In the matter of Lainson Holdings Pty Limited

1. [1]

   HER HONOUR: This is an application by a subpoenaed party for a gross sum costs order in respect of:

2. [2]

   The substantive proceedings are brought by Duffy Kennedy Pty Limited to appoint a liquidator to the defendant, Lainson Holdings Pty Limited (receivers and managers appointed) on the grounds of insolvency. Lainson was engaged in a property development at Cronulla. Financiers advanced some $44 million to Lainson in respect of the development. Duffy Kennedy agreed to carry out building work for $21.9 million. Lainson and Duffy Kennedy fell into dispute. An expert determination delivered in March 2018 determined that Lainson was obliged to pay Duffy Kennedy some $1.8 million. In December 2018, receivers were appointed by the financiers to certain assets of Lainson, including the Cronulla property. In February 2019, Lainson commenced proceedings in the Commercial List of this Court to restrain a sale of the property by the receivers. An injunction was initially granted on the basis that Lainson was about to re-finance the development, but the injunction was subsequently discharged.

3. [3]

   In February 2019, Duffy Kennedy commenced these proceedings to appoint a liquidator. In April 2019, the receivers sold the Cronulla property and provided Lainson with a document, called an “Outcomes Document”, indicating the likely application of the proceeds of sale including to pay the costs of the receivership. On 10 May 2019, Lainson issued a subpoena to the receivers seeking a wide range of documents in respect of the sale, interest payable to the financiers and various documents to support entries in the “Outcomes Document”.

4. [4]

   On 17 May 2019, Hammerschlag J dismissed Lainson’s application challenging the expert determination: Lainson Holdings Pty Ltd v Duffy Kennedy Pty Ltd [2019] NSWSC 576.

5. [5]

   On 27 May 2019, in these proceedings, the receivers filed an Interlocutory Process seeking to set aside the subpoena or, alternatively, that security for the cost of complying with it be provided. The receivers estimated that the cost of complying with the subpoena was some $16,000. On 7 June 2019, Black J ordered Lainson to provide security as there was significant doubt about the ability of Lainson to meet an order to pay the subpoenaed parties’ expenses. Whilst his Honour considered that the receiver’s estimated costs of complying with the subpoena were relatively substantial, the estimate was considered to be realistic given the multiple categories in the subpoena and the requirement for production of “all documents” rather than specific documents:

6. [6]

   His Honour noted that compliance with a subpoena is not a profit-making exercise for a professional firm, and therefore discounted the estimated costs of the receiver’s solicitors, Corrs Chambers Westgarth, but not the disbursements likely to be incurred. Security of $12,100 was ordered. His Honour also granted leave to the receivers to bring an application for an order that costs be payable forthwith, if necessary, and for such costs to be fixed in a lump sum.

7. [7]

   On 13 June 2019, the security was provided and, on 19 June 2019, the receivers produced some 300 pages of documents in answer to the subpoena.

8. [8]

   Corrs Chambers Westgarth’s legal costs in relation to the subpoena, including disbursements, were in fact $27,826.09 plus GST. On 25 June 2019, Corrs Chambers Westgarth wrote to Lainson’s solicitors offering to accept 70% of its costs, being some $21,000, but received no reply. On 9 August 2019, Corrs Chambers Westgarth wrote again, but received no reply.

9. [9]

   On 20 August 2019, the receivers filed a second Interlocutory Process seeking the orders now before the Court. At the hearing on 26 August 2019, Lainson’s counsel submitted that the costs were clearly excessive in the circumstances given the amount of documentary material produced in answer to the subpoena. Lainson’s counsel drew attention to 1.2 hours spent by a partner of Corrs Chambers Westgarth on 29 May 2019 considering an email, discussing the subpoena return date and recommended approach and settling a reporting email to the clients as being excessive. A further 2.7 hours was spent by a senior associate on 18 June 2019 drafting an email to the client regarding the subpoena documents. The correspondence between the parties in relation to the subpoena was said to be out of all proportion. It was submitted that a gross sum costs order was not appropriate in respect of the costs of complying with the subpoena: the costs should be assessed in the usual way where the costs were more likely to be scrutinised than by the broad brush approach inherent in an application for a lump sum costs orders. Lainson’s resources were said to be stretched in preparation for the final hearing in the matter. This may well be right as, at the conclusion of the hearing, I granted leave to Lainson to put on any affidavits and submissions, but it provided none.

10. [10]

    At the conclusion of the hearing, I made an order that the monies held as security by Corrs Chambers Westgarth be paid to the receivers in partial satisfaction of their costs of compliance with the subpoenas.

Whether appropriate to make lump sum costs order

1. [11]

   Section 98(4)(c) of the Civil Procedure Act 2005 (NSW) provides:

2. [12]

   As Giles JA noted in Harrison v Schipp (2002) 54 NSWLR 738; [2002] NSWCA 213 at [21]:

3. [13]

   It is a relevant consideration “whether the financial capacity of the party liable to pay costs is such that the additional burden of taxation will import a significant burden on the party in whose favour costs are ordered without real prospects of recovering those costs”: Dunstan v Human Rights and Equal Opportunity Commission (No 3) [2006] FCA 916 at [24], citing Hadid v Lenfest Communications Inc [2000] FCA 628; Sparnon v Apand Pty Ltd [1998] FCA 164; Sony Entertainment (Australia) Ltd v Smith (2005) 215 ALR 788; [2005] FCA 228; Bitek Pty Ltd v iConnect Pty Ltd (2012) 290 ALR 288; [2012] FCA 506 at [17] per Kenny J.

4. [14]

   I consider that this is an appropriate case to specify a gross sum instead of putting the subpoenaed party to the further time and expense involved in an assessment of the costs of compliance in circumstances where it is unclear whether Lainson has the ability to pay the costs order in any event; and, placing an additional burden on the receivers to undertake a costs assessment process may be for no useful purpose. Without making comment upon the merits of the substantive application, clearly there is doubt as to Lainson’s ability to pay its debts where an application has been brought to wind it up in insolvency. The amount of costs in issue is modest and it is appropriate in those circumstances for the court to fix a lump sum to avoid the potential for unnecessary expense and delay associated with the process of costs assessment: In the matter of Cardinal Group Pty Ltd (in liq) (Lump Sum Costs) [2018] NSWSC 895 at [6] per Gleeson JA; In the matter of Boss Constructions (NSW) Pty Ltd (No 2) [2019] NSWSC 554 at [3]. Such considerations may be more important where the applicant is a non-party.

Fixing a sum

1. [15]

   In Idoport Pty Ltd v National Australia Bank Ltd [2007] NSWSC 23, Einstein J summarised the principles which inform the exercise of the discretion to specify a gross sum, at [9]:

2. [16]

   His Honour’s summary has been cited with approval in the Court of Appeal: Hamod v New South Wales [2011] NSWCA 375 per Beazley JA, with whom Giles and Whealy JJA agreed, at [793]. Her Honour continued, at [816]:

3. [17]

   And at [820] (citations omitted):

4. [18]

   Further, as Ball J explained in Baychek v Baychek [2010] NSWSC 987 at [11]:

Consideration

1. [19]

   Having reviewed the subpoena to the receivers, and with the greatest of respect to Black J, I consider the schedule of the subpoena to be reasonably straightforward. The subpoena has 13 categories but, essentially, seeks documents which support the entries in the “Outcome Document”. In addition, the subpoena seeks a tax invoice of the real estate agent who sold the Cronulla property, together with the agency agreement and documents containing workings for interest charges claimed by the financiers. One might think that such documents should be readily available to the receivers. The number of pages produced in answer to the subpoena is consistent with the scope apparent on its face. There was initially a query raised by Lainson as to whether the subpoena had been fully complied with, which was answered by a lengthy letter from Corrs Chambers Westgarth, putting that issue to rest.

2. [20]

   As to the evidentiary basis on which the Court may fix a lump sum costs order, one of the receivers, Todd Gammel, has sworn an affidavit attaching a schedule provided by Corrs Chambers Westgarth of its costs of complying with the subpoena totally $25,506 excluding GST together with counsel’s fees of $3,909.09 plus GST and court filing fees of $411. The narrations provided by Corrs Chambers Westgarth for the work performed indicate that the fees relate, almost entirely, to the receivers’ Interlocutory Process to set aside the subpoena or to obtain security, and to the Interlocutory Process now before the Court. A clear exception is 0.4 of a unit (which I assume is 24 minutes) allocated by a partner of the firm on 4 June 2019 to, inter alia, “discussing status of documents reviewed”.

3. [21]

   Also in evidence is a schedule of the time spent by members of the receivers’ firm in complying with the subpoena, being 3.8 hours by a partner, Mr Gammel, and 27.5 hours by a supervisor. The receivers’ costs are some $10,575 plus GST.

4. [22]

   Thus, the legal fees incurred in relation to the subpoena or, more particularly, the Interlocutory Process to set it aside or obtain security for costs in respect of it, are more than double the receivers’ costs of locating the documents sought by the subpoena. Further solicitor and counsel’s fees of the application now before the Court are estimated to be $5,958.50 excluding GST, that is, roughly half of the receivers’ costs of complying with the subpoena itself.

5. [23]

   Subpoenas form an important tool for parties to litigation to obtain documents which are necessary to advance or defend their respective positions at trial. In the particular circumstances of this case, Black J ordered that Lainson provide security for the receivers’ costs of complying with a subpoena. Whilst third parties who incur costs in complying with a subpoena are entitled to have their reasonable costs paid, it is also important for third parties to be circumspect when incurring legal fees which may be out of proportion to the task at hand. It seems to me that Black J was ‘on the money’ in fixing an amount of security, but I apprehend that his Honour had in mind that the amount would cover not only the receivers’ costs but also the disbursements which the receivers might incur, including legal fees. As I have noted, I have already ordered that this sum be paid to the receivers.

6. [24]

   Taking a broad brush approach, the motion for security for costs was a relatively short hearing, but allowing half a day for the hearing and a day of counsel’s time attending to preparation for the hearing at, say, $3,000 a day, gives $4,500 for counsel’s fees. Allowing the same for the receivers’ solicitors to prepare and file the necessary Process and affidavits, and to attend court is $9,000 in costs of which 60% is $5,400. The motion before the Court today, having regard to the fact that the relevant evidence and issues had already been canvassed by the receivers’ counsel and solicitors on the first motion, could be expected to be substantially less. If I allow half a day for counsel and the same for the receivers’ solicitors, this makes $3,000 of which 60% is $1,800. To these figures should be added any GST.

Orders

1. [25]

   For these reasons I make the following orders:

   1. (1)

      Fix the applicants’ costs of compliance with the subpoena issued by the defendant on 10 May 2019 in the sum of $12,100.

   2. (2)

      Note that the orders made by Rees J on 26 August 2019 for the payment of amounts held in the trust account of Corrs Chambers Westgarth are to be paid in full satisfaction of the costs of compliance with the subpoena issued by the defendant on 10 May 2019.

   3. (3)

      Order the defendant to pay the applicants’ costs of the Interlocutory Process filed on 27 May 2019 in the amount of $4,500 plus GST.

   4. (4)

      Order the defendant to pay the applicants’ costs on the Interlocutory Process filed on 20 August 2019 in the sum of $1,800 plus GST.