Mr Group Investments Pty Ltd v Back (No 2)

[2019] NSWSC 945

Supreme Court

New South Wales

Medium Neutral Citation:	MR Group Investments Pty Ltd v Back (No 2) [2019] NSWSC 945
Hearing dates:	24 July 2019
Decision date:	24 July 2019
Jurisdiction:	Common Law
Before:	Adamson J
Decision:	(1) As between the plaintiffs and the defendants, the costs of the notices of motion filed on 12 April 2019 and 20 June 2019 be costs in the cause.
Catchwords:	COSTS – appropriate order when notices of motion resolved by consent – whether order that costs in the cause ought be made or order that the costs be the plaintiff’s costs in the cause ought be made – applications part of usual course of litigation – no disentitling or unreasonable conduct – appropriate order is that costs be costs in the cause – question of relevance of cap in Law Society of New South Wales Scheme – not necessary to decide
Legislation Cited:	Civil Procedure Act 2005 (NSW), s 58 Evidence Act 1995 (NSW), ss 135, 192A Professional Standards Act 1994 (NSW), s 4
Cases Cited:	MR Group Pty Ltd v Back [2018] NSWSC 1739 Re Minister for Immigration and Ethnic Affairs (Cth); Ex Parte Lai Qin (1997) 186 CLR 622; [1997] HCA 6
Texts Cited:	Law Society of New South Wales Scheme
Category:	Procedural and other rulings
Parties:	MR Group Investments Pty Ltd (First Plaintiff/ Respondent on Evidence Motion) Bassam Elsadik (Second Plaintiff/ Respondent on Evidence Motion) Ronnie Khalil (Third Plaintiff/ Respondent on Evidence Motion) Francis Back (First Defendant/Applicant on Evidence Motion) Tony Schwartz (Second Defendant/Applicant on Evidence Motion) Dyldam Developments Pty Limited (First Applicant on Subpoena Motion/Respondent on Evidence Motion) Leppington 88 Pty Limited (Second Applicant on Subpoena Motion) Sam Fayad (Third Applicant on Subpoena Motion)
Representation:	Counsel: G Laughton SC (Plaintiffs) T J Breakspear (Defendants) J Adamopoulos (Applicants on Subpoena Motion, Respondent on Evidence Motion)   Solicitors: Paramonte Legal (Plaintiffs) Gilchrist Connell (Defendants) Madison Marcus Law Firm (Applicants on Subpoena Motion)
File Number(s):	2016/384726

Judgment – ex tempore

Introduction

1. The following two notices of motion were listed before me for hearing today:

1. A notice of motion filed on 12 April 2019 on behalf of Dyldam Developments Pty Ltd (Dyldam), Leppington 88 Pty Ltd, and Sam Fayad, (the applicants) for orders to set aside subpoenas issued at the request of the defendants (the Subpoena Motion); and

2. a notice of motion filed on 20 June 2019 on behalf of the defendants seeking orders, contingent on the determination of the Subpoena Motion, for third party discovery by Dyldam; or, alternatively, an advance ruling pursuant to s 192A of the Evidence Act 1995 (NSW), that certain evidence served by the plaintiff not be admitted under s 135 of the Evidence Act by reason of its unfair prejudice to the defendants (the Evidence Motion).

2. The plaintiffs, the defendants and the applicants, have agreed on orders to be made to resolve both notices of motion. At the conclusion of these reasons I will make orders by consent in terms of the short minutes of order, which have been handed to me. As between the applicants and the defendants, it is agreed that each of those parties will bear their own costs of the notices of motion.

The outstanding costs issue

3. There remains one outstanding issue of costs as between the plaintiffs and the defendants. Mr Breakspear, who appears on behalf of the defendants, contended for an order that the costs of the notices of motion be costs in the cause. Mr Laughton SC, who appears on behalf of the plaintiffs, submitted that the appropriate order is that the plaintiffs' costs be costs in the cause.

4. Mr Breakspear submitted that both notices of motion were necessary to achieve the defendants’ legitimate forensic purpose in testing a particular aspect of the evidence adduced by the plaintiff, being the contents of the affidavit of Sam Fayad, sworn 31 August 2018. This evidence was the subject of an application for leave by the plaintiffs which I granted as Duty Judge on 13 November 2018: MR Group Pty Ltd v Back [2018] NSWSC 1739. Before granting that leave, I was made aware by the defendants that they proposed to seek the issue of subpoenas to investigate the evidence contained in paras 11, 12 and 13 of Mr Fayad’s affidavit in which he deposed as to Dyldam's usual practice.

5. It is necessary to summarise the relevance of that usual practice for present purposes. I do not suggest that the summary will do justice to the complexity of the issues in the case but hope that it will be sufficient for present purposes.

6. The plaintiffs' case is, in substance, that had the defendants, their solicitors, given appropriate advice and not been negligent the plaintiffs would have been in a position to exercise options to purchase two properties for the purpose of developing them. Although it is apparent that the plaintiffs may not themselves have had the financial wherewithal to purchase and develop those properties, the plaintiffs’ case is that they would have been able to come to an agreement with Dyldam to achieve that end. It was envisaged that Dyldam would use a special purpose vehicle to form a joint venture with the first plaintiff or purchase shares in the first plaintiff with a view to acquiring those properties. In the context of this counterfactual it was proposed that the interests of Dyldam would have been protected by a first registered mortgage over those properties.

7. Accordingly, in order to test the validity of the counterfactual and the evidence of Mr Fayad as to the usual practice of Dyldam, it was necessary for the defendants to investigate Dyldam's practice and experience in developing real estate as deposed by Mr Fayad. Mr Fayad’s evidence was, relevantly, as follows:

“11   Dyldam's usual practice is to purchase potential development sites through special purpose vehicles from the landowners directly, whether through a contract of sale or an option agreement between the owner and our special purpose vehicle.

12   If we cannot purchase the site directly, we usually enter into joint venture arrangements which secure our interest in the land or acquire shares in the registered proprietor. We have previously done this in the following sites:

(a)    xxx Brickfield Street, North Parramatta NSW, with a company called Raycon Pty Ltd;

(b)   xxx Seven Hills Road, Baulkham Hills NSW, with a company called Celex Pty Limited; and

(c)   xxx George Street, Parramatta NSW, with a company called Merfad Capital Pty Limited.

13   It is unusual for us to purchase shares in a company that already owns the land, but we have more recently, in or about 2016, purchased a company called Mentmore 313 Pty Ltd to secure a site at 33-37 Mentmore Avenue, Rosebery. On this occasion I would have purchased MRGI [the first plaintiff] if I thought it would have helped us to secure the site without the risk of going to Court.”

8. The subpoenas were issued at the defendants’ request to the applicants. The subpoena to Dyldam was issued on 28 November 2018 and sought, relevantly:

“5.   All documents evidencing the terms of Dyldam and/or its special purpose vehicle’s, joint venture agreement with any land owners and created in the period between 1 July 2010 and 21 July 2015.

6.   All documents evidencing the terms of Dyldam and/or its special purpose vehicle’s purchase of shares in a land owner and created in the period between 1 July 2010 and 25 July 2015.

…

11.   All documents, including but not limited to emails, correspondence and application forms evidencing finance applications approved for the purchase of shares in a company by Dyldam and/or its special purpose vehicles and created in the period between 1 July 2010 and 21 July 2015.

12.   All documents, including but not limited to emails, correspondence and application forms evidencing finance applications approved for the entering of a joint venture agreement by Dyldam and/or its special purpose vehicles and created in the period between 1 July 2010 and 21 July 2015.”

9. Following the issue of the subpoenas there were discussions between the solicitors for the defendants and the solicitors for the applicants with a view to narrowing the terms of the subpoenas. The applicants took exception to the use of the word “evidencing”, which the defendants agreed to substitute with the word “recording”. The applicants also contended that the five-year period in disputed categories 5, 6, 11 and 12 was too wide. By letter to the applicants' solicitors dated 15 July 2019, the defendants' solicitors identified the forensic purpose underpinning the five-year time period and disputed categories 5, 6, 11 and 12 as follows:

“3.   DISPUTED CATEGORIES 5 AND 6

3.1   We refer to paragraphs 35 to 28 of our clients' submissions dated 26 June 2019 as to disputed categories 5 and 6. Those categories arise from the evidence of Mr Fayad at paragraphs 12-13 of his 2018 affidavit. Categories 5 and 6 are necessary because our clients do not know whether the transactions set out in paragraphs 12(a)-(c) and 13 of Mr Fayad's 2018 affidavit are an exhaustive list of transactions or only a number of selective examples arising from a much broader pool of transactions of that nature.

3.2    Please seek instructions from Mr Fayad as to whether, to the best of his knowledge and belief, the transactions he sets out at paragraphs 12(a) to (c) and 13 of his 2018 affidavit are the only occasions he recalls in which Dyldam and its special purpose vehicles have entered into a joint venture arrangement or acquired shares in a registered proprietor in the manner described in the first sentence of paragraph 13 of his 2018 affidavit.

3.3    We anticipate that receipt of this requested information from Mr Fayad will likely enable the outstanding dispute in relation to Categories 5 and 6 to be resolved.

4.   DISPUTED CATEGORIES 11 AND 12

4.1    We understand that Dyldam presently refuses to provide any documents in connection with categories 11 and 12 (including the revised categories A-C) Please seek instructions as to whether Dyldam is willing to produce documents in accordance with categories A-C insofar as the documents concern the transactions set out in paragraphs 12(a)-(c) and 13 of Mr Fayad's 2018 affidavit. You will note that even the plaintiffs' submissions on the Evidence Motion concede that documents of that character should be produced.”

10. The applicants' solicitors responded by letter, dated 22 July 2019, relevantly as follows:

“The transactions referred to in paragraphs 12 (a) - (c) and 13 of Mr Fayad's affidavit are the only occasions in which our client can specifically recall entering into either joint venture agreements or acquiring the shares in a registered proprietor in the manner described in the first sentence of paragraph 13. There may, however, be other instances where this has occurred.”

11. Mr Breakspear informed me that the answer given by the applicants' solicitors in that letter was sufficient for the defendants' forensic purposes and enabled the defendants to narrow the schedule to the subpoena issued to Dyldam and limit it to particular properties rather than to any property through the five year period. This type of communication between solicitors tends to advance the overriding purpose of the Civil Procedure Act2005 (NSW) as identified in s 58 and is to be encouraged by the Court.

12. Mr Laughton submitted that the plaintiffs were required to be present for the Evidence Motion although it was only contingent on the outcome of the Subpoena Motion. He contended that the plaintiff ought not have been drawn into the dispute on the Subpoena Motion, which was ultimately resolved between the defendants and the applicants. He submitted that the plaintiffs were required to incur costs by reason of the defendants’ “sloppy subpoena” and contended that, had the defendants appropriately narrowed the subpoena in the terms of the position which was ultimately agreed the issue could have been resolved without the plaintiffs having to expend any costs. Mr Laughton relied on the defendants’ concession that the word “recording” ought be used instead of “evidencing” and that documents over a five-year period were ultimately not pressed.

13. Mr Laughton also submitted that it was of particular concern to the plaintiffs that the defendants had pleaded that the $1.5 million monetary ceiling under the Law Society of New South Wales Scheme (the Scheme) would apply to any damages or costs awarded in favour of the plaintiffs at the conclusion of the substantive proceedings. He pointed out that “damages” for the purposes of s 4 of the Professional Standards Act 1994 (NSW) include “costs in or in relation to the proceedings ordered to be paid in connection with such an award”. Mr Laughton argued that the effect of the Scheme would be that if the plaintiff wins the proceedings there would be a real prospect that they would not be able to recover their costs of this present application but that if they were to lose the proceedings they would be liable to pay the defendants' costs of these applications. He submitted that this asymmetry ought lead this Court to order, as he proposed, that the costs of the notices of motion be the plaintiffs' costs in the cause.

14. In response, Mr Breakspear drew my attention to evidence which established there had been an agreement between the defendants and the applicants that the word "evidencing" would be replaced by the word "recording" before the plaintiffs took an active part in the notices of motion. He also drew my attention to the recent exchange of correspondence between the defendants' solicitors and the applicants' solicitors, referred to above, which established that the defendants could achieve their legitimate forensic purpose by narrowing the subpoena once the applicants' solicitors had indicated the extent of Mr Fayad’s recollection as to the properties developed by Dyldam.

15. Mr Breakspear also submitted that, in these circumstances, there has been no capitulation by the defendants of their original position. All that has occurred is that they have achieved their objective in a more efficient way through appropriate communication with the applicants' solicitors. He submitted that the defendants had at all times acted reasonably and incurred costs in the usual conduct of the litigation. He submitted that no criticism ought properly be made of the defendants for filing the Evidence Motion. He submitted there was an inherent efficiency in the same judicial officer dealing with both applications and that it would have increased the costs of the litigation for the defendants to wait for the result of the Subpoena Motion before filing the Evidence Motion, which may well have been allocated to a different judge.

16. He submitted that it was inappropriate for the Court to take the Scheme into account for the following three reasons. First, he submitted that the plaintiffs’ application for costs proceeded on the assumption that the $1.5 million cap in the Scheme would apply in the proceedings, notwithstanding that this matter was still in issue on the pleadings. Secondly, he submitted that no assumption should be made that if the plaintiff is successful the plaintiffs' damages would exceed $1.5 million. Thirdly, Mr Breakspear submitted that there was an even more fundamental objection to my taking into account the Scheme for present purposes: it would not be appropriate for the Court to circumvent the Scheme, which was the product of legislation by trying to “even up” the costs position, notwithstanding the clear legislative intent evinced by the Scheme. He submitted that the Scheme should not affect this Court’s discretion as to costs, because it operated on costs ordered in proceedings and should not influence, much less determine, the outcome of such costs orders.

17. The principles referred to by McHugh J in Re Minister for Immigration and Ethnic Affairs (Cth); Ex Parte Lai Qin (1997) 186 CLR 622 at pp 624-625; [1997] HCA 6 are relevant to the present application for costs. In that case his Honour considered situations where an application for costs has been made although there has been no determination on the merits. McHugh J addressed the circumstances, such as in the present case, where the moving party - in this case the defendants - no longer wishes to proceed on the Evidence Motion. His Honour said at pp 624-625:

“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 a litigated action which by settlement or extracurial 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. In administrative law matters, for example, it may appear that the defendant has acted unreasonably in exercising or refusing to exercise a power and that the plaintiff had no reasonable alternative but to commence a litigation. Thus, for example, in R v Gold Coast City Council; Ex parte Raysun Pty Ltd, the Full Court of the Supreme Court of Queensland gave a prosecutor seeking mandamus the costs of the proceedings up to the date when the respondent Council notified the prosecutor that it would give the prosecutor the relief that it sought. The Full Court said that the prosecutor had reasonable ground for complaint in respect of the attitude taken by the respondent in failing to consider the application by the prosecutor for approval of road and drainage plans.

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. This is perhaps the best explanation of the unreported decision of Pincus J in South East Queensland Electricity Board v Australian Telecommunications Commission where his Honour ordered the respondent to pay 80 per cent of the applicant's taxed costs even though his Honour found that both parties had acted reasonably in respect of the litigation. But such cases are likely to be rare.

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 proceeding.”

[Citations omitted.]

18. In my view, the short minutes of order, which have been agreed to by the parties, represent an appropriate way forward for the proceedings. I am persuaded by Mr Breakspear that the agreement reached between the defendants and the applicants on the Subpoena Motion was not the result of a capitulation by the defendants but rather was an appropriate response to a concession given by the applicants as to the extent of Mr Fayad's recollection. The applicants’ response had the effect that the defendants' forensic purpose would be fulfilled by a much more specifically described category of documents than was originally sought in the schedule to the subpoena.

19. In terms of the plaintiffs' application for costs I am not persuaded that the ambit of the Evidence Motion falls in any way outside the usual conduct of the proceedings. It was in the interests of justice that the Evidence Motion, which I regard as having been appropriately filed and listed for hearing at the same time as the Subpoena Motion, be heard by the same judge since it gave rise to issues which concern the conduct of the litigation as a whole.

20. Turning to the issue of whether the Scheme can be taken into account in the determination of the costs issue, I accept Mr Breakspear's submissions that the assumption of relevance of that Scheme has not been made out, since it is presently only potentially relevant. Accordingly, the nice question whether the Scheme is a relevant consideration in the exercise of the costs discretion need not presently be determined. In any event, I am not persuaded that the limitation in the Scheme ought lead to the costs order for which Mr Laughton contends, having regard to my view that both motions fell squarely within the ordinary conduct of the proceedings.

18. I am satisfied it is appropriate to make the costs order as sought by Mr Breakspear on behalf of the defendants, namely, that as between the plaintiffs and the defendants the costs of the notices of motion be costs in the cause.

Orders

22. At the conclusion of the hearing I made the following order:

1. As between the plaintiffs and the defendants, the costs of the notices of motion filed on 12 April 2019 and 20 June 2019 be costs in the cause.

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Decision last updated: 24 July 2019