Misan v Markham Real Estate Partners (KSW) Pty Ltd (No 2)

1. [1]

   LEEMING JA: On 11 August 2021, I determined most aspects of two motions filed by the appellant, Mr Paul Gerald Henry Misan, against the respondent, Markham Real Estate Partners (KSW) Pty Ltd. I granted a stay of execution of the judgment at first instance pending the determination of Mr Misan’s appeal, which is listed on 4 November 2022 on the basis of an undertaking that he would not dissipate or encumber certain assets, I set aside a writ for the levy of property which had been filed, I resolved disputes concerning the entirety of a subpoena to Mr Misan’s spouse, and one paragraph of a notice to produce, and ordered Markham to pay Mr Misan’s costs of the motions. I gave reasons at the conclusion of the hearing for most of the dispute: Misan v Markham Real Estate Partners (KSW) Pty Ltd [2022] NSWCA 154.

2. [2]

   Two matters were left outstanding. First, I gave a brief précis of my reasons for setting aside most of the subpoena, and the paragraph of the notice to produce, but indicated I would give formal reasons later, in light of the facts that time was limited and one aspect of the dispute gave rise to a question of principle. Secondly, having permitted Markham’s counsel to leave the courtroom when I commenced giving reasons shortly after 4pm, but not having heard from Markham on whether it should pay Mr Misan’s costs on an indemnity basis or on the ordinary basis, I gave its solicitor the opportunity to supply a note if she preferred to be heard in that fashion rather than orally. She availed herself of that course.

The subpoena and notice to produce

1. [3]

   The background is contained in the reasons delivered on 11 August. Briefly, the judgment from which Mr Misan appeals was delivered in June 2022. Orders were made on 17 June, and the notice of appeal was filed on 24 June 2022. The appeal is listed for hearing on 4 November 2022, with an estimate of a day.

2. [4]

   Paragraph 15 of the notice to produce sought production of:

3. [5]

   Production was sought in aid of Markham’s opposition to a stay of execution of the judgment pending appeal. The paragraph was evidently directed at a document produced in compliance with s 174(1)(a) of the Legal Profession Uniform Law 2014 (NSW) which requires the law practice to provide as soon as practicable after instructions are initially given in a matter an estimate of the total legal costs. If such a document exists, it would indicate that Mr Misan would incur costs of some thousands of dollars to prosecute his appeal. It might also indicate whether the law firm or his counsel were prepared to be retained on a contingent basis.

4. [6]

   Mr Misan submitted that the document was privileged. Markham denied that it was, in accordance with Cook v Pasminco Pty Ltd (No 2) (2000) 107 FCR 44 and CSR Ltd v Eddy (2008) 70 NSWLR 725; [2008] NSWCA 83.

5. [7]

   Mr Misan also submitted that the paragraph was an abuse of process. In response, Markham submitted that such a document might disclose that Mr Misan had ability to access some thousands of dollars. There was said to have been a legitimate forensic purpose in seeking such a document, because Mr Misan had sworn that:

6. [8]

   Mr Misan had also sworn that:

7. [9]

   Counsel for Markham relied upon what was said by Hodgson JA, sitting hearing a contested stay pending the hearing of an application for special leave to appeal, in Adeels Palace Pty Ltd v Moubarak; Adeels Palace Pty Ltd v Najem (No 2) [2009] NSWCA 130. There the defendant had lost at trial and in this Court. His Honour applied the test formulated in Alexander v Cambridge Credit Corporation (1985) 2 NSWLR 685. That is not the test which would be applied today, as was explained in Rinehart v Welker (2012) 83 NSWLR 347; [2012] NSWCA 1. But that does not detract from the authority of what Hodgson JA said as to the risk of a diminished ability to pay in Alexander which continues to apply where a stay of execution is sought pending an appeal to this Court. Hodgson JA said at [7]:

8. [10]

   In reliance upon that passage, especially the words I have emphasised in bold, counsel made this submission:

9. [11]

   I set aside the paragraph, and indicated the following:

10. [12]

    When giving those brief reasons, I was conscious that it might seem that I was departing from the reasons given by Hodgson JA, which I would not lightly do. I explain below why the passage from Adeels Palace on which Markham relied does not in fact support paragraph 15 of the notice to produce.

11. [13]

    A subpoena or notice to produce will have a legitimate forensic purpose if the documents sought to be produced have an apparent relevance to the issues: Secretary of the Department of Planning, Industry and Environment v Blacktown City Council [2021] NSWCA 145 at [80], [88]-[89]. In the present case, the only issue was whether a stay of execution should be granted and, if so, on what terms. Relevant to the exercise of that discretion was the assets owned by Mr Misan upon which a judgment creditor could levy execution. Also relevant were the liabilities owed by Mr Misan, including liabilities which Mr Misan would incur in the short term while the stay of execution was in place.

12. [14]

    However, contrary to Markham’s submission, that does not make any document which is likely to shed light upon the assets of which Mr Misan can avail himself amenable to compulsive production under subpoena. Markham’s submission overlooks a threshold issue of materiality.

13. [15]

    Mr Misan might, for all I know, have a subscription to a newspaper and a streaming service, and be paying $20 or $50 per month which will be money he does not have to meet Markham’s judgment if the appeal is dismissed. That does not make the documents disclosing the terms on which he has contracted with the newspaper publisher or the streaming service apparently relevant. They are self-evidently de minimis.

14. [16]

    Mr Misan’s liability to pay the legal costs of his appeal is, in the circumstances of this case, no different.

15. [17]

    Mr Misan gave evidence that there was a deficiency of some $4.5 million between his assets and liabilities, allowing for a judgment debt of $4,205,655 and ignoring the unquantified liability to pay Markham’s costs at first instance. In fact the deficiency is greater than $4.5 million. There was no suggestion, nor could there be, that Markham would, if the appeal were dismissed or dismissed in large measure, recover anything like the whole of its judgment debt.

16. [18]

    How much it will cost to run a one day appeal cannot be known in advance. In part it will depend upon choices such as the briefing of counsel. But whether it be $30,000 or $60,000 or $90,000, the cost will be utterly insignificant in comparison with the judgment debt. Markham’s judgment debt could easily be 100-fold greater than Mr Misan’s costs of running the appeal, and it would be very surprising if it were not at least 50-fold greater than his costs of running the appeal.

17. [19]

    Another way of putting this is that the consequence of Mr Misan running this appeal, if he fails, is that he may have some tens of thousands dollars less assets to his name. But this will leave unaffected the fact that Markham will not be able to recover millions of dollars of the judgment debt which it has obtained.

18. [20]

    This having been exposed during the hearing, Markham’s submission relied upon the opening sentence of paragraph [7] of Adeels Palace, with a heavy emphasis on the words “no such risk” of a diminished ability to pay. Markham’s point was that the fee estimate was relevant to quantifying the extent of Mr Misan’s diminished ability to pay the judgment which was sought to be stayed.

19. [21]

    Without any documents, it is plain that there is a 100% certainty that Mr Misan is unable to pay the judgment debt. That certainty will remain in place after the appeal, unless the appeal is very substantially successful.

20. [22]

    Without any documents, it is plain that Mr Misan will only be able to pay a tiny minority of the judgment debt. That percentage will be reduced after appeal, assuming the appeal is dismissed, unless Mr Misan is able to avoid paying the costs and disbursements incurred in prosecuting the appeal. It is impossible to quantify the percentage because Mr Misan’s realisable assets are not fully quantified, and Markham is but one of a number of unsecured creditors, and the actual costs of the appeal are not known. But even if estimates were given of those matters, the magnitude of the judgment debt, which is 50-fold or 100-fold greater than the costs of a one day appeal, means that the diminution in the cents in the dollar which Mr Markham may be able to obtain will be de minimis. To use the example proffered during submissions, the effect of running the appeal may be to diminish Markham’s recovery in Mr Misan’s bankrupt estate from 10c in the dollar to 9c in the dollar.

21. [23]

    A $5,000,000 judgment creditor whose claim swamps all other claims in a bankrupt estate who receives $500,000 from a trustee in bankruptcy will nonetheless be $50,000 better off than a judgment creditor who receives $450,000 from the trustee. But nothing turns on this. Whether the return to a judgment creditor is 10c in the dollar, or 9c in the dollar, the diminution in the judgment creditor’s return is irrelevant to the only matters in issue, namely, whether to grant a stay and if so on what terms.

22. [24]

    The position may be different in other appeals, where the judgment debt is not orders of magnitude greater than the costs of running an appeal, or where the appellant has less assets than Mr Misan. The most significant thing here is that the judgment Mr Misan challenges is many times greater than the cost of running the appeal.

23. [25]

    None of the foregoing is inconsistent with Hodgson JA’s reasons, if they are read as a whole and in their context, as they must be, as Lord Porter emphasised in the Bank Nationalisation case (1949) 79 CLR 497 at 637-638. The concluding sentence in paragraph [7], which is underlined in the passage reproduced above, refers not merely to “excluding this risk” but also to “showing that it is small”. It is plain when the paragraph is read as a whole that his Honour did not have in mind any risk of a diminished ability to pay a judgment creditor, but only a materially diminished risk.

24. [26]

    Accordingly, I concluded that there was no legitimate forensic purpose in paragraph 15 of the notice to produce.

25. [27]

    Turning to the subpoena, during the hearing, and after hearing in full from Markham, I said the following:

26. [28]

    Each of the paragraphs I set aside sought documents which could bear upon Mr O’Connor’s financial circumstances since 2019. Markham has no claim upon Mr O’Connor. The paragraphs were apt to require production of a swathe of documents. No attempt was made in those paragraphs to identify particular categories or particular documents which bore upon the issues arising on the application for a stay.

27. [29]

    I was also influenced by the fact that Markham tendered a bundle of 1036 pages, the overwhelming majority of which comprised documents produced on notice to produce or subpoena. The tender was subject to relevance and I made it clear that documents to which I had not been referred would be regarded as irrelevant. At the time the subpoena was debated, almost no reference had been made to any document in the bundle. By the end of the hearing, I had been referred to 4 documents, one ASIC search, and a handful of pages of Mr Misan’s bank statements. Many, many hundreds of pages of documents tendered by Markham were not referred to at any stage of the application. There was a sound basis for inferring that a similarly undiscriminating attitude informed the drafting of the subpoena.

Costs

1. [30]

   On 12 August 2022, the solicitor for Markham advised that it did not wish to make any submissions against the proposition that it should pay Mr Misan’s costs of the amended motion filed on 11 August 2022 on an indemnity basis. However, concerning the motion filed on 19 July 2022, Markham submitted that these costs should be on an ordinary basis because there was mixed success on this motion, with some categories of the subpoena not set aside.

2. [31]

   On 15 August 2022, the solicitor for Mr Misan made the following submissions in support of orders that Markham pay the costs of both motions on an indemnity basis:

3. [32]

   If the principles applicable to unaccepted Calderbank offers applied, other issues would evaporate, so I commence with this. The parties exchanged Calderbank letters on 8 August 2022, three days prior to the hearing. Both letters referred to the dismissal of the motion seeking to set aside the subpoena, and both must be taken to have proceeded implicitly on the basis that there was an undertaking not to call on the subpoena (which would have been overtaken by a consensual outcome of the application for a stay of execution). Speaking generally, Markham proposed payment into Court of $230,000 and an undertaking not to sell, dispose of or otherwise encumber the two lots where Mr Misan lives as the price of a stay and dismissing the motion setting aside the subpoena. Mr Misan’s solicitors said that there was no capacity to pay $230,000, consistently with the financial information already provided, but offered to settle the motions on terms of an undertaking not to sell, dispose of or otherwise encumber the lots, an undertaking to prosecute the appeal diligently, the motion to set aside the subpoena to be dismissed, with costs being costs in the cause.

4. [33]

   Mr Misan did not achieve an outcome which was better than the offer in the Calderbank correspondence, albeit only by a small margin. Three paragraphs of the subpoena were not set aside, although no documents were produced in response to those paragraphs. It is unnecessary, on the view I take, to consider whether the principles governing Calderbank offers inform the discretion as to costs.

5. [34]

   The reason which led Markham not to oppose an order that it pay Mr Misan’s costs of the motion seeking a stay of execution on an indemnity basis is not disclosed. Two aspects were relevant. One was that Markham had breached an agreement concerning taking steps towards executing its judgment without first giving 24 hours notice, in circumstances that were (and remain) unexplained, which I addressed in the ex tempore judgment. The other was that Markham’s purpose in opposing the motion, and issuing subpoenas and a notice to produce, was unwarranted.

6. [35]

   As is plain from the above, Markham will never be paid in full if it holds onto the judgment it has obtained at trial. Every dollar which is spent on interlocutory disputes pending appeal is a dollar which is irrecoverable. That strongly suggests that money is being spent for a purpose which is foreign to the purposes of the appeal. And indeed, Markham confirmed that it was a landlord of a number of tenants with the benefit of guarantees, and that it had a wider commercial interest in ensuring that it was, and was seen to be, vigorous in its assertion of its rights. It was said on Markham’s behalf that:

7. [36]

   Counsel added that “[Markham] does take the view that the guarantees are important and need to be honoured, and [it] will take steps to enforce its contractual rights to the extent of the law”.

8. [37]

   I have no difficulty with accepting the rationality of spending Markham’s and Mr Misan’s money fighting interlocutory disputes, on the basis that there may be a benefit in Markham’s relations and negotiations with other tenants. But the hearing was completed in a single day only through sitting extended hours, and then only because I insisted that, contrary to Markham’s preference, it be completed in a single day rather than two days. It could not be right in any ordinary case for more time to be spent, and more of the parties’ resources to be consumed, by an interlocutory dispute about a stay of execution of a judgment pending appeal than the appeal itself, and yet that is what Markham sought to achieve.

9. [38]

   I accept that Markham has a commercial reason to oppose Mr Misan’s application for a stay of execution vigorously. But Markham is under a duty to assist the court to further the overriding purpose to facilitate the just, quick and cheap resolution of the real issues in the proceedings: Civil Procedure Act 2005 (NSW), s 56(3). Markham’s lawyers are under the same duty. Markham’s commercial interests are subordinate to that duty. That seems not to have been appreciated.

10. [39]

    As Markham may concede by its non-opposition to indemnity costs of the principal motion seeking a stay of execution, there should never have been a dispute about the stay. Mr Misan filed an appeal promptly, accompanied by appropriate undertakings. There was never any reason to think that if the appeal were dismissed, Markham would recover anything beyond a small fraction of the judgment debt, such that the time and money that has been spent by it to date has been wasted. Insofar as Markham has a commercial interest in being perceived to pursue guarantors aggressively, that must be subordinate to its duty under s 56 of the Civil Procedure Act. The result is that Mr Misan (and his spouse) should not have been subjected to any of the time, expense and stress of the last few weeks.

11. [40]

    The position was correctly encapsulated in Mr Misan’s solicitor’s letter of 15 July 2022:

12. [41]

    The appropriate exercise of the discretion as to costs in those circumstances is that Markham pay Mr Misan’s costs of each motion on an indemnity basis.