FEDERAL COURT OF AUSTRALIA

McKenzie v Cash Converters International Ltd (No 2) [2018] FCA 487

ORDERS

THE COURT ORDERS THAT:

1.    The applicant pay the respondents’ costs of the interlocutory application filed on 23 December 2016.

Note:    Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

REASONS FOR JUDGMENT

MARKOVIC J:

1    On 21 December 2017 I made orders in relation to Kim McKenzie’s interlocutory application filed on 23 December 2016 (Interlocutory Application). By that application, Ms McKenzie sought the production of documents which had been discovered by the respondents, who I shall refer to collectively as Cash Converters, but withheld from production because they were subject to claims for legal professional privilege by Cash Converters or the National Credit Providers Association Limited, formerly the National Financial Services Federation Limited (NFSF). The effect of those orders was to:

    require the production to Ms McKenzie of unredacted copies of two documents and a copy of a third document omitting a part of the redaction made to that document which had been the subject of a claim for privilege by the NFSF; and

    otherwise dismiss the application.

2    In other words, Ms McKenzie enjoyed no success as against Cash Converters but enjoyed some limited success as against the NFSF.

3    At the request of Ms McKenzie I reserved on the question of costs and made orders requiring the parties to provide written submissions and to indicate whether they required an oral hearing or whether the issue of costs could be determined on the papers.

4    On 16 March 2018 the Court made orders by consent resolving the issue of costs of the Interlocutory Application as between Ms McKenzie and the NFSF, leaving only the issue of costs as between Ms McKenzie and Cash Converters to resolve. Those parties have provided submissions and each indicated that they are content for the matter to be determined on the papers.

5    I am satisfied that the determination of this issue would not be significantly aided by an oral hearing and that it is appropriate to determine the question of costs on the papers: see s 20A(2)(c)(ii) of the Federal Court of Australia Act 1976 (Cth) (Federal Court Act).

6    Ms McKenzie contends that she and Cash Converters should each pay their own costs of the Interlocutory Application while Cash Converters contends that Ms McKenzie should pay its costs of the Interlocutory Application.

legal principles

7    Section 43 of the Federal Court Act confers a broad discretion on the Court to award costs which is “not to be read down otherwise than by judicial principle conformable with the amplitude of the power”: DSE (Holdings) Pty Ltd v InterTAN Inc (2004) 51 ACSR 555; [2004] FCA 1251 at [14] (per Allsop J, as his Honour then was).

8    It is well accepted that, in the absence of special circumstances, the general rule is that costs follow the event. In Qantas Airways Ltd v Lustig (No 2) [2015] FCA 782 at [7] Perry J said:

While the question of costs is a matter for the Court’s discretion, no issue was rightly taken with the general rule that a successful party is entitled to its costs. As the High Court held in Gray v Richards (No 2);

The disposition of costs is within the general discretion of the Court. Ordinarily, that discretion will be exercised so that costs are awarded to the successful party, but other factors may have a significant claim on the discretion of the Court. The disposition which is ultimately to be made in any case where there are competing considerations will reflect a broad evaluative judgment of what justice requires.

(citations omitted)

9    In Firebird Global Master Fund II Ltd v Republic of Nauru (No 2) (2015) 327 ALR 192; [2015] HCA 53 (Firebird) the High Court considered the issue of costs on an appeal that it had earlier determined. At [6] the Court (French CJ, Kiefel, Nettle and Gordon JJ) said:

In any event, the preferable approach in this case is the one usually taken, that costs should follow the outcome of the appeal. This is not a case where it may be said that the event of success is contestable, by reference to how separate issues have been determined. There are no special circumstances to warrant a departure from the general rule, and good reasons not to encourage applications regarding costs on an issue-by-issue basis, involving apportionments based on degrees of difficulty of issues, time taken to argue them and the like. …

(footnotes omitted)

Ms mckenzie’s submissions

10    In support of the costs order Ms McKenzie seeks vis-a-vis Cash Converters, she has undertaken and relies on an analysis of the number of documents that were produced after the Interlocutory Application was filed by comparison to the total number of documents the subject of that application. Based on her analysis Ms McKenzie says that 47 of 162 documents the subject of a claim for privilege by Cash Converters were produced in unredacted or less redacted form after the filing of the Interlocutory Application representing a 29% success rate. While not apparent on the face of the analysis, the document titled “Schedule of documents produced” annexed to Ms McKenzie’s submissions discloses that Ms McKenzie abandoned her challenge to six of the documents the subject of her Interlocutory Application.

11    Ms McKenzie submitted that she does not seek an order that Cash Converters pay her costs of the Interlocutory Application because she recognises that, despite the Court making orders in her favour, there were a number of issues in which she was not successful.

12    Ms McKenzie submitted that she was taking a pragmatic approach, having regard to s 37M of the Federal Court Act. She further submitted, relying on Australian Securities and Investments Commission v Australian Lending Centre Pty Ltd (No 2) (2011) 283 ALR 299; [2011] FCA 1057 (Australian Lending Centre) at [36], that rather than have the Court attempt to quantify the various successes and recoverable costs, in circumstances where success was mixed, the most cost effective course is one which recognises that each party has had a measure of success and thus, there should be no order as to costs.

13    Ms McKenzie also submitted that a brief analysis of what might be thought to be the “usual” costs entitlement on an issue by issue basis supported her proposed approach. In summary, the matters she relied on to support that submission are:

(1)    that she would ordinarily be entitled to her costs of and incidental to the filing of the Interlocutory Application and the preparation of her evidence due to Cash Converters’ conduct in over claiming privilege. She said that, despite correspondence emanating from her solicitors since May 2016 and the filing of the Interlocutory Application on 23 December 2016, it was not until 28 March 2017 that Cash Converters filed an affidavit purporting to properly identify the basis of the claims for privilege;

(2)    whatever the outcome of the Interlocutory Application, Cash Converters was obliged to substantiate its claims for privilege with affidavit evidence such that those costs were required to be incurred by it in the ordinary course of being required to justify its claims and are not recoverable on a “costs follow the event” analysis;

(3)    in terms of the necessity of the hearing, there were real issues about the adequacy of Cash Converters’ evidence such that the Court had to inspect the documents because the evidence was not sufficient. This is not a cost that Ms McKenzie should bear. In other words, Ms McKenzie contends that a hearing was necessary due to “the less than adequate evidence filed in support” of Cash Converters’ claims for privilege; and

(4)    Ms McKenzie accepts that she did not have success on the most significant question the subject of the hearing being that of issue waiver. Accordingly, she submitted that, while it could be argued that Cash Converters is entitled to its costs on the question of issue waiver and Mr Cooke’s dominant purpose, it is not entitled to its costs of the argument about its inadequate evidence which required the Court to inspect the documents.

consideration

14    Taking all of the relevant factors into account, contrary to Ms McKenzie’s submissions, this is not a matter in which I would order that there be no order as to costs. Ms McKenzie has not provided any cogent reason why the usual order, that costs follow the event, should be displaced. In my opinion, Ms McKenzie should be ordered to pay Cash Converters’ costs of the Interlocutory Application.

15    First, while some of the documents the subject of the Interlocutory Application were provided to Ms McKenzie following its filing, Ms McKenzie pressed her application for production of the remainder of the documents. It was the issue of whether the balance of the documents were privileged which was before the Court for determination. Insofar as those documents were concerned, Ms McKenzie was wholly unsuccessful in relation to each issue she raised as against the claims made by Cash Converters. The documents that were the subject of an order for production, although discovered by Cash Converters, were subject to a claim for privilege by the NFSF, not Cash Converters.

16    Ms McKenzie relies on Australian Lending Centre and Mitic v OZ Minerals Limited [2015] FCA 1152 (Mitic) as examples of cases where the Court ordered, on an application for production of documents subject to a claim for legal professional privilege, that there be no order as to costs.

17    In Australian Lending Centre Perram J ordered that, as both parties in that matter had had “some measure of success”, there should be no order as to costs: at [36]. In that case the defendants made an application for the production for inspection of certain documents subject to a claim for legal professional privilege which were in the possession of and had been discovered by the plaintiff, the Australian Securities and Investments Commission (ASIC). There were a number of issues that the Court had to determine. Consideration of the Court’s reasons discloses that his Honour made the costs order because each party had achieved some success in the determination of those issues. That is, ASIC had maintained its claim for privilege over the documents but only insofar as it came into existence after the date on which litigation was anticipated which, his Honour found, was a later date than that propounded by ASIC.

18    In Mitic Edelman J ordered that there be no order as to costs of Mr Mitic’s challenges to OZ Minerals’ claims for privilege. That case concerned claims for privilege over in excess of 4,000 documents discovered by three different parties with many challenges being made to those claims. By consent and cooperation between the parties, his Honour made orders giving effect to a regime permitting each party to nominate up to 20 sample documents representing the documents challenged by that party. During the exchange of evidence and submissions in relation to those documents many of the claims for privilege were conceded or challenges not pressed. Ultimately there were only seven representative documents over which a claim for privilege was contested and which thus had to be considered by the Court. Edelman J upheld the claims over all of the redacted parts of those documents, save for a passage in two documents over which OZ Minerals did not seek to maintain its claim for privilege: at [1]-[3].

19    In making the costs order, that there be no order as to costs, Edelman J noted that OZ Minerals abandoned its claims for privilege over nine of the 20 representative documents nominated by Mr Mitic, representing 45% of the documents over which OZ Minerals had initially made such a claim. His Honour considered that to be a strong reason weighing against the success of OZ Minerals in the application and for making no order as to costs: at [58]. His Honour continued at [59]:

OZ Minerals submits that it should be entitled to some of its costs in circumstances in which (i) it is successful and (ii) Mr Mitic abandoned his challenge to privilege over eight of the remaining documents nominated by Mr Mitic together with the 20 documents nominated by OZ Minerals. However, as counsel for Mr Mitic rightly said, Mr Mitic’s conduct in not pressing claims for privilege over documents which he has not seen in light of submissions and evidence received is less significant in the exercise of my costs discretion than OZ Minerals’ abandoning claims to legal professional privilege over its own documents where some or all of those claims for privilege might have precipitated this application. Although OZ Minerals’ conduct in abandoning its claims to legal professional privilege over some of these documents was appropriate and laudable, Mr Mitic’s persistence with his challenge in relation to the remaining seven documents must also be understood in that light, even bearing in mind the puzzle to which I referred above at [17]. Further, after a close reading of the seven representative documents in this case, I considered it strongly arguable that privilege had been waived over passages in two of them. A claim for privilege over those passages was not abandoned after the hearing.

20    Unlike the position in Australian Lending Centre Ms McKenzie did not achieve any success in the Interlocutory Application as against Cash Converters. On each of the issues before the Court for determination Ms McKenzie was unsuccessful. While, as was the case in Mitic, some of the claims for privilege were conceded by Cash Converters prior to the hearing, the majority of them were maintained and Ms McKenzie pressed her challenge to the balance of the claims including critically, on the issue of waiver which she described as the most significant question at the hearing, and on which she was unsuccessful.

21    Further:

(1)    contrary to Ms McKenzie’s submissions it is not the case that she would ordinarily be entitled to her costs of, and incidental to, the filing of the Interlocutory Application and the preparation of her evidence because Cash Converters over claimed privilege. There was no obligation on Cash Converters to “properly substantiate” its claims prior to the filing of the Interlocutory Application;

(2)    the submission made by Ms McKenzie that, whatever the outcome of the Interlocutory Application, Cash Converters was obliged to substantiate its claims of privilege with affidavit evidence such that those costs are not recoverable is misconceived. For the purposes of the Interlocutory Application, Cash Converters was required to substantiate its claims for legal professional privilege over the documents in issue. For example, in National Crime Authority v S (1991) 29 FCR 203, one of the cases upon which Ms McKenzie relies, Lockhart J said at 211:

When questions of legal professional privilege arise in proceedings before courts there are well established procedures for dealing with them. The claim is asserted on oath and it is open to the court or the person who seeks access to the document or the answer to the question to cross-examine the person who makes the claim. …

    But it does not follow that the costs of preparing that evidence are then not recoverable on a “costs follow the event” analysis. Once an application challenging a party’s claim for privilege is made, the party whose documents are the subject of the challenge may wish to defend the claim and for that purpose provide evidence justifying the claim for privilege. That evidence is prepared and provided expressly for the purpose of the Interlocutory Application. That is what occurred here. That evidence is a part of a party’s costs to which it would, in the absence of some disentitling conduct not present here, ordinarily be entitled on a costs follow the event analysis; and

(3)    of the documents in issue between Ms McKenzie and Cash Converters there were only two documents in relation to which Ms McKenzie submitted that the Court would not exercise its discretion to inspect. I concluded that the evidence and, in particular, Mr Cooke’s evidence, sufficiently established Cash Converters’ claims for privilege, including in relation to those two documents. Having made that finding I inspected all of the documents as I considered it appropriate to do so.

conclusion

22    For the reasons set out above, in my opinion, Ms McKenzie should pay Cash Converters’ costs of the Interlocutory Application. I will make orders accordingly.

Associate:

Dated:    11 April 2018

SCHEDULE OF PARTIES