G&S Engineering Services Pty Ltd v MACH Energy Australia Pty Ltd (No 17)

This judgment concerns the issue of costs, which was reserved to be dealt with on the papers, following the delivery of my judgment on 5 August 2024 in G&S Engineering Services Pty Ltd v MACH Energy Australia Pty Ltd (No 16) [2024] NSWSC 955 (Principal Judgment). This judgment assumes familiarity with, and adopts the shorthand expressions and defined terms used in, the Principal Judgment.

The Principal Judgment determined the application made by the cross-defendants (G&S Engineering Services Pty Ltd, DRA Pacific Pty Ltd, DRA Group Holdings (Pty) Ltd and DRA Global Limited, often referred to as “CDJV”) seeking orders upholding their objection to the disclosure of the whole or parts of a draft supplementary witness statement over which the cross-defendants sought to claim legal professional privilege. I dismissed the cross-defendants’ claim to legal professional privilege over the whole of the draft supplementary statement, but upheld their privilege claim in respect of parts of the draft supplementary statement. Accordingly, I made orders that the cross-defendants be permitted to redact the privileged content in the draft supplementary statement before the cross-claimants (MACH Energy Australia Pty Ltd, MACH Mount Pleasant Operations Pty Ltd and JCD Australia Pty Ltd) were permitted to inspect it.

In this judgment I have determined that issue of costs in chambers, having regard to the parties’ respective written submissions on the papers.

The relevant facts are set out in full in the Principal Judgment at [7]–[59]. For present purposes, the following summary suffices by way of background.

The main proceedings arise out of a contract entered into in March 2017 between MACH Energy on the one hand and G&S Engineering Services Pty Ltd and DRA Pacific Pty Ltd on the other for the construction of a coal handling and preparation plant in the Hunter Valley, New South Wales. The application which came before me on 19 July 2024 was part of an extensive series of hard-fought interlocutory disputes.

The document the subject of the cross-defendants’ privilege claim was a draft supplementary statement which had been produced to the court by its author, Andrew Naude, in compliance with a subpoena that had been issued at the cross-claimants’ request.

Up until October 2022, Mr Naude had been employed and occupied upper executive roles within the DRA group of companies.

In February 2022, Mr Naude made a witness statement on behalf of the cross-defendants outlining the evidence he was expected to give in these proceedings (Earlier Statement). At the time of the making of the Earlier Statement, Mr Naude was the Chief Executive Officer of the DRA group’s parent company, DRA Global. The Earlier Statement was served on the solicitors for the cross-claimants.

Between August 2023 and November 2023, correspondence was exchanged between the solicitors for Mr Naude and the solicitors for the cross-claimants, and between the solicitors for Mr Naude and the solicitors for the cross-defendants, in the course of which the prospect of Mr Naude supplementing his evidence in the proceedings by making an additional statement was discussed. The suggestion that Mr Naude might consider providing a supplementary witness statement first emanated from the solicitors for the cross-claimants, who pointed to (and provided Mr Naude with) documents which they suggested added important context and were relevant to Mr Naude’s evidence in the proceedings.

This and later correspondence between the various firms engaged to act for the parties from late 2023 through to the end of June 2024 demonstrates that over that period the following sequence of events occurred:

The above events culminated in the filing on 5 July 2024 of the notice of motion whereby the cross-defendants sought to resist the inspection by the cross-claimants of Mr Naude’s draft supplementary witness statement, claiming legal professional privilege over it.

In the Principal Judgment, I made the following findings in respect of the cross-defendants’ claim of legal professional privilege over the whole of the draft supplementary statement:

In the event that the above conclusion was wrong, I proceeded to articulate my reasons in respect of the parties’ arguments about the attachment (or not) of an obligation of confidentiality to the draft supplementary statement and its subject matter (Principal Judgment at [142]–[146]). I noted that the parties’ submissions on this issue were misplaced and concluded that there was sufficient evidence of an obligation of confidentiality in the draft supplementary statement to meet the essential requirement of confidentiality in the communication between a solicitor and witness and in turn to attract legal professional privilege. In particular, I rejected the cross-claimants’ argument that the service of the Earlier Statement on the cross-claimants meant that confidentiality in respect of the draft supplementary statement had been waived (at [146]).

Turning to the cross-defendants’ claim that parts of the draft supplementary statement were privileged, I determined (having inspected the draft supplementary statement) that:

The cross-defendants submit that while it would be appropriate for me to award them a proportion of their costs of the motion, costs should be costs in the cause on the cross-claim given that neither party has been wholly successful.

The cross-defendants take as their starting position their partial success on the privilege claim, noting that the cross-claimants’ challenge elicited from the cross-defendants substantial proof including: an affidavit deposing to the basis of their claims as to privilege; a substantial portion (just under 50%) of their written submissions in support of the part privilege claims; and the production of a confidential exhibit to be inspected by the court for the purpose of determining the part privilege claims.

While conceding that the hearing of the motion before me was devoted almost entirely to the issue of whether the whole of the draft supplementary statement was subject to legal professional privilege, the cross-defendants submit that their claim as to part privilege was neither insignificant nor minor, but rather saw the court assess claims in respect of five categories of communications diverse in origin and content and involving different sets of legal practitioners. This, the cross-defendants submit, contributed to the costs incurred by the cross-defendants in connection with the motion, and also meant that the cross-defendants needed to address in evidence and argument:

In addition to succeeding comprehensively on their claim of part privilege, the cross-defendants submit that they succeeded to some extent on their primary claim insofar as the court rejected the cross-claimants’ arguments as to confidentiality, referring to the Principal Judgment at [143]–[146]. The issue of confidentiality was not, the cross-defendants concede, determinative (the court ruled against the cross-defendants on the question of the dominant purpose for which the draft supplementary statement was prepared); nonetheless, this was an issue that the cross-claimants pressed in challenging the cross-defendants’ claim of privilege, and one on which considerable attention was concentrated in written and oral argument.

The cross-defendants characterise the outcome as one of mixed success, noting that it is often appropriate in such situations for the court to award a proportion of the successful party’s costs where the issues are clearly severable, referring to Sze Tu v Lowe (No 2) [2015] NSWCA 91 at [40]. The cross-defendants submit that while their primary claim of privilege cannot be divided up on account of the overlapping issues of confidentiality and dominant purpose, the claims of part privilege were clearly distinct and severable. For this reason, the cross-defendants say, an order that the costs of this motion be in the cause is simpler and more appropriate, and also aligns with the approach taken by judges of this court in determining applications involving claims of privilege, including that of Stevenson J in Wheeler & Ors t/as PricewaterhouseCoopers v Aoyin Group Ltd (No 2) [2021] NSWSC 433.

For their part, the cross-claimants contend that the ordinary rule that costs follow the event — the relevant “event” here being the cross-defendants’ failed attempt to prevent inspection of the draft supplementary witness statement — should govern the present case, there being no reasonable or principled basis for departing from the ordinary rule.

The cross-claimants note that they did not oppose the redaction of material determined by the court to contain privileged matters, pointing to those parts of their written submissions on the motion where they clarified that they did not seek to inspect material in the draft supplementary statement to which legal advice and/or litigation privilege legitimately attached. In turn, the cross-claimants submit that the cross-defendants were not successful in any costs-relevant way on this aspect of the application and/or by reference to my findings at [147]–[150(1)] of the Principal Judgment.

The cross-claimants frame the court-ordered redactions not as a “win” on the part of the cross-defendants, but rather as the necessary corollary of the cross-defendants’ loss on the overriding issue of whether the cross-claimants could inspect the draft supplementary statement at all. They state that if I had found that the cross-claimants were not entitled to inspect it, then there would have been no need to redact the statement at all.

In terms of the assessment of costs, the cross-claimants submit that the ordinary course in the Technology and Construction List is for costs to be assessable forthwith (per Practice Note SC Eq 3 at [57]), but an order displacing r 42.7(2) of the Uniform Civil Procedure Rules 2005 (NSW) (UCPR) is required if costs in respect of interlocutory proceedings are to be payable forthwith, referring to the decision of Rees J in Ruma Mundi & Anor v John Peter August Hesse & Ors [2018] NSWSC 1548 at [60]. They contend that such an order is justified where, as here, the relevant issues are discrete and self-contained, as described by Barrett J in Fiduciary Ltd v Morningstar Research Pty Ltd (2002) 55 NSWLR 1; [2002] NSWSC 432 (Morningstar No 1) at [11].

The court’s discretion to award costs under s 98 of the Civil Procedure Act 2005 (NSW) is broad, although not unconstrained. It is subject, for instance, to the rules of court, including r 42.1 of the UCPR. Rule 42.1 expresses the general rule that costs should follow the “event”, as in the practical result of a particular claim or issue (see Chandrasekaran v Western Sydney Local Health District (t/as Westmead Hospital) (No 2) [2024] NSWCA 21, Gleeson, Leeming and Adamson JJA at [11]–[12]; Doppstadt Australia Pty Ltd v Lovick & Sons Developments Pty Ltd (No 2) [2014] NSWCA 219, Ward JA (as the President then was), Emmett and Gleeson JJA at [15]).

In most cases, the practical result will dictate the costs outcome (Doppstadt at [15]). One implication of this is that the party who has been successful overall will receive the whole costs of the proceedings, including in respect of issues on which the court ruled against it. However, it may be appropriate for the court in exercising its discretion to formulate a costs order that appropriately reflects the respective successes of the parties on discrete issues. As observed by Ward JA (as the President then was), Gleeson and Leeming JJA in Calvo v Ellimark Pty Ltd (No 2) [2016] NSWCA 197 at [8]:

The primary objective in every case is the payment of costs in a way that is fair, in light of what the court considers to be each party’s responsibility for the incurring of the costs in the proceedings: Commonwealth of Australia v Gretton [2008] NSWCA 117, Hodgson JA at [121].

In Sze Tu, Gleeson JA (with whom Meagher and Barrett JJA agreed) provided a useful summary of the principles and considerations that apply in cases involving multiple issues on which the party that was successful overall encountered variable success. At [40], his Honour said:

In their submissions, the cross-defendants directed me to the decision of Stevenson J in Wheeler, a case involving a dispute as to whether the defendant had waived privilege in respect of certain solicitor-client communications, production of which was sought by the plaintiff. On the day of the hearing, the defendant agreed to produce 13 of the 68 total documents sought. In the result, Stevenson J ordered that the defendant produce two further documents; the plaintiff was, in this respect, partially successful in its claim. In all the circumstances, his Honour determined that the appropriate order as to the costs of the plaintiff’s motion was that costs be in the cause (Wheeler at [11]–[12]).

In terms of the time at which costs, pursuant to interlocutory costs orders, become payable, the general rule is that costs are payable at the conclusion of the proceedings: UCPR r 42.7(2). However, the court may order that interlocutory costs be payable forthwith, displacing the operation of r 42.7(2) (Fiduciary v Morningstar Research [2004] NSWSC 664, Austin J at [171]–[173]; Ruma Mundi, Rees J at [60]) and also by implication displacing the position prescribed by Practice Note SC Eq 3 at [57], which says nothing about the payment — as opposed to the assessment — of costs forthwith: Ruma Mundi, Rees J at [60].

The circumstances (relevant to the present case) in which the court may so order were described by Barrett J in Morningstar No 1 at [10]–[11] as follows:

The discretion under UCPR r 42.7(2) to “otherwise order” that interlocutory costs be payable immediately is broad; however, because such an order is an exception to the general rule, it will normally only be made in a case that is itself somehow exceptional, and where the interests of justice require it: Morningstar No 1, Barrett J at [8].

I am of the view that this is an appropriate case in which to formulate a costs order to reflect the mixed outcome of the cross-defendants’ privilege motion. Justice and fairness to the parties in this case requires that I properly account for the extent to which each of them was successful in argument and on the real issues in dispute. To this end, I propose to order that the cross-defendants pay 50% of the costs of the cross-claimants of the application. My method and reasons for arriving at this costs result are set out below.

The crux of the dispute before me was whether the draft supplementary statement was covered by legal professional privilege and therefore protected from disclosure. This was the main question that I had to determine, the answer to which dictated whether I then needed to turn my attention to the cross-defendants’ alternative claim of part privilege. It was also, as the cross-defendants conceded, the central matter occupying the debate at the hearing before me.

The cross-claimants successfully opposed the cross-defendants’ primary claim that privilege attached to the whole of the draft supplementary statement; that is, they were successful in the substantive “event”.

The cross-defendants rightly submit, however, that they partially succeeded on the application in their assertions of part privilege, to which the orders made by me gave due legal consequence. I am satisfied that this can properly be characterised as an issue on which the cross-defendants “won” and that this “win” should number among those factors to be given weight in the impressionistic, evaluative exercise I must undertake (Sze Tu at [40]). A countervailing (although not altogether neutralising) consideration is the lack of any opportunity for the cross-claimants to properly put submissions on the issue of part privilege, since the draft supplementary statement (including the parts of it sought to be redacted on the basis that they were privileged) was not before them. I appreciate that this is a common problem in cases of this nature.

In terms of the issue of confidentiality, I do not consider this to be one that is dominant or severable in the relevant sense. I am not satisfied, particularly since my conclusion in this respect was obiter, that there is a justified basis for separating it out from the other issues comprising the cross-defendants’ primary claim (including the issue of dominant purpose).

In my consideration, I have had regard to the factual scenario and outcome in Wheeler. I consider that the costs order made by Stevenson J there was referable in large part to the nominal quality of the plaintiff’s partial success in securing the production of two out of a total of 55 documents held by the defendant. Here, the cross-defendants’ partial success was much more significant, going to the form and extent of disclosure of the draft supplementary statement to the cross-claimants that was ultimately permitted. I am satisfied that in all the circumstances the cross-defendants’ success on their part privilege claim ought to be recognised as costs-relevant.

To my mind, the nature of the mixed outcome in the Principal Judgment would ordinarily entitle the cross-defendants to an order for 25% of their costs be paid by the cross-claimants and entitle the cross-claimants to an order for 75% of their costs be paid by the cross-defendants. Making orders of that sort would cause further costs to be incurred and work to be done by both sets of the parties in relation to their respective assessments. To alleviate those matters, I think that I should make a single order which sets off the practical result of those two orders in a broad brush way. Accordingly, I intend to order that the cross-defendants pay 50% of the costs of the cross-claimants.

Finally, I note that it is open to me to order that the costs of this application be payable forthwith, including on the basis that the relevant determination concerns a discrete, self-contained issue, detachable from the remainder of the proceedings and questions to be tried (Morningstar No 1, Barrett J at [10]–[11]). I do not consider that the matters raised by the cross-defendants’ privilege motion will overlap in any substantial way with the issues to be addressed in the substantive proceedings which are presently before Stevenson J (cf. Rees J’s conclusion in Ruma Mundi at [61]). To my mind, it is appropriate and in keeping with the interests of justice in these proceedings, including in the context of the various interlocutory subsets ancillary to the main proceedings, that the costs the subject of the orders I intend to make be payable forthwith.

For the reasons set out above, I propose to make the following orders: