropriate degree of connection to the proceedings.
The written submissions of the parties addressed a number of thematic issues across the various categories falling within the first part of the applications. In particular, the AIG Defendants' submissions divided the objections into three groups: the Relevance Objections, the Burden Objections and Duplication Objections.[15]
The Relevance Objections applied to the Mitigation Documents (which is category 1.7 in Annexure A to the AIG Defendants' chamber summons) and the Defect Remediation Documents (which is category 1.8). The Burden and Duplication Objections apply across a number of categories.
I will record my decision in relation to the disputed categories in the first part of the applications in the Redfern Schedule. In this section of these reasons, I will provide a brief explanation for my approach to the disputed categories. First, it is appropriate to put the proceedings in some perspective. In doing so, I draw upon the affidavit evidence filed by the parties for the purposes of these applications.

[60]

The Ichthys LNG Project and the Onshore Facility are of an enormous scale. These proceedings are necessarily complex and span a lengthy period of time, with the EPC Contract being executed in 2012 and completed modules being mobilised to the Darwin site between 2014 and 2016. Remediation of the alleged damage to the pain and insulation commenced in around 2017 and is ongoing.[16] There are 30,006 lines of piping coated with I228 (both insulated and uninsulated), 5,237 lines insulated with the FEF System, and 1,045 lines insulated with the Mineral Wool System. I accept for the purposes of these discovery applications that the paint and insulation works are broad in scope and have involved (and continue to involve) a substantial workforce across multiple contractors, and that the temporal and geographic expanse of the allegations in the proceedings is far-reaching.
It is quite apparent from the pleadings, from the parties' submissions and from the affidavits filed for these applications, that the volume of documents produced by the plaintiff, JKC and other third parties during the period of the project, which relate to the paint and insulation works, is also enormous. The plaintiff has adduced evidence to the effect that its document management platform currently holds over 19 million documents relevant to the Project (and this estimate does not appear to represent the universe of documents which may be relevant to the proceedings).[17]
The categories which have been drafted by the defendants, and which have been the subject of opposition and amendment by the plaintiff, are numerous and, in my view, expansive. One feature of the case which provides some reasonable justification for the expansive nature of the categories is the evident information asymmetry between the parties - the plaintiff is the repository of the documents and has a better understanding of the existence and location of the materials than the defendant insurers. The defendant insurers have thus drafted the categories in an expansive fashion in order to, they contend, capture all relevant documents in accordance with the pleaded issues.
The plaintiff, as the owner or holder of the documents, has sought in these applications to explain to the court how the expansive categories are overly burdensome and require some limitations in various respects.
This court properly underscores on regular occasions the necessity for the processes and steps involved in modern litigation to be undertaken, and the powers of this court to be exercised, having regard to the principle of proportionality. That said, the court also recognises that this principle must be tailored by reference to the value, importance and complexity of the subject matter in dispute and the financial position of the parties.
The present contested discovery applications are brought within proceedings which are undoubtedly large scale in nature, involve well-resourced litigants who are represented by experienced counsel and solicitors, and which involve a contest over enormous sums of money. It cannot be doubted that the plaintiff must have been well aware in commencing these proceedings that the obligations of discovery which would fall upon it would, on any view, be costly and require considerable resources in order to discharge. The claims advanced by the plaintiff are, after all, in the order of billions of dollars and the primary pleadings in both the CAR Proceedings and the EAR Proceedings raise a multitude of complex issues.
The task, as I see it, is to balance these matters, recognising that while relevance is the descriptive criterion in O 26 RSC as to the scope of the documents which should be discovered, the ultimate test is whether discovery is necessary for fairly disposing of the proceedings. Satisfaction of the low threshold of relevance in the line of enquiry sense will not necessarily justify an exercise of the discretion to order discovery and, even in large scale litigation, some limits must be drawn around the scope of the discovery which is ordered, lest the making of orders for the provision of documents by categories blur into an order which is tantamount to one for the provision of general discovery.
In addition, an analysis of individual categories of discovery which are contested by the parties cannot be undertaken with blinkers on, having no regard to the balance of the discovery to be given by the plaintiff pursuant to other categories. This is a particularly important matter to bear in mind in this case given the potential for documents to fall within multiple categories, such that a decision to decline to order one particular contested category does not equate to an outcome which excludes an entire category of potentially relevant material. The overall extent of the discovery needs to be assessed holistically in a case such as this.
One aspect of the contested categories which is notable is the inclusion of 'communications' and the manner this should reasonably be achieved. I certainly accept the defendants' submission that email communications are often an important source of relevant information in large originations and I can reasonably infer that on a project of this nature, there is likely to be relevant material within the emails sent and received by project personnel. The capturing of emails as part of the discovery process must be controlled, either in terms of limiting the identity of the persons whose inboxes are to be reviewed, or as to time periods, or otherwise. Sensibly, as I note below in these reasons, the plaintiff has suggested limitations as to the breadth of the emails to be reviewed.
Practically, I also consider it appropriate to recognise that it would be unusual in large scale litigation for the scope of the discovery to be a static concept, somehow fixed and certain at the outset of the proceedings, and unchanging through until trial. More commonly, the parties are able, in the early stages of the proceedings (and certainly before there has been extensive discovery exchanged), to identify from the pleadings and their respective understanding of matters, and thereby to assess, the principal documentary material which will be required for the disposition of the proceedings. That identification and assessment will no doubt be reassessed by the parties as the litigation processes progress and as initial tranches of discovery are provided. The parties are then able to request additional discovery as the matter progresses, utilising the procedure in O 26 r 6 RSC and the court's inherent jurisdiction where necessary to properly pursue further discovery.[18]
I have approached my consideration of these applications consistently with the above observations, including on the basis that it is ambitious to expect that the discovery which is now ordered will represent the final distillation of documentary categories necessary for the fair disposition of these matters.

[72]

Again, given the revised position adopted by the defendants following the hearing, some of the points agitated by the parties in their submissions in writing and at the hearing have now fallen away.
The court's decision in respect of category 1.5(a) (item 53) is specified in the Redfern Schedule.
Further, unlike categories 1.1 to 1.4, this category incorporates a number of subcategories, which are found in items 55 and 57 to 62 of the Redfern Schedule (noting that items 54 and 61 have been agreed and ordered already, items 59 and 60 have now been agreed, and item 56 is dealt with below).
That leaves items 55, 57, 58 and 62 in respect of which the defendants' position changed following the hearing, as set out in the revised Redfern Schedule. In respect of these items, the defendants no longer press for their original categories but accept the plaintiff's alternative category as appears in the Redfern Schedule.
The court's decision in respect of items 55, 57, 58 and 62 is specified in the Redfern Schedule.
There is further issue in category 1.5, which arises specifically in item 56 (and which also arises in respect of other items as identified below). This subcategory seeks 'Documents created by the Plaintiff about any alleged Damaged Property, regardless of whether or not they were sent to any Person'. This descriptor is intended by the defendants to capture memoranda, file notes or drafts that were prepared but never distributed beyond their author.[23] It is submitted by the defendants that these documents are likely to reveal observations, opinions and analysis by the individuals within the plaintiff which may not necessarily be communicated to another person. The defendants propose a staggered approach to the discovery of these documents to reduce the burden on the plaintiff (which embraces an alternative position suggested by the plaintiff).
As noted, the drafting issue which arises in item 56 also arises in various other categories, namely category 1.6(d) (Repair and Rectification Documents), category 1.7(d) (Mitigation Documents), category 1.9(f)(vi) (Basis of Settlement Documents) and category 1.10(g) (Additional Costs and Expenses Documents).[24] The subcategories are found in items 67, 81, 124 and 139.
I accept the defendants' submission that these various categories have been drafted to pick up internal memoranda, file notes and drafts that were prepared but never sent. I also accept that documents falling in these subcategories may include relevant information which may not otherwise be found in material which was communicated to other persons. However, the burden which the expansive drafting of these categories places on the plaintiff is disproportionate in my view, even in the context of this litigation (and even if a staggered approach is adopted as outlined by the plaintiff as part of its alternative position). The formulation of these subcategories is simply inadequately tethered to subject matter which is relevant to the proceedings, and so, while I consider the subcategories may capture some relevant material, it would not be an appropriate exercise of the court's discretion in my view to include these categories within the discovery orders. By drafting the subcategories in the manner which they have, the defendants would require the plaintiff to undertake a search for documents with no proper signposts to direct the plaintiff's endeavours. I fear that would be a wasted exercise.
The court's decision in respect of items 56 and 81 is specified in the Redfern Schedule. The requests in those items are not allowed. However, the plaintiff has proposed sensible alternative formulations in respect of items 67, 124 and 139, which limit the search parameters and reduce the burden which would otherwise arise, and which I consider should be allowed.

[73]

Category 1.6 (Repair and Rectification Documents)[25] also has similarities with categories 1.1 to 1.4 as well as 1.5, in terms of the parties' approach. Once again, following the hearing, the defendants' position changed as appears in the revised Redfern Schedule.
The court's decision in respect of category 1.6 (item 63) is specified in the Redfern Schedule, having regard to the revised position adopted by the defendants.
The plaintiff maintains its objection to additional subcategories in category 1.6 as is apparent from the revised Redfern Schedule. I refer to items 68, 70, 72, 74, 75 and 76. I accept the cogency of the plaintiff's submissions as to burden in relation to these items but also recognise the plaintiff has proposed some alternative language as fall back positions. I understand the plaintiff's position to be that, without these amendments, the subcategories would simply be too burdensome. I agree with the plaintiff's submission. I reach that view having regard to the extensive discovery which the plaintiff will otherwise be required to give which I assess as having a high likelihood of capturing documents falling in these specific subcategories. Additionally, I accept the submission made by the plaintiff as to the additional time and cost likely to be involved in searching for documents falling specifically in these subcategories (as drafted by the defendants) relative to the overall utility to the progress of the litigation and the advancement of the defendants' position.[26] Accordingly, I consider it appropriate to allow discovery of these subcategories only on the basis of the alternative formulation proposed by the plaintiff. I understand the defendants have essentially conceded this.
The court's decision in respect of items 68, 70, 72, 74, 75 and 76 is specified in the Redfern Schedule. Further, the court's decision in respect of items 71 and 73, where there has been a degree of agreement to an alternative formulation, is also specified in the Redfern Schedule.

[78]

On my assessment, absent both limitations proposed by the plaintiff, the objections outlined in the plaintiffs' written submissions as to the impermissible breadth of the category have considerable force.[28] The date limitation is, in my view, plainly required given the form of the pleading at AIG Defence, [100]. The removal of the further language is also required to bring the category within the case as pleaded, in my view.[29]
There is an element of duplication in many of the subcategories in category 1.7 relative to category 1.6 and I see no cogent reason to exercise the court's discretion to order discovery of categories in those circumstances.[30] The distinctions between category 1.7 and category 1.6 drawn by the defendants do not strike me as having particular substance.[31] Generally speaking, courts should not make orders for discovery that are unnecessary and redundant on the basis that they are duplicative,[32] and particularly not where extensive discovery is otherwise being ordered as part of the discovery regime. It is open to infer that this duplication will add an additional burden to the plaintiff's obligations, with no apparent utility. I will not allow discovery to be ordered of categories 1.7(a), (b) and (d) to (m) (items 78, 79 and 81 to 90).
It will be open to the defendants to make appropriate application in due course, if required, to pursue further discovery of the categories I have classified as duplication. The defendants may be able, with more precision once the initial discovery has been provided, to identify the classes of documents falling within the mitigation description which are relevant to the proceedings.
As to the balance of the subcategories in category 1.7 (items 80, 91 and 92) , I repeat my reasons in relation to category 1.6 above and consider it appropriate to order discovery of these subcategories only on the basis of the alternative formulation proposed by the plaintiff. I understand the defendants have essentially conceded this.
The court's decision in respect of the items in category 1.7 is specified in the Redfern Schedule.

[93]

(a) the matters pleaded in paragraphs 1(d), 4, 5(b), 6, 7-17, 22(c), 29(c) and 34(c) of the statement of claim and in paragraphs 3 and 10(c)-(k) hereof;

(b) further or alternatively, prior to and at the time of the JKC Assignment:

(i) JKC had on foot against the Insurers (or the majority of them) the JKC Proceedings in this Honourable Court being proceedings CIV 1620 of 2020 commenced by writ, under which writ JKC was seeking relief under or arising from the CAR Policy for or connected to Damage relating to the I228 coating system, the FEF System and the Mineral Wool System used in the Project;

(ii) there was a likely or reasonable prospect that pursuit of the JKC Proceedings by JKC would involve JKC raising many or some of the same factual contentions (or similar factual contentions) raised by the plaintiff in its statement of claim herein (including contentions not admitted by the Insurers);

(iii) there was a likely or reasonable prospect that the pursuit of the JKC Proceedings by JKC would involve JKC raising for determination many or some of the same contentions of law including as to the construction of the CAR Policy (or similar contentions) as raised or to be raised by the plaintiff in CIV 1631 of 2020;

(iv) the relief being sought by JKC in the JKC Proceedings covered the same type of relief being sought by the plaintiff in the then separate proceeding in CIV 1631 of 2020, including indemnity in accordance with the Basis of Settlement;

(v) the plaintiff did not have any control over the manner in which JKC was, or would in the future, conduct the JKC Proceedings;

(vi) the plaintiff stood to benefit from conducting the JKC Proceedings and in seeking a consistent interpretation and application of the CAR Policy as between the JKC Proceedings and the plaintiff's then separate proceeding in CIV 1631 of 2020;

(vii) there was a likely or reasonable prospect that recovery by JKC in the JKC Proceedings, or in a settlement thereof, of monies payable by the Insurers under the CAR Policy (including indemnity in accordance with the Basis of Settlement) would or may reduce the amount of money able to be recovered by the plaintiff under its then separate proceeding in CIV 1631 of 2020 having regard to the limits, sub-limits and provisions of the CAR Policy generally;

(viii) there was a likely or reasonable prospect that if the JKC Proceedings were successful, that success would likely result in:

[105]

In essence, the plaintiff opposes the defendants' requests for the reason that the various layers of communications which are sought in categories 2.1 to 2.7 are not relied upon in the pleadings and in any event could not impact the interpretation and legal effect of the CAR Policy and the various agreements involved. In the alternative, it is submitted that the requested documents are not directly relevant and the categories are so broad as to capture irrelevant documents. Finally, the plaintiff submits the categories are excessive and not warranted in that the categories are not confined to those created or sent prior to the assignment.
The AIG Defendants urge upon the court the submission that the extent to which the JKC Assignment is in issue on the pleadings goes well beyond the interpretation and effect of these documents.[51] The AIG Defendants submit that the categories sought are directed towards the facts and circumstances of the assignment including why it was effected and the relevant commercial purpose.[52]
In argument, the AIG Defendants highlighted the nature of the CAR Policy as a composite insurance policy, being (it was submitted) in effect several contracts of insurance bundled into one instrument. Indeed, a central component of the AIG Defendants' pleaded position that the JKC Assignment fails because the plaintiff lacks a genuine commercial interest is that the CAR Policy is one of composite insurance for the respective rights and interests of each insured. A composite insurance policy is to be contrasted with a joint insurance policy.
That being so, it was submitted by the AIG Defendants that any entitlement under the policy was limited to the indemnifiable loss in the particular entities' own right and interest. Delineation between the insureds and the loss claimed becomes important in such a policy, it was argued. Allied to this, the AIG Defendants relied upon the proposition summarised in Deputy Commissioner of Taxation v Bluebottle UK Limited [53] that an assignee acquires no greater right than was possessed by his assignor and simply stands in the shoes of the latter.
To be clear, the AIG Defendants do not assert that the instruments which purported to effect the JKC Assignment were in any respect shams.[54] The focus of the AIG Defendants' position is on the subject matter of the assignment. The AIG Defendants refer to the broader settlement which the assignment was apparently a part of, and posed a question as to what the commercial imperative for the transaction was, what was the value of the chose in action being assigned, and how it was to be valued for the purposes of the assignment.[55]
This analysis of the CAR Policy was rejected by the plaintiff as being inconsistent with established principle, with reference made by counsel to the approach exemplified in cases such as Cooperative Bulk Handling Ltd v Jennings Industries,[56] endorsing the English decision of Petrofina (UK) Ltd & Ors v Magnaload Ltd & Anor[57] and the much earlier authority of Hepburn v A Tomlinson (Hauliers) Ltd.[58] Counsel for the plaintiff recognised that resolution of this issue was not appropriate within the context of the current application, but laid down a marker as to the conventional analysis he submitted underpinned the plaintiff's position more broadly.
In essence, counsel for the plaintiff relied upon the principle of insurance law that a person under a composite insurance policy with a limited interest in the property which has been damaged can nonetheless claim the entire value of the property. In the event the entire value of the property claimed and recovered exceeds the particular loss covered by the claimant, they will hold the remaining amount on trust for the other insured persons.[59]
It is instructive to set out in some more detail the above propositions. This is most readily done by reference to Franklyn J's reasons in Cooperative Bulk Handling Ltd v Jennings Industries. Franklyn J held as follows:

[106]

In the present case the proper construction of the policy in my opinion is that the intention of the parties was to insure the interests of the insured parties in the contract works, arising out of their engagement as sub-contractors insured by the owner to cover the whole risk, by insuring contractors and sub-contractors in respect of loss of or damage to the whole or any part of the contract works by whatever cause. The insurance is property cover of the nature found in Petrofina. It is based on the commercial convenience of the avoidance of litigation between the various insured for loss or damage, whether accidental or otherwise, and to allow the common goal of completing the contract works to be achieved without the resulting disruption. That this is so, in my view, is evident from the fact that it was the owner who took out the insurance and from the description of the risk and property insured. It is also of significance that the insured risks do not lead to a conclusion that the respondent is insured only against liability. It seems clear to me that on its proper construction it is insured against damage to and loss of property for which, for the time being, it is responsible, as well as for materials incorporated or to be incorporated into the contract works belonging to it or for which it is responsible. This is consistent with the nature of the respondent's insurable risk against property. That it includes indemnity against liability does not alter its nature. That liability might attach to an insured for property loss was taken into account at the time of entry into the contract of insurance when the contracting parties insured according to their common intention. The very nature of the insurable risk as identified in Imperial Oil and Petrofina makes clear that the potential for liability for damage to the insured property and the need to avoid the same is one of the circumstances which give rise to the sub-contractors' insurable interest in the property.[60] (underlining added)

[109]

I am unpersuaded by the AIG Defendants' submissions. The categories of discovery, drafted ostensibly in order to pursue documents relevant to the JKC Assignment, would in my view capture only documents which are irrelevant to the matters in issue in the proceedings.
In reaching this view I acknowledge that, as the pleadings stand, the challenge to the validity of the JKC Assignment is based on an asserted lack of genuine commercial interest on the part of the plaintiff[62] and I acknowledge that this question is fundamentally a mixed question of fact and law, which will typically depend on the factual circumstances in each case. However, the assessment of the genuine commercial interest in any particular case is not to be approached in a vacuum without reference to the pleaded case. Nor are these discovery applications to be approached without reference to the arguments developed by the moving party in support of the applications.
In this regard, the matter in issue on the pleadings upon which the AIG Defendants have focused in mounting this aspect of the applications is found in the AIG Defence at [68]. The focus of the AIG Defendants' submissions which were advanced in order to sustain the discovery requests is set out below.
The challenge to the existence of any genuine commercial interest which is relevant for the second part of the discovery applications is therefore the plea as to the limit on the entitlement of the plaintiff and JKC to any indemnity under the CAR Policy.[63] That limit is pleaded to be the indemnifiable loss the plaintiff or JKC suffered in their own right and interest. The AIG Defendants expressly plead two broad forms of loss the plaintiff and JKC may seek an indemnity in relation to[64] and assert that the plaintiff has not pleaded any such loss.[65] The plaintiff joins issue with this plea in the Reply to AIG at [12(a)].
I recognise the plaintiff pleads further bases to support its contention that it had a genuine commercial interest sufficient to sustain the JKC Assignment. I refer to the Reply to AIG at [12(b)] and [12(c)]. However, these pleas did not form part of the AIG Defendants' submission at the hearing in support of the discovery categories in question. Counsel for the AIG Defendants disavowed reliance on these pleas for this purpose.[66] The plaintiff's response to the discovery applications has been focused on meeting the AIG Defendants' position, as indeed one might expect.
The AIG Defendants' requests for discovery of the documents in categories 2.1 to 2.7 is thus based on the relevance of JKC's entitlement to indemnity under the CAR Policy, whether JKC suffered an indemnifiable loss, whether such loss was in JKC's own right and interest, and whether such loss suffered by JKC as the contractor under the EPC by reason of the Damage alleged in the CSOC.[67]
That being the case, I cannot accept the submission made by the AIG Defendants that categories 2.1 to 2.7 can be sustained on the grounds of relevance. The categories seek documents and communications passing between the plaintiff and JKC as to any claims for indemnity under the CAR Policy as well as in relation to the proposed terms of the Assignment Deed, internal communications within the plaintiff, documents which were created by the plaintiff (regardless of whether they were sent), and communications between the plaintiff and any professional advisors.
Documentation of this nature, which includes the internal deliberations of the plaintiff and the advice which the plaintiff sought and received, fall well outside the boundaries of those allegations in the pleadings upon which the AIG Defendants rely to sustain the applications. Similarly communications as to the proposed terms of the assignment instruments cannot possibly be relevant to or impact the interpretation or effect of those instruments, noting the AIG Defendants' concession that there is no suggestion these instruments are a sham in any respect. The instruments in question will speak for themselves.
The AIG Defendants go so far as to contend that the documents are required to explain the commercial dynamic between the plaintiff and JKC, and the motivations for effecting the assignment. With respect, material of this character will not bear upon the matters to which I have referred, in summary, at [118 [68]] above.68 The pursuit of documents for the purpose of disclosing the commercial dynamic and the involved parties' motivations is wide of the mark as a rationale for supporting these categories.
In any event, there are a broad range of other categories of discovery which will need to be discovered by the plaintiff in these proceedings (which I have dealt with in these reasons when addressing the first part of the discovery applications) which will expose to the defendant insurers the nature of the indemnifiable loss suffered by JKC (and thus go some way towards addressing the defendants' rationale for seeking these documents). Even if I was satisfied categories 2.1 to 2.6 sought documents which were relevant to the matters in issue in the proceedings, the existence of the discovery obligations arising in categories 1.1 to 1.10 would weigh heavily against exercising the discretion to order this additional discovery in categories 2.1 to 2.7.
In light of the foregoing, it is unnecessary to specifically address the additional objection raised by the plaintiff that these categories are excessive in that the categories are not confined to communications occurring or documents created prior to the JKC Assignment.[69]

[714]

On 1 September 2023, the parties were informed that the matter would be listed for a directions hearing on 7 September 2023 and the parties were advised that any minutes of proposed orders should be filed by 4.00 pm on the day before that directions hearing.
On 6 September 2023, I received a minute of proposed orders from the plaintiff, supported by a concise outline of submissions (with a table of the discovery categories annexed) and an affidavit sworn by Mr Jenaway, the partner of the firm representing the plaintiff. Mr Price for the plaintiff urged the court to deal with the costs issues at the listed hearing and, in support of that approach, made reference to the recent observations of Quinlan CJ in Mak Industrial Water Solutions Pty Ltd v Doherty [No 3].[84] The plaintiff in effect sought orders that 50% of its costs be paid by the defendants and the balance of the costs be in the cause.
I also received a minute of proposed orders from the AIG Defendants which proposed that the issues as to costs be programmed to a hearing after 21 September 2023, rather than be determined immediately. That proposed course of action was not consistent with the indication I had given in my reasons as extracted above.
After hearing from counsel on 7 September 2023, and notwithstanding the compelling argument made by Mr Price that the hearing should proceed, I formed the view that it would be inappropriate to determine the costs issues without allowing the defendants a further opportunity to respond to the material presented by the plaintiff, it being submitted that I would otherwise be exercising my discretion on an 'unstable factual foundation'. Programming directions were thereupon made to allow a truncated timetable for further material to be filed by the parties, and the matter thereafter returned for argument on Friday morning.
I have now heard argument from counsel for each of the parties. I have also received additional written submissions from all parties,[85] items of correspondence between solicitors,[86] a chain of emails between solicitors,[87] and various aides memoire,[88] and have been taken to numerous references to the transcript of the substantive hearing as well as references to affidavit material earlier filed.[89]
Reflecting on all of this, although the additional time which I allowed the parties has allowed more material to be produced, I consider that the time initially allowed between publication of the reasons on 29 August 2023 and the hearing on 7 September 2023 was more than adequate to allow the parties to marshal their arguments as to the costs of these interlocutory applications. Indeed, it is not uncommon for the parties in this court to be required to present arguments on costs with much shorter notice following delivery of reasons, particularly one of an interlocutory nature.
It would certainly have been preferable for all of these issues to have been disposed of at the first available opportunity, while the matter was relatively fresh for all persons involved, including me. I would expect well-resourced litigants and their solicitors and counsel to be in a position to have been prepared to deal with costs issues in the manner I proposed in the reasons which I published on 29 August 2023.
I recognise there will be occasions, particularly in large scale litigation, where the detail and complexity associated with costs arguments may need to be programmed to a further hearing and I do not understand the Chief Justice's recent observations to preclude such an approach being adopted where it is sensible to do so. However, his Honour's comments provide a strong reminder to practitioners before it that costs disputes should be addressed promptly and efficiently, and without the need for prolix submissions or voluminous affidavits being filed. Allowing costs disputes to develop into satellite or parasitic litigation is firmly to be discouraged.[90] All counsel before me endorsed that sentiment.
The hearing on 7 September 2023 at least assisted the parties to resolve one of the costs issues, that is whether the matter was amenable to special costs orders being made. As I indicated to counsel at that hearing, my preliminary view was that I had little difficulty being persuaded that the required statutory criteria would be satisfied. As it is nonetheless necessary for the court to be satisfied of those matters notwithstanding the parties' agreement, I have addressed them briefly below.
Given what I have said at [8] - [10] above, it is appropriate that the costs I reserved on 7 September 2023 now be crystalised into an order (in both proceedings) that the defendants pay the plaintiff's costs of that hearing.
I will now turn to address the competing positions of the parties as to the costs of the contested discovery applications, and then briefly deal with the special costs orders.

[716]

The first issue is the exercise of the discretion to award the costs of the contested discovery applications. The competing positions of the parties are set out below.
The plaintiff seeks an order in both proceedings that the defendants pay 50% of its costs of the Discovery Applications, and that the balance of the plaintiff's costs and 50% of the defendants' costs of the Discovery Applications be in the cause. The plaintiff points to the degree of success it achieved in relation to Categories 1.1 to 1.10 (although it recognises that it did not enjoy complete success on those matters) and emphasises the almost complete success it achieved on Categories 2.1 to 2.7 (which concerned the request for discovery of documents concerning the JKC Assignment issue).
The plaintiff submits that the defendants should not obtain any costs orders in their favour as they did not succeed on the applications, nor did they substantially succeed. The plaintiff submits that all of the defendants' contentious categories for documents relating to the JKC Assignment issue were rejected, most of their categories of Mitigation Documents were rejected, and none of the other categories sought by the defendants were granted in the form sought (instead, they were substantially modified and scaled-back).
The plaintiff further submits that the arguments as to the JKC Assignment issue and the Mitigation Documents categories consumed a substantial portion of the parties' written and oral submissions.
The plaintiff has provided to the court a comparison table which highlights the discovery categories which were the subject of the applications when filed and the categories which were ordered by the court. The plaintiff describes the discrepancy between these positions as stark. I have reviewed the comparison table and consider it accurately reflects the outcomes in this matter.
In contrast, the AIG Defendants seek an order in both proceedings that the plaintiff pays 50% of the defendants' costs of the Discovery Applications, and that the balance of the defendants' costs and 50% of the plaintiff's costs of the Discovery Applications be in the cause. In the alternative, the AIG Defendants propose that the order be that the costs of the Discovery Applications be in the cause. An open offer of this alternative costs order was made by counsel for the AIG Defendants at the start of argument on Friday but it was not considered sufficiently attractive by the plaintiff and the argument proceeded with the foregoing battle lines drawn.
Mitsui Sumitomo proposed costs orders in the same terms as the AIG Defendants.

[718]

(a) It is trite that the court has a wide discretion to award costs.[91] The discretion regarding costs has been described as 'absolute, unconfined or unfettered, although a discretion that must be exercised judicially, not arbitrarily or capriciously, or on grounds unconnected with the litigation'.[92]

(b) Without limiting the court's general discretion, the court will generally order that the successful party to any action or matter recover his costs.[93] That is, costs will generally abide the event. Costs generally follow the event because such an order is intended, at least to the extent that the costs incurred were not unreasonable or unreasonably incurred, as compensation (and vindication) for the successful action.[94] Importantly, an order for the payment of costs by one party is compensatory in nature, not for the purpose of punishment.

(c) Further, if the court is of opinion that the conduct of a party either before or after the commencement of the litigation has resulted in costs being unnecessarily or unreasonably incurred it may deprive that party of costs wholly or in part, and may further order him to pay the costs of an unsuccessful party either wholly or in part.[95]

(d) Where an interlocutory application is wholly successful or wholly unsuccessful, generally it may be expected that the costs of the application will follow the event of the interlocutory application 'because respectively the making of, or resistance to, the interlocutory application is seen as the proximate cause of the incurring of the costs of the interlocutory application'.[96]

(e) The rationale for an order that an unsuccessful applicant on an interlocutory application pay the respondent's costs of the application 'relates to the way in which interlocutory proceedings are intended to advance the final hearing'. A failed interlocutory application 'is one which will, irretrievably, have cost the respondent money and justice generally requires that the respondent be indemnified for those costs, regardless of the outcome of the substantive proceedings'.[97]

(f) Where the outcome of an interlocutory application is not readily characterised as being wholly successful or wholly unsuccessful, such as where there is a mixed result on the application, it may be appropriate to order that the costs of the application be in the cause. In such a circumstance, the costs of the application may be seen as part of the overall costs of the action and so should follow the event of the action.[98] Put another way, the application may be seen as a necessary step in the litigation for both parties such that the party who is ultimately successful in the proceedings should recover those costs.

(g) In circumstances involving a mixed result on an interlocutory application, it may be possible for the court to assess costs on an issue by issue basis, although in interlocutory applications this exercise is likely to be more difficult than in assessing the appropriate costs outcome on an issue by issue basis in the action itself.

(h) The central and overriding principle in assessing costs is that of doing substantial justice to the parties in each particular case, there being 'no better test than the test of what is fair and just between the parties'.[99]

(i) In approaching the task of achieving substantial justice on costs issues, an evaluation as to the costs outcome in a particular matter is not necessarily arithmetic in character.[100] It need not necessarily descend to a tabulation of wins and losses during the course of the application and the hearing. It need not involve an exercise of counting the pages of the transcript, the submissions or the reasons which are devoted to particular issues. It is more often a process appropriately undertaken as a matter of overall impression, involving a holistic assessment of the various issues involved, the significance of the issues, the time consumed by those issues, and the degree of intellectual engagement required by the issues.[101] It is not usually appropriate, and it is often not possible, for the court to 'engage in a minute analysis of the evidence bearing upon issues for which particular parties have succeeded and failed'.[102]

[721]

I will address the second set of categories first.
Without question, the plaintiff enjoyed almost complete success in resisting the applications insofar as Categories 2.1 to 2.7 are concerned. These categories concerned the request for discovery of documents concerning the JKC Assignment issue. The AIG Defendants were unsuccessful in pursuing these categories notwithstanding the presence of a plea which at least raised the want of genuine commercial interest in the assignment. In stark contrast, Mitsui Sumitomo could not point to an express plea in its pleading in this regard and its pursuit of these documents was more readily disposed of. I addressed these categories in my reasons at [88] to [127].
It is my impression that the proportion of the hearing spent addressing Categories 2.1 to 2.7, as well as the necessary preparation required by the parties, was less than half of the overall applications. I say this because the level of detail inherent in Categories 1.1 to 1.10 was far greater, those categories required greater focus on drafting issues associated with the categories, those categories involved several layers of questions being addressed including as to relevance and proportionality, and those categories covered a much larger number of line items in the Redfern Schedule. My assessment in this regard is really one of impression rather than some mathematical exercise, but I am fortified in adopting this impressionistic approach given the principles I have referred to above and given all counsel before me spoke with one voice about the need to avoid a process of tabulating wins and losses and eschewing an arithmetical undertaking.
My best assessment is that the proportion of the Discovery Applications devoted to the second set of categories (Categories 2.1 to 2.7) was around 40% in total. That leaves the balance of the time and work, and thus costs, of 60% having been devoted to Categories 1.1 to 1.10. In respect of these categories, there was ultimately mixed success for the parties across the 149 items, but I should record that I considered it appropriate to incorporate the plaintiff's proposals to modify those categories and to allow some categories only on the basis proposed by the plaintiff. I also formed the view that several of the contested categories should not be allowed. A further significant feature of the course of the contested applications was the modification of the defendants' position during and after the hearing itself, which is a matter in respect of which I made comment in my reasons. I refer for example to my comments at [54], [57], [61] and [70] of the reasons.
I therefore do not consider the present Discovery Applications (in their entirety at least) fall into a category in which it is appropriate to order that costs be in the cause, as described in [21(f)] above. Rather, the plaintiff's submissions accord with my assessment of the course of the discovery applications and the outcome which was achieved. That is to say, the plaintiff enjoyed greater success in resisting these applications. This is evident in part from the marked‑up document relied upon by the plaintiff at the hearing on Friday, which is Attachment A to these reasons. The marked‑up comments on that document, particularly the red squares, signify the respects in which the plaintiff was successful or substantially successful in its position on the particular line items. The document reflects the greater success of the plaintiff in respect of four of the six 'buckets' of documents which had been identified by the AIG Defendants (being buckets 2, 4, 5 and 6, with Categories 2.1 to 2.7 forming part of bucket 5). This greater success in resisting the applications should sound in the award of costs in favour of the plaintiff. The manner in which this should be done, to achieve a measure of justice between all parties, is to analyse the applications by reference to the two broad categories involved (as identified at [22] above) and by reference to my assessment as to the outcomes associated with those categories.
I am of the view that, had the only discovery requests before the court concerned Categories 2.1 to 2.7, a reasonable exercise of the costs discretion would have been to award the plaintiff its costs of that application. Indeed, it would have been obtuse to order anything else in those circumstances.
Further, if the only discovery requests before the court had concerned Categories 1.1 to 1.10, a reasonable exercise of the costs discretion would have been to order that costs be in the cause, notwithstanding the additional success achieved by the plaintiff relative to the defendants and recognising that I am of the view the so‑called 'communications issue' is not as significant to the overall outcome as has been submitted by the defendants. I would have adopted this course with respect to the costs on these categories because, although I assess the plaintiff as having achieved some greater success in this regard, the essential and inherent nature of the applications, being an occasion for the court to rule on the scope of the numerous discovery categories required for this extremely large case, is that they were essentially a necessary step in the overall critical path of the litigation. Seen through this prism, the better view is that the party which is ultimately successful in the action should be entitled to recover their costs of this aspect of the matter.
Putting the foregoing together and assessing the Discovery Applications as a whole, and recognising there was some overlap in argument between the two broad categories (as to questions of principle), I propose to exercise the costs discretion to award the plaintiff 40% of its costs of the applications in any event, with the remaining part of the plaintiff's costs and 60% of the defendants' costs being costs in the cause. That represents an appropriate disposition of the matter to reflect the success achieved by the plaintiff in resisting the applications but recognising that the balance of the costs should fall to the party or parties which are ultimately successful in the proceedings.

[729]

(a) The specific principles applicable to the determination of the special costs application are those expressed by the Court of Appeal in Sino Iron Pty Ltd v Mineralogy [No 2],[103] among other authorities. Although the court was dealing with the predecessor legislation in that case, the current provision is in the same terms as the repealed provision. Accordingly, the principles expressed as applicable to the predecessor provision continue to apply.[104]

(b) The provision operates, in effect, to give the party the opportunity to recover those costs which have been reasonably and properly incurred where, in the court's opinion, the scale is inadequate because of the unusual difficulty, complexity or importance of the matter. These elements are to be addressed as matters of impression, rather than as matters of detailed evaluation, precision or science.[105]

(c) In general terms, the provision is protective of the party who benefits from the costs order, and serves the administration of justice, by facilitating, within the limits imposed by the statutory criteria, the operation of the general principle that a successful party is entitled to its costs of the litigation.[106] Of course, an order under s 141(3) does not, of itself, mean that the party will recover all of the costs it has incurred, or seeks from the other parties. It is the task of a taxing registrar to consider the reasonableness and necessity for the work undertaken and to make a judgment about the remuneration reasonably required.[107]

(d) As to the statutory criteria, the court may make an order under s 141(3) if satisfied of two things. First, that the amounts allowed under the relevant scale item are inadequate in the sense that there is a fairly arguable case that the bill of costs may tax out at an amount which is greater than the amount allowable under the scale (because of the limits expressed within the scale). Second, that the inadequacy of the costs allowable arises because of the unusual difficulty, complexity or importance of the matter.

(e) For the purposes of assessing whether to exercise the powers conferred by s 141(3), it will not ordinarily be necessary for the court to determine what amount should be allowed on taxation, but only whether there is a fairly arguable case that a greater amount should be allowed than that which is allowable under the relevant determination.[108] Further, a special costs order will not be warranted simply by reference to the effort of the successful party, which may have been disproportionate in all of the circumstances.

(f) As to the second criterion referred to above, the following passage from the Court of Appeal's decision in Sino Iron Pty Ltd v Mineralogy [No 2] is apposite:

[732]

As to the first criterion in s 141(3), it is necessary for the court to form an assessment as to whether it is fairly arguable that a taxing registrar may find that the costs incurred by each of the parties in doing work that was necessary and reasonable to prepare for and appear at the hearing of the contested applications may be allowed in an amount greater than those amounts allowed in item 10 of the 2022 Costs Scale.
In my view, and approaching the issue as a matter of impression, I consider it is fairly arguable that the amount of costs allowable under the 2022 Costs Scale (having regard to the time and other limits in item 10(a)) would be inadequate having regard to the bills of costs I anticipate the parties would prepare if the scale limits were not applied. The Discovery Applications represented the first occasion in this litigation in which the parties were before the court agitating for discovery orders, and undoubtedly required a considerable volume of preparation work, in terms of assembling schedules, preparing affidavits, taking instructions as to the documents which were to be sought, briefing counsel, preparing submissions and attending the full day hearing in June 2023. Multiple counsel were briefed by the principal protagonists to the applications and extensive submissions were filed by the parties.
I do not have a draft bill of costs from any of the parties in relation to the costs orders, but I have the affidavit of Mr Jenaway sworn on 6 September 2023. Mr Jenaway deposes to the number of practitioners involved in the application from the Allen & Overy side, the various charge out rates of the practitioners and counsel, and the approximate time spent by the practitioners in dealing with the applications. As I indicated at the hearing on 7 September 2023, the matters deposed to by Mr Jenaway are consistent with my own experience in such matters and reflect the level of energy and work I would expect to have been required in order to properly deal with the applications.
I have little doubt that the costs would exceed the scale limits for the plaintiff, and can reasonably infer that this is so with respect to the AIG Defendants and Mitsui Sumitomo, but it is ultimately only necessary that I be satisfied it is fairly arguable that this would be so. I am so satisfied.
As to the second criterion, I have considered whether the inadequacy of the costs allowable in respect of item 10 arises because of the unusual difficulty, complexity, or importance of the matter. I approach these issues as matters of impression rather than matters of detailed evaluation, precision, or science. On this approach I find the second criteria to have been satisfied insofar as I accept the inadequacy of the scale amount arises because of the importance of the contested discovery applications, as well as because of the complexity of the applications. The complexity is evident from the primary reasons on these applications, as well as the reasons published by the court on the split trial applications in March 2023. These contested applications for discovery were also obviously important in the context of the litigation as a whole, given the evident need for the defendants to pursue this material (given their information asymmetry relative to the plaintiff) and equally for the plaintiff to respond to the requests, which were quite extensive in nature as is evident from the Redfern Schedule attached to the primary reasons.
Accordingly, I am of the opinion that it is fairly arguable that the amount of costs allowable in respect of the contested discovery applications (having regard to the maximum allowable amounts in item 10 to the 2022 Cost Scale) would be inadequate, and that this arises because of the importance and complexity of the particular application.

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