Global Investments Limited v Babcock and Brown Global Investments Management Pty Ltd; Dif Iii - Global Co-Investment Fund LP v BBLP LLC

[2017] NSWSC 1202

Supreme Court

New South Wales

Medium Neutral Citation:

Global Investments Limited v Babcock & Brown Global Investments Management Pty Ltd; DIF III – Global Co-Investment Fund LP v BBLP LLC [2017] NSWSC 1202

Hearing dates:

On the papers

Date of orders:

08 September 2017

Decision date:

08 September 2017

Jurisdiction:

Equity - Commercial List

Before:

McDougall J

Decision:

See at [59], [60].

Catchwords:

COSTS – notice of motion for further or better discovery – Civil Procedure Act 1005 (NSW) s 98 – Uniform Civil Procedure Rules 2005 (NSW) r 42.1, 42.7 – where the failure of the notice of motion for further discovery is a discrete event for the purposes of r 42.1 – where certain defendants were not required to participate in the hearing of the notice of motion – where certain defendants were in breach of the court’s orders before the notice of motion was filed and served

Legislation Cited:

Civil Procedure Act 2005 (NSW)
Uniform Civil Procedure Rules 2005 (NSW)

Category:

Costs

Parties:

2016/285820
DIF III – Global Co-Investment Fund LP (Formerly “Babcock & Brown DIF III Global Co-Investment Fund LP”) (First Plaintiff)
DIF III GP Limited (Second Plaintiff)
BBLP LLC (formerly “Babcock & Brown LP”) (First Defendant)
Babcock & Brown Rail North America LLC (Second Defendant)
Babcock & Brown Rail Management LLC (Third Defendant)
Babcock & Brown Rail Investment Management LLC (Fourth Defendant)
Victoria McManus (Fifth Defendant)
George Stone (Sixth Defendant)
Ross Sullivan (Seventh Defendant)
Larry Littlefield (Eighth Defendant)
Richard Umbrecht (Ninth Defendant)
DIF Capital Partners Ltd ACN 101 611 438 (Tenth Defendant)
Robert Neil Topfer (Eleventh Defendant)
Phillip Hartley Green (Twelfth Defendant)
Fergus John Neilson (Thirteenth Defendant)
Harry Nicholson (Fourteenth Defendant)
Robert Rupert Officer (Fifteenth Defendant)
Babcock & Brown International Pty Limited CAN 108 617 483 (Sixteenth Defendant)
Babcock & Brown Rail Funding LLC (Seventeenth Defendant)

  2016/278486
Global Investment Limited (Plaintiff)
Babcock & Brown Global Investments Management Pty Ltd (in liquidation) ACN 118871140 (Tenth defendant)

Representation:

Counsel:

 

AJ Sullivan QC / CN Bova / BA Ng (First and Second Plaintiffs)
RCA Higgins / CK Mitchell (First, Third, Fourth and Sixteenth Defendants)
JA Redwood (Fifth to Ninth Defendants)
MA Jones SC / RPV Carey (Tenth Defendant)
LE Hulmes (Twelfth Defendant)
R McGuinness (Solicitor) (Tenth, Eleventh, Thirteenth, Fourteenth Defendants) (DIF III)

 

Solicitors:

 

2016/285820 and 2016/278486
Piper Alderman (Plaintiffs) (Global) and (DIF)

 

2016/285820
Herbert Smith Freehills (First, Third, Fourth and Sixteenth Defendants)
Arnold Bloch Leibler (Fifth to Ninth Defendants)
Webb Henderson (Tenth, Eleventh, Thirteenth, Fourteenth Defendants)
Kemp Strang (Twelfth Defendant)
Minter Ellision (Fifteenth Defendant)

  2016/00278486
Norton Rose Fullbright (Tenth Defendant)

File Number(s):

2016/285820; 2016/278486

Judgment

1. HIS HONOUR:   These reasons are concerned with the costs orders to be made in respect of the plaintiffs’ notices of motion for further or better discovery. I heard those notices of motion on 5 June 2017 and provided draft written reasons to the parties on 7 June 2017. In those draft reasons, I concluded that:

1. the substantive matter argued should be resolved against the plaintiffs and in favour of the defendants;

2. the parties should be left to resolve what I called the “rats and mice issues”; and

3. the notices of motion should be dismissed with costs.

2. When I handed down the draft reasons, Mr Bova of Counsel, for the plaintiffs, submitted that:

1. his clients wished to be heard on costs; and

2. because there were still unresolved issues arising under the notices of motion (particularly relating to the GIL[1] notice of motion, where there were unresolved questions of privilege), the notices of motion should not be dismissed.

   1. See at [6] below.

3. Accordingly, I vacated the orders that I had made and gave directions for the exchange of submissions on costs.

4. The reasons that I provided in the draft have now been finalised and published[2] . The concluding paragraphs [3] of those reasons reflect the matters referred to at [2] above.

   2. [2017] NSWSC 729.

   3. [87], [88].

5. The parties have now provided written submissions (including in reply) on costs. As I indicated would be done, I shall deal with those costs questions on the basis of the written submissions.

6. There were two separate proceedings: the “DIF” proceeding, DIF III – Global Co-Investment Fund LP and Others v BBLP LLC and Others; and the “GIL” proceeding, Global Investment Limited v Babcock and Brown Global Investments Management Pty Ltd (In Liquidation) and Others. I shall deal separately with the costs disputes in each proceeding.

7. The nature of the discovery disputes and the issues canvassed on the hearing of the notices of motion were set out in my earlier reasons. I shall not repeat what I said. I assume that the reader of these reasons has also read my earlier reasons, and is thus aware of the issues (both in the substantive proceedings and on the notices of motion) and of the reasons why the notices of motion suffered the fate that, on the principal matter argued, they did.

The DIF proceeding

8. Although the notice of motion (which was amended from time to time) ranged over a number of complaints as to discovery, the key issue, and the one with which I dealt in my earlier reasons, related to the BBRX1 to BBRX4 transactions. The plaintiffs’ position was that the defendants’ discovery should encompass documents relating to those transactions. After analysing the pleadings and the particulars, I concluded that the defendants should not give discovery in relation to those transactions, but that their discovery obligations should be limited to the BBRX5 transaction.

9. There was also what I described as a procedural issue which I dealt with. That issue was whether, as the plaintiffs contended was the case, the fifth to fifteenth defendants had impermissibly delegated to the first to fourth and sixteenth defendants (referred to collectively as “the B&B defendants”) their obligations of discovery.

10. The “impermissible delegation” issue arose out of an agreement that the parties had, very sensibly, made, which was aimed at reducing the cost of and duplication in discovery. The agreement reflected in part the fact that one of the B&B defendants, a company referred to as BBIPL, held (through its solicitors Herbert Smith Freehills) the vast bulk of potentially discoverable documents of the B&B entities (in relation to both proceedings) [4] . The result, as I said [5] , was that the fifth to fifteenth defendants in the DIF proceeding were required to discover (only):

1. any discoverable documents held by them that they did not receive from BBIPL; and

2. any discoverable document that they received from BBIPL that BBIPL has not discovered.

   4. See at [8] to [10] of my earlier reasons.

   5. At [11] of my earlier reasons.

11. There seemed to be no doubt that this was the proper operation of the agreement as to discovery. On analysis, it appeared that the real complaint made by DIF was that the fifth to fifteenth defendants had not discovered documents relevant to the BBRX1 to BBRX4 transactions [6] .

    6. See at [61] of my earlier reasons.

12. There was however a qualification. As I said [7] , the evidence did not show that any of the fifth to fifteenth defendants had cross-checked the discovery given by BBIPL against the documents that they had received from BBIPL. However, I said [8] , “that is not a matter that should concern the court”; it was a matter “that the parties should be able to sort out between themselves”.

    7. At [62] of my earlier reasons.

    8. At [63] of my earlier reasons.

Submissions on the costs applications

13. In the usual way, the submissions involved some re-writing of history. Mr Bova’s submissions, for DIF, emphasised that since the notice of motion had been filed, the plaintiffs had in fact enjoyed considerable success, because further documents had been produced, the B&B defendants were undertaking further searches, and there was still outstanding the resolution, by agreement or otherwise, of the “rats and mice” issues.

14. Thus, Mr Bova submitted, the costs of the notice of motion should be costs in the cause; alternatively, he submitted, the plaintiffs should pay the B&B defendants’ costs limited to what he called “the BBRX1-4 Issue”.

15. Mr Bova submitted that the notice of motion should be viewed as “part of the process of discovery which commenced with the general discovery orders made in the Supreme Court of Victoria and which is still ongoing” [9] . That submission led into his submission that, in that “process”, the plaintiffs had enjoyed considerable success.

    9. I explained the procedural history of the discovery orders at [6] to [8] of my earlier reasons.

16. As to the fifth to fifteenth defendants, Mr Bova submitted, correctly, that given the nature of the general discovery order earlier made, it was both necessary and appropriate to have those defendants as respondents to the notices of motion. Mr Bova referred to what I had said as to the inadequacies of those defendants’ affidavit evidence[10] .

    10. At [62] of my earlier reasons, referred to at [12] above.

17. For those reasons, as well as the reasons earlier advanced, Mr Bova submitted that costs as between the plaintiffs and the fifth to fifteenth defendants should be costs in the cause. He submitted, in the alternative, that costs should be reserved “because it is not possible at this stage of the proceedings to determine whether, in the event the plaintiffs are unsuccessful…, the Court will allow two (or more) sets of costs in favour of the defendants”. That question, he submitted, “can only properly be determined at the conclusion of the proceedings”.

18. For the B&B parties, Ms Higgins of Counsel, with Mr Mitchell of Counsel, submitted that the substantive issue was that relating to the BBRX1 to BBRX4 transaction documents, and that this had been resolved in their clients’ favour. They referred to the fact that in my draft reasons I had said that the notice of motion should be dismissed with costs. However, as I have noted, when I handed down my reasons and after I heard from Mr Bova, I revoked that order. They referred to the detailed evidence provided by the B&B defendants, and noted that that evidence should have “negated” rather than precipitated, any need for a notice of motion for further discovery. They sought also orders that costs be assessed forthwith.

19. The submissions for the fifth to fifteenth defendants (which were provided jointly by their respective solicitors) submitted that they should have their costs, and on the indemnity basis. Those submissions noted that the substantive complaint relating to the BBRX1 to BBRX4 transactions had been resolved in their clients’ favour, and that the procedural complaint was not made out (with the exception of what I had said at [62] of my earlier reasons).

20. The submissions referred also to correspondence which had queried the necessity for those defendants to be respondents to the notice of motion. The submissions noted, correctly, that the B&B parties had conducted the argument on the substantive issues for all defendants, and that the plaintiffs had only pressed their notice of motion as against the fifth to fifteenth defendants because of the “delegation” argument. The fifth to fifteenth defendants also sought orders that the costs be assessed forthwith.

21. Mr Bova provided written submissions in reply. They dealt in particular with the fifth to fifteenth defendants’ application for indemnity costs, and with the applications that costs be assessed forthwith. It is not necessary to set out the detail of those submissions.

Decision

22. The starting point is found in s 98 of the Civil Procedure Act 2005 (NSW). Subsection (1) provides that, subject to the rules and to any legislative command, costs are in the discretion of the court.

23. UCPR Part 42 deals with costs. Rule 42.1 provides a “general rule”:

42.1 General rule that costs follow the event

(cf SCR Part 52A, rule 11) 

Subject to this Part, if the court makes any order as to costs, the court is to order that the costs follow the event unless it appears to the court that some other order should be made as to the whole or any part of the costs.

24. The words “if the court makes any order as to costs” are often overlooked when reference is made to r 42.1. However, those words are important. The general rule is not simply that costs follow the event. It is that if costs are to be ordered at all, they will normally follow the event.

25. Rule 42.7 relates specifically to interlocutory applications and reserved costs. The general position, with respect to the costs of interlocutory applications, is that they should follow the general costs of the proceedings. That statement of the general position is not qualified by words such as “if the court makes any order as to costs”. However, the court may order otherwise:

42.7 Interlocutory applications and reserved costs

(cf SCR Part 52A, rule 16; DCR Part 39A, rule 22; LCR Part 31A, rule 17)

(1)    Unless the court orders otherwise, the costs of any application or other step in any proceedings, including:

(a)    costs that are reserved, and

(b)    costs in respect of any such application or step in respect of which no order as to costs is made,

are to be paid and otherwise dealt with in the same way as the general costs of the proceedings.

(2)    Unless the court orders otherwise, costs referred to in subrule (1) do not become payable until the conclusion of the proceedings.

26. Rule 42.7 is of particular importance where the justice of a costs order cannot be fully appreciated until there has been a final resolution of the issues in dispute. For example, the court is often asked to grant interlocutory injunctive relief, to hold the position until there can be a final determination of rights. The plaintiff may obtain that interlocutory injunctive relief, and that could be viewed as an “event” for the purposes of r 42.1. However, if it appeared on a final hearing that the plaintiff had not been entitled to that relief, it could well be an injustice to order the defendant to pay the costs of that application. (I am not to be taken as laying down any general rule but, rather, stating a consideration that to my mind is important when considering the proper costs order to make in respect of some kinds of interlocutory applications.)

27. What I have just said could be taken to apply also to applications for discovery or further or particular discovery, at least where the party seeking the order obtains it, but ultimately fails in the proceedings. However, that is not this case. The plaintiffs sought, and failed to obtain, the discovery orders that they sought. An order that costs be costs in the proceedings would mean that, if ultimately the plaintiffs succeeded, the defendants would be required to pay the plaintiffs’ costs of the application notwithstanding that it had failed. That does not seem to me to be a just outcome.

28. Moving from that level of abstraction to the particular application, it is convenient to start with the costs dispute between the plaintiffs and the B&B defendants. The issue that was fought out on the hearing was that relating to the BBRX1 to BBRX4 transactions. The plaintiffs failed on that. In my view, it would be unjust for the B&B defendants, nonetheless, to end up paying the plaintiffs’ costs of that application (for example, if the plaintiffs succeed at a final hearing and obtain a costs order against the B&B defendants).

29. Equally, it seems to me, the failure of the particular application can be regarded as a discrete “event” for the purposes of r 42.1. It is an event, the merits of which have been finally determined, and which does not require revisiting once the outcome of the proceedings is known. That follows from what I have said in the previous paragraph. The ultimate merits, or justice, of the event can be assessed now. There is no need to revisit it in the light of whatever may be the final outcome of the proceedings.

30. On that basis, some costs order should be made in favour of the B&B defendants. That could be achieved by making the costs of the notice of motion their costs in the proceedings, or by making an order now that they have their costs of that notice of motion, or of some part of it.

31. I do not think that an order that the costs be the B&B defendants’ costs in the proceedings would be adequate. The merits of the notice of motion, at least in so far as it concerned the BBRX1 to BBRX4 transactions, have been dealt with in what is effectively a conclusive way. (I say that because the issues relating to those earlier transactions will not be revisited in the hearing, at least unless the pleadings and particulars are amended very substantially.) I see no reasons why the B&B defendants should not be compensated in costs for their successful defence of that issue.

32. Mr Bova submitted that between the time when the notice of motion was first filed and 5 June 2017, his clients had obtained considerable success, because, by degrees, they had obtained some of the material that they sought. That may very well be correct, and the costs relating to that incremental success will no doubt form part of the costs that one side or the other will have awarded to it should the matter go to a final hearing and judgment. It does not however seem to me to affect the real issue, which is that the notice of motion, as pressed and argued, raised an issue, as against the B&B defendants, on which the plaintiffs failed entirely.

33. In those circumstances, I conclude that as between the plaintiffs and the B&B defendants, the plaintiffs should pay the B&B defendants’ costs of the notice of motion.

34. The B&B defendants seek an order for assessment forthwith. The general position, as it appears from r 42.7, is that assessment should be deferred until all questions of costs are dealt with. There are obvious reasons of efficiency (and no doubt other considerations) in favour of that approach.

35. The usual position in the commercial list is that costs should be assessed forthwith. That is reflected in para [57] of Practice Note SC Eq 3. However, that paragraph can have no effect in the face of r 42.7 unless the court makes an order as para [57] contemplates.

36. In the present case, it seems to me that there are very real practical reasons why no such order should be made. In my view, the principal and dispositive one is that on assessment, there may well be an issue as to what costs relate to the notice of motion itself, as it was finally propounded for hearing, and what costs relate to the ongoing and incremental process of production of documents that, apparently, the parties undertook. It seems to me that an assessment now could well risk injustice to one party or the other, and that the question of allocation of costs as between the notice of motion on the one hand and general preparation for hearing on the other is something best undertaken in the scope of a full process of analysis and assessment.

37. Accordingly, I decline to order that costs be assessed forthwith.

38. I turn to the dispute as between the plaintiffs and the fifth to fifteenth defendants.

39. It was not necessary for the fifth to fifteenth defendants to participate in the hearing of the notice of motion, simply to argue the issue as to the BBRX1 to BBRX4 transactions. There are two reasons for that. First, that argument was left in the more than capable hands of Ms Higgins and Mr Mitchell. Secondly, even if (over their arguments) the order were made, the documents would have been produced by BBIPL. In those circumstances, the fifth to fifteenth defendants would have had no independent discovery obligations, because of the agreement to which I referred earlier [11] .

    11. At [10] above.

26. Thus, it was only necessary for the fifth to fifteenth defendants to appear for the purpose of defending the proposition that they had somehow, and impermissibly, delegated their discovery obligations to the B&B defendants. Although, as I have said, that argument really related to the BBRX1 to BBRX4 transactions, and was in any event unsuccessful, the position was complicated. The complication arose from the failure of the fifth to fifteenth defendants to make it clear, in their affidavits of discovery and other evidence, that they had considered the proper operation of the discovery agreement, and had checked the B&B defendants’ discovery against their own to ensure that their own obligations had been full satisfied.

27. In those circumstances, and leaving aside the other matters on which Mr Bova relied, the obvious justice, as to costs, is that as between the plaintiffs and the fifth to fifteenth defendants, the costs of the notice of motion should be costs in the proceeding.

28. A fortiori, if ultimately the fifth to fifteenth defendants do get an overall costs order in their favour, there is no basis for assessing the costs of the notice of motion on anything other than the ordinary basis.

The GIL proceeding

43. GIL’s notice of motion sought:

1. further and better discovery;

2. alternatively, affidavits from the tenth defendant’s solicitor as to steps taken by that defendant to comply with earlier discovery orders;

3. production of unredacted copies of documents over which privilege was claimed; and

4. delivery of the tenth defendant’s overdue defence.

44. The tenth defendant (BBGIM) is yet another Babcock and Brown entrant into the alphabet soup parade.

45. The prayers for relief that I have summarised as (2) and (4) above did not need to be argued on 5 June 2017, because by then the affidavits had been sworn, filed and served, and BBGIM’s defence had been served. The only matter dealt with was the first prayer for relief: for further or better discovery. The dispute in relation to privilege was left to the parties to seek to resolve. It was among other things because that dispute remained to some extent extant that Mr Bova submitted, when I provided draft reasons, that the GIL notice of motion should not be dismissed[12] .

    12. See at [2] above.

46. The documents of which discovery were sought were held by BBIPL. BBIPL was prepared in principle to make the relevant documents available, provided that its costs (which included, among other things, the costs of vetting for privilege and confidentiality arising otherwise than by reason of privilege) were met. The initial estimate of costs exceeded $193,000.00. Finally, after negotiations, a much lower estimate was given; but it was still substantial – in excess of $46,000.00.

47. The earlier discovery orders required BBGIM to take all reasonable steps to obtain access to and discover the documents that were requested. I concluded that it was not relevantly reasonable to require BBGIM to pay the amount required (whatever it might be) to obtain access to those documents. In substance, the real question was whether GIL should pay that sum now, or BBGIM should, with the party who paid taking its chances of recovering the amount on conclusion of the proceedings.

48. There was an argument as to whether the BBIPL documents were within the “power” of BBGIM. I held that they were not; that a conditional contractual right to obtain access, upon payment of a large sum of money, was not equivalent to “power” as that concept is understood in relation to discovery [13] .

    13. See at [78] of my earlier reasons.

49. It may be noted that one of the apparent sources of the argument was the antecedent failure of the parties, when drafting the discovery orders, to give any real attention to what “reasonable steps” might mean, or include, or comprehend. It was the parties, not the court, who drafted the orders. As I said [14] , the orders reflected the parties’ drafting choices, and those choices had not been wisely made.

    14. At [83] of my earlier reasons.

Submissions on the costs application

50. Mr Bova submitted that it had been necessary for the notice of motion to seek relief in respect of the four categories of issue referred to at [43] above, and noted that as to two of those categories, the notice of motion had been rendered otiose because BBGIM had (belatedly) complied with the relevant obligations. He noted, correctly, that the question of privilege remained to be dealt with, although he said that after the motion was filed, the privilege claim was abandoned over the great bulk – 97 out of 124 – of the documents over which privilege had been claimed. BBGIM accepts that this is correct. I do not know what were the merits of the now abandoned privilege claims.

51. BBGIM’s position was simple. It had succeeded on the one point that was argued. To the extent that some of the points had become otiose because of its belated compliance with its obligations under the court’s orders, that was not relevant to the question of costs. And to the extent that the notice of motion concerned disputed claims for privilege, neither the withdrawal of some of the claims nor the unresolved status of the remainder were relevant to the costs issue.

Decision

52. I repeat what I have said at [22] to [27] above. Those considerations are equally applicable to the costs dispute between GIL and BBGIM.

53. Further, and by analogy to what I have said at [28] to [32] above, the fact is that the one dispute that was fought and determined, relating to discovery, was determined adversely to GIL. By parity of reasoning:

1. the interests of justice require that some costs order should be made in favour of BBGIM; and

2. sufficient justice, in terms of costs, would not be done simply by ordering the costs of the notice of motion (to the extent that it has been dealt with) to be its costs in the proceeding.

54. However, there is the undoubted fact that BBGIM was in serious breach of the court’s orders, and that it did not rectify its breach until after the notice of motion had been filed and served. There is also the fact that, as to the discovery issue, the position has been substantially conceded in favour of GIL, because the claim for privilege has been withdrawn in respect of the bulk of the documents in question.

55. In those circumstances, it seems to me that the proper costs order is that BBGIM should have its costs, limited to the costs of the hearing on 5 June 2017. Costs of the notice of motion up until that date should be costs in the proceedings, and costs thereafter must await the further order of the court.

Orders

56. Since the order dismissing each notice of motion has been revoked, to accommodate both the rats and mice issues in the DIF proceeding and the outstanding privilege issues in the GIL proceeding, an order should be made which will provide that the notices of motion will stand dismissed unless, within an appropriate time, a party makes application to relist them for the purpose of arguing the issues that I have not dealt with. It should be understood clearly that if this is done, it will be at the risk (as to costs and otherwise) of the party who seeks to reagitate a notice of motion.

57. Because I do not know what is happening in respect of the unresolved issues, the appropriate course seems to me to give the parties a fortnight, from the date of publication of these reasons, to act; if they do not act within that time, the notices of motion will stand dismissed upon the expiry of that time.

58. Accordingly, I make the following orders:

The DIF proceeding

59. In proceeding 2016/285820, order:

1. as between the plaintiff and the first to fourth and sixteenth defendants, that the plaintiffs pay those defendants’ costs of the plaintiffs’ notice of motion filed on 4 June 2017;

2. as between the plaintiffs and the fifth to fifteenth defendants, that the costs of the said notice of motion be costs in the proceeding;

3. unless by 18 September 2017 any party to the proceeding applies to relist the said notice of motion to argue any unresolved prayer for relief, that the said notice of motion stand dismissed, with no further order as to costs, on that date.

The GIL proceeding

60. In proceeding number 2016/278486, order:

1. that the plaintiff pay the tenth defendant’s costs of the plaintiff’s notice of motion filed on 4 May 2017, such costs to be limited, unless the court orders otherwise, to the costs of the hearing on 5 June 2017;

2. that costs of the said notice of motion from 4 May 2017 to 4 June 2017 be costs in the proceeding; and

3. unless by 18 September 2017 any party to the proceeding applies to relist the said notice of motion to argue any unresolved prayer for relief, that the said notice of motion stand dismissed, with no further order as to costs, on that date.

**********

Endnotes

Decision last updated: 08 September 2017