FEDERAL COURT OF AUSTRALIA

Directed Electronics OE Pty Ltd v OE Solutions Pty Ltd (No 7) [2020] FCA 206

ORDERS

THE COURT ORDERS THAT:

1.    There be no order as to costs in respect of the application resulting in the Order of Justice O’Callaghan dated 6 March 2019, as detailed in Directed Electronics OE Pty Ltd v OE Solutions Pty Ltd (No 3) [2019] FCA 285.

2.    The first and sixth respondents pay 80% of the applicant’s costs of and incidental to the applications resulting in the Order of Justice Anderson dated 17 February 2020, as detailed in Directed Electronics OE Pty Ltd v OE Solutions Pty Ltd (No 6) [2020] FCA 64, with such costs to be taxed on a standard basis and payable forthwith.

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

REASONS FOR JUDGMENT

ANDERSON J:

Introduction

1    This decision concerns the appropriate costs order in respect of two interlocutory decisions in this proceeding, namely Directed Electronics OE Pty Ltd v OE Solutions Pty Ltd (No 3) [2019] FCA 285 (Primary Judgment) and Directed Electronics OE Pty Ltd v OE Solutions Pty Ltd (No 6) [2020] FCA 64 (Re-determination Judgment).

2    For the reasons expressed below, I will make orders to the effect that:

(a)    there be no order as to costs in respect of the Primary Judgment; and

(b)    the first respondent (OE Solutions) and the sixth respondent (Mr Meneses) (together, the Meneses parties) pay 80% of the applicant’s (Directed’s) costs of and incidental to my Re-determination Judgment, with such costs to be taxed on a standard basis and payable forthwith.

Background

3    The history of the proceeding is detailed in my Re-determination Judgment. Those reasons also define various terms, and explain certain concepts, that are referred to below in these reasons.

4    In short, in the Primary Judgment a judge of this Court (primary judge) refused the privilege claims of the Meneses parties. However, the primary judge’s decision was overturned on appeal: Meneses v Directed Electronics OE Pty Ltd [2019] FCAFC 90 (Full Court Judgment). The Full Court subsequently held that Directed pay the Meneses parties’ costs of the application for leave to appeal and the appeal, but that the costs of the application before the primary judge be reserved: Meneses v Directed Electronics OE Pty Ltd (No 2) [2019] FCAFC 200 (Full Court Costs Judgment).

5    Mr Meneses’ privilege claims were remitted to me for re-determination. This included, most fundamentally, the determination of an essential factual enquiry, namely the identification of which documents were within OE Solutions’ control at the relevant time: see [155] of the Full Court Judgment.

6    On 7 February 2020, in the Re-determination Judgment, I delivered reasons for judgment addressing the application by the Meneses parties to be relieved from the obligation to produce certain documents for inspection by Directed on the grounds of Mr Meneses’ privileges against self-incrimination and self-exposure to penalties. I made orders requiring the parties to provide submissions on costs and the appropriate form of final relief.

7    On 17 February 2020, after receiving written submissions from the parties regarding the form of final relief, I made the following relevant orders:

1.     The application by the First Respondent (OE Solutions) and the Sixth Respondent (Mr Meneses) (together, the Meneses Parties) to be relieved from the obligation to produce documents for inspection by the Applicant (Directed) on the grounds of the privilege against self-incrimination and the privilege against self-exposure to penalties:

(a)     in relation to OE Solutions, is dismissed; and

(b)     in relation to Mr Meneses:

(i)     is dismissed in respect of the documents enumerated in categories P1A, P1B and P2 of Part 2 of the Meneses Parties’ Lists of Documents filed on 18 December 2019 and 6 January 2020 (List of Documents); and

(ii)     is granted in respect of the documents enumerated in categories P3 and P4 in Part 2 of the List of Documents.

2.     OE Solutions is required to produce for inspection by the parties in this proceeding, including Directed, the documents enumerated in categories P1A, P1B, P1C, P1D and P2 of Part 2 of the List of Documents (Producible Documents).

3.     Pursuant to s 57(1) of the Federal Court of Australia Act 1976 (Cth), Mr John Lindholm of KPMG Australia (KPMG) is appointed, without any requirement to file security, until further order as receiver of the Producible Documents (Receiver), in accordance with the powers in the Schedule of Powers or such further or other powers as the Court thinks fit.

8    In accordance with my order on 7 February 2020, Directed and Mr Meneses filed written submissions in respect of the costs of the Primary Judgment and the Re-Determination Judgment. Directed sought orders that:

(a)    the Meneses parties pay Directed’s costs of the Primary Judgment, with such costs to be taxed and payable forthwith; and

(a)    the Meneses parties pay 80% of Directed’s costs of the Re-Determination Judgment, with such costs to be taxed and payable forthwith.

9    Conversely, Mr Meneses sought orders that Directed pay Mr Meneses’ costs of both the Primary Judgment and the Re-Determination Judgment. (OE Solutions did not make any submissions in respect of costs given it has been unrepresented in the proceeding since 20 January 2020: see Re-determination Judgment at [39] and [141].)

General principles

10    The award of costs is in the discretion of the court: s 43(2) of the Federal Court of Australia Act 1976 (Cth); Idenix Pharmaceuticals LLC v Gilead Sciences Pty Ltd (No 2) [2018] FCAFC 7 at [3] per Nicholas, Beach and Burley JJ; Umoona Tjutagku Health Service Aboriginal Corp v Walsh [2019] FCAFC 32 (Walsh) at [41] per White, Perry and Banks-Smith JJ. That discretion is broad, and takes into account a broad evaluative judgment of what justice requires: Gray v Richards (No 2) [2014] HCA 47; 89 ALJR 113; 315 ALR 1 (Gray) at [2] per French CJ, Hayne, Bell, Gageler and Keane JJ.

11    The court’s discretion must be exercised judicially, that is, not arbitrarily or capriciously: Walsh at [41] per White, Perry and Banks-Smith JJ, citing Oshlack v Richmond River Council [1998] HCA 11; 193 CLR 72 at [22] per Gaudron and Gummow JJ. Ordinarily, costs will be awarded to the successful party, although other factors may influence the court’s discretion: Gray at [2], citing Stewart v Atco Controls Pty Ltd (In liq) (No 2) [2014] HCA 31; 252 CLR 331 at [4] per Crennan, Kiefel, Bell, Gageler and Keane JJ; see also Walsh at [42].

Consideration

12    It is convenient to first consider the application of these principles to my Re-determination Judgment before turning to the Primary Judgment.

Re-determination Judgment

Degree of success on re-determination

13    Directed was substantially successful against the Meneses parties in the Re-determination Judgment. The Meneses parties applied to be relieved of the obligation to produce documents enumerated in Part 2 of the Meneses parties’ List of Documents filed on 18 December 2019 and 6 January 2020. As explained in the Re-determination Judgment, these documents were grouped into particular categories. In their written submissions dated 9 January 2020, the Meneses parties abandoned their application in respect of the documents in categories P1C and P1D and agreed to produce those documents.

14    After hearing the parties, I granted the Meneses parties’ application to be relieved of the obligation to produce documents in categories P3 and P4. However, I dismissed OE Solutions’ application (most importantly in respect of the documents in categories P1A, P1B and P2). In doing so, I held that, contrary to the Meneses parties’ argument, the Court was entitled to make an order directing either the independent parties or Norton Rose Fulbright (NRF) to produce copies of the relevant documents (although it was ultimately preferable to require the independent parties to do so). The Meneses parties were also unsuccessful in their opposition to Directed’s application to appoint a receiver over the relevant documents (for the purposes of those documents being produced to Directed).

OE Solutions’ termination of NRF retainer

15    An additional consideration weighs against the Meneses parties. On 20 January 2020, eight days prior to the hearing before me, OE Solutions filed a notice that it had terminated its retainer with NRF, and that it was no longer represented in the proceeding. As I noted at [141] of the Re-determination Judgment, “Counsel for Mr Meneses was unable to provide a sufficient explanation for OE Solutions’ late termination of its retainer with NRF, and I have not otherwise received one”. As Directed submits, the apparent design of the retainer termination was to circumvent a potential order by this Court requiring NRF to provide the relevant documents to OE Solutions.

16    For the purposes of this costs decision, all that I conclude is that the termination by OE Solutions of its retainer with NRF was exceptionally late in the context of this interlocutory dispute. It occurred eight days before the hearing of the re-determination, and more than two years after the Meneses parties had instigated their application. This late shift in the factual matrix, although ultimately not determinative, caused additional complexity in the issues argued at the hearing. I take this into account in exercising my discretion.

Exercise of discretion

17    Having regarding to all the relevant circumstances, the Re-determination Judgment reflects a mixed outcome. The Meneses parties achieved success in respect of categories P3 and P4. Moreover, I do not think that the Meneses parties should be harshly penalised for conceding the production of the documents in categories P1C and P1D. Although that concession arrived late in the broader context of this interlocutory dispute, it was only shortly after the proceeding had “re-set”, and the true questions for determination had been clarified, upon remitter from the Full Court. Notwithstanding these observations, the end result was that Directed was substantially successful before me.

18    Where there is mixed success in an application or proceeding that justifies the exercise of the court’s discretion to apportion costs, the question of apportionment is a matter of discretion for the court: Dodds Family Investment Pty Ltd (formerly Solar Tint Pty Ltd) v Lane Industries Pty Ltd (1993) 26 IPR 261 at 272 per Gummow, French and Hill JJ. In the present case, the appropriate starting point is that Directed’s substantial success entitles it to a costs award in its favour. However, the totality of the outcome upon re-determination justifies a discount of 20% on the costs which would otherwise be payable by the Meneses parties.

19    This discount should be applied on a global basis, as an issue-by-issue approach is unwarranted: see Moroccanoil Israel Ltd v Aldi Foods Pty Ltd (No 2) [2017] FCA 1393 at [64] per Katzmann J. In particular, my view is that, contrary to Mr Meneses’ submission, the appropriate apportionment in this case should not be performed by reference to the quantity of documents in each relevant category. (According to Mr Meneses’ submissions, he successfully resisted the production of 2,090 documents out of 3,037 documents in dispute.) This method of apportionment is inapposite in the circumstances. This is because, amongst other reasons, given the re-determination was conducted on the basis of sample documents for each category of documents, the time and costs incurred for each category was not proportionate to the respective quantity of documents in each such category.

20    Directed and Mr Meneses accept that this is an appropriate case in which costs should be taxed and paid forthwith: see Australian Mud Company Pty Ltd v Coretell Pty Ltd (No 4) [2013] FCA 567 at [31] per Barker J and Telstra Corporation Limited v Phone Directories Company Pty Ltd (No 3) [2014] FCA 949 at [39] per Murphy J. Accordingly, I will order that the Meneses parties pay 80% of Directed’s costs of and incidental to my Re-determination Judgment, with such costs to be taxed on a standard basis and payable forthwith.

Primary Judgment

Meneses parties’ appellate success

21    The Meneses parties were ultimately successful in the Full Court in respect of two key propositions. The first was that Mr Meneses was entitled to assert the common law privileges in respect of documents seized under the search order made by the docket judge. The second proposition was that it was impermissible for the court to require OE Solutions to produce documents if Mr Meneses was the only person who could comply with such an order on the company’s behalf. This was the Meneses parties’ position throughout the course of the application before the primary judge. The Full Court upheld both of these propositions: see, in particular, Full Court Judgment at [152]. Directed was conversely unsuccessful before the Full Court in respect of these issues. The Full Court accordingly ordered that Directed pay the Meneses parties’ costs of the application for leave to appeal and the appeal: Full Court Costs Judgment at [4]-[5]. The Full Court then ordered that the Meneses parties’ privilege claims be remitted for re-determination.

22    Where an appellate court orders that there be a new trial, the successful appellants will ordinarily receive the costs of the first trial unless there are special circumstances justifying another order: Commissioner of Taxation v AusNet Transmission Group Pty Ltd (No 2) [2015] FCAFC 124 at [10] per Kenny, Edmonds and Greenwood JJ; see also Protect Pacific Pty Ltd v Steuler Services GmbH & Co KG [No 2] [2015] VSCA 123 at [44] per Tate, Santamaria and Kyrou JJA; and see generally Dal Pont GE, Law of Costs (4th ed, LexisNexis Butterworths, 2018) (Law of Costs) [20.12]. Given the ultimate outcome of the application was not yet known, the Full Court reserved the costs of the application before the primary judge: Full Court Costs Judgment at [7]-[8]. The outcome of the applications before me was discussed above. There are various other considerations in the present case which influence the appropriate costs order for the Primary Judgment.

Other relevant considerations

23    To start, one basis on which a successful appellant may not receive the costs of the first trial is where costs were unnecessarily increased by that party’s conduct at trial: Bowen v Alsanto Nominees Pty Ltd [2011] WASCA 39 (S) at [10] per McLure P, Newnes and Murphy JJA. In the present case, the manner in which the Meneses parties conducted the application before the primary judge created certain procedural and evidentiary difficulties. Before the primary judge, the Meneses parties relied upon affidavits verifying lists of documents which simply stated that the documents identified in Part 2 of those lists of documents were in the control of Mr Meneses, either personally or in his capacity as sole director of OE Solutions. As the Full Court observed at [150] of the Full Court Judgment, the lists of documents therefore did not strictly comply with the relevant rules. This flaw in part caused the primary judge to focus on whether the relevant documents were documents “of” Mr Meneses, or “of” OE Solutions. This led the primary judge into error: ibid at [149]-[151]. The correct question was whether the documents were in the control of Mr Meneses or OE Solutions (or both). As Directed now submits, the hearing before the primary judge was run by the Meneses parties on a faulty foundation with consequential waste of time.

24    A further consideration in the present case is the fact that the Meneses parties caused undue cost and delay by failing to file sufficient evidence in support of their privilege claims before the primary judge. The hearing before the primary judge took place over four separate days: 26 October 2018, 19 November 2018, 11 December 2018 and 11 February 2019. On the third day (11 December 2018), the Meneses parties applied for an adjournment to enable them to put on further confidential evidence seeking to justify their claims of privilege and, in particular, to explain why certain documents were in the power, possession or control of Mr Meneses in his own capacity, or were not documents of OE Solutions: Primary Judgment at [50]. The primary judge granted the adjournment: ibid at [51]. It is apparent from the reasons of the primary judge that the Meneses parties only sought to produce the additional evidence after the primary judge indicated that their existing evidence was in some respects deficient: ibid at [52].

25    On the other hand, one notable feature of the application before the primary judge weighs against Directed. At the time of the Primary Judgment, Directed had not applied for the appointment of a receiver over the relevant documents for the purpose of facilitating OE Solutions’ production of those documents. It is apparent that Directed had regard to the observations of the Full Court that it was necessary to consider mechanisms by which OE Solutions could produce the relevant documents other than through Mr Meneses: Full Court Judgment at [153], citing R v Ronen [2004] NSWCCA 67; 62 NSWLR 707 at [79] per Spigelman CJ and Re Australian Property Custodian Holdings Ltd (in liq) (recs and mgrs apptd) (controllers apptd) (No 2) [2012] VSC 576; 93 ACSR 130 at [159] per Robson J. After the Full Court’s decision, Directed filed an interlocutory application seeking, for the first time, to appoint a receiver for these purposes.

26    The appointment of a receiver was ultimately central to the mechanism by which the relevant documents are to be produced to Directed: Re-determination Judgment at [160]-[164]. The delay of Directed to raise this solution until shortly prior to my re-determination counteracts Directed’s submission that the Meneses parties should pay its costs of the Primary Judgment.

Exercise of discretion

27    As discussed above, Directed was substantially successful on re-determination of the matter. This ultimate success would, ordinarily, strongly influence the court’s discretion as to the costs of the first trial (where that had not already been determined). However, due to the features of the litigation identified above, the application before the primary judge was conducted on a very different basis to which the application was conducted on remitter. For the purposes of determining the costs of the application before the primary judge, there is minimal material connection between the outcome of the Primary Judgment and the Re-determination Judgment.

28    Having regard to all the relevant circumstances, in particular those discussed above, my view is that there should be no order as to the costs of the application before the primary judge. Ultimately, each party experienced some success. However, each party bears some responsibility for the manner in which the prolonged interlocutory phase of this proceeding has been conducted. In these circumstances, neither party should be compensated for their costs before the primary judge: see, by way of analogy, Day v Estate of Adams (deceased) trading as Tattersall Sweep Consultation (unreported, TASSC, Slicer J, 17 March 1997), cited in Law of Costs at [8.49] fn 279.

Conclusion

29    For the reasons expressed above, I order that:

1.    There be no order as to costs in respect of the application resulting in the Order of Justice O’Callaghan dated 6 March 2019, as detailed in Directed Electronics OE Pty Ltd v OE Solutions Pty Ltd (No 3) [2019] FCA 285.

2.    The first and sixth respondents pay 80% of the applicant’s costs of and incidental to the applications resulting in the Order of Justice Anderson dated 17 February 2020, as detailed in Directed Electronics OE Pty Ltd v OE Solutions Pty Ltd (No 6) [2020] FCA 64, with such costs to be taxed on a standard basis and payable forthwith.

Associate:

Dated:        27 February 2020

SCHEDULE OF PARTIES