Kelly Partners (Western Sydney) Pty Ltd v Ms Shakespeare (a Pseudonym)

[2022] NSWSC 575

Supreme Court

New South Wales

Medium Neutral Citation:

Kelly Partners (Western Sydney) Pty Ltd v Ms Shakespeare (A Pseudonym) [2022] NSWSC 575

Hearing dates:

14 April 2022

Date of orders:

14 April 2022

Decision date:

14 April 2022

Jurisdiction:

Common Law

Before:

Garling J

Decision:

See [28]

Catchwords:

CIVIL PROCEDURE — preliminary discovery — to identify potential cause of action

COSTS — party/party — exceptions to general rule that costs follow the event — consent orders made without merits hearing

Legislation Cited:

Uniform Civil Procedure Rules 2005 r 5.3

Cases Cited:

Nichols v NFS Agribusiness Pty Ltd (2018) 97 NSWLR 681; [2018] NSWCA 84

Re Minister for Immigration & Ethnic Affairs of The Commonwealth of Australia; Ex Parte Lai Qin (1997) 186 CLR 622; [1997] HCA 6

Texts Cited:

Not applicable

Category:

Principal judgment

Parties:

Kelly Partners (Western Sydney) Pty Ltd (Plaintiff)
Ms Shakespeare (A Pseudonym) (Defendant)

Representation:

Counsel:
Robert Pietriche (Plaintiff)
David Robertson (Defendant)

Solicitors:
Corrs Chambers Westgarth (Plaintiff)
Shand Taylor Lawyers (Defendant)

File Number(s):

2021/178338

Publication restriction:

Not applicable

EX TEMPORE Judgment

Factual Background

1. On or about 17 July 2020, Kelly Partners (Western Sydney) Pty Ltd (“Kelly Partners”) entered into an agreement with Ms Shakespeare (a pseudonym) for the provision of services with respect to a dispute about matrimonial property which was then taking place between Ms Shakespeare and her former husband in the Family Court of Australia (now the Federal Circuit and Family Court of Australia.

2. On 23 February 2021, Kelly Partners issued an invoice dated that day to Ms Shakespeare for their "fee as agreed in our engagement letter dated 17 July 2020", being $500,000 calculated as 5% of a $10 million increase in a nominated business valuation (calculated as $28 million less $18 million). After GST was added, the total invoiced amount was $550,000.

3. That invoice was issued attached to an email of the same date in which the relevant partner of Kelly Partners said, amongst other things, of the difference between $18 and $28 million, “[t]he difference is a well earned $10m”. He concluded that email with this request:

“If you could provide a copy of the final signed off settlement for our records so we can ensure that we have accurately invoiced, it would be much appreciated."

4. It was apparent from an email sent about two hours later by Ms Shakespeare to Kelly Partners that she disputed that the settlement in the Family Court had finalised, saying that she had until to 31 December 2021 to complete the terms of settlement, that is to say, to undertake training at McDonald's in the hope of taking over and operating one of the McDonald's stores in dispute between the parties. She then set out her understanding of the terms of the retainer of Kelly Partners, and she pointed out this:

"[My former husband] and I decided to negotiate with our lawyers and settled the matter ourselves. I appreciate the work that was done and believe you have both been paid for [your] work in full. There was not a court settlement nor was there a negotiated settlement done by Kelly Partners. I hope this is the end of any confusion.”

5. She invited contact to be made with her if Kelly Partners wished to discuss the matter. It was clear at this stage, at least to my observation, that a claim was being made by Kelly Partners for a fee based on the engagement letter, the terms of which required some interpretation and a dispute was being raised by Ms Shakespeare as to whether the sum claimed was payable.

6. A short time later that day a letter was sent by email by the solicitors for Kelly Partners to Ms Shakespeare. It was signed by the partner responsible for the file. That letter first suggests that the email from Ms Shakespeare contains statements that are internally inconsistent. It asserts that she well knows that Kelly Partners is entitled to the success fee, which is:

"payable irrespective of whether that value is determined judicially or arises as a matter of implication from any settlement of the Proceeding."

7. It then informs Ms Shakespeare that she has no legitimate basis to commercially dispute the claim by Kelly Partners saying that it ought be inferred that:

"you wish to avoid paying Kelly Partners the money that is legitimately due to it with respect to its success fee and have with that purpose in mind sent your email of today."

8. It accuses Ms Shakespeare of obfuscation of the terms of any settlement of the proceedings, that she has made a serious series of "contrived and artificial complaints", and asserts that the fact that those complaints are contrived is consistent with the deliberate intention to avoid paying amounts legitimately owing.

9. The terms of that letter were surprising. There was, as counsel for Kelly Partners accepted in the course of argument, room for legitimate dispute about the terms of the engagement letter. Counsel submitted that it would be necessary for implications to be made into the engagement letter or inferences to be drawn from it and the surrounding circumstances as to when the payment obligation arose. That is self-evident from the terms of the engagement letter.

10. What was in place as at February 2021 was, to my way of thinking, obviously, a legitimate commercial dispute. That is not a dispute into the merits of which I can or else would embark in determining the issues presently before me. However, I have not the slightest doubt of the legitimacy of the dispute, in which circumstances the terms of the letter 23 February 2021 were, to put it at the lowest, unfortunate. I certainly, as I have been asked to do, would not be prepared to find that the response to that letter demonstrated any unreasonable conduct on the part of Ms Shakespeare.

The Present Proceedings

11. In the face of this legitimate dispute about a commercial agreement, Kelly Partners filed a Summons in this Court on 21 June 2021. The Summons sought an order pursuant to r 5.3 of the Uniform Civil Procedure Rules 2005 by way of preliminary discovery. I note two things about the Summons. First, that although Kelly Partners sought in that Summons discovery of identified categories of documents, they did not seek an order for costs. Secondly, they did not seek an order, which they could have had they thought it appropriate at the time, for the prospective defendant, Ms Shakespeare, to verify the discovery by filing an affidavit.

12. For reasons which were adequately explained in submissions, that Summons was not served on the defendant until 15 November 2021.

13. Thereafter, the matter was listed for directions before this Court on 22 November 2021 when the Court made orders, which were agreed to by the parties. So far as is relevant, those orders included that Ms Shakespeare file and serve any material on which she intended to rely on the application by 17 March 2022, and the application was listed for final hearing today.

14. I note that the categories of documents sought by the Summons were as follows:

1. any document or record that records the terms of any compromise, settlement or discontinuance of Family Court of Australia proceeding number BRCXXXX/2017;

2. a copy of any orders made under s 79 of the Family Law Act 1975 (Cth) in the Family Court proceeding; and

3. any document or record that records any discussion, valuation, proposed valuation or agreement for settling the Family Court proceeding.

15. Given that the context for those documents to come into being was the existence of disputed property proceedings in the Family Court, and both the statutory obligations of parties to proceedings in the Family Court and obligations of confidentiality which may be owed, it was appropriate that the prospective defendant Ms Shakespeare have an opportunity to consider what her response to the orders sought in the Summons would be.

16. The solicitors for Ms Shakespeare informed the solicitors for Kelly Partners on 18 March 2022 that they were not going to file any evidence in the proceedings, but rather, maintained the dispute in the underlying commercial proceedings. Ms Shakespeare’s solicitors provided Kelly Partners' solicitors with a copy of the final orders which were made by the Family Court and indicated that Ms Shakespeare had disclosed all material in her possession relevant to Kelly Partner’s application for preliminary discovery. That letter invited Kelly Partners to discontinue these proceedings.

17. The solicitors for Kelly Partners in a response dated 25 March 2022 asserted, amongst other things, that it was implausible that Ms Shakespeare did not have further documents which were sought by way of preliminary discovery, and indicated the terms upon which an agreement to discontinue the application would be made. One of those terms was that Ms Shakespeare agreed to pay the costs of the application.

18. That letter was responded to by an agreement by Ms Shakespeare to swear an affidavit as requested, but also an indication that Ms Shakespeare did not agree to pay Kelly Partners' costs of the application. Thereafter, an affidavit sworn 29 March 2022 was served on Kelly Partners on 31 March 2022. That affidavit affirmed that she had no other documents in her possession. Today, when the application was called on for hearing, I was informed by the parties that they are agreed on the form of order which ought be made in the proceedings before me with respect to preliminary discovery but are not agreed on the question of costs.

19. Thereafter, this afternoon, argument between the parties on the question of costs has taken place. I have been asked by the applicant for costs, Kelly Partners, to determine the issue for costs on the basis of reviewing the conduct of Ms Shakespeare from the time the invoice was first issued on 23 February 2021 until now, and to conclude that that attitude and behaviour was unreasonable, and that it was so unreasonable as to warrant an award of costs.

20. On the other hand, I am being asked by Ms Shakespeare's counsel, initially at least, not to entertain the application but ultimately to find that I should only consider the application in a limited way and to find that it is not obviously clear that his client has acted unreasonably. Although initially not seeking costs of the application when the agreement was reached as to what orders should be made, counsel for Ms Shakespeare now seeks an order for costs in respect of today's hearing.

Relevant Legal Principle

21. Both parties are agreed that the relevant principle governing an application for costs in proceedings which have been resolved, such as this one, without a hearing on the merits, is summarised by McHugh J in Re Minister for Immigration & Ethnic Affairs of The Commonwealth of Australia; Ex Parte Lai Qin (1997) 186 CLR 622 at 624-625; [1997] HCA 6. His Honour said:

“In most jurisdictions today the power to order costs is a discretionary power. Ordinarily, the power is exercised after a hearing on the merits and as a general rule the successful party is entitled to his or her costs. Success in the action or on particular issues is the fact that usually controls the exercise of the discretion. A successful party is prima facie entitled to a costs order. When there has been no hearing on the merits, however, a court is necessarily deprived of the factor that usually determines whether or how it will make a costs order.

In an appropriate case, a court will make an order for costs even when there has been no hearing on the merits and the moving party no longer wishes to proceed with the action. The court cannot try a hypothetical action between the parties. To do so would burden the parties with the costs of litigated action which by settlement or extra-curial action they had avoided. In some cases, however, the court may be able to conclude that one of the parties has acted so unreasonably that the other party should obtain the costs of the action. …

Moreover, in some cases a judge may feel confident that, although both parties have acted reasonably, one party was almost certain to have succeeded if the matter had been fully tried. …

If it appears that both parties have acted reasonably in commencing and defending the proceedings and the conduct of the parties continued to be reasonable until the litigation was settled or its further prosecution became futile, the proper exercise of the cost discretion will usually mean that the court will make no order as to the cost of the proceedings. This approach has been adopted in a large number of cases."

22. That principle was applied by the NSW Court of Appeal in the decision of Nichols v NFS Agribusiness Pty Ltd (2018) 97 NSWLR 681; [2018] NSWCA 84 at 25-30.

Discernment

23. Counsel for Kelly Partners submits that I should conclude that Ms Shakespeare has acted unreasonably and, that as a consequence, costs should be paid. I am wholly unpersuaded by this. There is a legitimate underlying commercial dispute. Whether or not Kelly Partners are entitled to any, and if so what, success fee is a matter in dispute between the parties and reasonably so. It is clear what the parameters of that dispute are. Kelly Partners assert that they are entitled to a success fee because the Family Court proceedings have been brought to an end based on a valuation higher than the valuation to $18 million for the relevant business. Ms Shakespeare contends that whilst the proceedings have been brought to an end, there is no basis for a claim for a success fee.

24. Whether or not Kelly Partners needed to seek documents by way of preliminary discovery is not the subject of any submission in this case. Put differently, it is not suggested that Kelly Partners acted unreasonably in bringing these proceedings for preliminary discovery. As I had earlier pointed out, once the proceedings were served the parties proceeded to agree to orders within a short space of time and those orders, broadly, to the extent relevant, have been complied with. The proceedings have been resolved in the sense that the parties have agreed on an order which is to be made by way of substantial relief.

25. The exchange of correspondence, which I have been taken to and which I have carefully read, does not warrant any conclusion that Ms Shakespeare has acted unreasonably. On the contrary, although I am not asked to make this conclusion, it may be said that Kelly Partners has acted unreasonably. But I do not make such a finding because it is unnecessary for me to do so. There was a legitimate commercial dispute. The nature of the documents sought were such that it is not immediately apparent to me that there was either any obligation on Ms Shakespeare to hand them over, or that she was free to do so without attending to matters of obtaining permission from other parties or considering what her position should be.

26. The proceedings having been served, the parties attended to their obligations in accordance with the agreed timetable and within a reasonable time. There is simply nothing unreasonable at all about the way in which Ms Shakespeare has addressed these proceedings or any obligations which she has. In those circumstances, subject to what I am about to say, and acting in accordance with the principle proscribed by McHugh J and by the Court of Appeal in Nichols, where I am not being asked to embark on a consideration of the merits of the application for preliminary discovery, but only the question of whether one party or the other acted unreasonably, the appropriate order is that there be no order as to costs.

27. However, as earlier indicated, counsel for Ms Shakespeare submits that I should order that Kelly Partners pay the costs of today. That is put on the basis that there was no reasonable basis for Kelly Partners not to accept that all the relevant documents had been provided, that an affidavit was provided on 29 March or shortly thereafter, setting out that all documents in Ms Shakespeare's possession had been provided, and indicating that the matter ought be discontinued. Counsel for Ms Shakespeare submits that the response by Kelly Partners to that was itself unreasonable. I am not so persuaded. The response was unfortunate. It may be described as unthinking or overly forceful. I am not persuaded however, that it is unreasonable.

28. In light of all of those matters, I will make orders in the following terms:

1. Order, pursuant to r 5.3 of the Uniform Civil Procedure Rules 2005, that Ms Shakespeare is to provide preliminary discovery of the following categories of documents on or before 29 April 2022:

1. any document or record that records the terms of any compromise, settlement or discontinuance of Family Court of Australia proceeding BRCXXXX/2017;

2. a copy of any orders made under s 79 of the Family Law Act 1975 (Cth) in the Family Court of Australia proceeding;

3. any document or record that records any discussion, valuation, proposed valuation or agreement for settling the Family Court of Australia proceeding.

2. Order each party to pay their own costs of the proceedings commenced by Summons filed 21 June 2021, including the costs of today.

**********

Decision last updated: 12 May 2022