Federal Court of Australia

Harrold v Exactech Australia Pty Ltd [2025] FCA 1058

ORDERS

THE COURT ORDERS THAT:

1.    Pursuant to r 24.22 of the Federal Court Rules 2011 (Cth), the Costs Respondent is to pay the Costs Applicant's reasonable loss and expense in complying with the subpoena to produce documents issued on 20 November 2024 in the sum of $112,262.84.

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

REASONS FOR JUDGMENT

Delivered ex tempore, revised from transcript

JACKMAN J:

1    The Australian Orthopaedic Association (Costs Applicant) seeks orders pursuant to r 24.22 of the Federal Court Rules 2011 (Cth) that the applicant in the substantive proceedings, Mr Simon Harrold (the Costs Respondent), pay the amount of the Costs Applicant's loss or expense incurred in complying with a subpoena to produce documents issued on 20 November 2024. Rule 24.22(1) provides as follows:

The Court may order the issuing party to pay the amount of any reasonable loss or expense incurred in complying with the subpoena.

It is common ground that I should fix the amount on a lump sum basis under subrule (2).

2    The subpoena required production of documents that record or evidence the number of revision surgeries performed in connection with a list of twenty-two "joint devices" by a return date of 4 December 2024. Prior to undertaking the work to locate the documents sought by the Costs Respondent, the Costs Applicant's solicitors wrote to the Costs Respondent's solicitors, stating that the fees that the Costs Applicant will charge to locate the information sought by the subpoena (with assistance from South Australian Health and Medical Research Institute) would be in the vicinity of $80,000 (for ten reports at approximately $8,000 each), provided a breakdown of that estimate and invited the Costs Respondent to reduce the scope of the subpoena. That estimate was given commendably in compliance with para [9.4] of the Subpoenas and Notices to Produce Practice Note (GPN-SUBP), which stipulates that the addressee should raise with the issuing party at an early stage in the compliance process any significant costs that are expected to be incurred in complying with the subpoena, including if third-party contractors are proposed to be engaged by the addressee with respect to production of documents.

3    Between 3 and 10 December 2024, the parties' solicitors exchanged emails regarding the scope of the subpoena and proposed return date. A number of attempts by the Costs Respondent to organise a meeting with the Costs Applicant were unsuccessful. On 10 December 2024, seven days before the then return date, the Costs Respondent proposed that the period be revised to "1 January 2024 to date". However, ultimately, the Costs Respondent required the Costs Applicant to produce the scope of documents originally sought in the subpoena, in advance of a revised return date of 23 December 2024. The Costs Respondent insisted that the documents be produced by that date in order to be available for a mediation in the class action proceeding, describing the documents sought as being "very important for the mediation".

4    On 20 February 2025, the Costs Applicant's solicitors wrote to the Costs Respondent's solicitors requesting payment of the Costs Applicant's costs of complying with the subpoena of $88,000 including GST, consistently with the 26 November 2024 estimate. In response, the Costs Respondent initially offered only $2,000 on 25 February 2025, and three months later on 25 June 2025, offered to pay $30,000 including GST which was rejected by the Costs Applicant.

5    A narrow view should not be taken of the scope and application of r 24.22 in circumstances where a third party to litigation is involved. The power to issue a subpoena to compel production of documents under pain of contempt of court is an intrusion into the time, affairs, and freedom of a third party with no interest in the litigation, in the interests of the administration of justice. The public policy in favour of the proper administration of justice requires that a third party whose time and energy are thus conscripted be properly compensated for any loss or expense incurred, and also requires that the third party not be discouraged from complying with the terms of the subpoena by competing demands on that time and energy.

6    In Australian Competition and Consumer Commission v Boral Limited [2007] FCA 14 (ACCC v Boral) at [9], Finkelstein J cited with approval the decision of Bainton J in Deposit and Investment Co Limited (Receivers Appointed) v Peat Marwick Mitchell and Co (1996) 39 NSWLR 267 (Deposit and Investment Co) as to the kinds of expenses that are regarded as reasonable for the purpose of the similarly worded rule in Part 37, r 9, which was then applicable under the Supreme Court Rules 1970 (NSW). Justice Bainton said that a professional person taken away from his or her income earning activities will lose what they would have earned in the time spent in obeying the subpoena (at 289D– E).

7    His Honour said (at 290D–G) that in terms of the time spent by a company's employees in answering a subpoena, the recoverable cost involved is not only the cost of their wages but also the add-on costs, such as compulsory superannuation, the premium for workers' compensation insurance, holiday pay and long service leave, and in addition, the cost of office space (suitably air-conditioned) and secretarial assistance, all of which supports the non-income producing activity of collating and copying documents to answer a subpoena.

8    Further, Bainton J said that the rule covers the real cost to a company of having its executives devote time to answering subpoenas rather than getting on with the company's business activities (at 292C –D). Where the addressee of a subpoena is a firm of solicitors, the work of non-professional employees in answering a subpoena is an additional cost which must be met and should be recompensed. If a partner is required to perform such a task, that reduces the firm's income and the effect on the bottom line is the same in principle as increasing the partnership's expenses (at 292F–G). The partner may end up working longer hours, but the firm has lost the financial benefit of the partner working those longer hours by having its ordinary working hours rendered, in fact, non-income producing by having to search for documents to answer a subpoena (at 292G).

9    Accordingly, Bainton J held that a firm required to answer a subpoena to produce documents is entitled to be reimbursed in respect of a partner's time spent on that task at his or her ordinary charge out rate (at 292G). If the work is done by an employed solicitor, the reimbursement should be at that solicitor's charge out rate, provided in both cases that the partner or employee would be otherwise devoting that time to charge for work, as would usually be the case (at 293A). Given that usual circumstance, it appears that Bainton J was prepared to infer that the partners or employees would otherwise have devoted that time to charge for work in the absence of any evidence to the contrary.

10    Similarly, Campbell J said in Foyster v Foyster Holdings Pty Limited (in liq) [2003] NSWSC 881 at [14] and in J Aron Corp v Newmont Yandal Operations Pty Limited [2004] NSWSC 996 at [18] that in the rule permitting the reasonably incurred expense or loss incurred in complying with the subpoena, the notion of "loss" includes reasonable reimbursement for time spent in complying with the subpoena that would otherwise have been spent in productive activities. Justice Finkelstein in ACCC v Boral at [9] also cited those decisions with approval.

11    As to legal costs of compliance with a subpoena, such costs are usually assessed on a solicitor and own client (that is, the indemnity) basis, the rationale being that a stranger to the litigation should be fully compensated for what it has in fact cost that party to comply with the subpoena: Fuelxpress Limited v L M Ericsson Pty Limited (1987) 75 ALR 284 at 286 (Lockhart J); Titan Enterprises (Qld) Pty Limited v Cross [2016] FCA 1275 (Titan Enterprises) at [12] (Logan J). Those costs extend to legal advice in respect of the lawfulness of the production obligation and whether any privilege claim is open: Titan Enterprises at [9].

12    The Costs Applicant charges $8,460 per report to any third parties requiring production of this information. The figure has been determined by the Costs Applicant's board and the evidence establishes that it is reasonable. This scheduled amount is charged by the Costs Applicant to recover operating costs that are incurred to produce the reports, and it does not include any profit margin. Applying the reasoning of Bainton J in Deposit and Investment Co, I regard that charge per report as the most appropriate measure of the expense or loss incurred in complying with the subpoena. A total of twenty-four reports were produced by the Costs Applicant (which equates to $203,040) but only $80,000 plus GST is sought to be charged by the Costs Applicant in line with its initial estimate. I regard that as a kindness on the part of the Costs Applicant, which the Costs Respondent should have gratefully accepted. It is not necessary for me to decide whether the Costs Applicant would have been entitled to charge more than $80,000 plus GST for production of the reports, although I have some misgivings to the effect that the Costs Applicant may have shortchanged itself.

13    The Costs Respondent submits that Table 2 in the reports which were produced was not required by the subpoena, but there does not appear to be any evidence as to the proportion of the costs claimed which is attributable to the costs of producing Table 2 in each of the reports. The Costs Respondent submits that no less than 50% of the cost is attributable to Table 2, but there is no evidence in support of that figure. The expert evidence relied upon by the Costs Respondents, of Professor Mengerson (at [31]) in her first report merely says that Table 2 involves some additional work over and above Table 1. I am simply unable to quantify the extent to which the work in producing Table 2 may have contributed to the entire costs, but I am confident that such a figure is likely to be immaterial in the overall assessment when one bears in mind that the Costs Applicant has limited its claim to its initial estimate of $80,000 plus GST despite the fact that twenty-four reports produced to a third party commercially would have cost that third party $203,040.

14    The Costs Respondent challenges the reasonableness of the number of hours spent by the Costs Applicant in answering the subpoena. However, the evidence establishes the following matters. The Costs Applicant conducted a quality assurance activity and was required to review and produce the data in a manner which complies with the Commonwealth Qualified Privilege Scheme: Health Insurance Act 1973 (Cth), ss 124X and 124Y; Health Insurance Regulations 2018 (Cth), s 86. Substantial time and resources were required in order to ensure no individual patient, hospital or institution was identifiable in the reports and that the data was accurate. The Costs Applicant maintains policies to ensure these legislative requirements are complied with internally.

15    The Costs Applicant submits, and I accept, that the costs claimed are reasonable in circumstances where compliance required the following steps in accordance with the Costs Applicant's release of information, policy and data collection information protocol:

(a)    preparation of twenty-four draft reports by three statisticians;

(b)    review of the draft reports for Federal qualified privilege by the Costs Applicant as data custodian under the Qualified Privilege Scheme pursuant to the Commonwealth legislation referred to above;

(c)    review of the draft reports by four more statisticians, seven clinical directors and the senior data manager for accuracy and compliance with the above legislation and regulations; and

(d)    approximately one hundred hours in total expended by the individuals referred to.

16    I give limited weight to the expert reports of Professor Mengerson on the question of the time which would reasonably be taken to comply with the subpoena. Professor Mengerson, despite being a distinguished statistician, makes a number of unsupported assumptions in her first report regarding the complexity of the computation required, the volume and location of data reviewed, and the tasks required by various roles to prepare the data and verify compliance with the data collection information protocol. Mr Cosenza (the CEO of the Costs Applicant) has provided further detail regarding these matters in his second affidavit.

17    A supplementary report by Professor Mengerson reiterates her view that she was given insufficient material to enable a reasonable assessment of the size and complexity of the task, and asserted that it was not up to her to justify her statements but the Costs Applicant should provide the required justification (at [24]). In my view, the Costs Applicant has adduced sufficient evidence as to the reasonableness of the work done and the time taken, and if the Costs Respondent's expert contends that that is unreasonable, then the onus is on her to make good that contention by opinion evidence based on proven facts.

18    The Costs Applicant claims a lump sum order for its reasonable loss and expense in complying with the subpoena in the amount of $112,262.84. That is comprised of the following items:

(a)    the cost of the reports that are produced to comply with the subpoena, capped at the amount of the initial estimate of $88,000 including GST;

(b)    two invoices for legal costs incurred of $3,124 up to 19 December 2024 and $5,577 up to 30 June 2025; and

(c)    further legal costs to date of $8,634 including GST which has already been invoiced, and the amount of $6,927.84 which has not yet been invoiced and includes an estimate up to today's hearing.

19    There is no direct evidence of the additional figures in sub-para (c) above, although the Costs Respondent is in no position to object to the reasonableness of the additional $15,561.84 incurred since 30 June 2025 given that the Costs Respondent's evidence is that the costs which it would incur in the single week leading up to today's hearing are in the amount of $25,000. I will return to that matter in a moment. The costs claimed by the Costs Applicant include the costs of the introductory application which it filed and which I have heard today, to which the Costs Applicant is entitled.

20    A most regrettable feature of this application is exposed by the Costs Respondent's submission (based on the affidavit by his solicitor, Mr Mackey of 22 August 2025) that the best estimate of the Costs Respondent's own costs as at 22 August 2025, when its written submissions were filed and Mr Mackey's evidence was filed, is $74,940.55, comprising $49,940.55 incurred up to 22 August 2025 and a further $25,000 in the single week since then, including today's hearing. The Costs Respondent submitted orally that Mr Mackey's affidavit, which he had relied on about ten minutes earlier in reading his evidence on the application, was wrong and contained double counting. But there is no correcting affidavit and no reason in the evidence as to why Mr Mackey's affidavit should not be accepted at face value. Where a witness becomes aware that he or she has made a false affidavit, especially where that witness is a solicitor, it is incumbent on that witness to make a supplementary affidavit correcting the error. As I have said, there is no such affidavit by Mr Mackey or anyone else on the part of the Costs Respondent.

21    Section 37M of the Federal Court of Australia Act 1976 (Cth) provides that the overarching purpose of the civil practice and procedure provisions is to facilitate the just resolution of disputes according to law and as quickly, inexpensively and efficiently as possible. That overarching purpose includes the objective in subs (2)(e) of the resolution of disputes at a cost that is proportionate to the importance and complexity of the matters in dispute. A corresponding obligation is imposed on the parties under s 37N. Any failure to comply with that duty must be taken into account in exercising the discretion to award costs in a civil proceeding: s 37N(4). The Costs Respondent accepts that the amount of the legal costs incurred by the Costs Respondent in relation to this subpoena is disproportionate. I accept that concession. I make the point now so that it is not overlooked when the substantive matter comes before me in November for approval of a settlement which I am informed has been reached between the parties.

22    I make orders in accordance with the orders sought by the Costs Applicant which I have amended slightly.

Associate:

Dated:    2 September 2025