Diab Pty Ltd v Yum! Restaurants Australia Pty Ltd (No 2) - [2017] FCA 54

FEDERAL COURT OF AUSTRALIA
Diab Pty Ltd v Yum! Restaurants Australia Pty Ltd (No 2) [2017] FCA 54

File number: NSD 832 of 2014

Judge: BROMWICH J

Date of judgment: 3 February 2017

Catchwords: COSTS – application by a third party to proceedings for costs of compliance with a subpoena – where application was made almost two years after subpoena discharged – where application was made months after delivery of judgment in the substantive proceedings – where applicant for costs of compliance withheld itemised invoices for a significant period of time – where applicant’s itemised invoices when provided revealed concerns as to appropriateness and reasonableness of costs incurred – held: application dismissed

Legislation:
Federal Court of Australia Act 1976 (Cth), ss 37M(1)(b), 37M(2)(d), 37M(2)(e), 37N(1), 37N(2), 37N(4)

Federal Court Rules, O 27 rr 4A, 11

Federal Court Rules2011 (Cth), rr 24.22

Cases cited:
Bank of New South Wales v Withers (1981) 52 FLR 207; (1981) 35 ALR 21

Deposit & Investment Co Ltd (Receivers Appointed) v Peat Marwick Mitchell & Co (1996) 39 NSWLR 267

Diab Pty Ltd v YUM! Restaurants Australia Pty Ltd [2016] FCA 43

Fuelexpress Ltd v LM Ericsson Pty Ltd (1987) 75 ALR 284

Taylor v Dixon Advisory Ltd (2010) 5 ACTLR 136

Westpac Banking Corporation v Australian Securities Commission (1997) 72 FCR 318

Date of hearing: Determined on the papers

Date of last submissions: 2 November 2016

Registry: New South Wales

Division: General Division

National Practice Area: Commercial and Corporations

Sub-area: Regulator and Consumer Protection

Category: Catchwords

Number of paragraphs: 31

Counsel for the Applicant on the Interlocutory Application: Mr R C Gration

Solicitor for the Applicant on the Interlocutory Application: J. Kartsounis & Co, Solicitors

Counsel for the Respondent on the Interlocutory Application: Mr S Keizer

Solicitor for the Respondent on the Interlocutory Application: Webb Henderson

ORDERS

NSD 832 of 2014

BETWEEN:
DIAB PTY LTD ACN 003 168 812

Applicant

AND:
YUM! RESTAURANTS AUSTRALIA PTY LTD
ACN 000 674 993

Respondent

IN THE INTERLOCUTORY APPLICATION:

BETWEEN:
AUSTRALASIAN PIZZA ASSOCIATION (APA) INC.

Applicant on the Interlocutory Application

AND:
YUM! RESTAURANTS AUSTRALIA PTY LTD
ACN 000 674 993

Respondent on the Interlocutory Application

JUDGE:

BROMWICH J

DATE OF ORDER:

3 FEBRUARY 2017

THE COURT ORDERS THAT:
1.The application by the Australasian Pizza Association (APA) Inc. that Yum pay the costs of its compliance with the subpoena be dismissed.
2.The Australasian Pizza Association (APA) Inc. is granted leave to provide, within 7 days, any further affidavit evidence and submissions of no more than 3 pages in length as to why costs should not follow the event.
3.Yum! Restaurants Australia Pty Ltd is granted leave to respond to any further affidavit evidence and submissions provided in accordance with order 2 within 7 days of receipt of any affidavit evidence and submissions from the Australasian Pizza Association (APA) Inc.

Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

REASONS FOR JUDGMENT
BROMWICH J:

On 5 February 2016, Bennett J delivered a judgment in proceedings by which a representative action brought on behalf of certain Pizza Hut franchisees against the Australian franchisor, Yum, failed: Diab Pty Ltd v YUM! Restaurants Australia Pty Ltd [2016] FCA 43 (the franchise litigation). The franchise litigation was concerned with certain price promotion and related strategies imposed by Yum on its franchisees.
On 8 March 2016, Bennett J made orders following her Honour’s judgment, which included an order that Diab Pty Ltd pay the costs of Yum of and incidental to those proceedings. The issue of costs in anticipation of that order was resolved as between the parties the previous day, 7 March 2016, as part of a broader agreement.
During the course of the franchise litigation, Yum caused a subpoena to be issued to a third party incorporated association, the Australasian Pizza Association. The Association is a not-for-profit organisation, having as its principal activity the protection and advancement of mutual interests of Pizza Hut franchisees. It was never a party to the proceedings before Bennett J, appearing only in respect of the subpoena.
After some dispute, the subpoena was complied with by the production of four tranches of documents in September and October 2014. By an interlocutory application dated 26 August 2016 and lodged for filing later the same day, the Association sought an order that Yum pay its costs of complying with the subpoena in the sum of $28,538.69 (or such other sum as the Court thinks fit), pursuant to r 24.22 of the Federal Court Rules2011 (Cth). In the alternative, the Association sought an order under r 24.22 that Yum pay its subpoena compliance costs, with those costs to be taxed on an indemnity basis.
Both the Association and Yum were content for this application to be determined on the papers in Chambers. Both furnished affidavit evidence and written submissions for that purpose.
There was a collateral dispute about a portion of the evidence relied upon by Yum, being the annexing of certain “without prejudice save as to costs” correspondence. In my view, the Association’s claim of joint privilege, while probably not properly maintained in the circumstances of this application, did not require determination as neither the fact of, nor the terms of, the component of the correspondence over which such joint privilege might have subsisted ended up having any part to play in the decision made. However for completeness it should be observed that the joint privilege part of this correspondence was evidence adduced by Yum by affidavit in relation to an adjudication on costs, albeit as to liability to pay those costs. The evidentiary rules as to joint privilege attaching to settlement negotiations are designed to keep such evidence separate from the evidence going to liability in the substantive proceedings so as to encourage candour and compromise. Those considerations should ordinarily be seen as having little part to play when the sole issue is costs. In any event, it was appropriate to have regard to the balance of those letters going to context.
I have also been able to resolve the dispute without reference to the redacted parts of the submissions for Yum, which relate to the particular terms by which an agreement was reached between Yum and Diab which affected the payment of the costs order made in the substantive part of the franchise litigation by Bennett J.
For the reasons that follow, the Association’s application must be dismissed. I will hear the parties on costs if this cannot be resolved by agreement, but will need some persuading that they should not follow the event.
Legal principles concerning reimbursement of a third party’s subpoena expenses
At common law and in the initial versions of the Rules of this Court, there was no right of a person subpoenaed to produce documents to have the costs of compliance met beyond conduct money for the purposes of attending Court to effect production: Bank of New South Wales v Withers (1981) 52 FLR 207 at 225-8; (1981) 35 ALR 21 at 36-8; Westpac Banking Corporation v Australian Securities Commission (1997) 72 FCR 318 at 331-2. This situation was remedied in this Court by the introduction of Order 27 Rule 4A into the former Federal Court Rules in 1982. Rule 4A(1) was amended in 1986 to read as follows:
Where a person named in a subpoena is not a party to the proceeding and he incurs substantial expense or loss in complying with the subpoena the Court or a Judge may order that the party who requested the issue of the subpoena pay to that person, in addition to any amount which the person served with the subpoena is entitled to be paid pursuant to Order 27, rule 3 or the Second Schedule, an amount to compensate him for such expense or loss as is reasonably incurred or lost by that person in complying with the subpoena.
Rule 4A was repealed in 2003 and replaced by Rule 11 to similar relevant effect. Rule 11 was replaced in identical terms by r 24.22 of the Federal Court Rules2011 (Cth) as follows:
Part 24—Subpoenas
…
Division 24.2—Subpoenas to give evidence and to produce documents
…
24.22   Costs and expenses of compliance
(1)The Court may order the issuing party to pay the amount of any reasonable loss or expense incurred in complying with the subpoena.
(2)If an order is made under subrule (1), the Court must fix the amount or direct that it be fixed in accordance with the Court’s usual procedure in relation to costs.
(3)An amount fixed under this rule is separate from and in addition to:
(a)       any conduct money paid to the addressee; and
(b)       any witness expenses payable to the addressee.
In Fuelexpress Ltd v LM Ericsson Pty Ltd (1987) 75 ALR 284 at 285 it was said of the version of Order 27 Rule 4A reproduced above that, while the question of whether particular expenses are recoverable depends on the circumstances of each case, it was not argued that legal costs were not within the scope of the recoverable costs within the power and that the cost of legal advice as to issues such as legal professional privilege answered the description of an expense or loss incurred in complying with the subpoena. It was further observed at 286 that the intent of the prior rule, now embodied in r 24.22(1), was to:
… compensate a person subpoenaed to produce documents for expense or loss reasonably incurred in complying with the subpoena. It is not the case of a successful party to litigation seeking recovery of costs where the distinction of solicitor and client costs on the one hand and party and party costs on the other is observed by taxing officers. It is a case of a third party seeking compensation for what it has actually cost it in expense or loss in complying with the subpoena. In those circumstances I think it is appropriate in this case that the legal costs and expenses incurred … in and about compliance with the subpoena (including its costs of this motion) and in and about the preparation of the bill for taxation and attending to the taxation should be on a solicitor and client basis.
The above sentiments were supported in the more recent case of Taylor v Dixon Advisory Ltd (2010) 5 ACTLR 136 at 146 [45]-[47], with qualifications to the effect that this would not necessarily apply to ordinary cases as opposed to complex cases giving rise to issues requiring legal advice and input. It was also suggested that the costs associated with challenges to validity of a subpoena should be paid on an ordinary party/party basis unless the court considered some other order was warranted.
There is authority arising from like provisions such as in the rules of the Supreme Court of New South Wales that suggests that a reading down of such a power is not appropriate and that the words used should be given “full force and effect”: Deposit & Investment Co Ltd (Receivers Appointed) v Peat Marwick Mitchell & Co (1996) 39 NSWLR 267 at 289D. However, that conclusion was seemingly reached as a matter of fairness in the context of the demands and expenses to third parties imposed by complex modern litigation, rather than by careful consideration of the terms of the power bestowed.
Deposit & Investment Co Ltd at 290B also noted that the costs of a third party complying with a subpoena would ultimately and ordinarily be met by the unsuccessful party in the litigation. I agree that this is a legitimate expectation, and one that assumes some importance in the determination of this application, especially as the costs order made by Bennett J was made in the common form “of and incidental to” to the proceedings, which would ordinarily pick up subpoena expenses of the successful party if reasonably incurred. It necessarily means that a third party ought to seek reimbursement of the expenses of complying with a subpoena promptly. The third party should also seek those expenses in a reasonable manner, and in particular in a way that enables the party who caused the subpoena to be issued to assess their reasonableness both as to what was done, and what has been charged. That is especially so if the amount claimed is substantial relative to the apparent scope of the subpoena and the volume of material required to be produced. As a matter of first principles reasoning, a failure to advance a subpoena expenses claim both properly and expeditiously may be an important discretionary consideration in deciding whether or not to order that such payment be made by the issuing party. That is especially so if the issuing party was successful in the litigation and the time for seeking recovery of the cost from the losing party has passed during the intervening delay.
History of the subpoena and related costs dispute
The following chronology of events is drawn from the submissions of the parties based on the affidavit evidence they relied upon, as well as the sequence of the franchise litigation drawn from Bennett J’s judgment. It is perhaps more detailed than strictly necessary, but serves to demonstrate the nature of the subpoena process. It also spells out what was done by the lawyers for the Association in seeking to recover their compliance costs, and when.

Date Event

1 January 2013 Jim Kartsounis became a committee member of the Association and at some time after that became its President.

23 June 2014 Mr Kartsounis ceased being a committee member of the Association.

12 August 2014 Diab commenced the franchise litigation against Yum. Diab’s solicitors were J. Kartsounis & Co Solicitors. The principal of that firm is Mr Kartsounis.

9 September 2014 Yum caused the subpoena to be issued to the Association. The subpoena sought the production of records of communications between the Association and its members, and among or between members of its executive, in relation to the price promotion and related strategies that were the subject of the franchise litigation, including as to its actual, perceived or likely impact on profitability, together with financial or accounting modelling in relation to that impact. It also sought records of communications between the Association and third parties in relation to that strategy.

12 September 2014 Resolve Litigation Lawyers Pty Ltd (RLL) was retained to act for the Association with respect to the subpoena.

15 September 2014 RLL sent a letter to Webb Henderson, solicitors for Yum in the franchise litigation, inter alia questioning the relevance of the documents sought by the subpoena.

16 September 2014 Webb Henderson replied to RLL’s letter asserting that the relevance of the subpoena was a matter between the parties to the litigation, but nonetheless outlined what the relevance was said to be.

17 September 2014 First return of subpoena, adjourned to 24 September 2014.

18 September 2014 RLL replied to Webb Henderson taking further issue with the relevance to the franchise litigation of the documents sought to be produced and also with the scope of the subpoena.

22 September 2014 Webb Henderson replied to RLL again maintaining that relevance was a matter for the parties and again outlining what the relevance of the documents sought by the subpoena was said to be, as well as proposing a limitation to the call to address certain concerns about the scope of the subpoena.

24 September 2014 First tranche of about 7 documents produced at the first adjourned return of subpoena and access orders made, with the balance of the subpoena stood over to 1 October 2014.

1 October 2014 Second tranche of about 24 documents produced at the second return of subpoena and access orders made, with the balance of the subpoena stood over to 15 October 2014.

14 October 2014 RLL wrote to Webb Henderson advising that two envelopes of documents would be produced the next day, with legal professional privilege being claimed over the contents of one of those envelopes.

15 October 2014 Third tranche of about 47 documents produced at the third return of subpoena and access orders made for the documents over which no claim for privilege had been made.

20 October 2014 Fourth tranche of about 7 documents produced, some of them subject to a claim of legal professional privilege by the Association.

22 October 2014 Fourth return of subpoena and access orders made to inspect the documents produced on 20 October 2014 over which no claim for privilege had been made. The balance of the subpoena was stood over to 29 October 2014.

29 October 2014 RLL wrote to Webb Henderson, advising the subpoena had been complied with and no further documents would be produced. The subpoena was discharged.

14 November 2014 Webb Henderson wrote to RLL concerning privilege redactions to the documents produced in answer to the subpoena. This letter was followed up by a further letter from Webb Henderson on 19 November 2014 seeking a response to this letter.

20 November 2014 RLL wrote to Webb Henderson (letter marked “without prejudice save as to costs”) claiming that the Association’s costs of compliance with the subpoena were “approximately” $26,205.78 (including GST), providing a breakdown of $22,724.46 in relation to RLL’s fees, $3,267 in relation to Mr Kartsounis’s firm’s fees and $214.32 in relation to disbursements. No further details were apparently provided as to how those amounts were arrived at or what work was done to incur those costs. However the letter also proposed a compromise, the terms of which are immaterial to the determination required to be made on this application. The recovery of the fees charged by Mr Kartsounis’s firm was subsequently offered to be foregone on 20 July 2015.

25 November 2014 RLL replied to Webb Henderson in relation to the privilege redactions, broadly claiming privilege under s 118 of the Evidence Act 1995 (Cth).

26 November 2014 Webb Henderson wrote to RLL and requested full particulars and identification of the specific basis for asserting privilege over the redactions.

27 November 2014 Webb Henderson wrote to RLL requesting itemised invoices for the subpoena compliance costs.

2 December 2014 Letter (dated 2 November 2014 in error) sent by RLL to Webb Henderson maintaining claims of privilege and suggesting a process for resolution which was rejected in a reply from Webb Henderson the same day.

3 December 2014 Letter sent by RLL to Webb Henderson identifying the addressees of email correspondence previously withheld upon the basis of privilege.

16 December 2014 RLL wrote to Webb Henderson claiming the Association’s costs of complying with the subpoena had increased to $31,806.69.

25 March 2015 RLL wrote to Webb Henderson, in response to the letter of 27 November 2014, enclosing a copy of the [first page of] tax invoices for the work performed by RLL and by Mr Kartsounis’s firm and providing certain information about the nature of the work that was performed as between the two firms. The letter advised that the Association’s costs of complying with the subpoena were now approximately $31,806.69 (including GST), broken down into $28,302.73 for RLL’s fees, $3,267 for Mr Kartsounis’s firm’s fees and disbursements of $236.96. The letter provided no further particulars or details as to how those amounts were arrived at or what work was done to incur those costs. (It was not apparent that each of the RLL tax invoices was in fact only the first page of a document that included in subsequent pages not provided a detailed schedule as to the work that had been done and charged, making up the tax invoice amount.) The letter again also proposed a compromise, the terms of which are immaterial to the determination required to be made on this application.

7 April 2015 Webb Henderson wrote to RLL referring to its prior letter of 27 November 2014 requesting itemised invoices for the work done in relation to the subpoena and reasserted a need for a fully itemised bill of costs for each law firm and a copy of the retainer agreement for each law firm. The letter stated “[u]ntil such time as we receive the above documents, our client is unable to give proper consideration to the offer [of compromise as to the quantum of the costs sought] set out in your letter”.

20 July 2015 Mr Kartsounis wrote on the letterhead of his firm to Webb Henderson advising that his firm had now been instructed by the Association to assume conduct of the recovery of the costs of complying with the subpoena. The letter referred to prior correspondence and in particular the prior offer to settle the costs (which as already noted is not in its terms material to the determination required to be made on this application). As noted earlier, the letter also offered to forgo recovery of the costs incurred by Mr Kartsounis’s firm (being the sum of $3,267). The letter further stated “[w]ith respect to the particulars sought in your above letter you are not entitled to this information”.

30 July 2015 Commencement of the trial in the franchise litigation before Bennett J.

15 October 2015 Last day of the trial and the franchise litigation before Bennett J; decision reserved.

27 October 2015 Mr Kartsounis again became President of the Association.

20 November 2015 Last date of submissions in the franchise litigation before Bennett J.

5 February 2016 Judgment delivered by Bennett J finding in favour of Yum.

7 March 2016 Agreement reached and documented between Diab and Yum including aspects relevant to the anticipated costs order to be made by Bennett J.

8 March 2016 Formal orders made by Bennett J, including that Diab pay Yum’s costs “of and incidental to” the franchise litigation.

6 July 2016 Mr Kartsounis resigned from his position as President of the Association.

25 July 2016 Mr Kartsounis wrote to Webb Henderson again in open and without prejudice save as to costs letters seeking the Association’s subpoena compliance costs and again offering a compromise which is not material to the determination required to be made of this application. For the first time the fee schedules to the three RLL tax invoices previously provided with the 20 July 2015 letter were provided, giving details of the work done and charged for.

26 July 2016 Webb Henderson wrote to Mr Kartsounis’s firm seeking confirmation as to who he was acting for in relation to the matter and asking whether the Association’s subpoena costs had been claimed from Diab. The view was expressed that the liability to meet the Association’s costs in relation to the subpoena rested with Diab whom Mr Kartsounis’s firm acted for in the franchise litigation. The letter also asserted that the costs sought were manifestly excessive rather than reasonable and included significant party/party costs and other attendances which were not reasonable.

26 July 2016 Letter in response to Webb Henderson by Mr Kartsounis’s firm pointing out that Webb Henderson had been advised in the 20 July 2015 correspondence of Mr Kartsounis’s firm acting for the Association in respect of the subpoena costs, and asserting that it is the issuing party against whom this Court could make an order for costs of complying with the subpoena, that there was no basis upon which the Association should seek those costs from Diab and that Yum was well aware of the Association’s claim for recovery of its expenses when it settled its cost claim with Diab and must have taken that into consideration at the time.

Observations about the chronology

The above chronology reveals a number of facts and issues pertinent to the determination of this application.
The 20 July 2015 letter from Mr Kartsounis in substance asserted that it was sufficient in seeking to recover the costs of compliance with a subpoena to demand a lump sum amount without any particulars or any details as to how those amounts were arrived at or what work had been done. The solicitor for Yum deposed to not responding to that letter because of the refusal to provide the particulars sought and the futility therefore of continuing the correspondence until that changed. That was a reasonable stance to take. This manifest deficiency in providing reasonable particulars was not remedied until a full 12 months later (and over 18 months after particulars were first requested) when the second and subsequent pages of the three RLL tax invoices were provided (noting that no such particulars were ever provided for the abandoned tax invoice from Mr Kartsounis’s firm). It had not been remedied by the time of the costs order made by Bennett J on 8 March 2016, and therefore at the time that negotiations were taking place between Diab (represented by Mr Kartsounis through his firm) and Yum which concluded with agreement the previous day, 7 March 2016.
There is no explanation in the evidence or submissions for the Association as to why only the first page of the three RLL tax invoice documents was initially provided, beyond Mr Kartsounis’s assertion in his 20 July 2015 letter that Yum and its solicitors had no entitlement to receive any particulars or details on the lump sum amounts claimed.
From at least 20 July 2015, Mr Kartsounis’s firm were the solicitors for Diab in the franchise litigation and the solicitors for the Association in relation to seeking to recover the costs of compliance with the subpoena in those proceedings. There was an immediate and obvious conflict problem in acting in both respects if the action brought by Diab did not succeed because a reasonable expectation is that any subpoena expenses which Yum was ordered to pay to the Association would be recoverable from Diab, especially if the costs order was cast in terms as being “of or incidental to” to the proceedings. That was a conflict which a solicitor in Mr Kartsounis’s position probably had an ethical obligation to address expressly if he was to continue to act in both capacities. This may have happened, but there was no evidence to that effect.
As Diab was unsuccessful in the proceedings it brought, the abovementioned conflict arose unless the Association’s expenses of compliance were expressly addressed as part of the agreement between Diab and Yum. If the Association was aware of this not happening, then the Association was taking a risk that the discretion to order the payment of its expenses would be exercised adversely to it. The Association was necessarily constructively aware of what was and was not addressed in the negotiations because its solicitors and its President carried out those negotiations on behalf of Diab. Mr Kartsounis took an active role in Diab and Yum reaching that agreement, while he remained President of the Association and principal of the law firm acting for the Association in seeking from Yum, at that time not actively, payment for the expenses of compliance with the subpoena.
The above history also suggests that the approach of the Association to compliance with the subpoena was at least reluctant. The evidence suggests that at least some of the privilege claims were of doubtful validity, for example those extending to email addresses, which at most might entail some arrangement to maintain privacy or perhaps confidentiality. Other claims appear to have had greater validity insofar as correspondence from RLL referred to communications between the Association and its lawyers. The costs incurred appear to be substantial given the relatively confined scope of the subpoena and the relatively small number of documents produced. However there was no evidence to indicate the volume of the documents that were ultimately withheld. Moreover, a number of the expenses claimed appeared to have nothing to do with the subpoena. For example, as pointed out in submissions for Yum the fee schedules forming part of each of the three RLL tax invoices contain:
(1)references to a large number of attendances on Mr Tim Castle of counsel, sometimes referred to only as “Tim”, who was junior counsel for Diab in the franchise litigation proceedings, yet there was no evidence that Mr Castle was at any time retained by the Association;
(2)references to attendances on counsel’s chambers and communications with counsel, which may or may not have been further references to Mr Castle, in circumstances where there was no evidence that any counsel had been retained by the Association – for completeness, I note that the written submissions in this costs dispute on behalf of the Associate were from counsel, suggesting that counsel was briefed by the Association at some stage of the subpoena compliance expenses dispute;
(3)many references to Mr Kartsounis, sometimes referred to only as “Jim”, without it being apparent in what capacity he was acting in relation to each of those attendances given that he was both the principal of the firm of solicitors acting for Diab in the franchise litigation and also acting in relation to the subpoena (though his fees for the latter were foregone);
(4)references to attendances on an employed solicitor at Mr Kartsounis’s firm, also being the solicitors for Diab, in which it was not clear in what capacity that solicitor was acting;
(5)references to attendances on Mr Diab, sometimes referred to as “Danny”;
(6)a 13 October 2014 entry “reviewing documents for the purpose of discovery” in circumstances in which the association was not a party to and did not give discovery in the franchise litigation, whereas Diab gave discovery in October 2014;
(7)a 3 December 2014 attendance at mediation by Mr Michael Daniel of RLL, when that mediation was not related to the subpoena, the Association had no right to attend the mediation and Yum objected to the Association and its solicitors communicating with the mediator (as set out in the Webb Henderson letter of 2 December 2014); and
(8)an attendance on a costs consultant on 16 December 2014, more than three months after the subpoena had been discharged.
Resolution of the competing submissions
The substance of the submissions on behalf of the Association focused on the general entitlement, albeit as a matter of discretion, of a third party recipient of a subpoena to recover its costs of compliance. This was described as the “usual order” by reference to the costs of compliance, including legal costs said to be reasonably incurred, on an indemnity basis. Some detailed references were made to the right of a third party to recover legal costs when that party is a self-represented litigant and legal practitioner, but it is not apparent why those submissions were made in light of the abandonment of the costs incurred by Mr Kartsounis’s firm, which was noted immediately thereafter in the Association’s submissions.
The submissions for the Association were dismissive of any concerns arising from Mr Kartsounis being an office holder of the Association throughout most of the relevant period and did not address at all Mr Kartsounis’s firm acting for both Diab, especially as to costs, and the Association in relation to seeking recovery of its subpoena compliance costs from Yum. The submissions were similarly dismissive about the concerns raised by Yum’s solicitors about the various costs items detailed above. In substance the thrust of the submissions was that the Association had incurred and paid the costs and should simply be reimbursed, apparently without question and at least initially without any details or particulars. The submissions stated that there did not appear to be any dispute that, inter alia, there were five separate return of subpoena hearings “required”, “extensive” correspondence between the parties and “extensive” disputes regarding privilege claims. In my opinion that constitutes indemnity without accountability and without any recognition that the costs be both reasonable and reasonably incurred. Any question of taxation or other assessment was dismissed by the Association as being too costly relative to the amounts involved. In other more conventional circumstances the submissions about the costs of taxation might have had considerable cogency.
The thrust of the submissions made on behalf of Yum, after a consideration of the legal principles, was to focus on three unsatisfactory aspects of the Association’s claim, including by reference to the chronology of events. The first aspect was as to the sustained refusal to provide details of the expenses incurred and the denial of any entitlement to receive such information. The second aspect concerned such information only being provided, and the claim only being advanced upon that basis, after the costs of the franchise litigation had been finalised with Diab, foreclosing any reasonable prospect of recovery of those costs of and incidental to those proceedings from Diab. This second aspect encompassed the multi-hatted role of Mr Kartsounis. The third aspect concerned the inclusion of the various expenses identified at [21] above which were asserted to include costs which were not the costs of compliance, or alternatively, costs that were not reasonable.
Submissions in reply for the Association largely failed to engage with the points made on behalf of Yum. The concerns expressed about Mr Kartsounis’s various roles were dismissed as “baseless smear and innuendo”. The submission that Yum was prejudiced by reason of not being able to recover the subpoena compliance costs from Diab was similarly dismissed out of hand. It was submitted on behalf of the Association that Yum should have realised that this remained unresolved and that Yum had a responsibility to ask the Association whether it had abandoned its claim (noting that over seven months had elapsed since the last demand made on behalf of the Association by the time the resolution of the costs in the franchise litigation was being dealt with and none of the details sought by Yum had been provided). It was asserted that it was clear from the course of correspondence between the parties to this subpoena compliance expenses dispute that the Association had made a “considerable effort to negotiate and compromise the claims for its expenses incurred in complying with Yum’s subpoena” and that the costs incurred were real and had been paid for. That particular submission failed to acknowledge that the asserted “considerable effort” did not extend to providing any reasonable details by which the nature and quantum of the expenses claimed could be assessed for reasonableness for over a year and not until well after the question of costs of and incidental to the franchise litigation had been finalised with Diab.
In my view, the submissions on behalf of Yum should be preferred to those advanced on behalf of the Association. It was unreasonable for the Association, via Mr Kartsounis, to assert that Yum and its solicitors had no entitlement to be provided with any particulars or other details of the work that had been done to arrive at the claim that was being made. Simply to produce three tax invoices with a lump sum amount for each does not enable the party being asked to pay those costs to ascertain whether they are reasonable. That is especially egregious in circumstance in which documents containing those details already existed, being the subsequent pages of the documents that were provided such that they had to have been deliberately excluded. There was no additional expense involved in providing those additional pages in the first place and very little expense in providing them separately once particulars were sought.
Moreover, the criticisms made of those bills on behalf of Yum when they were finally provided were well-founded, at least to the point of not accepting those expenses at face value. The insistence on behalf of Yum on those details being provided was substantially vindicated. Even if I was inclined to exercise the discretion in favour of the Association as to liability to pay the subpoena compliance costs, I would not be making the lump sum order sought by the Association. Indeed, given the apparently or at least possibly inappropriate components of the claims made, I would most likely have required taxation at the expense of the Association given that much of the complexity arose from the conflict in Mr Kartsounis’s firm acting on costs issues for both Diab and the Association at the same time, as well as being President of the Association through most of the relevant period, even if the costs of that process might ordinarily have been disproportionate to the total claim made.
Most of the above considerations ended up being of secondary importance. That is because I have ultimately concluded that this application should fail principally because of the failure on the part of the Association’s lawyers to pursue fairly and properly the payment of the subpoena compliance expenses until after the franchise litigation had concluded and the question of costs between the parties had been finalised, effectively ruling out any recovery by Yum from Diab. That is especially so as Mr Kartsounis was acting for both Diab and the Association from July 2015 through to the conduct of the franchise litigation and judgment, and in the negotiations affecting the costs order made against Diab in Yum’s favour, and was President of the Association for most of that time.
As noted above, there is no explanation by way of submissions or evidence as to why no action was taken by Mr Kartsounis to provide proper details as to how the compliance costs sought were arrived at until after the franchise litigation had been finalised, nor as to the lengthy delay of over twelve months in resuming the seeking of those subpoena compliance expenses. That is especially troubling in light of the fact that Mr Kartsounis’s firm were the solicitors for Diab in the franchise litigation and moreover had also acted for the Association in relation to the recovery of its subpoena costs since before the trial before Bennett J. Throughout part of that period, Mr Kartsounis was also President of the Association. These matters are not mere smears or innuendo, as contended in reply submissions on behalf of the Association. They are objective facts which have informed my decision not to exercise the discretion to make a costs order in favour of the Association. In that regard, I note that the Association’s submission drew my attention to the overarching purpose of the civil practice and procedure provisions in s 37M of the Federal Court of Australia Act 1976 (Cth). I have taken into account ss 37M(1)(b), 37M(2)(d), 37M(2)(e), 37N(1), 37N(2) and 37N(4) which have confirmed my view that the Association should not be awarded its costs of compliance.
Conclusion
The Association’s application that Yum pay the costs of its compliance with the subpoena must be dismissed.
I can see no obvious reason why costs should not follow the event. However submissions on behalf of the Association alluded to further correspondence that might have a bearing on that question. I therefore give the Association leave to provide, within 7 days, any further affidavit evidence and submissions of no more than 3 pages in length as to why costs should not follow the event. Yum will only need to respond to that evidence and those submissions if advised that I am considering acceding to it not obtaining the benefit of a costs order in its favour. However, in case Yum wishes to make submissions in response to those advanced on behalf of the Association in any event, leave is granted to do so within 7 days after receipt of any submissions and evidence from the Association. The determination of the costs of this application will be made in Chambers.

I certify that the preceding thirty-one (31) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Bromwich.
Associate:
Dated: 3 February 2017

File number:	NSD 832 of 2014
Judge:	BROMWICH J
Date of judgment:	3 February 2017
Catchwords:	COSTS – application by a third party to proceedings for costs of compliance with a subpoena – where application was made almost two years after subpoena discharged – where application was made months after delivery of judgment in the substantive proceedings – where applicant for costs of compliance withheld itemised invoices for a significant period of time – where applicant’s itemised invoices when provided revealed concerns as to appropriateness and reasonableness of costs incurred – held: application dismissed
Legislation:	Federal Court of Australia Act 1976 (Cth), ss 37M(1)(b), 37M(2)(d), 37M(2)(e), 37N(1), 37N(2), 37N(4) Federal Court Rules, O 27 rr 4A, 11 Federal Court Rules2011 (Cth), rr 24.22
Cases cited:	Bank of New South Wales v Withers (1981) 52 FLR 207; (1981) 35 ALR 21 Deposit & Investment Co Ltd (Receivers Appointed) v Peat Marwick Mitchell & Co (1996) 39 NSWLR 267 Diab Pty Ltd v YUM! Restaurants Australia Pty Ltd [2016] FCA 43 Fuelexpress Ltd v LM Ericsson Pty Ltd (1987) 75 ALR 284 Taylor v Dixon Advisory Ltd (2010) 5 ACTLR 136 Westpac Banking Corporation v Australian Securities Commission (1997) 72 FCR 318
Date of hearing:	Determined on the papers
Date of last submissions:	2 November 2016
Registry:	New South Wales
Division:	General Division
National Practice Area:	Commercial and Corporations
Sub-area:	Regulator and Consumer Protection
Category:	Catchwords
Number of paragraphs:	31
Counsel for the Applicant on the Interlocutory Application:	Mr R C Gration
Solicitor for the Applicant on the Interlocutory Application:	J. Kartsounis & Co, Solicitors
Counsel for the Respondent on the Interlocutory Application:	Mr S Keizer
Solicitor for the Respondent on the Interlocutory Application:	Webb Henderson

JUDGE:	BROMWICH J
DATE OF ORDER:	3 FEBRUARY 2017

Date	Event
1 January 2013	Jim Kartsounis became a committee member of the Association and at some time after that became its President.
23 June 2014	Mr Kartsounis ceased being a committee member of the Association.
12 August 2014	Diab commenced the franchise litigation against Yum. Diab’s solicitors were J. Kartsounis & Co Solicitors. The principal of that firm is Mr Kartsounis.
9 September 2014	Yum caused the subpoena to be issued to the Association. The subpoena sought the production of records of communications between the Association and its members, and among or between members of its executive, in relation to the price promotion and related strategies that were the subject of the franchise litigation, including as to its actual, perceived or likely impact on profitability, together with financial or accounting modelling in relation to that impact. It also sought records of communications between the Association and third parties in relation to that strategy.
12 September 2014	Resolve Litigation Lawyers Pty Ltd (RLL) was retained to act for the Association with respect to the subpoena.
15 September 2014	RLL sent a letter to Webb Henderson, solicitors for Yum in the franchise litigation, inter alia questioning the relevance of the documents sought by the subpoena.
16 September 2014	Webb Henderson replied to RLL’s letter asserting that the relevance of the subpoena was a matter between the parties to the litigation, but nonetheless outlined what the relevance was said to be.
17 September 2014	First return of subpoena, adjourned to 24 September 2014.
18 September 2014	RLL replied to Webb Henderson taking further issue with the relevance to the franchise litigation of the documents sought to be produced and also with the scope of the subpoena.
22 September 2014	Webb Henderson replied to RLL again maintaining that relevance was a matter for the parties and again outlining what the relevance of the documents sought by the subpoena was said to be, as well as proposing a limitation to the call to address certain concerns about the scope of the subpoena.
24 September 2014	First tranche of about 7 documents produced at the first adjourned return of subpoena and access orders made, with the balance of the subpoena stood over to 1 October 2014.
1 October 2014	Second tranche of about 24 documents produced at the second return of subpoena and access orders made, with the balance of the subpoena stood over to 15 October 2014.
14 October 2014	RLL wrote to Webb Henderson advising that two envelopes of documents would be produced the next day, with legal professional privilege being claimed over the contents of one of those envelopes.
15 October 2014	Third tranche of about 47 documents produced at the third return of subpoena and access orders made for the documents over which no claim for privilege had been made.
20 October 2014	Fourth tranche of about 7 documents produced, some of them subject to a claim of legal professional privilege by the Association.
22 October 2014	Fourth return of subpoena and access orders made to inspect the documents produced on 20 October 2014 over which no claim for privilege had been made. The balance of the subpoena was stood over to 29 October 2014.
29 October 2014	RLL wrote to Webb Henderson, advising the subpoena had been complied with and no further documents would be produced. The subpoena was discharged.
14 November 2014	Webb Henderson wrote to RLL concerning privilege redactions to the documents produced in answer to the subpoena. This letter was followed up by a further letter from Webb Henderson on 19 November 2014 seeking a response to this letter.
20 November 2014	RLL wrote to Webb Henderson (letter marked “without prejudice save as to costs”) claiming that the Association’s costs of compliance with the subpoena were “approximately” $26,205.78 (including GST), providing a breakdown of $22,724.46 in relation to RLL’s fees, $3,267 in relation to Mr Kartsounis’s firm’s fees and $214.32 in relation to disbursements. No further details were apparently provided as to how those amounts were arrived at or what work was done to incur those costs. However the letter also proposed a compromise, the terms of which are immaterial to the determination required to be made on this application. The recovery of the fees charged by Mr Kartsounis’s firm was subsequently offered to be foregone on 20 July 2015.
25 November 2014	RLL replied to Webb Henderson in relation to the privilege redactions, broadly claiming privilege under s 118 of the Evidence Act 1995 (Cth).
26 November 2014	Webb Henderson wrote to RLL and requested full particulars and identification of the specific basis for asserting privilege over the redactions.
27 November 2014	Webb Henderson wrote to RLL requesting itemised invoices for the subpoena compliance costs.
2 December 2014	Letter (dated 2 November 2014 in error) sent by RLL to Webb Henderson maintaining claims of privilege and suggesting a process for resolution which was rejected in a reply from Webb Henderson the same day.
3 December 2014	Letter sent by RLL to Webb Henderson identifying the addressees of email correspondence previously withheld upon the basis of privilege.
16 December 2014	RLL wrote to Webb Henderson claiming the Association’s costs of complying with the subpoena had increased to $31,806.69.
25 March 2015	RLL wrote to Webb Henderson, in response to the letter of 27 November 2014, enclosing a copy of the [first page of] tax invoices for the work performed by RLL and by Mr Kartsounis’s firm and providing certain information about the nature of the work that was performed as between the two firms. The letter advised that the Association’s costs of complying with the subpoena were now approximately $31,806.69 (including GST), broken down into $28,302.73 for RLL’s fees, $3,267 for Mr Kartsounis’s firm’s fees and disbursements of $236.96. The letter provided no further particulars or details as to how those amounts were arrived at or what work was done to incur those costs. (It was not apparent that each of the RLL tax invoices was in fact only the first page of a document that included in subsequent pages not provided a detailed schedule as to the work that had been done and charged, making up the tax invoice amount.) The letter again also proposed a compromise, the terms of which are immaterial to the determination required to be made on this application.
7 April 2015	Webb Henderson wrote to RLL referring to its prior letter of 27 November 2014 requesting itemised invoices for the work done in relation to the subpoena and reasserted a need for a fully itemised bill of costs for each law firm and a copy of the retainer agreement for each law firm. The letter stated “[u]ntil such time as we receive the above documents, our client is unable to give proper consideration to the offer [of compromise as to the quantum of the costs sought] set out in your letter”.
20 July 2015	Mr Kartsounis wrote on the letterhead of his firm to Webb Henderson advising that his firm had now been instructed by the Association to assume conduct of the recovery of the costs of complying with the subpoena. The letter referred to prior correspondence and in particular the prior offer to settle the costs (which as already noted is not in its terms material to the determination required to be made on this application). As noted earlier, the letter also offered to forgo recovery of the costs incurred by Mr Kartsounis’s firm (being the sum of $3,267). The letter further stated “[w]ith respect to the particulars sought in your above letter you are not entitled to this information”.
30 July 2015	Commencement of the trial in the franchise litigation before Bennett J.
15 October 2015	Last day of the trial and the franchise litigation before Bennett J; decision reserved.
27 October 2015	Mr Kartsounis again became President of the Association.
20 November 2015	Last date of submissions in the franchise litigation before Bennett J.
5 February 2016	Judgment delivered by Bennett J finding in favour of Yum.
7 March 2016	Agreement reached and documented between Diab and Yum including aspects relevant to the anticipated costs order to be made by Bennett J.
8 March 2016	Formal orders made by Bennett J, including that Diab pay Yum’s costs “of and incidental to” the franchise litigation.
6 July 2016	Mr Kartsounis resigned from his position as President of the Association.
25 July 2016	Mr Kartsounis wrote to Webb Henderson again in open and without prejudice save as to costs letters seeking the Association’s subpoena compliance costs and again offering a compromise which is not material to the determination required to be made of this application. For the first time the fee schedules to the three RLL tax invoices previously provided with the 20 July 2015 letter were provided, giving details of the work done and charged for.
26 July 2016	Webb Henderson wrote to Mr Kartsounis’s firm seeking confirmation as to who he was acting for in relation to the matter and asking whether the Association’s subpoena costs had been claimed from Diab. The view was expressed that the liability to meet the Association’s costs in relation to the subpoena rested with Diab whom Mr Kartsounis’s firm acted for in the franchise litigation. The letter also asserted that the costs sought were manifestly excessive rather than reasonable and included significant party/party costs and other attendances which were not reasonable.
26 July 2016	Letter in response to Webb Henderson by Mr Kartsounis’s firm pointing out that Webb Henderson had been advised in the 20 July 2015 correspondence of Mr Kartsounis’s firm acting for the Association in respect of the subpoena costs, and asserting that it is the issuing party against whom this Court could make an order for costs of complying with the subpoena, that there was no basis upon which the Association should seek those costs from Diab and that Yum was well aware of the Association’s claim for recovery of its expenses when it settled its cost claim with Diab and must have taken that into consideration at the time.