J & A Vaughan Super Pty Ltd v Becton Property Group Limited

IN THE FEDERAL COURT OF AUSTRALIA VICTORIA DISTRICT REGISTRY GENERAL DIVISION VID 114 of 2013

BETWEEN: J & A VAUGHAN SUPER PTY LTD (ACN 157 636 505)

JUDGE: KENNY J DATE: 15 April 2013 PLACE: MELBOURNE

BACKGROUND 1 On 22 February 2013, J & A Vaughan Super Pty Ltd ("Vaughan Super") filed an originating application under r 7.24 of the Federal Court Rules 2011 (Cth) ("the Rules") seeking preliminary discovery. The application was supported by the affidavit of John Vaughan sworn on 14 February 2013. Mr Vaughan's affidavit sets out the circumstances in which the application was made. 2 At the hearing on 19 March 2013, Becton Property Group Limited ("Becton") stated that it had agreed to make discovery of a category of documents on condition that Vaughan Super paid its reasonable costs of making discovery. 3 The time and cost savings involved in the parties' agreement as to discovery was diminished to some extent by a dispute about the disposition of costs. In this connection, Becton relied on the affidavit of Patricia Anne Matthews sworn on 19 March 2013. The particular cost-related orders sought by Becton were: 2. The Prospective Applicant pay the Prospective Respondent's reasonable costs and expenses ("Costs and Expenses") of giving discovery and production in compliance with Order 1. 3. The Prospective Applicant provide security for the Prospective Respondent's Costs and Expenses by way of payment of $9,000 into Court within 14 days ("Security"). 4. The Prospective Respondent is not required to commence any steps to comply with Order 1 until Order 3 is complied with and, if the Security is not paid within the time required by Order 3, Order 1 be stayed. 5. The Prospective Applicant pay the Prospective Respondent's costs of the application for preliminary discovery. 4 Becton argued that "the weight of the authority … support[ed] the position that the costs of compliance [with] an order of this nature should be paid by the applicant in circumstances where no proceeding is on foot, and the applicant is seeking the indulgence of the Court in making such an order". Becton relied on Alstom Power Limited v Eraring Energy [2004] ATPR 42-009 ("Alstom Power") and C7 Pty Ltd v Foxtel Management Pty Ltd [2001] FCA 1864 ("C7"). 5 Further, in support of its proposed costs orders, Becton referred, amongst other things, to the fact that it entered receivership on 26 February 2013 several days after the application was made and continued to be in receivership. Vaughan Super argued that this fact did not bear on the disposition of costs. 6 In support of Becton's security application, Ms Matthews deposed that, on the basis of the revised categories, she estimated that the legal fees and receiver's fees associated with the discovery task would be about $3,500 and that she had been informed that "the likely costs of employees performing these tasks will be around $5,400". Also in support of Becton's security application, its counsel referred me to Davis v Sagar Pty Ltd [1998] WASC 249 ("Davis v Sagar"), in which Master Sanderson of the Supreme Court of Western Australia ordered the prospective applicant to give security. Becton relied on Master Sanderson's statement that: So far as a potential party and a non-party are concerned, if an applicant wants to obtain the privilege of discovery then it should pay for that privilege. In my view it should be a rare case where security is not ordered. 7 Becton's counsel also referred to Riley as Trustee of the Ker Trust v Jubilee Gold Mines NL [2000] WASC 114 ("Riley") (which was another decision of Master Sanderson in which the Master took this approach); Waller v Waller [2008] WASC 51 (which followed Riley and Davis v Sagar); and Stratford Sun Limited v OM Holdings Limited [2009] FCA 1055 ("Stratford Sun"). (Waller v Waller [2008] WASC 51 was the subject of a successful appeal on grounds that are not presently relevant: Waller v Waller [2009] WASCA 61.) 8 In opposition to Becton, Vaughan Super sought the following costs orders: 2. If the Prospective Applicant commences proceedings against [Becton] in this Court on or before 30 June 2013, [Becton's] costs and expenses of complying with Order 1 [as to discovery] will be costs in the cause of those proceedings. 3. If the Prospective Applicant does not commence proceedings against [Becton] in this Court on or before 30 June 2013, the Prospective Applicant must pay [Becton's] costs and expenses of complying with Order 1. 4. If [Becton] does not comply with Order 1, Order 3 does not apply. 5. [Becton] pay the costs of the current application. 9 In support of Orders 2 and 3, Vaughan Super relied on Cappuccio v Australia & New Zealand Banking Group Ltd [1999] FCA 1188 ("Cappuccio"), E D Oates Pty Ltd v Edgar Edmondson Imports [2012] FCA 356 ("E D Oates"), SmithKline Beecham plc v Alphapharm Pty Ltd [2001] FCA 271 ("SmithKline") at [32] and Alstrom Power Limited v Eraring Energy [2009] FCA 681 ("Alstrom Power (Costs)"). Counsel for Vaughan Super submitted that there should be no distinction made "between ordinary costs of the application and costs of compliance with the order". Further, in support of Order 5, Vaughan Super contended that Becton had acted unreasonably in not providing the documents at an earlier date. 10 Vaughan Super also opposed the making of an order for security such as Becton sought. Counsel for Vaughan Super relied on a letter dated 19 March 2013 to the receiver's solicitors from Mr T F Grundy, solicitor for the Vaughan Super, enclosing a copy of Vaughan Super's audited Statement of Financial Position as at 30 June 2012. This indicated that Vaughan Super had more than sufficient assets to meet any liability for costs. Becton accepted that I might receive this letter, with its enclosure, as evidence of the financial position of Vaughan Super as at 30 June 2012 and did not suggest that there was any reason to suppose that this position had relevantly altered.

CONSIDERATION 11 The disposition of the costs of an application such as this is in the discretion of the Court or Judge: see Federal Court of Australia Act 1976 (Cth) ("Federal Court Act"), s 43(2). Rule 7.29 of the Rules provides that: A person against whom an order is sought or made under this Division may apply to the Court for an order that: (a) the prospective applicant give security for the person's costs and expenses including: (i) the costs of giving discovery and production; and (ii) the costs of complying with an order made under this Division; and (b) the prospective applicant pay the person's costs and expenses. 12 First, who should bear the costs of the application? In Cappuccio, in ex tempore reasons for judgment, Burchett J observed (at [3]) that in his view "the costs order which would be appropriate in a case like this depends very much on the consequences of the discovery obtained". This led him to hold, in that case, that, if an action were subsequently commenced, then the costs of the preliminary discovery application should be part of the costs of the action; otherwise, the preliminary discovery applicant ought pay the costs. Other judges, including me, have made the same or similar orders in other preliminary discovery cases: see E D Oates, SmithKline and Alstrom Power (Costs). As already noted, Vaughan Super relied on these authorities to support its proposed costs orders. As I sought to make clear in argument at the hearing, however, much depends on the nature of the case, including the way the parties conducted the preliminary discovery litigation, the nature of any anticipated proceeding and the likely passage of time before resolution at trial. 13 Some judges have taken the view that where parties have resolved a preliminary discovery application consensually, then there should be no order as to costs unless it is shown that one or other party acted unreasonably in bringing or (initially) opposing the application: see, for example, Novartis AG v Agvantage Pty Ltd [2012] FCA 160 at [7]. Other judges have not pursued this approach even though the prospective respondent has not adopted an "adversarial approach": see, for example, Procter v Kalivis (No 3) [2010] FCA 1194 ("Procter"), where Besanko J said (at [17]): First, the jurisdiction to make an order for preliminary discovery is an extraordinary jurisdiction. There is a sense in which a respondent is entitled to remain passive until the applicant makes out a case for preliminary discovery: Glencore International AG v Selwyn Miners Limited (2005) 223 ALR 238 at 241 [15] per Lindgren J. Secondly, if the respondent does not take an adversarial approach to the application for preliminary discovery and in fact provides discovery then it may be appropriate to make the type of order sought by the respondents in this case. Thirdly, if the respondent does take an adversarial approach then it may be appropriate to order that it pay the costs caused by that adversarial approach: Re Steffen; Western Bulk Carriers (Australia) Pty Ltd v Cosco Bulk Carrier Co Ltd [2002] FCA 1520. The costs caused by an adversarial approach would not necessarily include the costs of complying with an order for preliminary discovery. I would have thought that those costs ought to be paid by the applicant or at least be the subject of the type of order the respondents seek in this case. In that case, with respect to the preliminary discovery application, his Honour ordered that the preliminary discovery applicants pay the respondents' costs unless proceedings were instituted within two months, in which case the costs were to be in the discretion of the trial judge. 14 There have been occasions, however, when an order deferring the disposition of costs until the conclusion of a potential trial has not been considered appropriate. In C7 in connection with a preliminary discovery application under O 15A r 6 of the former Federal Court Rules, Gyles J said (at [50]-[51]): … It needs to be borne in mind that this is an extraordinary jurisdiction. It provides for compulsory access to the private affairs of members of the community in order that somebody else can determine if they have a case against that party and the threshold set by O 15A r 6(a) is not very high. There is much to be said for the view that a respondent in these circumstances is entitled to put the applicant to proof except in a clear case. Some judges have been disposed to make orders which, to a greater or lesser extent, leave costs to be determined after the result of preliminary discovery and inspection is known, and even to depend upon, to some extent, the fate of the litigation which ensues. I am not persuaded of the merit of that approach. An application pursuant to O 15A is a discrete application and may never lead anywhere. There is no reason why a party which is out of pocket because of costs should await some indefinite future event. Taking all things into account, in my opinion the proper order in the present case is that the applicant pay 50% of the costs of each of the first to eighth respondents to the application. In the event that proceedings do eventuate and the applicant succeeds, then it may be arguable that the applicant should be compensated in those proceedings for the burden of this costs order (and perhaps for its own costs). That, however, would be a matter for the trial judge in that proceeding. 15 There are other occasions besides C7, when a judge has taken the view that the prospective applicant should pay the costs of a preliminary discovery application, notwithstanding the applicant's success: see Hoyts Multi-Plex Cinemas Pty Ltd v Fox Entertainment Precinct Pty Ltd [2003] FCA 1347 at [15] (where the preliminary discovery application was ultimately resolved consensually) and Riley at [18] (on the basis that the preliminary discovery applicant was seeking "an indulgence from the Court"). 16 Principle and the authorities indicate that it is not useful to speak of a conventional rule as to costs in cases such as the present: see also Apache Northwest Pty Ltd v Newcrest Mining Ltd (2009) 182 FCR 124 at 146-147 [90] per Flick J. The disposition of costs will depend on the circumstances of the case, including the conduct of the parties, the likely nature of any prospective cause of action and the likely passage of time before any such matter would be resolved at trial. Section 37M of the Federal Court Act should also be borne in mind. 17 In the circumstances of this case, it seems to me desirable that the disposition of costs should not depend on the initiation and outcome of litigation following preliminary discovery. Further, as has been repeatedly affirmed, the jurisdiction to order preliminary discovery is an extraordinary one since an order for preliminary discovery involves an invasion of the prospective respondent's private affairs in order to determine whether or not a case can properly be brought against the prospective respondent. This feature has been said to justify an order that the preliminary discovery applicant pay the respondent's costs of the preliminary discovery application even when the application is successful. 18 Moreover, I reject Vaughan Super's contention that Becton acted unreasonably in not providing at an earlier date documents of the type it has now agreed to provide. In support of this contention I was taken to numerous documented communications between the parties and/or their representatives. These documents showed that, as counsel for Vaughan Super stated, Mr Vaughan asked numerous detailed questions about Becton and associated parties and the transactions in which they were involved. For the reasons canvassed at the hearing, however, I am not persuaded that Becton has acted unreasonably. As Besanko J said in Procter at [17], "[t]here is a sense in which a respondent is entitled to remain passive until the applicant makes out a case for preliminary discovery". Many matters may legitimately inform a prospective respondent's conduct in this regard. Becton has not been shown to have acted unreasonably in not giving discovery otherwise than pursuant to an order of the Court. 19 Accordingly, in this case, I would order that the prospective applicant pay the prospective respondent's costs of the application for preliminary discovery. 20 There is a second question raised in this case: who should bear the costs of complying with an order for preliminary discovery? In Alstom Power Selway J ordered that the applicant for preliminary discovery pay the respondent's costs in making discovery and providing inspection of discovered documents. As to the costs of the application, which was "hotly disputed", his Honour ordered that "[o]therwise the question of the costs of this application be reserved for future application by the parties". For the reasons stated, I would not make this latter order, but I would make the former. 21 I acknowledge that the authorities indicate that there are other possible options as to the costs of compliance Thus, for example, in Riley at [19], the costs of providing discovery were reserved on the basis that "[i]f … the plaintiff does not commence proceedings, the costs of giving discovery ought to be the defendant's". On the other hand, if "the plaintiff does commence proceedings, the discovery provided by the defendant will reduce the time taken and the costs incurred in providing discovery in the action. In those circumstances, an order for costs in the cause or that costs be reserved would, in my view, be appropriate". For the reasons already stated, I would not defer the disposition of costs in this case. In such a case as this, the prospective respondent should not be out-of-pocket. 22 Accordingly, I would order that the prospective applicant pay the prospective respondent's reasonable costs and expenses of giving discovery and production. 23 There is a third question as to whether it is appropriate that the prospective applicant provide security for the prospective respondent's costs of giving discovery. As Becton indicated, in the Western Australian Supreme Court, Master Sanderson has expressed the view that ordinarily security should be given. Plainly enough, however, there can be no hard and fast rule. Whether or not security should be ordered will depend on the relevant circumstances. For example, in Stratford Sun, the Court ordered that the prospective applicant give security only after noting that the applicant had no relevant assets within the jurisdiction. In the present case, the material before the Court indicates that Vaughan Super has more than sufficient funds to meet any costs order (whether or not the suggested likely costs of employees performing discovery tasks is included in recoverable costs - a point I do not decide here). In the circumstances, I would decline to make an order for security as sought by Becton.

DISPOSITION 24 I would make the following orders by consent: 1. Within 35 days of this order, the Prospective Respondent (Becton) give discovery to the Prospective Applicant of: (a) the document or documents which Becton confirms in writing were the documents used by Mr Vanderzalm in preparing the diagram at page 719 of the affidavit of John Vaughan dated 14 February 2013. (b) a document or documents which Becton confirms in writing contains the operative terms of the "Byron Bay Joint Venture" as that entity is described in the document entitled "Structure Diagram - Byron Bay Joint Venture (2002-2007)" at the following dates: (i) 31 August 2006; (ii) 28 February 2007. (c) a document or documents which Becton confirms in writing contains the operative terms of "Byron Bay Holdings Joint Venture" as that arrangement is described in the document entitled "Structure Diagram - Byron Bay Joint Venture (2002-2007)" at the following dates: (i) 31 August 2006; (ii) 28 February 2007. (d) a document or documents which Becton confirms in writing contains the operative terms of the "preference interests" said to be held by Beck Corporation Pty Ltd as referred to in the document entitled "Structure Diagram - Byron Bay Joint Venture (2002-2007)". (e) a document or documents which Becton confirms in writing contains the operative terms of the transaction on or about 28 February 2007, by which an entity in the Becton Property Group Limited corporate group acquired the remaining 60% interest in the "Byron Bay Joint Venture". (f) copies of documents available from email records provided to any members of the Board of Becton in relation to the ASX Announcement (as that term is defined in the affidavit of John Vaughan dated 14 February 2013) in the period 28 August 2006 - 7 September 2006. (g) communications available from email records by any members of the Board of Becton with any other director or employee of Becton in relation to the ASX Announcement (as that term is defined in the affidavit of John Vaughan dated 14 February 2013) in the period 28 August 2006 - 7 September 2006. (h) communications available from email records between Becton and Royce (a business and communications consulting firm) in the period 28 August 2006 - 31 August 2006 in relation to the ASX Announcement. 25 I would further order that: 2. The prospective applicant pay Becton's reasonable costs and expenses of giving discovery and production in compliance with Order 1. 3. The prospective applicant pay Becton's costs of the application for preliminary discovery. 4. The prospective applicant and Becton each have liberty to apply. I certify that the preceding twenty-five (25) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Kenny.