Federal Court of Australia

ZACD Group Ltd v Bao (Costs) [2023] FCA 1626

ORDERS

THE COURT ORDERS THAT:

1.    Rule 40.13 of the Federal Court Rules 2011 (Cth) be dispensed with.

2.    The plaintiffs pay the defendant’s costs of and incidental to the case management hearings in these proceedings on 4 August 2023 and 4 September 2023 on a party and party basis in accordance with Orders 3 to 5 of these orders.

3.    The defendant’s costs be assessed on a lump sum basis.

4.    The matter be referred to a Registrar to determine the lump sum.

5.    The plaintiffs are to pay the sum determined by the Registrar pursuant to Order 4 of these orders within 28 days of the Registrar’s determination of the lump sum.

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

REASONS FOR JUDGMENT

HALLEY J:

A.    Introduction

1    On 8 September 2023, I made orders that the parties file and serve written submissions on costs with respect to case management hearings in these proceedings on 4 August 2023 and 4 September 2023 (case management hearings) and that the issue be determined on the papers.

2    The case management hearings were concerned with a dispute that had arisen between the parties concerning a request by the defendant for access to a deed of settlement that the plaintiffs in these proceedings had entered into with defendants in related proceedings in the Supreme Court of New South Wales (Settlement Deed).

3    The defendant seeks his costs of and incidental to the case management hearings. The defendant also seeks an order that the Court determine costs on a lump sum basis and that the costs be payable forthwith. The defendant relies upon an affidavit from Jennifer Ruth Ball, a partner at Clayton Utz, the solicitors for the defendant, sworn on 29 September 2023.

4    The plaintiffs submit that the costs of and incidental to the case management hearings should be costs in the cause. The plaintiffs further submit that if the Court is otherwise minded to make an order for costs in favour of the defendant, costs should not be determined on a lump sum basis or be payable forthwith. The plaintiffs rely on an affidavit from Sylvia Fernandez, a partner at Thomson Geer, the solicitors for the plaintiffs, sworn on 29 September 2023.

5    For the reasons that follow, I have determined that the plaintiffs are to pay the defendant’s costs of the case management hearings in a lump sum to be determined by a Registrar and to be paid by the plaintiffs within 28 days of the Registrar determining the lump sum.

B.    Background

6    The factual background to the dispute concerning the production of the Settlement Deed is set forth in the affidavits of Ms Ball and Ms Fernandez. The correspondence between the parties annexed to the affidavit of Ms Ball and exhibited to the affidavit of Ms Fernandez, exposes the plaintiffs repeated refusals to produce to the defendant a copy of the Settlement Deed, notwithstanding that it was expressly referred to in the second further amended statement of claim filed on 7 August 2023 (2FASOC).

7    It is sufficient for present purposes to refer to the following aspects of the factual background.

8    On 18 October 2022, the defendant’s solicitors sought further particulars of the amended statement of claim filed on 2 September 2022.

9    On 1 December 2022, the plaintiffs’ solicitors responded to the request for particulars. The response included a reference to the Settlement Deed.

10    On 20 April 2023, the defendant’s solicitors wrote to the plaintiffs’ solicitors requesting a copy of the Settlement Deed.

11    On 26 April 2023, the plaintiffs’ solicitors wrote to the defendant’s solicitors declining the request for a copy of the Settlement Deed on the basis that:

As is evident from the manner in which that deed has been described, it is subject to a confidentiality clause which operates to restrain the parties to that deed from disclosing its terms to any third party. Our clients are accordingly restrained from providing your client with a copy of the deed and intend to adhere to their contractual obligations.

12    On 20 July 2023, the plaintiffs’ solicitors provided a draft of the 2FASOC to the defendant’s solicitors. It is alleged in the 2FASOC that the plaintiffs’ damages case is to be understood by reference to the terms of the Settlement Deed: see 2FASOC at [77], [80], [80A] and [82].

13    On 25 July 2023, the defendant’s solicitors wrote to the plaintiffs’ solicitors advising them that the defendant would consent to the filing of the 2FASOC in the interests of expeditiously advancing the matter, if the plaintiffs identified the following information in relation to the settlement the subject of the Settlement Deed:

(a)    that date on which the proceedings were commenced in the Supreme Court of New South Wales seeking to recover the alleged loss of $37,500,000 (Recovery Proceeding);

(b)    the identity of the defendant/s in the Recovery Proceeding;

(c)    the basis on which the defendant/s in the Recovery Proceeding were said to be liable to pay the amount of $37,500,000;

(d)    how the Recovery Costs in the sum of $610,327.67 were incurred and why that sum is said to be a reasonable amount of costs; and

(e)    whether the sum of $30,800,000 was accepted by your clients as inclusive of all costs (i.e. the Recovery Costs).

14    On 26 July 2023, the plaintiffs’ solicitors responded to the defendant’s solicitors request for information. The response included the following statements:

As to (e), as advised in previous correspondence and particularised in our clients’ Second Further Amended Statement of Claim (2FASOC), the Recovery Proceeding was settled on a confidential basis pursuant to the terms of a deed of settlement and release (Deed) that is subject to a confidentiality clause which operates to restrain the parties to that Deed from disclosing its terms to any third party. As answering your client’s request would require such a disclosure, our clients are restrained from doing so, absent a Court order requiring such disclosure.

15    On 27 July 2023, I conducted a case management hearing in this matter. The plaintiffs suggested that the appropriate course for the defendant to pursue, if he still pressed for a copy of the Settlement Deed, was for him to issue a notice to produce. I made no formal order for such a notice to produce to be issued but indicated that any such notice could be made returnable at the next case management hearing on 4 August 2023.

16    Later that day, the defendant’s solicitors served a notice to produce on the plaintiffs’ solicitors (notice to produce) calling for the production of the Settlement Deed at the case management hearing on 4 August 2023.

17    On 2 August 2023, the plaintiffs’ solicitors wrote to the defendant’s solicitors to notify them that the notice to produce was defective as it was erroneously stated to have been issued under r 20.35, rather than r 20.31 or r 30.28 of the Federal Court Rules 2011 (Cth) (Rules). They stated that it followed that the notice to produce did not impose any obligation on the plaintiffs to comply with it. They invited the defendant to issue a further notice to produce and otherwise alleged that the Settlement Deed was not relevant.

18    On 4 August 2023, the defendant’s solicitors notified the plaintiffs’ solicitors, prior to the case management hearing, that (a) the defendant maintained his entitlement to inspect a copy of the Settlement Deed, (b) he would not issue a new notice to produce, and (c) he would make a call for the Settlement Deed at the case management hearing.

19    At the case management hearing on 4 August 2023, the defendant made a call for the Settlement Deed. The plaintiffs resisted the call on the basis that “certain events” were to occur under the Settlement Deed “within the next few weeks”. The plaintiffs submitted that the matter should be stood over to enable the plaintiffs to inform other parties to the Settlement Deed of the notice to produce, once the remaining “obligations” under the deed were performed. The proceedings were then stood over to a further case management hearing on 4 September 2023. The “certain events” and the remaining “obligations” were not identified.

20    On 7 August 2023, the plaintiffs filed the 2FASOC.

21    On 4 September 2023, shortly after 4.15 pm, following the case management hearing earlier that day, orders were made by consent that the plaintiffs provide a copy of the Settlement Deed to the defendant’s legal representatives but not to the defendant.

22    On 8 September 2023, the plaintiffs withdrew their opposition to the defendant personally being permitted access to the Settlement Deed and orders were made by consent to give effect to that position.

C.    Costs of the case management hearings

23    The plaintiffs submit that their conduct in resisting production of the Settlement Deed was justified, or, at least, should not give rise to any costs order against them on the following grounds.

24    First, the plaintiffs submit that, at all times, they acted consistently with their contractual obligations under the Settlement Deed and in conformity with their duties as a litigant to the Court. The confidentiality provisions in the Settlement Deed deemed the terms of the deed to be confidential, restrained each party from disclosing the terms other than pursuant to a Court order or, by consent, and where disclosure was required pursuant to a Court order, the disclosing party had to give the other party 72 hours’ notice of its intention to do so.

25    Second, the plaintiffs submit that it was reasonable for them to resist a notice to produce from the defendant for the Settlement Deed. They submit that the notice to produce was defective, because it erroneously stated that it was issued under r 20.35 of the Rules, which does not provide for the unilateral service of a notice to produce, and, in any event, was not an order of the Court and, therefore, did not override the confidentiality provisions in the Settlement Deed.

26    Third, the plaintiffs submit that the reasonableness of their resistance to disclosure of the Settlement Deed cannot be determined on a proper footing until trial, in particular, the merits of the defendant’s contentions that it was necessary to inspect the Settlement Deed to file his defence. In this regard, the plaintiffs submit that disclosure of the Settlement Deed to the defendant was not necessary for him to understand the plaintiffs’ claim for “Recovery Costs”. Nor, they submit, was disclosure of the Settlement Deed necessary to plead anything other than a denial or non-admission in his defence as subsequently demonstrated in the defence at [77]-[78] and [80A]-[82].

27    I do not accept the submissions advanced by the plaintiffs.

28    On any view, the defendant was entitled to inspect a copy of the Settlement Deed. It was expressly referred to in the 2FASOC.

29    The resistance to production of the Settlement Deed on the basis that it was not necessary for the filing of the defence was an unnecessary and unproductive distraction. A defendant does not have to justify an entitlement to inspect documents expressly referred to and relied upon in a pleading, as made clear by r 20.31 of the Rules.

30    Rule 20.31 of the Rules provides that:

20.31    Notice to produce document in pleading or affidavit

(1)    A party (the first party) may serve on another party (the second party) a notice to produce, in accordance with Form 39, for the inspection of any document mentioned in a pleading or affidavit filed by the second party.

(2)    The second party must, within 4 days after being served with the notice to produce, serve the first party with a notice:

(a)    stating:

(i)    a time, within 7 days after service of the notice, when the document may be inspected; and

(ii)    a place where the document may be inspected; or

(b)    stating:

(i)    that the document is not in the second party’s control; and

(ii)    to the best of the second party’s knowledge—where the document is and in whose control it is; or

(c)    claiming that the document is privileged and stating the grounds of the privilege.

(3)    If the second party does not comply with paragraph (2)(a) or (b) or claims that the document is privileged, the first party may apply to the Court for an order for production for inspection of the document.

Note:    Control is defined in the Dictionary

31    On its face, r 20.31 makes plain that a party is entitled to serve a notice to produce for the inspection of any document referred to in a pleading by another party and that any failure to comply enlivens an entitlement to apply to the Court for an order for production for inspection of the document.

32    The resistance to production on confidentiality grounds was also unnecessary and unproductive. The other parties to the Settlement Deed, when belatedly approached, had no objection to the disclosure of the deed. There was never any material impediment, on confidentiality grounds, to the disclosure of the Settlement Deed.

33    Any legitimate concerns about the confidentiality provisions in the Settlement Deed, could and should, if the plaintiffs were acting reasonably, have been resolved by the plaintiffs seeking the consent of the other parties to the Settlement Deed on 25 July 2023, following the defendant’s further request for access to the deed. Had that course been taken, the contested case management hearings would not have been necessary. Rather, the plaintiffs’ solicitors wrote to the defendant’s solicitors on 25 July 2023 reiterating their earlier advice that the confidentiality provisions in the Settlement Deed precluded disclosure without a Court order. That advice was plainly incomplete. The terms of the Settlement Deed expressly provided for disclosure without a Court order, if the consent of the other parties to the deed was obtained.

D.    Lump sum costs application

D.1.    Overview

34    In addition to seeking a costs order against the plaintiffs, the defendant seeks orders that his costs be assessed by the Court in a lump sum amount of $20,687.04 and that amount be payable forthwith. The plaintiffs oppose the order sought by the defendant. They submit that there is insufficient evidence before the Court to enable a proper determination of an appropriate lump sum costs order and that there is no principled basis for any costs order made against them to be made payable forthwith.

D.2.    Can a lump sum costs order be made?

35    It is desirable that the quantification of costs should be undertaken in a manner that minimises additional costs and the lump sum mechanism is typically best suited, in many cases, to achieve that objective. The determination of a lump sum amount is to “be fixed broadly having regard to the information before the Court” and by a process that is “logical, fair and reasonable”: Beach Petroleum NL v Johnson (No 2) (1995) 57 FCR 119 at 123-124 (von Doussa J). A “much broader brush” is to be applied than on a taxation of costs: Hadid v Lenfest Communications Inc [2000] FCA 628 at [27] (Lehane J). A lump sum costs order, however, can only be made when the Court is satisfied that it can be made fairly between the parties, including being satisfied that it has sufficient material before it to determine an appropriate lump sum: Harrison v Schipp (2002) 54 NSWLR 738; [2002] NSWCA 213 at [22] (Giles JA).

36    In my view, the level of scrutiny necessary to permit the making of lump sum costs order is typically informed by the level of complexity of the work undertaken, the potential overlap with work that is not the subject of the costs order, and the quantum of the sum sought.

37    The amount sought by the defendant in a lump sum amount is $20,687.04. That figure comprises:

(a)    $13,717.44 for solicitors’ costs, calculated on a party and party basis by taking 60% of alleged total costs of and incidental to the case management hearings of $22,862.40 (including GST) (comprising 6.6 hours of partner time at an hourly rate of $1,175 (excluding GST) and 20.2 hours of a third-year lawyer at an hourly rate of $645 (excluding GST)); and

(b)    $6,969.60 for counsel’s fees (comprising 14.08 hours at an hourly rate of $450 (excluding GST)).

38    In my view, the evidence presently relied upon by the defendant is insufficient to support the making of a costs order in a lump sum, for the following reasons.

39    First, as the plaintiffs submit, the defendant has not adduced evidence of the letters of engagement of solicitors or counsel, tax invoices issued by solicitors and counsel, narratives to explain the workstreams to which the amounts claimed relate and any record proving that the solicitor/client costs had been paid by the defendant. While not necessarily determinative, the absence of evidence of this nature makes it more difficult for the Court to be satisfied that the party seeking a lump sum costs order has provided sufficient evidence for an order to be made.

40    Second, the generality of the defendant’s narrative of the work undertaken by his solicitors, provides insufficient information to permit a logical, fair or reasonable lump sum determination by the Court. The only narrative provided states:

Costs of and incidental to case management hearings held on 4 August 2023 and 4 September 2023 - including correspondence with Plaintiffs; correspondence with Defendant including obtaining instructions and updating on matters arising; correspondence with Counsel; prepare and draft documentation; including notice to produce and affidavit; prepare for and attend case management hearings; associated miscellaneous tasks

(Emphasis in original.)

41    The dates on which the work was undertaken are not identified and the narrative is insufficient to enable the Court to be satisfied, on a lump sum basis, that all of the costs claimed related to work that was “of and incidental” to the case management hearings.

42    Nevertheless, I am satisfied that in order to limit further expenditure and potential delay, a lump sum determination of the defendant’s costs by a Registrar, pursuant to the procedures outlined in Pt 4 and Annexure A to this Court’s Costs Practice Note (GPN-COSTS), is preferable to an order for taxation of those costs.

D.3.    Should the defendant’s costs be payable forthwith?

43    I now turn to the defendant’s application that his costs of the case management hearings be payable forthwith.

44    Rule 40.13 of the Rules provides that generally, an interlocutory costs order is not to be taxed until the proceeding in which the order has been made has concluded. The rationale for such an order was recently restated by Colvin J in Sharif v Vitruvian Investments Pty Ltd (No 2) [2023] FCA 619 at [4] in the following terms:

Ordinarily, the costs of an interlocutory application are not to be taxed until the proceeding in which the order is made is finished: r 40.13 of the Federal Court Rules 2011 (Cth). There are good reasons for the assessment and payment of the costs of proceedings to be dealt with at the conclusion of the proceedings. It is more efficient. It enables amounts to be set off. It recognises that in many cases the parties are able to reach agreement in which case there is no need for assessment. It directs the attention of the parties to the resolution of the substantive controversy and discourages satellite litigation about costs.

45    In Watson v Kriticos (Costs of Summary Judgment Application) [2021] FCA 917 at [23], Perram J observed:

The ordinary rule is that costs cannot be taxed or assessed until the determination of the proceeding: FCR r 40.13. Relevant matters include the possibility that costs orders made in favour of one party in the course of a proceeding may be set off against costs orders made in favour of the other and the desirability of avoiding multiple taxations: Capic v Ford Motor Company of Australia Ltd (Costs Forthwith) [2019] FCA 1065 (‘Capic’) at [17]. The ordinary rule may be departed from where a party has engaged in unreasonable behaviour which has caused the other party to incur additional expenditure which would have not have been incurred if the other party had acted with competence and diligence: Capic at [18]. It is also relevant to take into account the length of time between when the costs order is made and when the costs might finally be taxed, ie, how long the matter will take to get to trial and judgment. On the other hand, a costs payable forthwith order is not to be seen as akin to an indemnity costs order.

46    In Richmond v Ora Gold Limited [2020] FCA 70, Colvin J concluded, after reviewing authorities addressing the circumstances in which the Court may make an order that interlocutory costs are to be paid forthwith:

[34]    As to the references to an order being justified by unreasonable conduct, the possibility of an order for costs thrown away to be payable immediately may be an important means by which the Court can discourage unhelpful interlocutory disputation and conduct inconsistent with the responsibility of all practitioners to confine the extent of court hearings to the real issues essentially for the fair, just and prompt resolution of the dispute and to confer with each for the purpose of doing so. In Allstate Life Insurance Co, Lindgren J expressed the view that the power to make an order for costs to be paid forthwith was ‘possibly underutilised’ and accepted that a history of interlocutory disputes being raised by a party may be a reason for considering whether to make an order for costs to be paid forthwith.

…

[37]    In my view, the references in the cases as to unreasonableness as a basis for exercising the discretion to order that costs thrown away be assessed and paid forthwith are intended to capture those cases where there has been a relatively serious failure to observe the approach to the bringing or contesting of interlocutory applications that may be expected to be adopted in accordance with the modern approach to case management. It is not necessary for some form of improper conduct of the kind that might justify indemnity costs to be shown. However, where the order is sought on the basis of a single instance of behaviour that might be considered to be unreasonable then the consequence will need to be significant in order to justify a departure from the terms of r 40.13.

47    In my view, it is appropriate, for the following reasons, that the plaintiffs pay the defendant’s costs within 28 days of the determination of a lump sum by a Registrar.

48    I am satisfied that the plaintiffs’ resistance to production of the Settlement Deed was inconsistent with the responsibility of all practitioners to confine matters raised in Court hearings to the real issues essential for the fair, just and prompt resolution of disputes. The conduct took place over a number of months and continued in the face of repeated requests for access to a document that the defendant was plainly entitled to inspect. The plaintiffs’ belated request for consent from the other parties to the Settlement Deed for the disclosure of the deed to the defendant was inexplicable and when ultimately made, was apparently readily provided. Further, in my view, the delay in the provision of a copy of the Settlement Deed was largely responsible for the inordinate delay in the filing of the 2FASOC because, understandably, the defendant sought access to the deed before giving his consent to it being filed.

49    In all the circumstances, I am satisfied that the plaintiffs’ conduct was unreasonable. I am satisfied that the plaintiffs’ resistance to the disclosure of the Settlement Deed reflected a technical, overzealous and misguided approach to the resolution of an, ultimately, entirely unnecessary dispute that had arisen between the parties.

E.    Dispostion

50    Orders will be made that the plaintiffs are to pay the defendant’s costs of and incidental to the case management hearings, that the costs be determined by a Registrar on a lump sum basis and the costs are to be paid within 28 days of that determination.

Associate:

Dated:    19 December 2023