Plaintiffs v Defendant

Costs - application for order for advance payment of portion of costs due to be taxed.

**1 I conducted a directions hearing in this matter on 10 and 11 March 2009 pursuant to liberty to apply reserved by Osborn J in his order of 22 August 2008.

2 Both the plaintiffs and the defendant sought orders. The principal orders sought by the plaintiffs were for the appointment of a special referee pursuant to Order 50 of the Supreme Court (General Civil Procedure) Rules 2005 (Vic) ("Rules"), further discovery and the payment of costs previously incurred and not ordered to be paid as well as payment on account of costs that are the subject of previous costs orders and which are due to be taxed on 1 June 2009. The principal orders sought by the defendant were for a stay of the proceeding based on the existence of parallel proceedings in the District Court for Prague 1 ("Czech proceeding"), variations to the orders of Osborn J made on 22 August 2008 consequent upon the stay, and costs.

3 At the conclusion of the directions hearing on 11 March 2009 I pronounced orders on some of the issues and gave brief reasons orally. In these Reasons, I set out those orders and reasons with some further elaboration of the reasons where appropriate. On 11 March 2009, I reserved my decision on the remaining issues, which I deal with in these Reasons.**

**4 The background to this proceeding is set out in the reasons for judgment of Osborn J dated 24 April 2008, where his Honour decided, as a preliminary issue, that the defendant had breached the terms of settlement dated 23 February 2001 between the parties ("Terms") and that the plaintiffs were entitled to equitable compensation pursuant to cl 6 of the Terms. [1]

5 Since 24 April 2008, Osborn J has delivered a number of rulings and made various orders. As those rulings and orders provide the context for the directions hearing before me, I summarise them briefly below.

6 On 26 June 2008, Osborn J refused the defendant's application for a stay or dismissal of the proceeding as an abuse of process based on the existence of the Czech proceeding.[2] In doing so, his Honour relied on the following undertakings that were provided to the Court by the plaintiffs:**

1. Until the conclusion of this proceeding including any appeals, they will not, without the leave of this Court, themselves or by their lawyers or other agents, take any step to prosecute the Petition proceeding in the District Court in Prague which has been ascribed number 20C-17/2008 except to maintain or, if necessary, enforce the injunctive relief given by the Court in that matter on 28 February 2008 which restrains the Defendant from dealing with the properties the subject of the Order in any manner beyond a lease of up to 3 years duration.
2. In the event that a judgment of this Court granting relief in the form of equitable compensation for a two thirds proportion of the properties as defined in the Amended Statement of Claim dated 18 May 2000, adjusted as determined by the Court is either accepted and abided by the defendant or successfully enforced against him and satisfied, whether in Australia or the Czech Republic, they will not seek to obtain the same relief or any portion of the same relief, whether in the form of a sum of money or transfer of any interest in the properties, against the defendant, for breach of the Terms of Settlement by prosecuting the Petition proceeding in the District Court in Prague which has been ascribed number 20C-17/2008.
3. If following the conclusion of this proceeding, including any appeals, they decide to seek to prosecute the Petition proceeding in the District Court in Prague which has been ascribed number 20C-17/2008, they will first give reasonable notice to this court and to the defendant.
4. They will instruct their lawyers accordingly.

**7 The above undertakings are set out in Osborn J's order of 26 June 2008. In that order, his Honour gave leave to the defendant to amend his defence to plead defences based on the existence of the Czech proceeding, such as an allegation that the commencement by the plaintiffs of the Czech proceeding constituted an election by them to pursue their rights in the Czech proceeding to the exclusion of their rights under the Terms or alternatively that such conduct constituted a repudiation by the plaintiffs of the Terms.

8 By summons dated 14 August 2008, the plaintiffs sought an order that the defendant pay the costs of the proceeding up to and including 24 April 2008 on an indemnity basis and an order that he pay an amount of $500,000 on account of costs.[3] Osborn J heard the summons on 18 August 2008 and delivered two separate rulings on 22 August 2008, the first dealing with costs[4] and the second dealing with valuation issues.[5] His Honour made the following order on 22 August 2008:**

1A. The defendant pay the plaintiffs' costs of and incidental to the hearing of preliminary issues in respect of which judgement was given on 24 April 2008.

1. The question of what properties and interests in such properties are referred to in paragraph 6 of the terms of settlement dated 23 February 2001, be the subject of further pleading, by way of amended defence as the defendant may be advised, within 42 days;
2. Valuations in the proceeding be prepared and provided in accordance with Order 44.03 of Chapter 1 of the Rules of the Supreme Court;
3. Within 76 days the defendant file and serve any expert opinion on which he seeks to rely with respect to the market value of the whole of the defendant's current interest and any lesser interest which the defendant contends is relevant, in

Hastalska 15 and building lot 860, Prague 1;

11 Melantrichova and building lot 425, Prague 1;

Ramova 8 and building lot 821, Prague 1;

Rybna 29 and building lot 832, Prague 1;

Hastalska 12 and building lot 823, Prague 1.

1. The defendant within 76 days give discovery of all documents relating to income derived from the said properties by the defendant since the acquisition by him of any interest in each such property.
2. Liberty to apply be reserved.
3. Costs of the plaintiffs' application for directions are reserved. ...

9 In his ruling on costs, Osborn J stated: [6]

I do not accept that an order should be made for an advance of costs to be taxed hereafter. The costs claimed are very substantial and no proper basis has been advanced for disentitling the defendant from any investigation into them prior to payment in respect of them.

10 The defendant obtained leave to appeal to the Court of Appeal in respect of paragraph 1A of Osborn J's order dated 22 August 2008, which dealt with costs. The Court of Appeal granted leave because, in deciding the costs issue, Osborn J did not give express consideration to the defendant's recently raised defences of election and repudiation based on the plaintiffs' commencement of the Czech proceeding. On 21 November 2008, the Court of Appeal dismissed the appeal and in doing so made the following observations:[7]

In the circumstances established by the objective facts, the allegation that the respondents repudiated the terms of settlement by commencing the ... Czech proceeding, and maintaining that proceeding in the circumstances of the undertakings which have been given, has no prospect of success. The Court could not, on any view of the objective facts, form the view that the respondents have renounced the terms of settlement or have refused to perform their obligations thereunder. The continued maintenance of the ... Czech proceeding, subject to the undertakings accepted and imposed by the trial judge, stands merely to protect the respondents in case their application to enforce the terms of settlement in this Court fails for any reason, including on appeal.

11 Pursuant to the liberty to apply reserved by Osborn J in his order of 22 August 2008, the plaintiffs' solicitors wrote to the Court and the defendant's solicitors on 15 January 2009 requesting that a directions hearing be convened to deal with their application for the following orders:

1. An order that the Court proceed to appoint an assessor or alternatively a valuer from among those persons listed below: namely Colin Waddell of Richard Ellis & Co, Richard Hogg of DTZ and George Lewis or Marketa Souchkova of Jones Lang La Salle, all based in Prague and that the valuation be conducted on the basis of the proposed Directions that were filed and served by the Plaintiffs on or about 18 June 2008.
2. An order that the Defendant give access to the properties as required by the Court appointed Assessor or Valuer.
3. Directions for the preparation of the assessment hearing in accordance with the proposed Directions filed and served by the Plaintiffs on 18 June 2008.
4. An order that the Defendant give specific discovery of all documents relating to the rental of the properties since 1992.
5. An order that the Defendant provide inspection of all discovered documents.
6. An order that the Plaintiffs have leave to file and serve a Third Amended Statement of Claim and Reply.
7. An order that the Defendant pay the Plaintiffs costs of both the Liberty to Apply hearing of 24 October 2008 and of any further Liberty to Apply hearing on an indemnity basis, and the Plaintiffs' costs thrown away because the Defendant sought and was granted leave to adduce valuation evidence and then delayed doing so in breach of the Directions of the Court and then declined to do so.
8. An order that the Defendant pay the Plaintiffs costs of the Assessor or Valuer, and the costs of the Plaintiffs associated with the assessment or valuation.

12 By letter dated 16 January 2009 to the Court and to the plaintiffs' solicitors, the defendant's solicitors stated that the defendant opposed the orders sought by the plaintiffs and applied for the following orders:

1. That the time provided for the filing of an amended [defence] pursuant to order 1 of the order of [Osborn J] made 22 August 2008 be extended until 7 days after the hearing of this application;
2. That the Defendant be excused from producing, allowing inspection of or providing copies of any documents discovered by him;
3. That Order 3 of His Honour's order made 22 August 2008 be vacated;
4. That the proceeding be permanently stayed, alternatively stayed until further order pending the final determination of the proceedings commenced by the Plaintiffs in the Czech Courts and any appeal from the same;
5. Alternatively, that the Plaintiffs' claim be dismissed or struck out as an abuse of process;
6. That order 1A of the order made 22 August 2008 be vacated;
7. That the Plaintiffs pay the Defendant's costs of and incidental to this proceeding including all reserved costs up to and including 26 June 2008 on a party-party basis;
8. That the Plaintiffs pay the Defendant's costs of and incidental to this proceeding from 27 June 2008 on an indemnity basis.

13 I will deal with the above matters under the headings "Stay", "Special referee", "Discovery", "Amendment to pleadings" and "Costs".

**14 During the directions hearing, I informed Mr Berglund QC (who appeared with Mr Williams for the defendant) that, as Osborn J had already decided that the existence of the Czech proceeding did not warrant a stay, I would consider the defendant's application for a stay only on the basis of material not already considered and rejected by Osborn J.

15 Mr Berglund submitted that a stay should be granted because the undertakings given by the plaintiffs on 26 June 2008 were ineffective to prevent the further conduct of the Czech proceeding. Mr Berglund relied on affidavits of Martin Hrodek, a partner in the firm Baker & McKenzie practising in the Czech Republic. Mr Hrodek does not act for the defendant in the Czech proceeding and has been retained by the defendant as an independent expert on Czech law. In his five page affidavit of 27 January 2009, Mr Hrodek stated:**

(a) The District Court could proceed to a decision in the Czech proceeding on its own initiative without any further steps being taken by the plaintiffs.

(b) No further documents would be required to be filed with the District Court in order for that court to proceed to a final decision in the Czech proceeding.

(c) The District Court will most likely schedule a court hearing, hear any submissions which the parties may make, interview some or all suggested witnesses and proceed towards its final decision. It is likely that this hearing will be scheduled in the next few months, but it is not possible to be certain about when it will occur. The failure of the plaintiffs to make any submissions or suggest any witnesses would not prevent the District Court from determining the case in their favour if it is persuaded by the documents and submissions already filed that it should do so. Accordingly, if the defendant wishes to defend the case fully, he will need to prepare for such a hearing whether or not the plaintiffs take any further step.

(d) The plaintiffs' undertakings not to take any further steps in relation to the District Court proceeding will not have any effect on the progress of the case, as the judge will continue to conduct the case without the need for the parties to take any active step.

**16 In his further affidavit of 9 March 2009, Mr Hrodek added that if the District Court requests the plaintiffs to undertake some task or submit some information, Josef Hlavička (the plaintiffs' legal representative in the Czech proceeding) would be required to comply regardless of any contrary instructions from the plaintiffs.

17 The plaintiffs relied on affidavits from Mr Hlavička. In his affidavit of 19 February 2009, Mr Hlavička stated that the Czech Procedural Code presumes the cooperation of the parties to the proceeding and stipulates measures that can force the parties to cooperate so that the proceeding can be effectively pursued and the final decision issued in a reasonable time in accordance with the principles of a fair trial. In his further affidavit of 9 March 2009, Mr Hlavička added that it is very unlikely that the District Court would determine the Czech proceeding without any further contribution being required of the plaintiffs because the District Court would be mindful of the fact that the parties had previously indicated they intend to provide further material. In his opinion, the material submitted to the District Court is insufficient for the District Court to decide the matter and it is very likely that the District Court would reach the same conclusion.

18 On 11 March 2009, the plaintiffs offered the Court the following undertakings in addition to the undertakings set out in paragraph 6 of these Reasons:**

[5]. The Plaintiffs will not use any document or any information they obtain by way of discovery from the Defendant in the course of this proceeding for any purpose other than the purposes of this proceeding, and will not communicate any such document or any such information to their Czech Attorneys except for the purposes of this proceeding.

[6]. If the Plaintiffs become aware that the District Court is intending to or is about to take a step or make a request of the parties in connection with the Petition Proceeding, they shall forthwith notify the Solicitors for the Defendant and the Court and shall cooperate in having the matter brought before this Court on short notice.

[7]. The Plaintiffs will instruct their Czech Attorneys to take whatever steps are properly open to them to notify the District Court of these undertakings and also to report to them upon the steps so taken. The Plaintiffs will inform the Defendant and the Court of those steps in a timely way.

**19 On 11 March 2009, I refused the defendant's application for a stay of the proceeding on the basis of the additional undertakings offered by the plaintiffs and reserved liberty to apply. However, there is still an outstanding issue as to whether there should be any disclosure of discovered documents to the plaintiffs' Czech attorneys who act for them in the Czech proceeding. As Czech attorneys acting for a party in proceedings before the District Court owe independent duties to that Court, it is desirable that the plaintiffs engage separate attorneys in the Czech Republic to act for them on issues relevant to this proceeding. This issue was discussed briefly on 11 March 2009. Mr Howells (who appeared for the plaintiffs) indicated that the plaintiffs were content to identify a person other than the lawyer who is acting for them in the Czech proceeding.[8] In the circumstances, the plaintiffs will be required to vary paragraph 5 of the undertaking to substitute the words "the Czech Attorneys who act for them in the Petition Proceeding" for the words "their Czech Attorneys except for the purposes of this proceeding".

20 I note Mr Hrodek's statement that it was unlikely that the District Court would proceed to a decision in the Czech proceeding without conducting a hearing. In my opinion, there is no realistic prospect that there would be a determination by the District Court without the parties being given prior notice.

21 The additional undertakings given by the plaintiffs provide a satisfactory mechanism to prevent any prejudice that might flow to the defendant if the plaintiffs were able to use in the Czech proceeding information they would only be able to obtain on discovery in this proceeding, by having to actively defend himself simultaneously in this proceeding and the Czech proceeding or by being found liable in respect of overlapping subject matters by separate courts in different jurisdictions. In addition, the reservation of liberty to apply will enable the defendant to approach this Court at short notice should circumstances develop which render the undertakings ineffective to prevent any such prejudice.

22 In light of my refusal to grant the defendant's application for a stay set out in paragraph 4 of his solicitors' letter of 16 January 2009, on 11 March 2009 I also refused to make the orders set out in paragraphs 5 and 6 of that letter. The application for dismissal or striking out of the proceeding as an abuse of process was based on the same grounds as the application for a stay. The application for vacating paragraph 1A of Osborn J's order of 22 August 2008 was consequential on the granting of an order staying, dismissing or striking out the proceeding.**

**23 Mr Howells informed me that the plaintiffs sought the appointment of a special referee because the defendant had not complied with the order of 22 August 2008 which required him to file and serve an expert valuer's report by 6 November 2008. He informed me that the defendant had previously rejected a proposal for a joint expert valuer's report and had requested that he be given the opportunity to be the first to obtain a valuation. He submitted that the defendant had deliberately delayed taking steps to comply with the order of 22 August 2008 and had deliberately delayed informing the plaintiffs of the delay, and that his ultimate refusal to obtain an expert valuer's report on 16 December 2008, after the plaintiffs had consented to the deadline being extended to 15 December 2008, has frustrated the plaintiffs' attempts to progress the proceeding to trial. He submitted that the defendant's conduct has resulted in the proceeding standing still between 22 August 2008 and 10 March 2009.

24 Mr Berglund submitted that the defendant did not obtain an expert valuer's report because he was advised that disclosure of personal information of tenants to a valuer would breach the privacy laws of the Czech Republic and would prejudice his defence of the Czech proceeding. He submitted that in order for this Court to appoint a special referee over the defendant's objection, there must be special circumstances[9] and none were present in this case. He submitted that the plaintiffs have always had the ability to obtain their own valuation report and that the case should proceed on the conventional basis that each party will obtain valuation evidence, that evidence will be tested in the normal way, and that the Court will then decide the issue. He submitted that appointment of a special referee would not achieve anything, as the opinion of the referee would not absolve the Court of its responsibility to decide for itself the value of the relevant properties.

25 During the directions hearing, I informed the parties that, in principle, I favoured the appointment of a special referee in the circumstances of this case. Those circumstances include:**

(a) All the properties are located in the Czech Republic, Slovakia and Germany.

(b) The defendant controls the properties and highly relevant information about the properties, including the tenants, rent, outgoings and improvements made on the properties.

(c) The defendant has the ability to obstruct and delay the work of a valuer appointed solely by the plaintiffs.

(d) The defendant has previously declined to agree to the appointment of a joint expert and has not complied with the order of 22 August 2008 which required him to file and serve an expert valuation report.

(e) The parties would be able to make submissions and provide information to a special referee, including giving the special referee expert valuation opinions.

(f) The appointment of a special referee would not deprive the parties of a judicial decision on the value of the properties, as the special referee's opinion would not be binding on the Court and the parties would be able to make submissions (which could be prepared with the assistance of expert valuers) about the opinion and whether it should be adopted, rejected in whole or in part or varied by the Court.

(g) The defendant's conduct since 22 August 2008 has resulted in little progress being made in the proceeding after that time and it is necessary for the parties and the Court to find ways to progress the proceeding towards final resolution. The appointment of a special referee will not delay the hearing of the proceeding and is likely to be a useful mechanism for progressing the proceeding.

(h) The issues to be referred to a special referee are capable of being defined precisely and the special referee will be able to form an opinion on the issues based on his or her expertise without the need to conduct any form of hearing where complex legal issues or the credit of witnesses will be involved. If the costs of the special referee are shared equally between the parties at first instance (see below) and the giving of conflicting evidence by expert valuation witnesses at the trial is avoided, the appointment of a special referee is likely to save costs rather than increase them.

**26 During the directions hearing, I indicated to the parties that it was in their interests as well as the interests of the administration of justice for this case to proceed to a final hearing as soon as the interests of justice allowed and that it might be possible for it to be fixed for hearing in September 2009 if the parties were ready by then. In that context, I asked Mr Howells whether the plaintiffs' application for a special referee related to all the relevant properties in the Czech Republic, Slovakia and Germany or only the Prague 1 properties in the Czech Republic. After seeking instructions, Mr Howells informed me that the application related to all the properties.

27 I am of the opinion that the above circumstances, in principle, justify the appointment of a special referee to value all the properties. Although the absence of consent by a party and the reasons given for withholding consent are clearly relevant to the exercise of the Court's power under Order 50 of the Rules to appoint a special referee, I am not persuaded that the power to appoint a special referee over the objection of a party can only be exercised in special circumstances as suggested by AT & NR Taylor & Sons Pty Ltd v Brival Pty Ltd[10] and Abigroup Contractors Pty Ltd v BPB Pty Ltd.[11] Order 50 does not contain such a requirement and one should not be read into it, so that the discretion conferred by the Rules is not unduly constrained. However, if special circumstances are required, the factors I referred to in paragraph 25 of these Reasons are, taken together, special circumstances. They warrant the appointment of a special referee over the objection of the defendant.

28 If a special referee is appointed, the precise questions on which the special referee is to express an opinion will need to be set out in the order appointing the special referee. Directions will also need to be made on matters such as access to the properties by the special referee, the provision of documents and submissions to the special referee by the parties, the procedures to be adopted by the special referee, time frames, the special referee's fees and payment of those fees. In addition, paragraphs 2 and 3 of Osborn J's order of 22 August 2008 will need to be reconsidered.

29 On 11 March 2009, I deferred making a final decision on whether a special referee is to be appointed until after I receive and consider a revised version of the plaintiffs' proposed directions to the special referee and the defendant's comments on the revised directions. I informed Mr Howells that if and when I approve the proposed directions, they will have to be communicated to the proposed appointee together with a copy of Order 50 and details of the arrangements for payment of his or her fees and the proposed appointee would be required to consent in writing to the appointment and those arrangements. I told the parties that in light of the indicative fees of €40,000 plus Value Added Tax and disbursements, $100,000 would need to be deposited in one of the firms of solicitors' trust accounts to cover the costs of the special referee before the appointment was formalised. After hearing argument on who should pay the special referee's costs, I told the parties that at first instance they would be required to pay the costs equally.

30 I also informed the parties that as a special referee, if appointed, will be appointed by the Court rather than as an expert for one of the parties, the plaintiffs' solicitors should disclose to the defendant's solicitors the communications they have had to date with the proposed appointee and ensure that all future communications are copied to the defendant's solicitors.

31 The plaintiffs' application for the appointment of a special referee will be considered further when the directions hearing resumes at 9.30am on Wednesday, 25 March 2009.**

**32 Paragraph 4 of Osborn J's order of 22 August 2008 required the defendant to give discovery by 6 November 2008 of all documents relating to income derived from the Prague 1 properties by the defendant since he acquired an interest in them.

33 On 14 November 2008, the defendant's solicitors provided to the plaintiffs' solicitors a list of documents in the Czech language. On 16 December 2008, the defendant swore an affidavit of documents attaching a list of 3,255 documents with unhelpful descriptions such as "Overview", "New Calculation", "Charge", "Services" and "Y2S", and stated that the list is incomplete and the discovery process is continuing. In a subsequent affidavit sworn on 28 January 2009, the defendant stated that he did not have any relevant documents in Victoria and that all the documents are in the Czech Republic. He also stated that he objected to providing inspection by the plaintiffs or a valuer of the documents he has discovered and details of rental income earned from the Prague 1 properties because he had been advised that:**

(a) disclosure of the identity of a tenant would breach the privacy laws of the Czech Republic;

(b) disclosure of the terms of the leases without the tenant's consent would breach the confidentiality clauses in the leases; and

(c) disclosure might prejudice his defence of the Czech proceeding.

34 In support of the above objections, the defendant relied on affidavits of Mr Hrodek. In his 10 page affidavit sworn on 27 January 2009, Mr Hrodek stated:

(a) If a term of an agreement between the defendant and another party contains a confidentiality clause which forbids the defendant from disclosing the contents of the agreement, disclosure to the plaintiffs would constitute a breach of contract. It is usual for leases to contain confidentiality clauses. Even if a lease does not contain a confidentiality clause, a confidentiality obligation would be implied by Czech law.

(b) Information concerning leases and other commercial transactions relating to the properties owned by the defendant in Prague would fall within the "trade secrets" and "confidential information" provisions of the Czech Commercial Code, with the effect that the defendant would not be able to disclose information about those documents and transactions (including the name and personal and financial details of a tenant, the duration and other terms of any lease and the amount of rent being paid) unless the other party to the transaction agrees. Those provisions are as follows:

Trade secrets include commercial, manufacturing and technological facts relating to the enterprise which have actual or potential material or nonmaterial value, are not commonly available in the business circles in question, and are to be kept confidential at the discretion of the entrepreneur, who ensures that his enterprise's secrets are protected in a suitable manner

Where the parties mutually exchange confidential information when negotiating a contract, then no party to which such information is made available may disclose it to a third party, or use it contrary to its purpose for such party's own needs, regardless of whether the contract is concluded or not. Anyone breaching this duty shall be liable to provide compensation for harm in accordance with the provisions of section 373 et seq

(c) If the defendant breaches his confidentiality obligations to tenants, he could be liable to pay damages or any contractual penalties set out in a lease. The breach may also enable a tenant to terminate a lease in certain circumstances.

(d) Section 27 of the Czech Data Protection Act prohibits the transfer or disclosure outside the European Union of personal data of a third party without that party's prior written consent or authorisation by the Office for Personal Data Protection ("OPDP") which must be satisfied that the data would be sufficiently protected by the law of the country of destination. The OPDP advised him that it did not have a clear view whether the implied undertaking that binds parties to litigation in Victoria in accordance with Home Office v Harman[12] would ensure sufficient data protection from the viewpoint of the Czech Data Protection Act. A fine of up to CZK5,000,000 can be imposed for breaching that Act.

(e) Czech law does not impose discovery obligations on parties to litigation in the same manner as Victorian law. If the defendant is required to provide copies of documents to the plaintiffs for the purposes of this proceeding in circumstances where those documents need not be provided to the plaintiffs in the Czech proceeding, the plaintiffs would be free to use those documents in the Czech proceeding and thus there is a real potential that the defendant's defence of the Czech proceeding would be compromised.

(f) Article 6 of the European Convention on Human Rights confers on the defendant a right to a fair trial in the Czech Republic. As the defendant is not obliged to provide discovery of documents to the plaintiffs in the Czech proceeding, to require him to disclose to the plaintiffs documents in this proceeding which they could use in the Czech proceeding would breach the principle of a fair trial and this would give the defendant good grounds under Czech law to refuse to produce the documents if he considered this would be detrimental to his defence of the Czech proceeding.

(g) An order of the Supreme Court of Victoria would not be recognised by the Czech courts and, as such, would not provide the defendant with any grounds to disregard his confidentiality obligations under Czech law.

(h) The above confidentiality obligations also apply to disclosure of information to a valuer. Under Czech law, the defendant would not be required to provide valuation evidence to the District Court in the Czech proceeding. If the District Court requires a valuation, it will appoint an expert to value the properties. If the defendant is required to provide valuation evidence in this proceeding, there is potential for the defendant's defence of the Czech proceeding to be prejudiced if the valuation differs from any valuation of an expert appointed by the District Court.

**35 In his further affidavit of 9 March 2009, Mr Hrodek added that the power of the District Court to require the defendant to produce documents is limited to a concrete document, which is individualised, rather than all documents related to the Czech proceeding, such as all leases and all documents relating to income derived from the properties. He also stated that, in his experience, "data is readily available which would indicate the level of average rental on a per square meter basis that applies in a particular area" and that a valuer would be able to determine the likely rental that would apply to the properties in question and to form an opinion as to their value taking into account this information without needing to sight the leases.

36 In response to Mr Hrodek's affidavits, the plaintiffs relied on affidavits from Mr Hlavička. In his affidavit of 19 February 2009, Mr Hlavička stated:**

(a) Under ss 128 and 129 of the Czech Procedural Code, a party to a proceeding can be required to submit documents that are of importance to the proceeding regardless of whether they contain a confidentiality clause. The Czech Procedural Code stipulates a general exception to confidentiality obligations imposed by contract, the Czech Commercial Code or any other Czech legal regulation.

(b) Confidentiality clauses in agreements commonly provide exceptions. A typical exception is the possibility of disclosing documents in a civil proceeding.

(c) In order for information about leases to constitute a trade secret under the Czech Commercial Code, it must satisfy all the requirements of the definition. Information about rent is commonly available in the real estate business and does not constitute "commercial, manufacturing and technological facts relating to the enterprise which have actual or potential or nonmaterial value ... not commonly available". Even if information about rent is a trade secret, a valuer is required by law to maintain the confidentiality of trade secrets. Further, the Czech Procedural Code provides special evidentiary procedures that uphold the confidentiality of trade secrets.

(d) The Czech Data Protection Act does not restrict the defendant from providing the requested information because:

(i) The definition of "personal data" is confined to information about a natural person who is capable of being identified directly or indirectly. It does not apply to data about companies or data which does not reveal the name or other identifying details of a natural person.

(ii) In accordance with s 27, paragraph 3 of the Data Protection Act, "the transfer of personal data may be carried out if the controller proves that: ... (b) in a third country, where personal data are to be processed, has been created sufficient specific guarantees for personal data protection, e.g. by other legal or professional regulations and security measures ... or (f) the transfer is necessary to perform a contract between the controller and a third party, concluded in the interest of the data subject, or to exercise other legal claims ...". Paragraph (f) applies because the purpose of the transfer is to exercise other legal claims. He has spoken to a senior officer of the OPDP who has confirmed his view and also that the OPDP would issue the authorisation of data transfer to Australia.

(e) As the plaintiffs' claim in the Czech proceeding is for possession of two-thirds of the legal title to the properties and their claim in this proceeding is for equitable compensation, the value of the properties is not relevant in the Czech proceeding and therefore providing to the plaintiffs in Victoria the documents relating to the value of the properties could not compromise the defendant's defence in the Czech proceeding. Even if the documents were relevant to the Czech proceeding, the District Court has the right to request the same documents.

(f) Provision of the relevant documents by the defendant would not constitute a breach of the principles of a fair trial. If the documents are relevant to the Czech proceeding, the defendant could be required to produce them and failure to do so may lead to a breach of the principles of a fair trial by the defendant.

(g) He has never encountered a lease agreement in the Czech market under which a breach of a confidentiality obligation would constitute a reason to terminate the lease, especially by the tenant.

(h) He does not agree with Mr Hrodek's opinion that the obligation of the defendant to keep documents confidential would prohibit him from providing them to a valuer appointed to value the properties.

**37 In his further affidavit of 9 March 2009, Mr Hlavička added that the District Court has power to require production not only of a single document but also a class of documents, such as all leases in respect of a property concluded over a specified period. In relation to valuation methods, he stated that whilst a valuer could provide a valuation based on the average rent per square metre that applies in the area where the properties are located without reviewing the leases in respect of those properties, the valuer is likely to state a reservation as to the correctness of the valuation.

38 I accept as a broad general proposition that this Court should not require the defendant to do something in relation to discovery that will cause him to commit an offence or incur a liability under the law of the Czech Republic. However, the material that the defendant has relied upon to justify his failure to meet his discovery obligations has not persuaded me that he should be absolved of his discovery obligations.

39 I deal with each of the defendant's objections in turn.**

**40 In the absence of specific evidence from the defendant setting out the precise terms of the confidentiality clauses (including any exceptions to confidentiality obligations contained in those clauses) in each of the leases over the relevant properties, I am not able to conclude that the leases contain express confidentiality obligations that preclude him from making the leases available for inspection by the plaintiffs or a valuer. Although Mr Hrodek has stated that an implied confidentiality obligation can apply to leases, he has not stated what the terms of such an obligation would be, whether it could be inconsistent with anything in the lease and whether it would be subject to any exceptions. Accordingly, unless the precise terms of any confidentiality clause in the defendant's leases are known, it would not be possible for me to accept the defendant's claim that confidentiality obligations are implied in his leases. Further, in the absence of evidence about the scope of implied confidential obligations in leases, and any exceptions, I cannot be satisfied that any such implied terms are binding on the defendant.

41 Where a lease does not contain an express confidentiality clause in respect of matters such as rent, I am not satisfied that information on matters such as rent would constitute a "trade secret" under the Czech Commercial Code. Further, unless the precise terms of any confidentiality clause are known, it would not be possible for me to accept the defendant's claim that the "confidential information" provisions of the Czech Commercial Code apply.

42 For the above reasons, the evidence relied upon by the defendant has not satisfied me that by virtue of express or implied confidentiality obligations in leases or under the Czech Commercial Code, Czech law precludes him from producing lease documents for inspection by the plaintiffs or a valuer.**

43 I am satisfied that the disclosure outside the Czech Republic of information about the rent paid by a tenant would not breach the Czech Data Protection Act if (without purporting to be exhaustive) at least one of the following circumstances exist:

(b) the information is communicated in such a way as to be incapable of identifying the tenant;

**44 In these circumstances, the defendant cannot rely on the Czech Data Protection Act as totally absolving him from his discovery obligations. That Act will not absolve him in respect of tenants who are not natural persons. In respect of tenants who are natural persons, I do not accept the defendant's claim that ways cannot be found by which rental information can be disclosed without identifying any particular tenant.

45 In his affidavit of 28 January 2009, the defendant stated that each of the Prague 1 properties contains a principal tenant and therefore disclosure of rental would constitute disclosure of personal data relating to the principal tenant. I do not accept that this is so. Even if it were so, the defendant has not stated that the principal tenant is a natural person. The evidence is that the Prague properties are multi-storey and are used as apartments and for retail and commercial purposes. Further, on the basis of Mr Hlavička's affidavit of 19 February 2009 (see paragraph 36(d)(ii) of these Reasons), I am satisfied that there is a real prospect that the OPDP will authorise the disclosure of personal data if a formal application for authorisation is made.

46 It follows from the above that I am not satisfied that the Czech Data Protection Act absolves the defendant from all of his obligations to produce for inspection documents relating to rental income.**

Prejudice to the defendant in the Czech proceeding

47 The defendant's concern that the provision of documents for inspection in Victoria might cause him prejudice in the Czech proceeding or would deprive him of a fair trial in the Czech proceeding is adequately dealt with by the existing and new undertakings given by the plaintiffs. The effect of the undertakings is that the documents and the information in them will not be used in the Czech proceeding. The undertakings also prevent the plaintiffs from taking any steps to use in the Czech proceeding valuation evidence obtained for the purposes of this proceeding. If, in the future, specific events occur which may cause prejudice to the defendant in the Czech proceeding, he can raise the matter with this Court pursuant to the liberty to apply that has been reserved.

**48 On 11 March 2009, I informed the parties that the defendant will be ordered to file a further affidavit of documents. I also indicated that if the defendant objects to production of any document or classes of documents for inspection, he will have to explain the grounds for the objection. I said that I would consider further the precise terms of the order for discovery.

49 Having regard to the discussion in paragraphs 40 to 47 of these Reasons, I propose to make orders to the following effect in relation to discovery:**

(a) The defendant file and serve a consolidated affidavit of documents (to replace any existing affidavit of documents) by 14 May 2009[13] listing in the English language the documents he has in his possession, custody or power anywhere in the world which relate to the income derived from, and the expenditure (including capital expenditure) incurred on, the relevant properties by the defendant since the acquisition by him of any interest in each such property.

(b) The affidavit of documents must comply with Rule 29.04 of the Rules.

(c) If the defendant objects to producing any relevant document or group of documents for inspection by the plaintiffs, the affidavit of documents must explain the grounds of objection in sufficient detail to enable the plaintiffs to decide whether to challenge the objection.

(d) If the defendant intends to object to the production of any document on the basis of the Czech Data Protection Act, he must by 14 April 2009 apply in writing to the OPDP for authorisation to disclose or transfer to Victoria for use in this proceeding personal data relating to his current and former tenants of any of the relevant properties located in the Czech Republic. The defendant must provide a copy of the application to the plaintiffs at least seven days before providing it to the OPDP to enable the plaintiffs to make a written submission to the OPDP. If the plaintiffs make a written submission, they must provide a copy to the defendant at the same time.

(e) Insofar as the defendant objects to production for inspection of a document on the ground that production will disclose the personal data of a current tenant in breach of the Czech Data Protection Act, the defendant must state in the affidavit of documents:

(i) the total number of tenants in the property in which the relevant tenant rents space;

(ii) how many of those tenants are natural persons;

(iii) whether the principal tenant is a natural person;

(iv) how disclosure of the total rent received each year since the defendant acquired his interest in the property would enable that information or any part of it to be identified with any particular tenant who is a natural person; and

(v) whether he has made an application to the OPDP for authorisation in accordance with paragraph (d) and whether the OPDP has granted authorisation.

(f) Insofar as the defendant objects to production for inspection of a document on the ground of confidentiality obligations under a lease or the Czech Commercial Code, the defendant must set out in the affidavit or annex to the affidavit the precise terms of the lease which impose confidentiality obligations, including any exceptions to the obligations, together with an English translation.

(g) The plaintiffs have leave to seek a ruling from the Court on any objection relied upon by the defendant.

(h) The defendant must provide to the plaintiffs for inspection in Melbourne any discovered documents requested by the plaintiffs within 14 days after such a request provided that such a request must not be made unless:

(i) the defendant has not objected to the production of that document for inspection; or

(ii) the defendant has objected to the production of that document for inspection and the Court has not upheld the objection.

For the purposes of such inspection, it shall be sufficient for the defendant in the first instance to provide a copy of the documents to the plaintiffs' solicitors in electronic form.

**50 The order will contain a definition of the "relevant properties". They are the properties located in Prague 1, Repy, Kbely, Sucha and Dresden.

51 Based on the discussion in paragraphs 21 and 47 of these Reasons, subject to any order the Court might make in the future, the defendant cannot object to providing discovery of or to producing for inspection any documents on the ground that to do so will prejudice his defence of the Czech proceeding.**

**52 In paragraph 1 of his order of 22 August 2008, Osborn J effectively gave leave to the defendant to file a further amended defence within 42 days. The defendant served a third amended defence outside this period on 22 October 2008. He sought leave to file it late. As the plaintiffs consented, on 11 March 2009 I ordered that the defendant have leave to file the third amended defence within seven days.

53 The plaintiffs initially sought leave to file a further amended statement of claim. During the directions hearing, Mr Howells informed me that the further amended statement of claim would simply include amendments to respond to the third amended defence. I indicated to the parties that it was desirable for the pleadings to close as soon as possible. Accordingly, in lieu of an order giving leave to the plaintiffs to file an amended statement of claim, on 11 March 2009 I ordered that the plaintiffs have leave to file a third amended reply within 21 days. I informed the parties that the "Other Matters" section of the order will reflect this.**

54 Both parties sought an order for costs of and incidental to the directions hearing as well as previously incurred costs. In addition, the plaintiffs sought an order requiring the defendant to pay an amount in advance of the taxation of the costs referred to in paragraph 1A of Osborn J's order of 22 August 2008.

55 On 11 March 2009, I ordered that the defendant pay the plaintiffs' costs of and incidental to the directions hearing on a party and party basis because the defendant had failed to comply with Osborn J's order of 22 August 2008 and had delayed the progress of the proceeding since that order was made. Although the appointment of a special referee was not dealt with in Osborn J's order of 22 August 2008, the plaintiffs' application for the appointment of a special referee sought an alternative mechanism for achieving the result contemplated by the order of 22 August 2008 in relation to an expert valuation report and avoiding further delays. I saw no reason to order that the costs be paid on a solicitor and client basis or on an indemnity basis.

56 There was nothing in the material before me that warrants an alteration to the provisions of any orders made since 24 April 2008 by which costs have been reserved. However, the defendant has failed to comply with the order of 22 August 2008 (which is set out in paragraph 8 of these Reasons) and this has caused the plaintiffs to throw away costs. Accordingly, I will order that the defendant pay the plaintiffs' party and party costs thrown away by reason of the defendant's non-compliance with paragraphs 1, 3 and 4 of the order of 22 August 2008. These costs will include the costs of and incidental to the hearing before Osborn J on 7 November 2008 which the plaintiffs sought at short notice pursuant to liberty to apply due to the defendant's non-compliance with the order of 22 August 2008.

**57 In paragraph 1A of his order of 22 August 2008, Osborn J ordered the defendant to pay the plaintiffs' costs of and incidental to the hearing of the preliminary issue in respect of which judgment was given on 24 April 2008. The plaintiffs have delivered a bill in taxable form which is due to be taxed on 1 June 2009. The time for the defendant to deliver objections has not expired.

58 The plaintiffs have relied on an affidavit of Judith Hedstrom, the costs consultant who prepared the bill in taxable form. Ms Hedstrom stated that the bill totals $667,004.09, that she believes that the Court is extremely unlikely to order the defendant to pay less than $450,000.00 in respect of the bill and two other bills[14] and that she cannot envisage the possibility that any embarrassment would be caused by an order for the advance payment of $300,000. On the basis of Ms Hedstrom's affidavit, the plaintiffs have sought an order that the defendant pay an advance of $300,000.

59 Mr Berglund drew my attention to the fact that on 22 August 2008, Osborn J rejected a similar application by the plaintiffs (see paragraph 9 of these Reasons) and submitted that nothing has changed since then that warrants a departure from the normal process for taxation and payment of costs.

60 Mr Howells submitted that the following developments since 22 August 2008 warrant an order for advance payment of costs:**

(a) a bill in taxable form has been delivered and this is due to be taxed on 1 June 2009;

(b) the defendant appealed to the Court of Appeal and that appeal was unsuccessful;

(c) the defendant's conduct has occasioned further and significant costs to be incurred by the plaintiffs; and

(d) the defendant's conduct in failing to adduce valuation evidence has necessitated that a new process be pursued by the plaintiffs.

(a) the absence of prior notice of the application in the plaintiffs' solicitors' letter of 15 January 2009;

(b) the inadequate time the defendant has had to respond to Ms Hedstrom's affidavit,

(d) the absence of any evidence that the plaintiffs would suffer hardship unless an order for the advance payment of costs is made,

I have not been persuaded that an order for the advance payment of costs is warranted at this stage.

62 However, as I am satisfied that an order for payment of costs on account can be made pursuant to s 24 of the Supreme Court Act 1986 (Vic) and Order 63 of the Rules in an appropriate case, I will give leave to the plaintiffs to make a new application on proper notice if circumstances change. Without wishing to indicate in any way whether they would be sufficient to warrant an order for an advance payment of costs, changed circumstances may include hardship to the plaintiffs resulting from the defendant's conduct and postponement of the taxation through no fault of the plaintiffs.

[1] Talacko v Talacko [2008] VSC 128. Osborn J decided that the issue of penalty be determined at the final hearing. Although his Honour concluded that cl 6 of the Terms is not on its face bad for uncertainty, he reserved to the defendant the right to reagitate the issue of uncertainty at the final hearing.

[2] Talacko v Talacko [2008] VSC 246.

[3] The summons also sought a Mareva injunction. This application was adjourned.

[4] Talacko v Talacko [2008] VSC 312.

[5] Talacko v Talacko [2008] VSC 313.

[6] Talacko v Talacko [2008] VSC 312, [12].

[7] Talacko v Talacko [2008] VSCA 229, [62].

[9] Mr Berglund relied on AT & NR Taylor & Sons Pty Ltd v Brival Pty Ltd [1982] VicRp 75; [1982] VR 762 and Abigroup Contractors Pty Ltd v BPB Pty Ltd [2000] VSC 261, both of which were building cases.

[10] [1982] VicRp 75; [1982] VR 762.

[11] [2000] VSC 261.

[12] [1983] 1 AC 280.

[13] During the directions hearing on 11 March 2009, I indicated that I would order the defendant to provide further discovery by 30 April 2009. On further reflection, I have decided to give the defendant additional time.

[14] One of the bills is for $2,751.65 and relates to costs ordered to be paid by Osborn J on 26 June 2008 and the other is for $4,173.65 and relates to costs ordered to be paid by Osborn J on 18 August 2008.