Polon v Dorian

Judgment (EX TEMPORE) 1In the second judgment in these proceedings, given on 28 May 2014 (Polon v Dorian (No 2) [2014] NSWSC 681), I determined the question of interest and judgment was entered in favour of the plaintiffs against the second and fourth defendants. 2In paragraph [10] of that judgment I stated that I proposed to re-list the matter the following week for the purpose of making final orders on the question of costs. It is that matter to which this judgment is directed. 3On the question of costs, I have received the benefit of submissions on behalf of the plaintiff and the second and fourth defendants, which are recorded as follows. On 20 May 2014 I heard oral submissions from the parties. I received the plaintiff's written submissions dated 23 May 2014. The second and fourth defendants relied upon submissions dated the same date, 23 May 2014. There were additional submissions by the second and fourth defendants dated 26 May 2014 and, more recently, further written submissions on behalf of the plaintiff. 4The issues arising in respect of the question of costs concern two matters. Firstly, as to whether an order made by the Registrar on 20 August 2012 dismissing the plaintiff's Notice of Motion in effect seeking further discovery and other alternative relief and directing the plaintiff to pay the costs of the second and fourth defendants on a partial basis should be set aside. Secondly, whether the plaintiffs are entitled to an order for costs of the proceedings on an indemnity basis having regard to the service of an offer of compromise and a Calderbank offer dated 13 March 2013. 5The letter of 13 March 2013 set out in some detail the basis upon which it was contended that the plaintiff's claim was likely to succeed and set out observations in respect of the plaintiff's evidence and the defendants' evidence and defences. In the conclusion to the letter it was noted that the plaintiff made an offer in terms of the Offer of Compromise document enclosed with that letter given the imminent hearing, which was then listed for five days, and the fact that the plaintiff would be incurring significant further costs: at [11]. In paragraph [12] of the letter, alternatively, the offer was put upon the basis that, if for any reason it be deemed by the Court not to be an offer properly made in accordance with the Uniform Civil Procedure Rules 2005, then the plaintiff made the offer in accordance with the principles enunciated in Calderbank v Calderbank (1975) 3 WLR 586. Paragraph [13] stated that the offer was open for acceptance for seven days from the date of the letter unless it was rejected in the meantime. 6The Offer of Compromise set out in four paragraphs the terms of the offer. They were that: "1. The second and fourth defendants pay to the plaintiff the sum of $480,000 plus costs as agreed or assessed. 2. The costs order made on 20 August 2012 by Registrar Bradford be set aside. 3. This offer is made in accordance with Rule 20.26 of the Uniform Civil Procedure Rules; and 4. This offer shall be open for a period of 7 days only." 7In the judgment that I delivered on 28 May 2014, judgment was entered in favour of the plaintiff against the second and fourth defendants in the amount of $585,176.99, which included pre-judgment interest. 8I will refer briefly to the principles concerning Calderbank offers. In Jones v Trad (No 3) [2013] NSWCA 463 at [45] Ward JA summarised the principles, as follows: "However, the making of a Calderbank offer does not automatically result in a favourable costs order simply because that the judgment is more favourable to the party making the offer than the terms of the offer. The question is whether failure to accept the offer, in all the circumstances, warrants departure from the ordinary rule as to costs (SMEC Testing Services Pty Ltd v Campbelltown City Council per Giles JA at [37]). The onus is on the party making a Calderbank offer (here, the appellants) to satisfy the court that it should exercise the costs discretion in its favour (Evans Shire Council v Richardson (No 2) [2006] NSWCA 61). Not only must the offer invoke a genuine element of compromise, it must be one which was unreasonable for the offeree not to accept (Herning v GWS Machinery Pty Ltd (No 2) [2005] NSWCA 375 at [4]- [5]; Leichhardt Municipal Council v Green at [21]-[24], [36])." 9Her Honour, as the above passage records, set out the relevant authorities in support of the propositions that underpin the making of an indemnity costs order. It is sufficient to record here that in that respect: (i) A Calderbank offer does not automatically result in a favourable costs order simply because the judgment is more favourable to the party making the offer than the terms of the offer. (ii) The question is whether failure to accept the offer in all the circumstances warrants departure from the ordinary rule as to costs. (iii) The onus is on the party making the Calderbank offer to satisfy the Court that it should exercise the costs discretion in its favour. 10I further note, as her Honour did in Jones v Trad (No 3), supra, that a genuine element of compromise must be involved in an offer which was unreasonable for the offeree not to accept. Those principles have been restated in many cases. It is sufficient that I refer to the more recent decision of the Federal Court of Australia in Kiefel v State of Victoria [2014] FCA 411 at [53] to [57]. 11It was common ground that the offer made on 13 March 2013 in the Offer of Compromise and Calderbank offer was not accepted by or on behalf of the second and fourth defendants. Before determining the application arising in respect of the application for indemnity costs based on the letter of 13 March 2013, I will at this point refer to the relevant history concerning the discovery issues that arose during the course of the proceedings and which in due course led to the making of the Registrar's orders. 12Before coming to those details, I note that on 20 May 2014 (transcript p 2) Dr Birch applied, firstly, for an order for costs on the basis of the Offer of Compromise as being a Calderbank offer and, secondly, that as to the condition of the Offer, that is paragraph [2], Registrar Bradford's costs made on 20 August 2012 should be set aside. 13In relation to the discovery history, reliance has been placed by the plaintiff, firstly, upon the affidavits of Matthew Butt, solicitor, sworn 20 July 2012, 6 August 2012 and 31 January 2013. In addition, reliance was placed upon the affidavit of Darren Gourley sworn 6 February 2013 and his further affidavit sworn on 25 February 2013. 14I turn to the details of the discovery history. On 24 November 2010 a discovery order was made by this Court. On 28 June 2011 Davies J heard and determined a contested motion for discovery and an order for discovery was made. On 11 September 2011 there was served on behalf of the second and fourth defendants a List of Documents. Subsequently the plaintiff's solicitors wrote to the solicitors for the second and fourth defendants querying the adequacy of discovery. Thereafter a Supplementary List of Documents was served on behalf of the second and fourth defendants. 15On the evidence before me, subpoenas were issued by the plaintiffs to various third parties in or about March 2012. Subsequently the plaintiff's solicitors wrote to the defendants' solicitors querying the adequacy of discovery. It is important to note at this point that what, at least in part, prompted the plaintiff's solicitors in that respect arose from documents obtained from third parties which suggested that there may be other documents that should have been discovered by the second and fourth defendants. In other words, the history from this point forward in which adequacy of discovery was questioned was not made, as it were, as a fishing expedition, or pursued without any basis. It is plain that the documents produced by third parties had some role in instigating further enquiries by the plaintiff's solicitors on the matter. 16The defendants' solicitors, after receiving the last mentioned letter from the plaintiff's solicitors, denied that there were further documents which could be discovered. In that respect a letter of 28 May 2012 was written. On 31 July 2012 the plaintiff's solicitors pressed the issue of the adequacy of discovery. When pressed, the defendants' solicitors raised two matters. One, that the fourth defendant's electronic records were no longer complete or an electronic record had not been kept at all; and two, further documents may have been removed from the offices of the fourth defendant by receivers appointed by Skyder and a related entity. Further requests were made by the plaintiff about the issue of discovery in terms of the matters raised by the defendants' solicitors to which I have just referred, but the defendants refused to provide details as to those two matters. 17On 20 July 2012 the plaintiff filed what was referred to in the submissions as the initial Notice of Motion seeking a further and better List of Documents or, alternatively, that the defendants provide an affidavit in relation to the steps they had taken in complying with their client's discovery obligations. 18On 6 August 2012, prior the hearing of the Notice of Motion by Registrar Bradford, the plaintiff made an offer to resolve the matter as set out in paragraph [13] of its written submissions dated 23 May 2014. That offer was not accepted by the second and fourth defendants. On 20 August 2012, as I have earlier stated, the hearing before Registrar Bradford took place. The Registrar dismissed the motion and made a partial order for costs against the plaintiff. 19On 9 September 2012, the plaintiffs filed a Notice of Motion seeking review of the Registrar's decision ("the review application"). That motion came before me initially on 30 January 2013 and the subsequent history of how the matter was dealt with has been set out in the most recent written submissions of Dr Birch on behalf of the plaintiff. I need not here detail all of the issues as to exactly what happened. Dr Birch's submission, however, was that in effect I directed the parties to confer with a view to engaging an IT consultant to undertake an appropriate inquiry to ascertain whether there were any documents that ought to have been discovered. There were no formal orders to that effect, but Dr Birch contended that that is, in effect, what I was directing. 20In Mr Gourley's affidavit sworn 25 February 2013 he states that on 30 January 2013 he was requested by Phillip Tiernan to undertake an investigation and search process into the computer systems of Tiernan & Associates Lawyers, the fourth defendant, in order to search for certain emails and electronic documents. Mr Gourley personally undertook that process on 31 January and 1 February 2013. 21In paragraph [5] of his affidavit he said the process that he followed led to him locating the emails which he details in his affidavit and other documents. Mr Gourley said that he undertook the searches by punching in certain keywords which he sets out in his affidavit, at paragraph [6]. Initially, as a result of that process he identified 59 deleted items and four set items and he provided Phillip Tiernan with a copy of what he has referred to as the PST file which contained the search results. 22In paragraph [8] he said that on or about 8 February 2013 he received a further request from Phillip Tiernan to undertake a further investigation and search process into the computer systems of the fourth defendant to search for certain emails and electronic documents responding to the keywords set out in annexure A to his affidavit. He said he undertook that further investigation in consequence of which he said he identified a further 877 emails and, as indicated in handwriting in paragraph [9] of his affidavit, it appears 105 files. He then provided Phillip Tiernan with a copy of the emails on or about 14 February 2013. 23In Dr Birch's written submissions he referred to the fact that certain emails that were uncovered by Mr Gourley were included in the tender bundle which was provided for the substantive proceedings. Dr Birch identifies particular documents, which I referred to in the course of the judgment, which he said were included in the additional material unearthed as it were by Mr Gourley. 24I turn now to the review application filed on behalf of the plaintiff. It is sufficient to say that the application sought a review of the Registrar's orders and sought to have them set aside. In essence, that was advanced upon two bases. One, that there was an error of law of the House v The King (1936) 55 CLR 499 type, or that, by reason of the developments with IT searches carried out by Mr Gourley, there were changed circumstances as a result of which the plaintiff had been in effect vindicated in having endeavoured to obtain the cooperation of the second and fourth defendants to undertake a further search in an endeavour to see whether there were more documents that should have been discovered, but had not been. 25This comes back to the point I earlier made that the plaintiff said that they were at all times acting upon the basis of information that suggested that there were further documents that ought to have been discovered and that their probing and pressing for the defendants' solicitors to undertake more searching was not merely just a fishing expedition done as a speculative exercise. 26It is necessary here to refer briefly to the appropriate review principles. They were discussed by the Court of Appeal in Tomko v Palasty (No 2) [2007] NSWCA 369; (2007) 71 NSWLR 61, in particular at paragraphs [6] to [8] in the judgment of Hodgson JA. 27In those paragraphs his Honour stated: "6. I agree that a review of a decision of a registrar is not an appeal, subject to s.75A of the Supreme Court Act; and that in such a review a court must exercise its own discretion. 7. In my opinion, this discretion extends to a discretion as to whether, and if so how, to intervene; and in my opinion, there is an onus on a person seeking to have a court set aside or vary a registrar's decision to make out a case that the court, in the interests of justice, should exercise its discretion to do so. 8. In the case of a decision on practice or procedure, this will normally require at least demonstration of an error of law, or a House v. The King error, or a material change of circumstances, or evidence satisfying the strict requirements for fresh evidence. Even then, a court may not think that the interests of justice require intervention. This could be so, for example, if the error of law is a deficiency of reasons and the result is on its face not an unreasonable one." 28Similar principles have been adopted and applied in other cases. I refer to Leighton Contractors Pty Ltd v Public Transport Australia of Western Australia [2007] WASC 65 at [15]. In that case it was observed: "It is generally undesirable and an injustice may flow from the re-litigation of matters already decided and the ordinary rule of practice is that an application to set aside, vary or discharge an interlocutory order must be founded on a material change of circumstances since the original application was heard or the original order made, or where there has been discovery of new material which could not reasonably have been put to the court on the hearing of the original application. The overriding principle governing the court's approach to interlocutory applications is that the court should do whatever the interests of justice require in the particular circumstances." 29It is plain that circumstances did change after Registrar Bradford's orders. It is not necessary here to redetermine the review application or its fate had it been pressed to finality as to whether an error of law was made by the Registrar. It is clear that there were changed circumstances and that alone is sufficient basis for the orders to be set aside. 30The changed circumstances were that, notwithstanding efforts by the plaintiff's solicitors to have the second and fourth defendants re-examine the issue as to whether proper discovery had been given, all of those requests failed through no fault of the plaintiff or her solicitors. The changed circumstances were that the engagement of an IT consultant, which I think partly arose out of matters I had raised in the course of dealing with the review application, did, indeed, discover by a fairly simple process of putting in appropriate keywords, that, firstly, there were additional files, and, secondly, when the second request was made to Mr Gourley, over 800 emails and other files were located. All of that was done by Mr Gourley within a very short period of time - a matter of days. No doubt with sophisticated search materials with the appropriate keywords it takes little time for an expert to be able to uncover documents that are required in the interests of justice for proceedings in this Court. There is no explanation as to why an IT consultant had not been engaged before the review application was filed in order to ensure that there had been proper compliance with the requirements for discovery. 31It is important to say something about the obligation of parties to give discovery in a case such as the present. In New South Wales the extent of the obligation to give discovery is contained in Uniform Civil Procedure Rule 21.4(2)(a). That rule requires a solicitor in their affidavit to state that he or she "has made reasonable inquiries as to the documents referred to in the order." In Re McGorm; Ex parte Co-operative Building Society of South Australia (1989) 86 ALR 275 at 278, von Doussa J observed in part: "The obligation resting on a party obliged to give discovery requires that he make proper inquiries and efforts to identify and disclose all relevant documents that are not in his possession. The obligation extends to making inquiries from the person in whose possession the documents now are." 32His Honour referred to observations by Lyndhurst LC in Taylor v Rundell (1841) Cr & Ph 104; 41 ER 429 at 433: "If it is in your power to give the discovery, you must give it; if not, you must show that you have done your best to procure the means of giving it" 33His Honour in Re McGorm, supra, emphasised that the scope of the enquiries which should be made will depend on the circumstances of the case. Having regard to the need for discovery in order to dispose fairly of the matters in question or to save costs in the proceedings, the enquiries must be reasonable. What constitutes a reasonable enquiry will depend on the circumstances of each case including, of course, the necessity for discovery. The authorities do emphasise that it is not necessary to go to such lengths as would be oppressive. In terms of electronic discovery or discovery of electronic records, observations have been made in a number of cases. Sackville J in Seven Network News Ltd v News Ltd [2007] FCA 1062 at [21], a case in which there were 85,653 discovered documents, made observations about the process in what His Honour referred to as "mega litigation" and the effect that has on the discovery process and obligations. 34In Oberdan v Commonwealth Bank of Australia (1999) 75 SASR 152 Lander J at [69] to [72] made observations on a number of aspects of the obligation to give discovery. In part, his Honour stated: "The extent of the obligation to make discovery is much greater in contemporary times. That is because of the proliferation of records and because a document now includes not only writing on paper but photographs, films, disc tapes, sound tracks and all of these items identified within the definition of "document" [rule 5]. If a party is a corporation the obligation is even more onerous." 35His Honour then went on to discuss related aspects. 36The present case is a case in which there were a great many electronic records that required discovery. Documents were not discovered by the second and fourth defendants, and it was only through the processes followed, including the review application, that full discovery was given and the documents came to light, some of which, as I have said, found their way into evidence. 37In saying that, I make no suggestion that there was any deliberate non-compliance with the obligation to give discovery and I am content to proceed upon the basis that it was simply overlooked. However, the authorities to which I refer place heavy emphasis upon the obligations in modern day litigation to ensure that proper discovery is given and Mr Gourley's evidence in these proceedings demonstrates in the hands of a qualified person how quickly and easily electronic searching of documents can be carried out so that full discovery is given. 38All of these circumstances are changed circumstances. They indicate very plainly that had Registrar Bradford been aware of these matters he would not have made the orders he did. At this end stage of the litigation I, of course, have broad powers to order costs in accordance with the Rules in relation to the proceedings generally which would include interlocutory steps. I also still have before me the outstanding application for review and I can make such order in the context of that application as to costs as appropriate. 39It is plain that the Registrar's orders, in the light of the changed circumstances, were not appropriate or in the interests of justice. The Registrar's orders should be set aside. Accordingly, I make an order that the orders of the Registrar, including in particular the order for costs made by him, be set aside. 40I return in the light of all of those matters to the issue of costs and the orders sought for the costs on an indemnity basis. Based on what I have said, it is plain that the condition of the Offer of Compromise terms that the Registrar's order made on 20 August 2012 be set aside was plainly a reasonable condition and the sum offered represented a significant compromise. I do not understand there to be any submission to the contrary. In the circumstances in which the offer was made, that is to say, with the detail contained in the letter of offer to which I have earlier referred, and the time permitted, all parties were in a good position to assess the strengths, weaknesses and merits of their respective cases and time for a decision as to whether or not the offer should be accepted by the offeree. In fact the offer was, in my opinion, unreasonably not accepted and the plaintiff has obtained judgment in excess of the sum offered. 41In all the circumstances, I consider that the plaintiff is entitled to indemnity costs from the expiration of the date of the offer, that is seven days after 13 March 2013, namely 20 March 2013. Accordingly, I make an order that the second and fourth defendants pay the plaintiff's costs of and incidental to the proceedings up to 20 March 2013 on the ordinary basis and that the second and fourth defendants pay the plaintiff's costs on the indemnity basis from 21 March 2013.