REASONS FOR JUDGMENT

1                     This is an application by the applicants for an order for costs against the respondents in a proceeding brought by the applicants under O 15A r 6 of the Federal Court Rules. The applicants applied for an order for preliminary discovery (information discovery) by the respondents.

2                     The award of costs is in the discretion of the Court or Judge: s 43(2) Federal Court of Australia Act 1976 (Cth). Order 15A rule 11 of the Federal Court Rules provides as follows:

(1)        The Court may make an order for the costs and expenses of the applicant, a party to the proceeding or a person against whom an order is made or sought, including the following:

(a)        the costs of making and serving a list of documents;

(b)        the costs of producing a document for inspection in accordance with rule 10;

(c)        the costs of complying with an order made under Division 2 of Order 15;

(d)        if the order made or sought was similar to a subpoena — expenses or compensation that would have been allowable under Order 27, rule 11 if the order was for a subpoena.

(2)        The Court may make an order under this Order on condition that the applicant give security for the costs and expenses of the person against whom the order is made.

3                     Without the need for argument the respondents filed a List of Documents verified by an affidavit of the first and second respondents on 7 August 2009. The List of Documents was in response to the application save that the documents discovered were restricted to documents produced before November 2006. That temporal limitation on the discovered documents was accepted by the applicants. The respondents filed an Amended List of Documents verified by affidavits of all the respondents on 14 October 2009.

4                     The applicants were not satisfied with aspects of the Amended List of Documents and they filed a notice of motion with respect to the list on 20 November 2009. That notice of motion was amended and when I refer to it hereafter I am referring to it as it was amended. In the notice of motion the applicants sought various orders including an order that they be given leave to cross examine the respondents with respect to the list (paragraph 1 of the notice of motion) and various orders which are sufficiently described for the purposes of these reasons as orders for further and better discovery.

5                     I heard submissions on the applicants’ notice of motion and, on 24 December 2009, I made the following orders:

1.         Each of the respondents is to file and serve a further affidavit of discovery on or before Monday, 15 February 2010 which affidavit shall:

1.1       Contain statements which comply with Order 15, rule 6(6) of the Federal Court Rules with respect to the documents in Schedule 2 in the Amended List of Documents dated 14 October 2009.

1.2        Make discovery of the following class of documents:

i.          All documents recording or evidencing the cleaning or other services performed on behalf of the syndicate by Patricia Shaw, Dawn Williams and Sue Baker, including tax invoices for the services performed and records of payment of same. 

ii.         The registered mortgage debenture and unlimited debt and interest guarantee referred to in the letter of offer from the Bank of Cyprus dated 12 October 2001. 

iii.         All documents recording or evidencing the mortgage referred to in Recital A and the dispute referred to in Recital B of the Agreement for Vendor Finance and the vendor finance arrangements between the vendors of the Bayview Apartments Complex on the one hand and the syndicate and/or each of the other Respondents on the other. 

iv.         All documents recording or evidencing:

1.         instructions provided by the Respondents for and on behalf of the syndicate and/or the Applicants to the accountant, Mr Con Michaladiadis; and

2.         financial statements prepared, working papers or advice rendered by Mr Michaladiadis for and on behalf of the syndicate and/or the Applicants. 

v.         All documents recording or evidencing the application of funds withdrawn from the ACN Westpac Bank account (No. 137288), such tax invoices or other supporting documentation. 

vi.        All documents recording or evidencing all invoices rendered by the First Respondent and/or the Second Respondent as strata manager for and on behalf of the syndicate, for the period late 2001 to July 2004, and payment of same. 

vii.        The records and files of Perks Chartered Accountants in respect of their review of the Bayview Apartments joint venture including all documents:

1.         provided by each or any of the Respondents to Perks Chartered Accountants; and

2.         recording or evidencing instructions provided by each or any of the Respondents to Perks Chartered Accountants. 

2.         The respondents produce for inspection by the applicants’ solicitors the documents referred to in Schedule 1, Part 2 in the Amended List of Documents filed and served on 14 October 2009 on or before Friday, 29  January 2010.

3.         Paragraph 1 of the applicants’ notice of motion filed on 20 November 2009 be adjourned for further directions on Friday, 19 February 2010 at 9:30 am.

4.         The costs of the applicants’ notice of motion filed on 20 November 2009 be reserved.

5.         Liberty to apply.

My reasons for making these orders are set out in Procter v Kalivis [2009] FCA 1518.

6                     On 25 February 2010, the respondents filed a Further Amended List of Documents verified by affidavits of all respondents.

7                     The applicants pressed their application in paragraph 1 of the notice of motion for leave to cross examine the respondents in relation to the Further Amended List of Documents. I heard submissions on that application. I decided to refuse the application and I made the following orders:

1.         The application for the order identified in paragraph 1 of the applicants’ notice of motion dated 20 November 2009 be dismissed.

2.         The applicants pay the respondents’ costs of the application referred to in paragraph 1.

3.         The directions hearing be adjourned to Tuesday, 20 July 2010 at 9:30 am.

8                     To date I have not made any order for costs in relation to the application for preliminary discovery or in relation to paragraphs 2, 3 and 4 of the notice of motion dated 20 November 2009.

9                     The applicants seek an order that the respondents pay their costs of the proceeding including the costs associated with paragraphs 2, 3 and 4 of the motion. The respondents oppose such an order. They submit that I should make an order that if the applicants issue a substantive proceeding within six weeks then the costs of the application should be in the discretion of the trial judge hearing that proceeding. If a substantive proceeding is not issued within that period then the respondents’ costs of the application should be paid by the applicants. I made an order of the type sought by the respondent in this case in Gearhart United Pty Ltd v Omni Oil Technologies (Asia) SDN BHD (No 2) [2010] FCA 558. I referred to previous cases where such an order had been made (at [24]).

10                  I am of the opinion that different considerations apply to the costs of the application for preliminary discovery and paragraphs 2, 3 and 4 of the motion and that they should be dealt with differently.

11                  I start with the costs of the application excluding the costs of paragraphs 2, 3 and 4 of the motion.

12                  A number of the written submissions were directed to the question of whether there was a general or conventional rule as to costs in the case of applications for preliminary discovery of the type sought by the respondents. The applicants submit that there is no general or conventional rule that such an order will be made on applications for preliminary discovery under O 15A. They refer to the following observations of Gyles J in C7 Pty Ltd v Foxtel Management Pty Ltd [2001] FCA 1864 (“C7”) at [50]:

50        That leaves costs.  C7 has succeeded in large measure.  On the other hand, the relief which it will obtain is effectively that which was offered prior to the hearing.  C7 points out that the offers were all conditional and this required the principal issue to be heard and determined.  However, the principal condition imposed was that a claim for the documents in par 4 not be pursued.  In the event, I have not ordered that those documents be produced.  Nonetheless, the respondents have continued to contend that no order should be made.  It needs to be borne in mind that this is an extraordinary jurisdiction.  It provides for compulsory access to the private affairs of members of the community in order that somebody else can determine if they have a case against that party and the threshold set by O 15A r 6(a) is not very high.  There is much to be said for the view that a respondent in these circumstances is entitled to put the applicant to proof except in a clear case.  Some judges have been disposed to make orders which, to a greater or lesser extent, leave costs to be determined after the result of preliminary discovery and inspection is known, and even to depend upon, to some extent, the fate of the litigation which ensues.  I am not persuaded of the merit of that approach.  An application pursuant to O 15A is a discrete application and may never lead anywhere.  There is no reason why a party which is out of pocket because of costs should await some indefinite future event.

13                  C7 was a case where the applicant had achieved little more than what had been offered by the respondents before the application and Gyles J ordered that the applicant pay 50 per cent of the respondents’ costs. That is quite different from this case where it is the applicants who are seeking the costs of the application. I am not entirely clear how far Gyles J was intending to go. If he was saying that he could see no merit in the approach in that particular case then there would be no cause for me to comment on his Honour’s observations. If, as the applicants submitted, he was saying that he could see no merit in the approach in any case then I would disagree and would respectfully decline to follow what his Honour said.

14                  The applicants also referred to certain observations of Flick J in Apache Northwest Pty Ltd v Newcrest Mining Ltd (2009) 182 FCR 124. That case involved an appeal to the Full Court against an order for information discovery under O 15A r 6. Only Flick J addressed the question of costs and the costs in issue were not the costs of the contested application but the costs of the respondent providing preliminary discovery. Flick J made the point that it may be doubted whether there is as yet a “conventional approach” as to how the discretion as to costs and expenses is to be exercised in preliminary discovery applications (at 146-147 [90]). Whether there is or is not a conventional approach is not going to be decisive in this case. For present purposes, I can proceed on the assumption favourable to the applicants that there is as yet no conventional approach to the question of costs on an application for preliminary discovery.

15                  The applicants also referred to Steffen v ANZ Banking Group [2009] NSWSC 883 (“Re Steffen”), where McDougall J discussed the principles which his Honour considered applied in the case of an application for preliminary discovery under the Uniform Civil Procedure Rules 2005 (NSW). His Honour expressed general agreement with the observations of Gyles J in C7. His Honour said (at [31]-[33]):

[31]      Like Gyles J in C7, I am doubtful of the merit of an approach to costs which makes them depend on the initiation and outcome of litigation following preliminary discovery. I agree with his Honour that, ordinarily, an application for preliminary discovery should be regarded as a discrete application, and that the costs incurred in it should not “await some indefinite future event”. In my view, that is consistent with the way that Barrett J proceeded in Bio Transplant, in that his Honour made an order having immediate rather than contingent operation.

[32]      Further, I agree with Simpson J that where an application for preliminary discovery is contested in an adversarial fashion, then the ordinary consequences of that decision should follow unless some good reason is shown why they should not. I do not regard what her Honour said as inconsistent with the approach taken by Barrett J in Bio Transplant. It is clear that his Honour did not regard the defendant’s conduct of the proceedings as adversarial in nature.

[33]      In short, I think that:

(1)        generally, it is better to deal with costs by making an order having immediate rather than contingent operation; and

(2)        generally, where an application for preliminary discovery is dealt with in an adversarial fashion, the approach to costs should be that taken by Simpson J in Airways Corporation and Adams J in Hornsby Shire Council, and supported in general terms by Young CJ in Eq in Panasonic.

16                  I do not think that any of these cases gainsay the proposition that it may be appropriate in the circumstances of a particular case to make the type of order sought by the respondents in this case. My approach to the question of costs on an application for preliminary discovery where a respondent discovers documents in response to the application is as follows.

17                  First, the jurisdiction to make an order for preliminary discovery is an extraordinary jurisdiction. There is a sense in which a respondent is entitled to remain passive until the applicant makes out a case for preliminary discovery: Glencore International AG v Selwyn Miners Limited (2005) 223 ALR 238 at 241 [15] per Lindgren J. Secondly, if the respondent does not take an adversarial approach to the application for preliminary discovery and in fact provides discovery then it may be appropriate to make the type of order sought by the respondents in this case. Thirdly, if the respondent does take an adversarial approach then it may be appropriate to order that it pay the costs caused by that adversarial approach: Re Steffen; Western Bulk Carriers (Australia) Pty Ltd v Cosco Bulk Carrier Co Ltd [2002] FCA 1520. The costs caused by an adversarial approach would not necessarily include the costs of complying with an order for preliminary discovery. I would have thought that those costs ought to be paid by the applicant or at least be the subject of the type of order the respondents seek in this case.

18                  Leaving aside the costs of paragraphs 2, 3 and 4 of the notice of motion dated 20 November 2009, and subject to one submission made by the applicants and dealt with below, I do not think the respondents adopted an adversarial approach to the application. They filed and served Lists of Documents without the need for substantial argument.

19                  The applicants submitted that the respondents (or one or more of them) stood in a fiduciary relationship with them (or one or more of them). It was submitted that one or more of the respondents was an agent of the applicants and that therefore they had and have a liability to account and to provide documents showing how they discharged their obligations. It was submitted that they had an obligation to provide the documents sought in the application irrespective of, or in addition to, the applicants’ rights on making out a case under O 15A r 6. The applicants point to the requests for the documents which they made before the application was issued and which they submit were reasonable.

20                  Although there is force in this submission, I think that the respondents’ answer to it is correct. I cannot determine at this stage the precise nature and extent of the relationship between the applicants and the respondents and therefore I cannot determine the precise obligations owed by the respondents to the applicants. Those are matters which can only be fairly and properly determined after a trial.

21                  In my opinion, the order sought by the respondent is the appropriate order as far as the application for preliminary discovery is concerned.

22                  The costs of paragraphs 2, 3 and 4 of the notice of motion dated 20 November 2009 stand on a different footing. That was a contested application upon which the applicants were substantially successful. I think the respondents should pay the applicants’ costs of those paragraphs in the notice of motion.

Orders

23                  I will make the following orders.

The Court notes the following:

1.                  The List of Documents filed and served by the respondents on 7 August 2009.

2.                  The Amended List of Documents filed and served by the respondents on 14 October 2009.

3.                  The Further Amended List of Documents filed and served by the respondents on 25 February 2010.

4.                  The affidavit sworn by the first respondent on 8 April 2010.

The Court orders:

1.                  The application issued by the applicants on 19 June 2009 be dismissed.

2.                  The respondents pay the applicants’ costs of and incidental to paragraphs 2, 3 and 4 of the notice of motion dated 20 November 2009.

3.                  The costs of the application referred to in paragraph 1 above (excluding the costs referred to in paragraph 2 above, and the costs referred to in paragraph 2 of the orders made on 25 June 2010) are to be dealt with as follows:

3.1       the respondents’ costs are to be paid by the applicants if the applicants do not commence a proceeding of the nature foreshadowed by them in this proceeding within two months of the date hereof; or

3.2       the costs are to be in the discretion of the trial judge if the applicants commence a proceeding of the nature foreshadowed by them in this proceeding within two months of the date hereof.

Associate:

Dated:         4 November 2010