This matter concerns a question of costs arising from a Summons for preliminary discovery filed in this Court on 21 June 2023. The plaintiffs contend that each party should bear his or its own costs. The defendants contend that the plaintiffs should pay their costs on the ordinary basis.
Several matters are not in dispute. All parties agree that orders were made by consent giving preliminary discovery to the plaintiff on 12 September 2023. All parties agree that there was no hearing on the merits. All parties agree that if I make no order as to costs, I should make an order noting that, in the event that the plaintiff commences substantive proceedings against the defendants as a result of the production of documents the subject of the orders made on 12 September 2023, the order with respect to costs is made without prejudice to the right of the parties to apply to the Court for relief in any future substantive proceedings that have the effect of varying the order.
[2]
Evidence
Mr Furlan, who appeared for the plaintiffs, relied on its submissions which appended the consent orders filed by the parties and a copy of the Summons marked-up to indicate the differences between the orders the plaintiffs sought in their application and the orders that were ultimately agreed to by all parties. Those documents indicate that there was some considerable negotiation between the parties between 21 June 2023 and 12 September 2023.
Mr Caillard, who appeared for the first and second defendants, read parts of the affidavit of Scott Rimes and 22 pages of annexures. That evidence discloses that there was correspondence between the plaintiffs and the first and second defendants in March 2021 seeking to narrow the issues in dispute, and confirming undertakings previously given to the plaintiff by the first and second defendants. Correspondence from the first and second defendant's solicitors denied that there was a proper basis for the plaintiffs to bring an application for preliminary discovery.
Mr Skender, who appeared for the third defendant, read the affidavits of Julian John Anderson sworn on 21 August 2023 and the affidavit of David Kingsley John Skender sworn on 21 August 2023. That evidence discloses that the third defendant had significant concerns about the disclosure of confidential and commercially sensitive information to the first plaintiff who is its competitor. It also discloses that the third defendant cooperated with the plaintiffs in attempting to address those concerns without the need for a contested hearing.
[3]
Plaintiffs' Submissions
The plaintiffs' essential submission was that the authorities (to which see below) are clear in the sense that if there is no hearing on the merits, and the plaintiff has not acted unreasonably, the inevitable costs order would be no order as to costs.
[4]
First and Second Defendants' Submissions
Mr Caillard, who appeared for the first and second defendants, submitted that the plaintiffs had behaved unreasonably prior to filing the Summons and that had they continued to negotiate with the first and second defendants, the need for commencing the proceedings would have been avoided. He submitted that the plaintiffs' conduct was such that they ought to pay his client's costs.
[5]
Third Defendant's Submissions
Mr Skender submitted that the plaintiffs' conduct was not unreasonable. Rather, he relied on a decision of Barrett J in Bio Transplant Inc v Bell Potter Securities Ltd [2008] NSWSC 694 ('Bio Transplant') (a preliminary discovery case resolved prior to hearing), to submit that because a binding confidentiality regime had to be put in place by a Court, and as the plaintiffs and the third defendant were trade competitors, the plaintiffs ought to pay the third defendant's costs.
[6]
Consideration
In Renton v Kelly [2018] NSWSC 1377 ('Renton'), a case in which an application for preliminary discovery was resolved without the need for a contested hearing (as is the case here), the plaintiff sought its costs whilst the defendant sought an order that there be no order as to costs. At [55] - [56] Ward CJ in Eq, as her Honour then was, said:-
[55] There is no dispute that s 98 of the Civil Procedure Act 2005 (NSW) confers a broad discretion in relation to the making of orders as to costs (and see UCPR 5.8(1), which provides that on any application for an order under that Part, the court may make orders for the costs of the applicant).
[56] While r 42.1 of the UCPR provides that the general rule is for costs to follow the event, the authorities referred to by the plaintiffs make clear (and the plaintiffs accept) that there is no conventional or usual rule applicable to preliminary discovery applications, which applications depend on the facts of the relevant case. More relevant are the authorities which deal with the circumstances in which costs will be ordered on an application that has been resolved without a hearing as to the merits (as was the case in Lai Qin). In Lai Qin, McHugh J referred to the situation where it could be concluded that one party had acted "so unreasonably" that the other should obtain the costs of the action; the use of the word "so" indicating a level of unreasonableness which is established by the circumstances in which the costs were incurred.
It is uncontroversial that costs are within the discretion of the court and that the general rule is that costs follow the event, which is typically a hearing on the merits.
In Re Minister for Immigration & Ethnic Affairs; Ex Parte Lai Qin (1997) 186 CLR 622 at 624 - 625; [1997] HCA 6 ('Lai Quin'):-
In most jurisdictions today, the power to order costs is a discretionary power. Ordinarily, the power is exercised after a hearing on the merits and as a general rule the successful party is entitled to his or her costs. Success in the action or on particular issues is the fact that usually controls the exercise of the discretion. A successful party is prima facie entitled to a costs order. When there has been no hearing on the merits, however, a court is necessarily deprived of the factor that usually determines whether or how it will make a costs order.
In an appropriate case, a court will make an order for costs even when there has been no hearing on the merits and the moving party no longer wishes to proceed with the action. The court cannot try a hypothetical action between the parties. To do so would burden the parties with the costs of a litigated action which by settlement or extra-curial action they had avoided. In some cases, however, the court may be able to conclude that one of the parties has acted so unreasonably that the other party should obtain the costs of the action. In administrative law matters, for example, it may appear that the defendant has acted unreasonably in exercising or refusing to exercise a power and that the plaintiff had no reasonable alternative but to commence a litigation. Thus, for example, in R v Gold Coast City Council; Ex parte Raysun Pty Ltd, the Full Court of the Supreme Court of Queensland gave a prosecutor seeking mandamus the costs of the proceedings up to the date when the respondent council notified the prosecutor that it would give the prosecutor the relief that it sought. The Full Court said that the prosecutor had reasonable ground for complaint in respect of the attitude taken by the respondent in failing to consider the application by the prosecutor for approval of road and drainage plans.
Moreover, in some cases a judge may feel confident that, although both parties have acted reasonably, one party was almost certain to have succeeded if the matter had been fully tried. This is perhaps the best explanation of the unreported decision of Pincus J in The South East Queensland Electricity Board v Australian Telecommunications Commission where his Honour ordered the respondent to pay 80 per cent of the applicant's taxed costs even though his Honour found that both parties had acted reasonably in respect of the litigation. But such cases are likely to be rare.
If it appears that both parties have acted reasonably in commencing and defending the proceedings and the conduct of the parties continued to be reasonable until the litigation was settled or its further prosecution became futile, the proper exercise of the cost discretion will usually mean that the court will make no order as to the cost of the proceedings. This approach has been adopted in a large number of cases.
(Citations omitted)
As Ward CJ in Eq said in Renton at [56], the word "so" used by McHugh J in the expression "so unreasonably", indicates a level of unreasonableness which is to be established by the circumstances in which the costs were incurred.
In Ainsworth & Anor v Stapleton Johnson & Partners [2020] NSWSC 252 (another preliminary discovery case resolved prior to hearing), Campbell J said at [24] - [25]:-
[24] I appreciate that when one is obtaining guidance from previous authorities, one is not engaged in a process akin to the interpretation or construction of a statute. However like Ward CJ in Eq, with respect, I understand McHugh J in Lai Qin, by adopting the phrase "so unreasonably", as meaning to connote a certain level of unreasonableness as necessary before the discretion to "otherwise order" was engaged; bearing in mind that it is not for the Court to embark upon a hypothetical hearing on the merits, which the parties by their conduct have sought to avoid. As Basten JA in said Nichols v NFS Agri Business Pty Ltd (2018) 97 NSWLR 681; [2018] NSWCA 84 (not a preliminary discovery case) at 683 [8]:
… although it is possible to make an order for costs against one party if it can be shown that it has invited the litigation by its unreasonable behaviour, or has unreasonably pursued the litigation, such an order should only be made where that judgment is manifest by reference to known circumstances, not in dispute between the parties. If the question cannot be answered without reviewing large swathes of evidence and resolving, on a tentative basis, disputed questions of fact, the task should not be embarked upon.
[25] The meaning of his Honour's expression (see [7]), "acted manifestly unreasonably" is synonymous with McHugh J's expression "acted so unreasonably" (my emphasis).
The real question on this application, in my opinion, is whether or not there is evidence that the plaintiff acted "so unreasonably that the other party should obtain the costs of the action".
The evidence discloses that the parties negotiated, at length, prior to the filing of the Summons. They were unable to resolve their differences prior to the filing of the Summons, which is not unusual. They were able to resolve their differences after the filing of the Summons which is also not unusual, and is commendable. Neither the plaintiffs nor the defendants, in my opinion, behaved unreasonably. On the contrary, after the Summons was filed, so far as I can glean on the (appropriately) limited evidence before me, the parties continued to negotiate until they came to a concluded position with which each was satisfied. They are to be congratulated for resolving their differences without resorting to a contested hearing, and achieving a just, quick, and cheap resolution. As to Mr Skender's submissions, I observe that in this case negotiations between the parties led to the implementation of a confidentiality regime prior to and leading up to the entry of orders made by consent. I do not understand the decision of Barrett J in Bio Transplant to mean that in every preliminary discovery application in which a confidentiality regime is put in place, an order will inevitably be made that a plaintiff pay the defendant's costs of the application. Such an outcome would be contrary to the principle stated in Lai Qin, to which Barrett J was apparently not referred and which he did not consider in Bio Transplant.
In my view, there having been no hearing on the merits and there being no evidence of unreasonableness by any party, there should be no order as to the costs of the preliminary discovery application (including this costs application).
I make the following orders:-
1. There be no order as to costs to the intent that each party bear his or its own costs of the preliminary discovery application.
2. Order (1) above is made without prejudice to the right of any party to apply to the Court, if the plaintiff commences substantive proceedings against any or all of the defendants as a result of the production of documents the subject of the orders made by consent on 12 September 2023, for relief in those proceedings that has the effect of varying this order.
[7]
DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated.
Decision last updated: 08 December 2023