Verde Terra Pty Ltd v Central Coast Council; Central Coast Council v Verde Terra Pty Ltd

Proceedings 2019/203552 MBM Legal (Applicant) Ashurst (First Respondent) N/A (Second Respondent) File Number(s): 2019/101279 and 2019/203552

The Council Seeks its Costs of a Successful Voir Dire in Part-Heard Class 4 Proceedings

1. By notice of motion filed on 22 April 2020, the Council seeks its costs of a voir dire in respect of its successful claims of privilege to resist the inspection and tender of documents produced in answer to a subpoena and a notice to produce determined in Verde Terra Pty Ltd v Central Coast Council; Central Coast Council v Verde Terra Pty Ltd (No 2) [2020] NSWLEC 10 (the abbreviations used in that judgment are also employed here for convenience).
2. The issues raised by the voir dire may be summarised as follows (at [2]-[3], [5], [8], [55]-[56] and [59]): 2 In this long running and increasingly complex dispute between the applicant/respondent to two sets of Class 4 proceedings, Verde Terra Pty Ltd ("VT") (and related parties) ("Verde Terra parties"), and the respondent/applicant, the Central Coast Council ("the Council"), VT issued a subpoena on 9 October 2019 to P J Donnellan & Co Pty Limited ("Donnellan") and a notice to produce to the Council. 3 Donnellan, a firm of solicitors, acted for Gosford City Council ("Gosford CC") in Class 4 proceedings 2012/40900 between 2012 and 2014 ("the 2012 proceedings"). … 5 Documents were produced both in respect of the subpoena issued to Donnellan and the notice to produce. … 8 The voir dire concerns the entitlement of the Council to claim privilege over the documents and communications produced pursuant to the notice to produce and the Donnellan subpoena, and over documents proposed to be tendered by the Verde Terra parties (as identified by the Council: see annexure 'A' to this judgment) contained in the evidence book. … 55 At issue on the voir dire is whether documents that the Verde Terra parties propose to tender during the course of the proceedings and material that they seek access to produced in answer to the Donnellan subpoena and the notice to produce to the Council, are protected by various privileges claimed by the Council. 56 The privileges relied upon by the Council are ("the privileges"): (a) client legal privilege pursuant to ss 118 and 119 of the Evidence Act and legal professional privilege under the common law ("legal privilege"); and (b) settlement or negotiation privilege pursuant to s 131(1) of the Evidence Act and at common law ("negotiation privilege"). … 59 The Verde Terra parties claim, first, that the privileges do not apply, and second, that even if they do, they have been waived and/or any entitlement to them has been lost by the Council: (a) in relation to the legal privilege, in addition to the operation of the common law, by reason of s 122(2) of the Evidence Act; (b) in relation to the negotiation privilege, again, in addition to the operation of the common law, by reason of s 131(2)(f) and (i) of the Evidence Act; and (c) in relation to both by reason of s11(2) of the Evidence Act.
3. As was stated by the Court in Verde Terra (No 2) the onus in such an application rests as follows (at [60]): 60 In this two-step process of determining access and admissibility, the onus lies on the party asserting an entitlement to a privilege - the Council (Dowling v Ultraceuticals Pty Ltd Pty Ltd [2016] NSWSC 386; (2016) 93 NSWLR 155 at [20] and Tiffany & Co (Australia) Pty Limited v Sydney Metro [2019] NSWLEC 147 at [8(a)]) - whereas the burden of demonstrating that the privilege has been waived or lost lies on the party making that claim - the Verde Terra parties (Environment Protection Authority v Newcastle Port Corporation [2019] NSWLEC 92 at [56]).
4. The hearing of the voir dire went for several days with the arguments put comprehensively and forcefully by both parties, a fact mirrored in the substance and length of the judgment.
5. In the result, the Council was wholly successful (at [9] and [178]-[179]): 9 In my opinion, the privileges asserted by the Council are maintainable. They have been neither waived nor lost by reason of the exceptions relied upon by the Verde Terra parties at common law and under the Evidence Act 1995. … 178 Having found that the documents and communications the subject of this voir dire are protected by legal privilege and negotiation privilege, and having determined that the privileges have neither been waived nor lost by reason of the exceptions argued by the Verde Terra parties, I find that the documents and communications the subject of the notice to produce, the subpoena to Donnellan, and the documents proposed to be tendered by the Verde Terra parties over which claims of privilege have been made by the Council in annexure 'A', are not amenable to either inspection or tender by the Verde Terra parties. In other words, the privileges are maintained. 179 In light of the reasoning and findings made in this judgment, it follows that ss 121(2) and (3) and 126 of the Evidence Act have no application on the voir dire (as to which, scant attention was paid by the Verde Terra parties in any event: see T587:48-588:07; 588:28-35 and 636:47-48).
6. No order for costs was made.
7. As a consequence, the Council now applies for an order that the Verde Terra parties pay the Council's "costs of the voir dire and associated applications determined by the Court by...[Verde Terra (No 2)], including the costs of the preparation of the affidavits of Martin Richard Ball sworn 15 & 29 November 2019" ("the Ball affidavits"). Those affidavits identified the documents the subject of the privilege claims.
8. In short, the Council submits that, these being Class 4 proceedings, costs ought to follow the event, with the 'event' being its success on the voir dire by the Court's rejection of the Verde Terra parties' application to inspect and tender the documents produced.
9. By contrast, the Verde Terra parties argue that because this was a voir dire during a trial that had already commenced, the costs should be, as r 42.7 of the Uniform Civil Procedure Rules 2005 ("UCPR") prescribes, costs in the cause, such cause being the event in the yet to be determined substantive proceeding (which is presently adjourned part-heard).
10. In my opinion, the appropriate order is that the Verde Terra parties pay the Council's costs of the voir dire.

Principles to be Applied When Determining Costs in Interlocutory Applications

1. The Court's power to award costs in civil matters is conferred by s 98 of the Civil Procedure Act 2005 ("CPA"), which relevantly provides that: 98 Courts powers as to costs (1) Subject to rules of court and to this or any other Act - (a) costs are in the discretion of the court, and (b) the court has full power to determine by whom, to whom and to what extent costs are to be paid, and (c) the court may order that costs are to be awarded on the ordinary basis or on an indemnity basis. (2) Subject to rules of court and to this or any other Act, a party to proceedings may not recover costs from any other party otherwise than pursuant to an order of the court. (3) An order as to costs may be made by the court at any stage of the proceedings or after the conclusion of the proceedings. (4) In particular, at any time before costs are referred for assessment, the court may make an order to the effect that the party to whom costs are to be paid is to be entitled to - (a) costs up to, or from, a specified stage of the proceedings, or (b) a specified proportion of the assessed costs, or (c) a specified gross sum instead of assessed costs, or (d) such proportion of the assessed costs as does not exceed a specified amount.
2. Section 98(3) and (4) make it clear that the Court can make a costs order notwithstanding that the proceedings have not yet been finally determined.
3. The power to award costs in s 98 of the CPA has been modified by r 42.1 of the UCPR which states: 42.1 General rule that costs follow the event Subject to this Part, if the court makes any order as to costs, the court is to order that the costs follow the event unless it appears to the court that some other order should be made as to the whole or any part of the costs.
4. Accordingly, if the Court exercises its discretion to award costs then the presumptive rule, which may be displaced by the circumstances of the case, is that costs follow the event. This is consistent with the principle articulated by the High Court in Latoudis v Casey [1990] HCA 59; (1990) 170 CLR 534 (at 566-567) and Oshlack v Richmond River Council [1998] HCA 11; (1998) 193 CLR 72 (at [67]) that costs, being compensatory, should be awarded to the successful party.
5. While the 'event' may be readily identifiable in a final judgment, its identification in an interlocutory application may prove more problematic, as the present application for costs illustrates. As was observed by Adamson J in David v Kazal (No 2) [2020] NSWSC 105 (at [12]): 12 Costs are in the discretion of the court: s 98 of the Civil Procedure Act 2005 (NSW). The general rule is that costs follow the event: Uniform Civil Procedure Rules 2005 (NSW) (UCPR), r 42.1. The identification of the "event" may be relatively easy in final judgments but may require a more nuanced approach in interlocutory disputes where there has been, as in the present case, a measure of success for each party. Where a defendant applies for security for costs, the question arises whether the event ought be defined as the application or the proceedings as a whole. Decisions of this Court have followed the approach of applying the general rule that "costs follow the event" to an application for security, rather than ordering that the costs of the motion be the defendant's costs in the cause, which would treat the "event" as the proceedings as a whole: see, for example, Hoffmann v Challis (No 2) [2016] NSWSC 269 at [22]-[23] (Campbell J); Globus Investments Pty Ltd v William Pty Ltd [2016] NSWSC 613 at [45]-[46] (Campbell J), cited with approval in Wollongong Coal Ltd v Gujarat NRE Properties Pty Ltd [2019] NSWSC 187; (2019) 139 ACSR 107 at [68] (Ward CJ in Eq).
6. In Kazal (No 2) no reference was made to r 42.7 of the UCPR by her Honour. Rule 42.7 provides the following rule with respect to interlocutory applications (emphasis added): 42.7 Interlocutory applications and reserved costs (1) Unless the court orders otherwise, the costs of any application or other step in any proceedings, including - (a) costs that are reserved, and (b) costs in respect of any such application or step in respect of which no order as to costs is made, are to be paid and otherwise dealt with in the same way as the general costs of the proceedings. (2) Unless the court orders otherwise, costs referred to in subrule (1) do not become payable until the conclusion of the proceedings.
7. The rule applies to the voir dire the subject of Verde Terra (No 2) which, if not properly characterised as an interlocutory application, may at the very least be described as an "other step in the proceedings".
8. In Pages Property Investments Pty Ltd v Boros [2019] NSWSC 1778 Rees J correctly, in my view (contrary to the submission of the Council), described the rule in r 42.7 of the UCPR as the "'default' position in respect of the costs of interlocutory applications" (at [37]. See also His Eminence Metropolitan Petar, Diocesan Bishop of the Macedonian Orthodox Church of Australia and New Zealand v The Macedonian Orthodox Community Church St Petka Incorporated (No 2) [2007] NSWCA 142 at [16] and [28] per Beazley, Giles and Hodgson JJA and Jazabas Pty Ltd v Haddad [2006] NSWSC 880 at [10] per Simpson J, as her Honour then was). Were it otherwise, the word "including" when read in the context of the rule would have little, if any, work to do.
9. As Rees J explained in her earlier decision (Mundi v Hesse [2018] NSWSC 1548 at [58]): 58 The sense in r 42.7 is perhaps illustrated by this application for a different costs order. To consider the application, the Court has had to canvass a detailed and complicated procedural history in not one, but two hard fought proceedings and the detailed submissions made in support of and against the costs orders. Rule 42.7 appears to be directed to discouraging parties from expending further resources on such costs disputes and to focus on the substantive proceedings. If I might use an imperfect sporting analogy: if litigation is compared to a sporting match, then r 42.7 indicates that the normal result after an interlocutory application is that the parties should "play on" until the final hearing.
10. Of course, circumstances can arise where there is some aspect of the conduct of the proceedings by one or more parties that, to extend the sporting analogy adopted by her Honour, requires the referee to blow the whistle and award a free kick. It is for this reason that a broad discretion is retained in r 42.7 by the words "unless the court orders otherwise".
11. Rule 42.7 of the UCPR is therefore the starting point in determining the appropriate cost order in interlocutory applications (or in relation to "other steps in the proceedings"). The default position of costs in the cause may, however, be displaced by the express discretionary power contained in that rule. That power, although unfettered (Metropolitan Petar at [28]), must be exercised judicially having regard to established principle (Oshlack at [134]).
12. In Metropolitan Petar, the Court of Appeal described 'costs in the cause' as follows (at [18]): 18 An order that the costs be 'costs in the cause' or 'costs in the proceedings' (the terms are interchangeable) means that the costs of the interlocutory proceedings correspond with the final order for costs in the action. Thus if, in the final proceedings, the plaintiff is successful and an order for costs of the final hearing is made in the plaintiff's favour, the plaintiff gets the costs of the interlocutory proceedings as part of the costs of the action against the defendant, regardless of who was successful on the interlocutory application: see J T Stratford Ltd v Lindley [1969] 1 WLR 1547 at 1553 per Lord Denning MR.
13. In that case, the Court opined that in relation to applications for interlocutory injunctions the usual costs rule to be applied is that costs be costs in the cause, or the plaintiff's costs in the cause if the defendant does not concede the inevitability of the injunction being granted (at [20]-[28]). This is because at this nascent stage of the proceeding a court is not in a position to adjudicate on the ultimate outcome of the proceeding. The Court of Appeal cautioned, however, that "each case must depend upon its own facts" (at [21]).
14. Because each case turns on its own facts, in Rinehart v Welker (No 3) [2012] NSWCA 228 the Court of Appeal, cognisant of r 42.7 of the UCPR, nonetheless held that the applicants, who had not acted unreasonably in unsuccessfully seeking of a stay of the proceedings, were liable for costs (at [17] per Bathurst CJ).
15. Unlike an interim injunction where the applicant's entitlement to ultimate relief has not yet been adjudicated, a stay has the potential to finally determine the rights of the parties insofar as the proceedings may be brought to an end (Metropolitan Petar at [21] and Australian Securities and Investments Commission v Whitebox Trading Pty Ltd (No 2) [2017] FCA 385 at [6] per Gleeson J).

The Verde Terra Parties Must Pay the Council's Costs of the Voir Dire

1. The Verde Terra parties resisted the order sought by the Council on the basis that there was nothing about these proceeding that warranted the exercise of the Court's discretion to "order otherwise" in r 42.7 of the UCPR. Accordingly, costs ought to follow the 'event' of the substantive proceedings because: 1. in order to properly determine where the costs should lie, the Court was required to take into account a "multitude of factors which are contingent on the further conduct and outcome of the proceedings", including any finding made by the Court that the Council is estopped from making the allegations that it does in the proceedings and/or that its conduct is an abuse of process, together with any settlement offers made by the parties; 2. to order otherwise would be inconsistent with the order made in Verde Terra Pty Ltd v Central Coast Council [2019] NSWLEC 166; and 3. citing paragraph [177] of Verde Terra (No 2), the ruling on the voir dire has the capacity to be revisited, and therefore, did not involve a discrete and separate issue that was determined to finality.
2. At paragraph [177] of Verde Terra (No 2) I said as follows: 177 In any event, as Brereton J noted in Mulsanne, his preliminary view was based upon the facts as they were then known, which would "not preclude the question from being raised at a later stage, when more material is available to the Court" (at [11]). Given that the evidence in these proceedings is not yet settled and that much of the documentary evidence remains to be tendered, it may be that the question of the admissibility of the privileged documents pursuant to s 11(2) of the Evidence Act is revisited.
3. The observation is both orthodox and obvious. That is, that at a different time, with different facts, a different application might be made with a different outcome than arrived at in Verde Terra (No 2). The remark does not make the decision in Verde Terra (No 2) contingent on any findings to be made later in the proceedings. On the contrary, the decision in respect of the Verde Terra parties' application to inspect and tender the documents is final.
4. The decision was also determinative of a discrete and separate issue in respect of the admissibility of those documents. That it was not made in advance of the hearing does not, in my view, alter the fundamental character of the application, or the ruling, in a manner that is fatal to the Council's entitlement to its costs.
5. Furthermore, the voir dire determined to finality the substantive rights of the Council (Verde Terra (No 2) at [70]-[71]) insofar as the Court made a final determination as to the claims of privilege made by the Council (Whitebox Trading (No 2) at [13]-[14] and Uebergang v Uebergang [2017] NSWSC 1058 at [73] and [81] per Kunc J).
6. In addition, the Council was, on any view, completely successful in resisting the Verde Terra parties' application for inspection and tender of the documents compulsorily produced (the 'event'). There was no disentitling conduct by the Council that would justify it not being compensated for the costs that it incurred on the voir dire (Jazabas at [12] and Uebergang at [73]-[81]).
7. For all these reasons, it is appropriate for the Court to "order otherwise" by directing that the Verde Terra parties pay the Council's costs of the voir dire. Such costs will include any attendant preparatory costs, including the Ball affidavits referred to above.

Orders

1. The orders of the Court are that the Verde Terra parties are to pay the Council's costs of the voir dire and the exhibits are to be returned.

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