Surpion Pty Ltd v M. R. Works Pty Ltd

REASONS FOR JUDGMENT Introduction 1 This review of the decision of a Registrar raises a nice question about the power of the Court to award costs against a person who has unsuccessfully attempted to prevent a liquidator from examining documents that were produced at an examination conducted under s 596B of the Corporations Act 2001 (Cth). The Registrar, after overruling in part an objection by the person, Mr Furnari, that the documents were protected by legal professional privilege, made an order that Mr Furnari pay to the liquidator 60% of his costs incurred in the inquiry into whether the documents were privileged. Mr Furnari seeks review of the Registrar's costs order. There is no challenge to the findings on privilege. 2 A review of the decision of a Registrar, which is brought under s 35A of the Federal Court of Australia Act 1976 (Cth), is a hearing de novo: Re Kwiatek & Kwiatek; Ex parte Big J Ltd v Pattison (1989) 21 FCR 374. While s 35A states that a Court "may" review a Registrar's decision, the court must do so for constitutional reasons: Jageev Pty Ltd v Deane (1997) 72 FCR 398, 399; Dekkan v Macquarie Leasing Pty Ltd [2008] FCA 1235. Background 3 The background to this review is simple. On 7 March 2006 several companies in the Main Roads Group were wound up and Mr Horne was appointed as their liquidator. On the application of Mr Horne, several persons were summoned to be examined about the affairs of the companies. One person who was summoned was Mr Simmonds, a member of Harwood Andrews, a firm of solicitors. The firm had acted for the companies prior to them being wound up and it retained many files that had come into existence in the course of performing professional services for the companies. The summons required Mr Simmonds to produce the files at his examination. 4 Mr Furnari had been in control of the companies before they were wound up. He opposed the production of the files generally on the basis that they contained privileged communications and that Mr Furnari was one of the persons in whom that privilege vested. 5 The assertion by Mr Furnari that the documents in the files were privileged led to a series of procedural orders being made so that the issues were properly identified and the claim was supported by appropriate evidence. There was then the hearing before the Registrar, the upshot of which was that some documents were found by the Registrar, or were agreed by the parties, to be privileged and others (as it turns out most of the others) were found or agreed not to be privileged. 6 It is not necessary to mention all the steps that were taken to prepare the matter for hearing. It is, however, necessary to discuss some. First, in respect of the two files originally produced by Mr Simmonds, an independent solicitor was appointed by a Registrar to examine them to see whether any might contain arguably privileged documents. Second, in respect of files that were later produced, I ordered that independent counsel be appointed to review their contents to see whether there was an arguable claim for privilege in respect of any of them. The privilege claim in respect of many of the documents was sorted out by this independent review process. 7 Then lists of the contentious documents (that is those in which the claim for privilege was still being maintained) were prepared. The liquidator was directed to identify the documents in the lists that he wanted to inspect. Mr Furnari was ordered to provide in writing an outline of the basis of his claim for privilege over those documents, by reference to the relevant legal principles (with authorities) upon which his claim was based. It took the parties over a year to comply with these directions. In large part, this was because Mr Furnari refused to do what was required of him. 8 In due course, but after the passage of an inordinately lengthy period of time (around two years), the parties were ready to present arguments on the disputed documents. The hearing before the Registrar occupied four or so days. The Registrar made rulings on the privilege claims as the hearing proceeded. 9 I have been provided with a table that identifies the documents which were the subject of the Registrar's rulings. The table indicates that the claims for privilege were not accepted in respect of the larger proportion of the documents in issue, although privilege was maintained in respect of quite a number. Mr Furnari's contentions 10 Mr Furnari contends that there is no jurisdiction to make a costs order against him. If the court has jurisdiction to make an order, he says that the Registrar's costs order was excessive because he, Mr Furnari, was "more than 60% successful in upholding his claim for legal professional privilege. Also, the time taken to determine [the privilege issue] occupied less than 60% of the Hearing duration". I will deal with each of these submissions in turn. Jurisdiction 11 Whether a costs order can be made is a question not without its difficulties. The statute itself deals with costs. Section 597B provides, in substance, that if a summons is obtained "without reasonable cause" a costs order may be made in favour of the person summoned. Here, however, the costs order that was made went the other way, ie it was made in favour of the person (the liquidator) who applied for the summons. As to the possibility of a costs order being made in favour of the applicant for the summons, the statute is silent. 12 Although the statute does not deal with the costs of an examination (apart from s 597B) courts have found that there is power to make a costs order, at least in limited circumstances. For the most part, the issue has been considered in the context of an application for costs by the examinee. There are, however, three cases that I found where the liquidator sought and obtained a costs order, and it is convenient to consider those cases first and then put them aside as they provide no assistance in resolving the issue at hand. 13 In Re Firepower Operations Pty Ltd (in liq) (No 3) (2010) 183 FCR 150 the examinee did not appear to answer the examination summons with which he had been served. The liquidator made application for the issue of a warrant of arrest under r 11.10 of the Federal Court (Corporations Rules) 2000 (Cth). According to that rule the court may issue a warrant for the arrest of a person summoned and "make any other orders that the Court thinks just or necessary": r 11.10(2)(b). Siopis J held (at [20]) that this rule "provides a sufficient basis upon which the court may order that [the examinee] pay the liquidator's wasted costs of his failure to attend the court … in answer to the examination summons; and also the liquidator's costs in respect of the notice of motion which the liquidator was required to file in order to compel [the examinee's] attendance at the examination summons". 14 In arriving at this conclusion the judge placed reliance on two earlier decisions to a like effect, namely Re Charles Henry Pty Ltd (in liq) [2005] FCA 343 and Re Australian Motor Finance Ltd [2009] FCA 707. In both of those cases the judge made costs orders against a defaulting examinee pursuant to r 11.10(2)(b). 15 As I read Siopis J's reasons in Firepower Operations he did not find, as had been argued, that a costs order could have been made under s 43 of the Federal Court Act, although he did hold that the Court's power under s 43 to make a costs order in Corporations Act proceedings had not been ousted by s 1335 of the Corporations Act. 16 The remaining cases that deal with cost orders concern applications for costs by examinees. The effect of the cases may be summarised as follows: A. It is unjust to require a person to attend and give evidence or produce documents without making adequate provision for his/her costs of coming to and from the place of examination together with the costs of his/her sustenance while required to remain there: see Bank of New South Wales v Withers (1981) 35 ALR 21, 37, a subpoena case. B. The power to summon a person to be examined confers the right to impose conditions or make ancillary orders: Re Kempal Pty Ltd (in liq) (1989) 17 NSWLR 550, 551; Re Spedley Securities Ltd (in liq); Ex parte Australian National Industries Ltd (1990) 4 ACSR 322, 327. C. This right to impose conditions and the power to make ancillary orders enables the issuing court to ensure that an examinee be paid his/her reasonable costs of attending the examination. In some cases the examinee can also be compensated for searching for the documents (if any) which he/she is required to produce: Re Equiticorp Finance Ltd; Ex parte Brock (1992) 6 ACSR 725, 734 and the cases cited therein. D. The power cannot be exercised to cover an examinee's consultation with lawyers to prepare for the examination: Re Equiticorp Finance Ltd; Ex parte Brock (No 2) (1992) 27 NSWLR 391, 397. E. Generally the power is not available for the examinee to obtain the costs of legal representation: Re Moreton Joinery Pty Ltd [1975] Qd R 121, 122; Equity Corp (No 2), 734. But, in limited circumstances, (eg when the examination may properly be characterised as "litigation" between the liquidator and the examinee, payment of the costs of representation of the examinee may be justified: Re Lutscher; Ex parte Waddell (1877) LR 6 Ch D 328, 331; Re Appleton French & Scrafton Ltd [1905] 1 Ch 749, 755-6. F. In some cases it has been suggested that a distinction should be drawn between examinees who were officers of the company (insiders) and third parties (outsiders) and that a costs order should generally only be made in favour of outsiders: Equity Corp (No 2) at 734. In Re Imobridge Pty Ltd (in liq) [1999] 1 Qd R 38,52, Lee J doubted whether insiders should be treated any differently from outsiders. I think there is no principled reason for the distinction. G. Sometimes it is best to await the conclusion of the examination when all the relevant circumstances will be known before exercising the power: Re Total Entity Pty Ltd (2003) 47 ACSR 577, [27]; Re Fox Home Loans Pty Ltd (in liq) [2005] NSWSC 1050, [4]. 17 The rules I have extracted from the cases provide no assistance here. They concern the costs of the witness who is summoned to the examination, not the costs of the liquidator. Viewed in that light, the costs power (by which I include the power to impose conditions) is limited to ensuring that no unfairness is caused to witnesses who are otherwise satisfying a public duty. 18 In this case a different analysis is called for. What occurred before the Registrar was that a dispute arose during the examination of a witness, Mr Simmonds. The dispute did not involve the examinee; it was between the liquidator and Mr Furnari, who in effect intervened in the examination. The dispute was, in substance, litigation between those parties conducted before a judicial officer (a Registrar) who had authority to resolve at dispute. 19 As I see it, given that the true character of what occurred was a dispute inter partes, the ordinary costs rules should apply. It is of no consequence that the dispute arose when Mr Furnari intervened in an examination. He could have raised the matter by issuing an originating process. Indeed, on one view, Mr Furnari should have been required to put on a motion to bring the dispute formally before the court. The fact that he was not required to take that formal step cannot affect the court's power to deal with the costs of what was a civil dispute inter partes. 20 There is only one authority I have been able to discover that provides support to my approach. It is the bankruptcy case, Re Lutscher; Ex parte Waddell. There the Court of Appeal in dicta accepted (at 331) that during the course of a bankruptcy examination "litigation" could arise between the trustee and the examinee, in which event cost orders may be made. I would extend that approach to "litigation" between the liquidator and an intervening third party. The appropriate costs order 21 As regards the appropriate costs order to be made, I would base my judgment upon the following propositions which I take from my examination of the court file. 22 First, much of the delay, and consequently a good deal of the liquidator's costs were occasioned by the consistent failure of Mr Furnari to comply with orders that required him to particularise properly the basis of his claim. If the procedural orders had been complied with a relatively straightforward hearing would have resulted. 23 Second, the failure by Mr Furnari to provide a detailed outline of the basis upon which he claimed privilege meant that the hearing took much longer than would otherwise have been the case. 24 Third, the liquidator was substantially successful in obtaining access to the documents he sought. 25 Thus, I have reached the same conclusion as did the Registrar, namely that Mr Furnari should pay 60% of the liquidator's costs, including his reserved costs. 26 I note that the liquidator seeks those costs to be taxed and paid on an indemnity basis. The circumstances in which an indemnity costs order is made are well known. I need not set them out. They do not exist here. I certify that the preceding twenty-six (26) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Finkelstein.