Mancorp Pty Ltd v Baulderstone Pty Ltd Trading as Baulderstone Hornibrook No. SCRG 89/960 Judgment No. 3847 Number of Pages 6 Practice and Procedure Subpoena

[1993] SASC 3847

COURT IN THE SUPREME COURT OF SOUTH AUSTRALIA DEBELLE J

CWDS
Practice and procedure - subpoena duces tecum Compensation for cost of compliance - Basis on which such compensation to be paid - Whether cost of identifying privileged documents of another are recoverable - Whether legal costs recoverable on solicitor and client basis - Basis on which executive and clerical costs recovered - Whether proper to recover for time spent in photocopying Supreme Court Rules 1987 Rule 81.09. Fuelxpress Ltd v L M Ericsson Pty Ltd (1988) 75 ALR 284, applied.

HRNG ADELAIDE, 26 May 1992 #DATE 5:3:1993
Counsel for applicants:         Mr Roder
Solicitors for applicants:     Norman Waterhouse
Counsel for respondent:         Mr Rice
Solicitors for respondent:     Ross McCarthy

ORDER
Order remitting the claims to the taxing officer for taxation

JUDGE1 DEBELLE J Applications for payment of expenses for complying with subpoenas duces tecum. 2. In this action, a number of persons, not parties to the action, were served with subpoenas duces tecum. Three applications have been made pursuant to Rule 81.09 for compensation for the costs incurred in complying with the subpoenas. The applications came on for hearing before Master Kelly who referred the applications to me. There are some issues of general principle to be determined. I will deal only with those issues. The amount to be allowed in respect of each application for compensation is a matter to be determined by the taxing officer. 3. The three applications are made by G.G. Betros and Associates Pty Ltd ("Betros") and Mr Gregory Betros, a director of Betros; by Tectvs Pty Ltd ("Tectvs"); and by Cost Management Partnership Pty Ltd ("CMP") and Mr Trevor Mortimer, a director of CMP. A number of issues are common to each of the applications and it is, therefore, convenient to deal with all three applications in these reasons. 4. In this action for damages for breach of contract, the plaintiff Mancorp Pty Ltd ("Mancorp") claimed that the defendant Baulderstone Pty Ltd ("Baulderstone") had acted in breach of contract to construct a large office building in Adelaide, now known as the Price Waterhouse Centre. Betros, Tectvs and CMP had acted as consultants for Mancorp at different times and in different capacities in relation to the construction of the Price Waterhouse Centre. 5. Three of the subpoenas were served shortly before 29 October 1991, when the hearing of this action was to commence. A subpoena was served on Betros late in the afternoon of Friday, 25 October. A second subpoena was served on Mr Betros personally late in the morning of Monday, 28 October. Both the subpoenas were to be answered at 9.30am on Tuesday, 29 October. Tectvs was served with its subpoena on Thursday, 24 October, and was required to answer it by 29 October. Both CMP and Mr Mortimer were served with subpoenas on Thursday, 31 October, requiring production of the documents by 9.30am the following day. 6. Upon the subpoenas being served, each of these applicants sought legal advice as to their obligations to comply with the terms of the subpoenas. Each of them contacted the same firm of solicitors, Messrs Norman Waterhouse. Betros and Mr Betros and Tectvs were advised by Mr Murray of that firm. CMP and Mr Mortimer were advised by Miss Lanzilli of that firm. In each case, the legal advice concerned not only the obligation to comply with the respective subpoena but also advice as to the identification of documents the subject of legal professional privilege. Mr Murray and Miss Lanzilli marked those documents which might be the subject of a claim for legal professional privilege. In the case of every document for which privilege was claimed, the claim was made on behalf of Mancorp. Thus, in addition to identifying and collating documents the subject of the subpoena, each of the applicants and their solicitors spent time identifying and separately collating documents the subject of a claim for legal professional privilege by Mancorp. Each of the parties arranged for the relevant documents to be collated and then photocopied. The originals were produced in answer to the subpoena. The copies were retained by each of the applicants to assist them in continuing to advise Mancorp and its solicitors. 7. Rule 81.09 is intended to provide compensation for loss or expense reasonably incurred by a person in answering a subpoena duces tecum. Rule 81.09 provides:
    "(1) Where a person named in a subpoena for production of any
    document or thing is not a party to the proceeding and he
    incurs, or will incur, substantial expense or loss in complying
    with the subpoena, the Court dealing with the proceeding may
    order that the party who requested the issue of the subpoena pay
    to that person, in addition to any moneys payable under Rule
    81.08, an amount which is sufficient to compensate him for such
    loss or expense as is reasonably incurred or lost by that person
    in complying with the subpoena.
    (2) (a) The Court may refuse to make an order under
    subparagraph (2) of this Rule:
    (i) if the cost incurred, or to be incurred, by the person
    requesting the issue of the subpoena would effectively prevent
    such person from proceeding with his action or defence, or;
    (ii) in any other case where it seems to the Court desirable to
    do so.
    (b) Alternatively the Court may order that the costs shall not
    be recoverable from the party requesting the issue of the
    subpoena until after the termination of the litigation.
    (3) Where an order is made under subparagraph (1) hereof, the
    Court shall either fix the amount of the costs or direct the
amount to be fixed by a Master." 8. It is clear that the expression "subparagraph (2)" in subparagraph (2)(a) of the Rule should be a reference to subparagraph (1). A person required to answer a subpoena should not be required to be out of pocket. It is, therefore, the intention of the rule to compensate a party for any outgoings reasonably incurred in complying with a subpoena. Basis of Recovery by Legal Costs In accordance with the intention expressed in Rule 81.09, any legal costs properly incurred will be awarded on a solicitor and client basis and not on a party and party basis: Fuelxpress Ltd v L.M. Ericsson Pty Ltd (1988) 75 ALR 284. The amount of legal costs to be recovered in this case will be determined in accordance with the reasons which follow. When Is The Compensation Payable? 9. The next question is whether in the exercise of my discretion, I should order that payment of the claim for those costs should be deferred until after the action has been determined. The persons seeking the recovery of compensation are not parties to the action. They have incurred cost in answering the subpoenas and are entitled to be paid what is properly due to them. Furthermore, there has already been an interim declaration of liability. The outstanding issues concern the assessment of damages. The terms of Rule 81.09(2)(a)(i) have no application in this case. Nothing has been put before me which would justify an exercise of my discretion in favour of Baulderstone under either paragraphs 2(a)(ii) or 2(b). There may be cases when it would be proper to have regard to the financial circumstances of a party and either refuse the order or at least defer making an order until the conclusion of the litigation. This is not such a case. Baulderstone is a building company of some substance and there is nothing to suggest that it is not in a position to pay whatever costs might be ordered. I do not think there is any reason why I should refuse the order or defer payment. Cost of Identifying Privileged Documents 10. The applicants claim the cost of legal advice for their own time in identifying privileged documents. The question is whether, in the circumstances, the applicants should have undertaken the task of determining whether any of the documents the subject of the subpoena were the subject of a claim for legal professional privilege by Mancorp, whether they should have obtained legal advice on that topic, and whether the costs of doing so were reasonably incurred by each of the applicants. At the time the subpoenas were issued and served, each of the applicants was assisting Mancorp and its solicitors in the preparation by Mancorp of its case in this action. In addition, Betros and CMP had assisted Mancorp's solicitors in preparing lists of documents in discharge of Mancorp's obligation to discover documents. Neither received any advice from Mancorp's solicitors as to whether any particular document was privileged. Their assistance extended only to making all relevant documents available for discovery. There is no suggestion that any of the documents produced in answer to any of the subpoenas was the subject of any claim for legal professional privilege in the hands of any of the applicants. The only claim for privilege would have been the claim made by Mancorp. Thus, it was for Mancorp to claim the privilege, not any of the applicants. 11. It is, of course, appropriate for a person served with a subpoena to obtain legal advice as to the extent of the obligation, which might include advice generally on the topic of legal professional privilege. In Fuelxpress Limited v L.M. Ericsson Pty Ltd (supra) at 285 Lockhart J said:
    "It has not been argued that legal costs do not fall within the
    scope of the expense or loss that is recoverable under 0.27, r
    4A. Whether they are in fact recoverable depends, of course, on
    the circumstances of each case. Where, as in a case like the
    present, a third party is subpoenaed to produce a large number
    of documents (some of which are agreed as being confidential and
    others may raise questions of legal professional privilege) if a
    third party seeks legal advice with respect to those and other
    related matters, the cost of that advice answers the description
    of expense or loss incurred by the third party in complying with
    the subpoena. In principle, therefore, the claim for legal
costs is not impermissible." (Emphasis added). 12. Those observations are expressed in terms of general principle but it is clear that the question whether the cost of legal advice can be recovered and the amount of such costs will depend on the circumstances of each case. 13. Where a subpoena duces tecum is served, it is, generally speaking, reasonable for the person served to obtain advice as to what is required in order lawfully to answer the subpoena. In certain circumstances, that advice will extend to the question whether any of the documents sought by the subpoena are the subject of any claim by the person served for legal professional privilege. Generally speaking, the cost of obtaining that advice would be a cost reasonably incurred. But where, as here, a person served with a subpoena has been actively involved in the preparation of the case of one of the parties in the action, it will not, generally speaking, be reasonable for that person to incur the cost of obtaining advice as to which documents ought to be made the subject of a claim for legal professional privilege by that party. The matters on which these applicants sought advice as to privilege were not whether they held any documents for which they could claim privilege on their own behalf but whether they should claim privilege on behalf of Mancorp. In this respect, the applicants misunderstood their obligation. They had no claim for privilege. They knew that the proper person to claim privilege was Mancorp. Each of them had been actively involved in the preparation of Mancorp's case. Each of them knew that Mancorp had retained legal advisers who could determine whether any claim for privilege should be made. 14. On being served with the subpoena, the course which each of the applicants ought to have taken was to inform Mancorp that it had received the subpoena and collate the documents. The applicants should then have appeared in answer to the subpoena, produced the documents to the Court, and stated that some of the documents might be the subject of a claim for legal professional privilege by Mancorp. Before the documents were inspected by Baulderstone, arrangements could have been made with the Court to provide Mancorp with an opportunity of inspecting the documents produced and to advise whether privilege was claimed in respect of any document. If a claim for privilege was made, then the claim could be examined in an appropriate way. 15. If a party served with a subpoena is itself to undertake an examination of another's documents for the purpose of determining whether privilege should be claimed, unnecessary cost is likely to be incurred. For example, a document might have been privileged but, unknown to the person answering the subpoena, privilege might have been waived by the party whose privilege it was. Unnecessary cost would then have been incurred in making a claim for the privilege for that document. Furthermore, the person served with the subpoena might have inadequate information on which to determine whether privilege should be claimed and might fail to claim it. 16. Rule 81.09 directs its attention to compensation for such loss or expense as is reasonably incurred or lost. I do not think that in all the circumstances of this case it was reasonable for any of the applicants to seek to identify a document which might have been the subject of a claim for privilege by Mancorp. I have had regard to the fact that in each case the subpoena was served quite late and required a prompt answer. Obviously the persons subpoenaed were allowed little time in which to collate the documents and answer the subpoena. The service of the subpoenas at the eleventh hour suggests a late decision by Baulderstone's advisers to issue them. However, while allowance must be made for the lateness of service and the short time in which to answer the subpoenas, I do not think that these applicants are entitled to be compensated for the cost of identifying and collating documents the subject of a claim for legal professional privilege by Mancorp. A deduction, to be determined by the taxing officer, should, therefore, be made from both the fees charged by the applicants for searching for, identifying and collating privileged documents and from the fees charged by their solicitors for advice as to which documents were privileged. No Compensation for Loss of Profit The next objection concerns the basis on which each of the applicants have charged for the time spent in taking advice, collating and photocopying the documents. In the case of each company, both directors and employees were engaged in the task. In each case, the costs sought to be recovered have been charged at rates usually charged to clients of each company. The rate includes a profit element and is higher than the respective hourly rates for salary or wages paid to executives and clerical staff in each company. The purpose of Rule 81.09 is to compensate for outgoings incurred. It is not intended to provide compensation for loss of profit. If a person has to employ staff to search for, identify and collate documents in answer to a subpoena, that person is entitled to recover a proper portion of the salary or wages paid to those employees, which is perhaps most accurately determined by reference to the hourly rate of wages or salary of those employees. The use of the word "loss" in the expression "such loss or expense as is reasonably incurred or lost" in Rule 81.09 does not I think alter this conclusion. Even if the word "or" is being used conjunctively and not disjunctively, it is not the intention of the rule to provide compensation over and above outgoings incurred by the person served with the subpoena. The taxing officer should, therefore, reduce the amount claimed by the applicants to eliminate the profit element. Photocopying Fees 17. The applicants, Betros and CMP, have claimed the cost of photocopying documents. They have claimed for both time employed in the task and the actual disbursement paid for photocopying. As both applicants were involved in advising Mancorp concerning issues in this action, they required a copy of the documents, the subject of the subpoena, for the purpose of being able to continue to advise Mancorp. It was, therefore, reasonable in all the circumstances for both of these applicants to make photocopies. Baulderstone does not object to the amount charged as a disbursement for photocopying. It objects to the charge made by each applicant for professional or clerical time spent in photocopying. Here again, the question is whether the applicant reasonably incurred the cost of professional or clerical time in photocopying. There may be occasions when it is more appropriate to send out documents for copying rather than incur the cost of copying them by employing one's own staff to do so. What is reasonable will depend on the circumstances of each case. It might depend on such matters as the number of documents involved, whether the documents are confidential, and whether sending the documents out for copying will result in a substantially reduced cost. The reasonableness of the costs incurred by these applicants, I think, is a matter for the taxing officer. Cost of Attending Court 18. In an affidavit filed in opposition to the claims for compensation, Baulderstone asserted that CMP and Mr Mortimer were not entitled to claim for the time lost in attending the court to produce the documents. No argument was advanced in support of that contention. As at present advised, I would not accede to it. It is reasonable to claim the costs of attending in court to answer the subpoena. 19. The amount of compensation to be paid to each of the applicants is a matter to be determined by the taxing officer. There will be an order remitting these claims to the taxing officer for taxation in accordance with these reasons.