MR Group Investments Pty Ltd v Back (No 2)

The following two notices of motion were listed before me for hearing today:

The plaintiffs, the defendants and the applicants, have agreed on orders to be made to resolve both notices of motion. At the conclusion of these reasons I will make orders by consent in terms of the short minutes of order, which have been handed to me. As between the applicants and the defendants, it is agreed that each of those parties will bear their own costs of the notices of motion.

There remains one outstanding issue of costs as between the plaintiffs and the defendants. Mr Breakspear, who appears on behalf of the defendants, contended for an order that the costs of the notices of motion be costs in the cause. Mr Laughton SC, who appears on behalf of the plaintiffs, submitted that the appropriate order is that the plaintiffs' costs be costs in the cause.

Mr Breakspear submitted that both notices of motion were necessary to achieve the defendants’ legitimate forensic purpose in testing a particular aspect of the evidence adduced by the plaintiff, being the contents of the affidavit of Sam Fayad, sworn 31 August 2018. This evidence was the subject of an application for leave by the plaintiffs which I granted as Duty Judge on 13 November 2018: MR Group Pty Ltd v Back [2018] NSWSC 1739. Before granting that leave, I was made aware by the defendants that they proposed to seek the issue of subpoenas to investigate the evidence contained in paras 11, 12 and 13 of Mr Fayad’s affidavit in which he deposed as to Dyldam's usual practice.

It is necessary to summarise the relevance of that usual practice for present purposes. I do not suggest that the summary will do justice to the complexity of the issues in the case but hope that it will be sufficient for present purposes.

The plaintiffs' case is, in substance, that had the defendants, their solicitors, given appropriate advice and not been negligent the plaintiffs would have been in a position to exercise options to purchase two properties for the purpose of developing them. Although it is apparent that the plaintiffs may not themselves have had the financial wherewithal to purchase and develop those properties, the plaintiffs’ case is that they would have been able to come to an agreement with Dyldam to achieve that end. It was envisaged that Dyldam would use a special purpose vehicle to form a joint venture with the first plaintiff or purchase shares in the first plaintiff with a view to acquiring those properties. In the context of this counterfactual it was proposed that the interests of Dyldam would have been protected by a first registered mortgage over those properties.

Accordingly, in order to test the validity of the counterfactual and the evidence of Mr Fayad as to the usual practice of Dyldam, it was necessary for the defendants to investigate Dyldam's practice and experience in developing real estate as deposed by Mr Fayad. Mr Fayad’s evidence was, relevantly, as follows:

The subpoenas were issued at the defendants’ request to the applicants. The subpoena to Dyldam was issued on 28 November 2018 and sought, relevantly:

Following the issue of the subpoenas there were discussions between the solicitors for the defendants and the solicitors for the applicants with a view to narrowing the terms of the subpoenas. The applicants took exception to the use of the word “evidencing”, which the defendants agreed to substitute with the word “recording”. The applicants also contended that the five-year period in disputed categories 5, 6, 11 and 12 was too wide. By letter to the applicants' solicitors dated 15 July 2019, the defendants' solicitors identified the forensic purpose underpinning the five-year time period and disputed categories 5, 6, 11 and 12 as follows:

The applicants' solicitors responded by letter, dated 22 July 2019, relevantly as follows:

Mr Breakspear informed me that the answer given by the applicants' solicitors in that letter was sufficient for the defendants' forensic purposes and enabled the defendants to narrow the schedule to the subpoena issued to Dyldam and limit it to particular properties rather than to any property through the five year period. This type of communication between solicitors tends to advance the overriding purpose of the Civil Procedure Act 2005 (NSW) as identified in s 58 and is to be encouraged by the Court.

Mr Laughton submitted that the plaintiffs were required to be present for the Evidence Motion although it was only contingent on the outcome of the Subpoena Motion. He contended that the plaintiff ought not have been drawn into the dispute on the Subpoena Motion, which was ultimately resolved between the defendants and the applicants. He submitted that the plaintiffs were required to incur costs by reason of the defendants’ “sloppy subpoena” and contended that, had the defendants appropriately narrowed the subpoena in the terms of the position which was ultimately agreed the issue could have been resolved without the plaintiffs having to expend any costs. Mr Laughton relied on the defendants’ concession that the word “recording” ought be used instead of “evidencing” and that documents over a five-year period were ultimately not pressed.

Mr Laughton also submitted that it was of particular concern to the plaintiffs that the defendants had pleaded that the $1.5 million monetary ceiling under the Law Society of New South Wales Scheme (the Scheme) would apply to any damages or costs awarded in favour of the plaintiffs at the conclusion of the substantive proceedings. He pointed out that “damages” for the purposes of s 4 of the Professional Standards Act 1994 (NSW) include “costs in or in relation to the proceedings ordered to be paid in connection with such an award”. Mr Laughton argued that the effect of the Scheme would be that if the plaintiff wins the proceedings there would be a real prospect that they would not be able to recover their costs of this present application but that if they were to lose the proceedings they would be liable to pay the defendants' costs of these applications. He submitted that this asymmetry ought lead this Court to order, as he proposed, that the costs of the notices of motion be the plaintiffs' costs in the cause.

In response, Mr Breakspear drew my attention to evidence which established there had been an agreement between the defendants and the applicants that the word "evidencing" would be replaced by the word "recording" before the plaintiffs took an active part in the notices of motion. He also drew my attention to the recent exchange of correspondence between the defendants' solicitors and the applicants' solicitors, referred to above, which established that the defendants could achieve their legitimate forensic purpose by narrowing the subpoena once the applicants' solicitors had indicated the extent of Mr Fayad’s recollection as to the properties developed by Dyldam.

Mr Breakspear also submitted that, in these circumstances, there has been no capitulation by the defendants of their original position. All that has occurred is that they have achieved their objective in a more efficient way through appropriate communication with the applicants' solicitors. He submitted that the defendants had at all times acted reasonably and incurred costs in the usual conduct of the litigation. He submitted that no criticism ought properly be made of the defendants for filing the Evidence Motion. He submitted there was an inherent efficiency in the same judicial officer dealing with both applications and that it would have increased the costs of the litigation for the defendants to wait for the result of the Subpoena Motion before filing the Evidence Motion, which may well have been allocated to a different judge.

He submitted that it was inappropriate for the Court to take the Scheme into account for the following three reasons. First, he submitted that the plaintiffs’ application for costs proceeded on the assumption that the $1.5 million cap in the Scheme would apply in the proceedings, notwithstanding that this matter was still in issue on the pleadings. Secondly, he submitted that no assumption should be made that if the plaintiff is successful the plaintiffs' damages would exceed $1.5 million. Thirdly, Mr Breakspear submitted that there was an even more fundamental objection to my taking into account the Scheme for present purposes: it would not be appropriate for the Court to circumvent the Scheme, which was the product of legislation by trying to “even up” the costs position, notwithstanding the clear legislative intent evinced by the Scheme. He submitted that the Scheme should not affect this Court’s discretion as to costs, because it operated on costs ordered in proceedings and should not influence, much less determine, the outcome of such costs orders.

The principles referred to by McHugh J in Re Minister for Immigration and Ethnic Affairs (Cth); Ex Parte Lai Qin (1997) 186 CLR 622 at pp 624-625; [1997] HCA 6 are relevant to the present application for costs. In that case his Honour considered situations where an application for costs has been made although there has been no determination on the merits. McHugh J addressed the circumstances, such as in the present case, where the moving party - in this case the defendants - no longer wishes to proceed on the Evidence Motion. His Honour said at pp 624-625:

In my view, the short minutes of order, which have been agreed to by the parties, represent an appropriate way forward for the proceedings. I am persuaded by Mr Breakspear that the agreement reached between the defendants and the applicants on the Subpoena Motion was not the result of a capitulation by the defendants but rather was an appropriate response to a concession given by the applicants as to the extent of Mr Fayad's recollection. The applicants’ response had the effect that the defendants' forensic purpose would be fulfilled by a much more specifically described category of documents than was originally sought in the schedule to the subpoena.

In terms of the plaintiffs' application for costs I am not persuaded that the ambit of the Evidence Motion falls in any way outside the usual conduct of the proceedings. It was in the interests of justice that the Evidence Motion, which I regard as having been appropriately filed and listed for hearing at the same time as the Subpoena Motion, be heard by the same judge since it gave rise to issues which concern the conduct of the litigation as a whole.

Turning to the issue of whether the Scheme can be taken into account in the determination of the costs issue, I accept Mr Breakspear's submissions that the assumption of relevance of that Scheme has not been made out, since it is presently only potentially relevant. Accordingly, the nice question whether the Scheme is a relevant consideration in the exercise of the costs discretion need not presently be determined. In any event, I am not persuaded that the limitation in the Scheme ought lead to the costs order for which Mr Laughton contends, having regard to my view that both motions fell squarely within the ordinary conduct of the proceedings.

I am satisfied it is appropriate to make the costs order as sought by Mr Breakspear on behalf of the defendants, namely, that as between the plaintiffs and the defendants the costs of the notices of motion be costs in the cause.

At the conclusion of the hearing I made the following order: