Frank Small Nominees Pty Ltd v MCXKL Pty Limited

This is an application in relation to the costs of the plaintiff's summons for preliminary discovery against the defendants. The plaintiff, Frank Small Nominees Pty Ltd, represented by Mr T Boyle of Counsel, seeks leave, by notice of motion filed 1 September 2025, to discontinue the proceedings. It also applies for orders either that the defendants pay the plaintiff's costs, or that there be no order as to costs of the proceedings.

The defendants, MCXKL Pty Ltd and its director Ms Shelley Sullivan, for whom Mr L Cavell of Counsel appears, resist those costs orders. They submit that the usual costs outcome on discontinuance (being that the discontinuing plaintiff should pay the costs of the defendants) applies in this case. They go one step further to seek their costs on the indemnity basis for part of the proceedings, by reference to an offer which they had made that the proceedings be dismissed with no order as to costs.

For the reasons which follow, the Court accepts the defendants' submissions. The usual result on discontinuance will follow and an indemnity costs order will be made for the period after the offer of dismissal.

The history of the proceedings was not in dispute and may be charted by reference to various correspondence.

The starting point is a letter dated 28 March 2024 from the plaintiff's solicitors to the defendants' solicitors. That letter asserted that the plaintiff was a shareholder in the defendant, and a unitholder in a trust of which the defendant was trustee. Certain documents were sought by that letter.

The letter concluded with a reference to an enclosed draft summons which would be filed if the requests in the letter were not satisfactorily answered. The draft summons sought orders including:

On 10 April 2024, the defendants' solicitors responded. There was a debate about whether or not the plaintiff had the status of a shareholder, but it was accepted that the plaintiff was a unitholder in the relevant unit trust. The letter of the defendants’ solicitor accepted that some documents were to be provided, some of which were attached, and otherwise disputed why there was an entitlement in the plaintiff for relief of the kind sought in the draft summons. Nothing then happened for approximately four months.

On 23 August 2024, the plaintiff's solicitors wrote again to the defendants' solicitors, referring to the latter’s letter of 10 April 2024. The 23 August 2024 letter sought various categories of documents. It included:

The importance of that statement is that, as far as the defendants would have been concerned, the only likely proceedings of which they were on notice were those set out in the draft summons (see [6] above). To that may be added the claims referred to in the letter of 23 August 2024 for misleading and deceptive conduct. What becomes significant is that the letter made no reference to an application for preliminary discovery.

The parties accepted that, after the 23 August 2024 letter, there was complete silence between the protagonists, at least as far as correspondence between their lawyers is concerned, until 31 January 2025. On that date, the plaintiff filed its summons for preliminary discovery.

While it may be accepted that nearly all (but not quite all) of the documents sought in the present summons had earlier been requested in the 23 August 2024 letter, it was common ground that the plaintiff had failed to give the defendants any prior warning of these present proceedings for preliminary discovery. This conduct deprived the defendants of any opportunity to provide the plaintiff with the documents specifically sought in the present summons without the need for these proceedings to be commenced. As will become apparent, that is a matter of considerable significance in the just disposition of the question of costs in this case.

On 26 February 2025, the defendants' solicitors wrote to the plaintiff's solicitors. That letter included:

On 20 March 2025, the plaintiff's solicitors responded to the defendants' solicitors’ letter and the production of documents under cover of that letter, and the production of some further documents shortly thereafter. It is not necessary for me to set out the 20 March 2025 letter in detail. It is sufficient to observe that the letter took issue with the adequacy of the production which had been given by the defendants. A number of the complaints were in the nature of interrogatories, for example:

There is much force in the defendants' submission that, from this point on, the plaintiff was moving into a phase of interrogation, to which it was not entitled under the preliminary discovery regime. Nevertheless, on 10 April 2025, the defendants' solicitors responded and provided what, on their face, appeared to be sensible and comprehensive responses to the issues that had been raised in the plaintiff's solicitors’ letter of 20 March 2025. The defendants' solicitor's letter also included:

On 9 May 2025, the plaintiff's solicitors replied to the defendants' solicitors, in a letter which may, again, be fairly characterised as being in the nature of further interrogation as to the adequacy of the production of documents.

On 5 June 2025, the defendants' solicitors sent this email to the plaintiff's solicitors:

The defendants’ evidence provided pursuant to the timetable included an affidavit verifying that the defendants had given all possible response to the application. That led to the plaintiff taking the position that it had obtained all that to which it might otherwise be entitled pursuant to the present summons, such that it would discontinue these proceedings.

There then followed a dispute between the parties as to the terms of the discontinuance, which led to the filing of the motion which is before the Court today for determination.

There is one matter of evidence to which I should refer in addition to the correspondence set out in the preceding paragraphs. By an affidavit affirmed on 14 November 2025, Ms Sullivan gave this evidence in answer to the motion:

Ms Sullivan was not required for cross‑examination. I should, however, record that something was sought to be made, on behalf of the plaintiff, of the reference in Ms Sullivan's affidavit to the expiry on 30 June 2024 of the confidentiality period regarding the Karl Lagerfeld “Design Services and Licence Agreement”. The plaintiff submitted that some doubt could be cast on the evidence that Ms Sullivan gave when it was understood that, by the time of the letter of 23 August 2024 (see [8] above), the confidentiality period had expired, but that document (and, indeed, no other documents) had been produced in answer to the letter.

The Court has no evidence as to why that document or others were not produced in answer to the 23 August 2024 letter. I do not accept that the non‑production, at that stage, is a sufficient basis to doubt the evidence which Ms Sullivan gives in her evidence both of itself and in the absence of cross-examination. Nor, as I discuss in [26(2)(d)] below, do I accept the plaintiff’s submission that such evidence, after the fact, must necessarily be dismissed or given little weight as self-serving.

An application for preliminary discovery is not an ordinary adversarial proceeding. It has been described as an exceptional jurisdiction: see McColl JA in Liu v The Age Company Ltd (2016) 92 NSWLR 679; [2016] NSWCA 115 at [270].

As the Uniform Civil Procedure Rules 2005 (NSW) (UCPR) pt 5, r 5.8 demonstrates, the jurisdiction for preliminary discovery is in some respects closer to the subpoena jurisdiction than discovery in its usual sense (which depends on an identification of issues in dispute by reference to the pleadings and evidence that has been filed). Nevertheless, the costs of applications for preliminary discovery fall to be determined in the usual way, pursuant to s 98(1)(b) of the Civil Procedure Act 2005 (NSW) and UCPR pt 42, as Ward CJ in Eq (as her Honour then was) observed in the preliminary discovery case of Renton v Kelly [2018] NSWSC 1377:

That being said, there is a starting point in this case, because it is an application for leave to discontinue, such that pt 42, r 42.19 applies:

While it may be accepted that r 42.19 does not give rise to a presumption, in my respectful opinion, it means what it says and says what it means: that is, in short, that unless the Court orders otherwise, the plaintiff must pay the defendant’s costs. The onus is on the plaintiff to persuade the Court that there is a proper reason to order otherwise.

The plaintiff's first application was that the defendants pay the plaintiff's costs. Mr Boyle candidly accepted that the Court would only make that order if it was satisfied that the plaintiff had no alternative but to commence the proceedings to obtain the requested documents. The Court is not so satisfied, for these reasons:

The plaintiff's fallback was to seek an order that there be no order as to costs, relying on Re Minister for Immigration & Ethnic Affairs of the Commonwealth of Australia; Ex Parte Lai Qin (1997) 186 CLR 622; [1997] HCA 6 and its application to what Mr Boyle submitted was the analogous situation in Renton (in which no order as to costs was made). The essential submission was that the proceedings were rendered futile by the defendants' compliance with the summons and then provision of an affidavit verifying.

Mr Cavell submitted that Renton should to be distinguished because in that case the parties had agreed to the dismissal of the proceedings, save as to costs. I do not accept this submission. The principles in Lai Qin may be applicable howsoever proceedings are brought to an end before there has been a relevant event in the form of their contested final determination. However, I do not think Lai Qin is of assistance to the plaintiff in this case. That is because the Court has found that the defendants would have provided the documents had a proper final pre-action request been made.

In Ken Tugrul v Tarrants Financial Consultants Pty Limited ACN 086 674 179 [No 5] [2014] NSWSC 437, I said this concerning interlocutory applications:

The same principle applies with equal, if not greater force, in relation to the commencement of proceedings. Depending on the ultimate outcome, the foundation of an entitlement to costs will at least have been firmly laid for a plaintiff if a reasonable opportunity for compliance is passed up by a defendant who has received a draft originating process. This case illustrates the converse risk to a plaintiff that does not give a defendant that opportunity.

In short, the Court is satisfied that the costs of these proceedings incurred by the defendants could have been avoided. They were not avoided because the plaintiff failed to do something which it could and, in my respectful opinion, should have done. In those circumstances, and quite apart from r 42.19, the just outcome as to costs is that the plaintiff should pay the defendants' costs. The plaintiff has not demonstrated any reason for the Court to order otherwise under r 42.19.

It is then necessary to consider the defendants' application for indemnity costs, based on the offer in the letter of 10 April 2025 (see [14] above). True it is that, in the final paragraph of the letter, it does not address the present situation, because it refers to success in resisting the application for preliminary discovery at a final, contested hearing. However, I accept Mr Cavell's submission that the offer is still relevant to the exercise of the Court's costs discretion, although, in this case, as an order otherwise in favour of the defendants because r 42.19, when read with r 42.2, refers only to costs on the ordinary basis.

Mr Cavell submitted that the result which will be obtained today for the plaintiff is worse than had it accepted the offer. That is true. It had, therefore, behaved unreasonably in not accepting the offer. I also accept his submission that the apparent reason for the perpetuation of the proceedings thereafter, being to further interrogate the defendants about the production and, in the end, obtain affidavits verifying, was unreasonable, given the cooperation that had been extended by the defendants in providing the documents.

There will be an order that the plaintiff pay the defendants' costs, on the indemnity basis, by reference to the offer. The defendants seek that order from the day after the offer. However, because it was open for acceptance until 14 April 2025, the indemnity period will run from 15 April 2025.

There is one final observation I wish to make. It is not intended as a criticism of those involved in this case.

It is well‑understood that, as a precondition to obtaining an order for preliminary discovery, the applicant needs to demonstrate that it has taken all reasonable steps to obtain the documents without the assistance of the Court. As happened in this case, that is often done by writing directly to the party and asking for the documents. An unreasonable refusal to provide the documents is certainly often an important step in satisfying the Court that reasonable steps have been taken without success and that an order should be made.

However, in the Court's experience, what often happens is that the respondent party will produce the documents sought. As occurred in this case, there is then some correspondence about the adequacy of the production.

There will, of course, be cases where there is some proper basis (and not just animosity) for a party to doubt a response made on instructions, by solicitors for the respondent, that their client has no more documents, or has otherwise complied with the request. The Court is not naïve about such matters.

Nevertheless, in my respectful opinion, it is not appropriate for those statements to be treated automatically with suspicion or disregarded. To my observation, that happens far too often. While there can be no general rule, the Court has seen too many cases where matters have continued and further costs have been incurred, when there was no serious basis to doubt assurances given on instructions that, for example, no more documents existed, or complete compliance, to the extent it could be done, had been done.

Where parties are represented by competent and experienced solicitors, it may be expected that they will have informed their client of the importance of the accuracy of the instructions they are being given and have tested those instructions to the extent they can and that they think necessary. Solicitors do their client a disservice by accepting without question instructions they are given, especially when it is obvious those instructions may be met with scepticism by an opposing party.

I emphasise again that I am not to be taken as criticising those involved in this case. However, this case is an example of one where costs could have been saved, had there been a more ready acceptance of what were shown to be (by the provision of affidavit evidence) correct instructions given by the defendants to their solicitors to be passed on to the plaintiff.

The orders of the Court are as follows: