Arthur J Gallagher & Co (Aus) Ltd v Vasileff - [2017] SASC 177

SUPREME COURT OF SOUTH AUSTRALIA
(Civil)
ARTHUR J GALLAGHER & CO (AUS) LTD v VASILEFF & ORS
[2017] SASC 177
Reasons of Judge Dart a Master of the Supreme Court
27 November 2017
PROCEDURE - COSTS
Action for pre-action disclosure - whether parties adopted adversarial approach - whether respondents entitled to legal costs for advice in respect of the application.
Held:
1. The first and second respondents pay 80% of the applicant's legal costs incurred between 26 October 2016 and 21 December 2016 inclusive.
2. The applicant pay the third respondent's legal costs incurred from service until and including 26 October 2016.
Supreme Court Act 1935 s 40; Supreme Court Civil Rules 2006 r 32, r 263(1), referred to.
C7 Pty Ltd v Foxtel Management Pty Ltd [2001] FCA 1864; Equiti Capital Ltd v Hewson [2015] NSWSC 1388; Mancorp Pty Ltd v Baulderstone Pty Ltd t/as Baulderstone Hornibrook [1993] SASC 3847; Procter v Kalivis (No 3) [2010] FCA 1194; Steffen v ANZ Banking Group [2009] NSWSC 883; Totalise plc v Motley Fool & Anor Ltd [2003] 2 All ER 872, considered.

ARTHUR J GALLAGHER & CO (AUS) LTD v VASILEFF & ORS
[2017] SASC 177
JUDGE DART:

The applicant, Arthur J Gallagher & Co (Australia) Limited is the former employer of the first respondent, Mr Vasileff. The second respondent, Jardine Lloyd Thompson Australia Pty Ltd, is the current employer of the first respondent. The third respondent, the Law Society of Tasmania (“the Law Society”), was formerly a client of the applicant, but is now a client of the second respondent.
The applicant made application for pre-action disclosure of documents by each of the respondents. These reasons deal with the question of costs of the application. The applicant said it required documents to ascertain whether the first respondent, during his transition from employee of the applicant to employee of the second respondent, breached any contractual or other obligations arising out of his employment with the applicant.
The application was made pursuant to Rule 32, which provides as follows:
32—Investigation
(1)If the Court is satisfied, on application by a person (the plaintiff) that the plaintiff may have a good cause of action and requires further information—
(a)to determine whether a cause of action exists; or
b)to formulate the claim properly; or
(c)to determine against whom the claim lies,
the Court may exercise the investigative powers conferred by this rule in anticipation of an action.
(2)The Court may, if satisfied that a person may be in possession of evidentiary material relevant to the possible cause of action, make an order imposing one or more of the following requirements—
(a)to disclose to the Court or to the plaintiff whether the person is or has been in possession of relevant evidentiary material and, if so, to disclose full particulars of relevant evidentiary material that is, or has been, in the person's possession;
(b)if the person is in possession of relevant evidentiary material—to produce it to the Court or to the plaintiff;
(c) to verify the person's response to the order by affidavit.
(3)After considering a person's response (or failure to respond) to an order under subrule (2), the Court may require the person to appear before the Court for cross-examination.
(4)Subject to any direction by the Court to the contrary, a person against whom an order is made under this rule is entitled to reasonable compensation from the plaintiff for the time and expense involved in complying with the order.
(5)The compensation is to be fixed by agreement between the plaintiff and the person entitled to the compensation or, in default of agreement, by the Court.
As can be seen, Rule 32(4) deals with questions of compensation. That provision relates only to the expense incurred by a party in complying with an order made by the Court to produce documents. It does not deal with the legal costs incurred by parties in respect of the application itself. The applicant and the Law Society have resolved the question of compliance compensation.
The Supreme Court Act 1935 provides, subject to the Rules of Court, costs are in the discretion of the Court.[1] The Rules of Court provide, as a general rule, costs follow the event.[2]
[1] Supreme Court Act 1935, s 40.
[2] Supreme Court Civil Rules 2006, r 263(1).
An application under Rule 32, however, is an extraordinary application. It requires a company or an individual to disclose what would otherwise be private and confidential documents in circumstances where adversarial litigation may never be pursued. As Gyles J said in C7 Pty Ltd v Foxtel Management Pty Ltd:[3]
It needs to be borne in mind that this is an extraordinary jurisdiction. It provides for compulsory access to the private affairs of members of the community in order that somebody else can determine if they have a case against that party and the threshold set by O15A r6(a) is not very high. There is much to be said for the view that a respondent in these circumstances is entitled to put the applicant to proof except in a clear case. Some judges have been disposed to make orders which, to a greater or lesser extent, leave costs to be determined after the result of preliminary discovery and inspection is known, and even to depend upon, to some extent, the fate of the litigation which ensues. I am not persuaded of the merit of that approach. An application pursuant to O15A is a discrete application and may never lead anywhere. There is no reason why a party which is out of pocket because of costs should await some indefinite future event.
[3] [2001] FCA 1864 at [50].
In the decision of the Court of Appeal of England and Wales in Totalise plc v Motley Fool Ltd & Anor[4] Aldous LJ, in respect of an equivalent type of application, said that such applications are not truly ordinary adversarial proceedings.[5] His Honour also said:[6]
In a normal case the applicant should be ordered to pay the costs of the party making the disclosure including the costs of making the disclosure. There may be cases where the circumstances require a different order, but we do not believe they include cases where: (a) the party required to make the disclosure had a genuine doubt that the person seeking the disclosure was entitled to it; (b) the party was under an appropriate legal obligation not to reveal the information, or where the legal position was not clear, or the party had a reasonable doubt as to the obligations; or (c) the party could be subject to proceedings if disclosure was voluntary; or (d) the party would or might suffer damage by voluntarily giving the disclosure; or (e) the disclosure would or might infringe a legitimate interest of another.
[4] [2003] 2 All ER 872.
[5] Totalise plc v Motley Fool Ltd & Anor [2003] 2 All ER 872 at 878.
[6] Totalise plc v Motley Fool Ltd & Anor [2003] 2 All ER 872 at 878.
A similar point was made in the Steffen v ANZ Banking Group, where McDougall J said: [7]
Clearly enough, r 42.1 has as its sphere of operation proceedings of an adversarial nature. Equally clearly, proceedings for preliminary discovery are not always truly adversarial in nature. However, as Simpson J said in Airways Corporation (and as Young CJ in Eq indicated in Panasonic) where proceedings for preliminary discovery are conducted in an adversarial fashion then r 42.1 dictates the general approach to be taken to the question of costs. Thus, I think, r 42.1 may provide a point of distinction between cases under the UCPR and cases under the Federal Court Rules, even though the practical effect of any such distinction would be limited. In any event, I would not (and did not) decide this application on the basis that there is such a distinction.
[7] [2009] NSWSC 883 at [29].
The position on the authorities, therefore, is that, if an application becomes adversarial, the usual cost consequences follow.[8] It is of course a matter of degree as to what amounts to an adversarial approach by a respondent in the face of an application for pre-action disclosure. As was said in the C7 case, it is often appropriate for a respondent to put the applicant to proof in the sense that a respondent ought not be criticised for failing to agree to disclose documents until the applicant establishes an entitlement under the Rules for such an order.
[8] Procter v Kalivis (No 3) [2010] FCA 1194 at [17].
In Equiti Capital Ltd v Hewson[9] Ball J was considering the issue of what amounts to an adversarial approach. He said:[10]
There is a question of what amounts to the absence of an “adversarial approach” in this context. In my opinion, it encompasses at least two situations. First, it appears to be accepted that a defendant or potential defendant in an application for preliminary discovery should not be required to produce documents simply because a plaintiff asks for them. Rather, a defendant is entitled to wait for the plaintiff to commence proceedings for preliminary discovery and to file its evidence before making an election whether to contest the application. If it does no more than that and then produces documents it could not be said to have adopted an adversarial approach. The second situation is where the defendant does no more than is necessary in order to discharge some duty it owes to a third party in relation to the production of the documents — such as a duty of confidentiality. That may involve the defendant taking some active role in the proceedings but its purpose in doing so is not to resist the production of documents but to discharge some duty it owes, with the intention of producing documents in accordance with a court order and consistently with its duty.
….
Where, however, the proceedings are settled, it is generally not appropriate for the court to order that one party pay the other’s costs. There is no event which triggers a costs consequence, and it is not appropriate for the court to engage in a notional trial of the case in order to determine what that event might have been.
[9] [2015] NSWSC 1388.
[10] Equiti Capital Ltd v Hewson [2015] NSWSC 1388 at [15]-[16].
In respect of the Law Society, its submission was that it did not take an adversarial approach, but was merely putting the applicant to proof. It filed material and took a defensive position, but it settled with the applicant at an early stage. It did so by marking up changes on the applicant’s proposed minutes of order and indicating it would consent to an order in those terms. In the result, that order was made by consent on 13 December 2016.
The position adopted by the Law Society was pragmatic and appropriate, in my opinion. It points out that it received no letter before action and simply wished to be in a position to agree a suitable form of orders. There is no basis to award costs against the Law Society. There was, in any case, no event as the matter resolved by agreement. The question remains, however, whether it is entitled to have any of its legal costs met by the applicant.
The position of the first and second respondents was different. They took an adversarial approach. The matter was listed for argument on 21 December 2016. Those two respondents maintained that the applicant had no entitlement to the orders sought. It was only once an intimation was given, that in the opinion of the Court, the applicant had satisfied the relevant criteria for the making of an order, that the matter came to an end. The first and second respondents therefore engaged, unsuccessfully, in an adversarial process seeking to resist an order. There is no reason why the usual consequences should not follow.
Separately, there is a question of whether the respondents themselves are entitled to any legal costs. They were served with legal process by which the applicant sought orders of the Court requiring the respondents to produce a wide range of otherwise private documents. This was in circumstances where no proceedings may ever be issued against any of them. The likelihood of proceedings being issued against the Law Society is low.
The question arises whether respondents upon receipt of court process of this type are entitled to be reimbursed for legal costs, at least for preliminary advice in respect of their obligations to make the disclosure sought in the proceedings. As disclosed in the authorities discussed above, it is appropriate to put a plaintiff to proof to ensure that an applicant satisfies the criteria in the Rules to justify the making of an order.
In Mancorp Pty Ltd v Baulderstone Pty Ltd t/as Baulderstone Hornibrook[11] Debelle J was dealing with the service of a subpoena and the relevant Rule under the 1987 Civil Rules. I accept that a subpoena is different to some extent, but it does have similarities. It is a legal process served on a party requiring that party to produce documents. His Honour said:[12]
Where a subpoena duces tecum is served, it is, generally speaking, reasonable for the person served to obtain advice as to what is required in order lawfully to answer the subpoena. In certain circumstances, that advice will extend to the question whether any of the documents sought by the subpoena are the subject of any claim by the person served for legal professional privilege. Generally speaking, the cost of obtaining that advice would be a cost reasonably incurred.
[11] [1993] SASC 3847 (15 March 1993).
[12] Mancorp Pty Ltd v Baulderstone Pty Ltd t/as Baulderstone Hornibrook [1993] SASC 3847 (15 March 1993) at [13].
In my view, the same approach should be taken in respect of a pre-action disclosure application. It is reasonable for a respondent to proceedings to obtain initial advice as to its obligations and whether the applicant has an entitlement to the orders sought. Advice would also be appropriate in respect to the scope of the orders sought and whether any privilege issues arise. There seems no reason, as a matter of common sense, why a respondent should be obliged to bear that cost itself. No proceedings may ever be issued against it, yet it is obliged to obtain legal advice as to how to respond to the proceedings. In my view, it would ordinarily be appropriate to order an applicant to meet those basic, or initial, legal costs.
If the applicant subsequently issues substantive proceedings against the party, it might be expected that the costs paid to the respondents at the pre-action disclosure stage would become costs in the cause and recoverable if the applicant succeeds in the action.
The Law Society did little more than put the applicant to proof at the hearing on 8 December 2016. In my view, the Law Society is entitled to its initial legal costs of taking advice.
The position against the first and second respondents is different. Again, in my opinion it was appropriate for them to have obtained initial legal advice. The applicant should compensate them in respect of that.
Nonetheless, the first and second respondents maintained an adversarial position until the Court indicated that orders would be made. The applicant seeks an order that the first and second respondents pay its costs from the first directions hearing on 26 October 2016 to the making of the order against the first and second respondents on 21 December 2016. It is appropriate that the applicant have those costs. Balancing the entitlements, I would order that the first and second respondents pay 80% of the applicant’s costs incurred from and including 26 October 2016 until the making of the order on 21 December 2016.
The orders of the Court are:
1The first and second respondents pay 80% of the applicant’s legal costs incurred between 26 October 2016 and 21 December 2016 inclusive.
2The applicant pay the third respondent’s legal costs incurred from service until and including 26 October 2016.