Perdaman Chemicals & Fertilisers Pty Ltd v The Griffin Coal Mining Company Pty Ltd [No 11]

[2013] WASC 92

JURISDICTION     :   SUPREME COURT OF WESTERN AUSTRALIA

IN CHAMBERS

CITATION:   PERDAMAN CHEMICALS & FERTILISERS PTY LTD -v- THE GRIFFIN COAL MINING COMPANY PTY LTD [No 11] [2013] WASC 92

CORAM:   EDELMAN J

HEARD:   19 MARCH 2013

DELIVERED          :   19 MARCH 2013

FILE NO/S:   CIV 1925 of 2011

CIV 2422 of 2011
CIV 2423 of 2011
CIV 3201 of 2011
Consolidated by orders dated 18 August 2011 & 14 November 2011

BETWEEN:   PERDAMAN CHEMICALS & FERTILISERS PTY LTD

Plaintiff

AND

THE GRIFFIN COAL MINING COMPANY PTY LTD
First Defendant

LANCO INFRATECH LTD
Second Defendant

LANCO RESOURCES AUSTRALIA PTY LTD
Third Defendant

RUSSELL CONLEY
Fourth Defendant

MANOJ AGARWAL
Fifth Defendant

LAGADAPATI MADHUSUDHAN RAO
Sixth Defendant

KANDIMALLA K V NAGA PRASAD
Seventh Defendant

LANCO RESOURCES INTERNATIONAL PTE LTD
Eighth Defendant

S AMARENDRAN
Ninth Defendant
 

Catchwords:

Practice and procedure - Meaning of reasonable loss or expense of compliance with subpoena - Procedure to be taken in fixing an amount or directing that it be fixed in accordance with the Court's usual procedure - Circumstances in which it is appropriate for a 'broad brush' approach to fix costs of compliance

Legislation:

Nil

Result:

Matter referred to taxing officer to determine reasonable loss or expense of compliance

Category:    B

Representation:

Counsel:

Plaintiff:     No appearance

First Defendant             :     Mr S V Forbes

Second Defendant         :     Mr S V Forbes

Third Defendant           :     Mr S V Forbes

Fourth Defendant          :     Mr S V Forbes

Fifth Defendant            :     Mr S V Forbes

Sixth Defendant            :     Mr S V Forbes

Seventh Defendant        :     Mr S V Forbes

Eighth Defendant          :     Mr S V Forbes

Ninth Defendant           :     Mr S V Forbes

Non Party:     Mr M C Goldblatt

Solicitors:

Plaintiff:     Bennett & Co

First Defendant             :     Clifford Chance

Second Defendant         :     Clifford Chance

Third Defendant           :     Clifford Chance

Fourth Defendant          :     Clifford Chance

Fifth Defendant            :     Clifford Chance

Sixth Defendant            :     Clifford Chance

Seventh Defendant        :     Clifford Chance

Eighth Defendant          :     Clifford Chance

Ninth Defendant           :     Clifford Chance

Non Party:     Herbert Smith Freehills

Case(s) referred to in judgment(s):

Areva NC (Australia) Pty Ltd v Summit Resources (Australia) Pty Ltd [2007] WASC 276 (S)

Australia and New Zealand Banking Group Limited v Actus Australia Pty Ltd [2000] WASC 244

Beach Petroleum NL v Johnson (No 2) (1995) 57 FCR 119

Brookvista Pty Ltd v Meloni [2009] WASCA 180

Fuelxpress Ltd v L M Ericsson Ltd (1987) 75 ALR 284

Gallaher International Ltd v Tlais Enterprises Ltd [2008] EWHC 2046 (Comm)

Hadid v Lenfest Communications Inc (No 2) [2000] FCA 628

Harrison v Schipp [2002] NSWCA 213; (2002) 54 NSWLR 738

J Aron Corporation v Newmont Yandal Operations Pty Ltd [2004] NSWSC 996

Marsden v Amalgamated Television Services Pty Ltd [2001] NSWSC 77

Re Pan Pharmaceuticals Ltd; Selim v McGrath [2004] NSWSC 129

EDELMAN J:

Introduction

1. This is an application by a third party to this litigation, Wesfarmers Limited, for orders fixing its costs of complying with a subpoena dated 8 February 2012 issued in these proceedings.  It was programmed for hearing when I took over the management of this litigation in November 2012.  The subpoena, issued by the defendants in these proceedings, was answered nearly a year ago.  But, after long conferral, the parties still could not reach agreement on the amount of reasonable costs to be paid by the defendants.     

2. In many instances the issue of subpoenas for the production of documents is taking the place of what would formerly have been third party discovery.  The consequence of non-compliance, without lawful excuse, is a contempt of court.  But reasonable costs of compliance can sometimes be very large.  In this case, the costs initially claimed by Wesfarmers were $219,815.50.  The two questions raised by this application are as follows: (1) whether I should fix the amount of costs payable for the issue of the subpoena or refer the matter to a taxing officer; and (2) if I decide to fix the costs, the amount which should be fixed as the reasonable loss or expense of Wesfarmers in complying with the subpoena.

3. There would be a real gain in efficiency and reduction in cost to the parties if I were now to fix the amount of the reasonable loss or expense incurred by Wesfarmers in compliance with the subpoena. It is also common ground that the amount fixed could be by reference to a 'broad brush approach'. There is a powerful impetus to fix the reasonable loss or expense which was incurred by Wesfarmers almost a year ago. But I am not satisfied that the evidence currently before me permits me to fix an amount with sufficient accuracy to achieve a result which is logical, fair and reasonable. In explaining my conclusion, however, it is necessary to resolve a question of construction concerning the scope of O 36B r 11 (RSC) which was in dispute between the parties.   

The subpoena and the response

1. A subpoena was issued by the defendants to Wesfarmers on 8 February 2012.  The subpoena was broad.  It required the production of all documents created between 1 January 2011 and the date of answering the subpoena relating to,

   1.any consideration given by Wesfarmers Limited (Wesfarmers) or any of its related or associated companies or entities to investing in Perdaman Chemicals and Fertilisers Pty Ltd or its related or associated companies or entities (Perdaman) for the proposed construction and operation by (sic) a urea production plant to be located in the Shotts Industrial Park near Collie, Western Australia, including but not limited to:

   a.board papers regarding the invitation;

   b.minutes of board meetings where the proposal was considered; and

   c.reports prepared for the purposes of Wesfarmers considering the invitation.

   2.communications between Wesfarmers or any of its related or associated companies, entities or advisers on the one hand, and Perdaman on the other hand, relating to any proposal that Perdaman purchase Wesfarmers' interest in Wesfarmers Premier Coal Limited (now Premier Coal Ltd).

2. The subpoena was answered on 27 April 2012.

3. On 14 August 2012, Martin CJ, who was then the Commercial and Managed Cases list judge managing this litigation, ordered that '[p]ursuant to O 36B r 11, the defendants pay Wesfarmers' reasonable costs of compliance with the subpoena dated 8 February 2012'.[1]  I have set out that order of the Chief Justice in full because of the submissions by counsel for the defendants which were made in relation to it.  I address those submissions below. 

   [1] See 14 August 2012 orders [10].

4. The Chief Justice also directed Wesfarmers and the defendants to confer in relation to the issue of Wesfarmers' costs of compliance.[2]

   [2] 14 August 2012 order [11].

5. The conferral between Wesfarmers and the defendants was not successful.  On 23 November 2012, after I took over the management of this litigation in my list, I made programming orders of the exchange of evidence and submissions concerning the application by Wesfarmers to fix the amount of reasonable loss or expense incurred by Wesfarmers in complying with the subpoena or to direct that such amount be fixed in accordance with this Court's usual procedure in relation to costs.  Wesfarmers filed and served affidavits in December 2012 and submissions were filed in January and February 2013.

The meaning of O36B r 11

1. The Rules of the Supreme Court 1971 (WA) O 36B r 11 provides as follows:

   (1) The Court may order the issuing party to pay the amount of any reasonable loss or expense 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.

2. It is sometimes said that a threshold requirement before the Court will order that the issuing party pay the reasonable loss or expense of complying with a subpoena is that the witness has incurred substantial expense or loss in complying with the subpoena.  In Australia and New Zealand Banking Group Limited v Actus Australia Pty Ltd,[3] Murray J held that in the context of the rule 'substantial' meant 'of a substantial kind' which is more than a relatively trivial expense of minimal significance. 

   [3] Australia and New Zealand Banking Group Limited v Actus Australia Pty Ltd [2000] WASC 244 [8] – [9].

3. The test of substantiality is not contained within the rule itself. It can only be one factor relevant to the exercise of the Court's discretion to make the order. In any event, this is plainly a case where the exercise of discretion favoured an order in terms of O 36B r 11(1), and such an order was made by the Chief Justice on 14 August 2012. The primary issue for consideration now is whether the order that I should make under O 36B r 11(2) should be an order (i) fixing the amount; or (ii) directing that it be fixed in accordance with the Court's usual procedure in relation to costs.

4. Counsel for the defendants submitted that the order of the Chief Justice effectively superseded the terms of O 36B r 11(1). The result, it was submitted, was that in construing the words of O 36B r 11(2), it was appropriate to have regard to the order made by the Chief Justice that gave effect to O 36B r 11(1), rather than to have regard to the terms of O36B r 11(1). Unsurprisingly, no authority was cited for this submission. It is not how statutes or rules are construed.

5. Substantial submissions were made concerning the construction of O 36B r 11(2). It is not necessary to recite those submissions in any detail. The meaning of O 36B r 11(2) is clear. It expressly refers back to subrule (1) which is concerned with 'the amount of any reasonable loss or expense'. Subrule (2) requires, by the word 'must', the court to take one of two alternatives:

   (i)fixing the 'amount' which, despite the submissions by counsel for the defendants, can only be a reference to the 'amount of any reasonable loss or expense'; or

   (ii)directing that it (ie the amount) be fixed in accordance with the court's usual procedure in relation to costs.

6. Counsel for the defendants submitted that in either case of (i) or (ii), the meaning of 'reasonable loss or expense', when that loss or expense concerns solicitors' costs, is the costs by reference to the Scale. He relied upon O 66 r 11(2) which provides that '[e]xcept when otherwise ordered, solicitors are, subject to these rules, entitled to charge and be allowed the fees set forth in any relevant scale and higher fees shall not be allowed in any case, except as are by this Order otherwise provided for'. The first of his submissions on this point appeared to be that, in its terms, O 66 r 11(2) directly applied to Wesfarmers. The obvious difficulty with this submission is that Wesfarmers are not solicitors. The rule is one which applies to solicitors, not third party recipients of subpoenas who are not solicitors.

7. The alternative way in which this submission was put was that, in the absence of a costs agreement, then if legal costs are recoverable under O 36B r 11, it could never be a 'reasonable loss or expense' for the recipient of a subpoena to incur legal fees which are in excess of the amount allowable under the Scale. The assumption underlying this submission is that there is a single, correct amount which is payable under the Scale and which would be known to the subpoena recipient and its solicitors. That assumption is false. Nevertheless, reference to the Scale may be relevant to resolving any issue concerning whether any particular legal costs are a 'reasonable loss or expense'. For instance, as Mr Goldblatt quite properly conceded in his helpful submissions, if the subpoena recipient were to pay to its solicitor an amount which, on its face, grossly exceeded the Scale then in the absence of a costs agreement that amount would not be a reasonable loss or expense.

8. The authorities to which I was referred by counsel on to this point in oral submissions do not suggest that the Scale is irrelevant in determining, in the absence of a costs agreement, the reasonable loss or expense incurred by the subpoenaed party. 

9. In Fuelxpress Ltd v L M Ericsson Ltd,[4] Lockhart J said that a similar subrule of the then Federal Court Rules concerned 'a third party seeking compensation for what it has actually cost it in expense or loss in complying with the subpoena'.  But his Honour's statement was expressed in terms of what the third party was seeking.  Further, as his Honour had earlier explained, 'the claim for legal costs is not impermissible.  I say nothing about the quantum as I have no knowledge of those matters'.[5]

   [4] Fuelxpress Ltd v L M Ericsson Ltd (1987) 75 ALR 284, 286.

   [5] Fuelxpress Ltd v L M Ericsson Ltd (286).

10. In Areva NC (Australia) Pty Ltd v Summit Resources (Australia) Pty Ltd,[6] Martin CJ, in fixing the reasonable loss or expense of complying with a subpoena, ordered that the recipient of a subpoena, who was a solicitor, should be reimbursed at his normal hourly rate.  His normal hourly rate exceeded the Scale.  But the difference in that case was that the subpoena was directed at the solicitor himself.  The assumption in that case was that the reasonable loss or expense was the solicitor's own opportunity cost.  Indeed,  in relation to the loss or expense incurred by the solicitor in instructing a different firm of solicitors, his Honour held that this was not a loss or expense reasonably incurred but was a loss or expense incurred by him either for his own benefit or for the benefit of the parties he was advising.[7]

    [6] Areva NC (Australia) Pty Ltd v Summit Resources (Australia) Pty Ltd [2007] WASC 276 (S).

    [7] Areva NC (Australia) Pty Ltd v Summit Resources (Australia) Pty Ltd [17].

11. In J Aron Corporation v Newmont Yandal Operations Pty Ltd,[8] on the facts of that case, Campbell J concluded that '[i]nsofar as the Applicant has incurred legal fees in consequence of service of the subpoena, it is likewise entitled to a reasonable amount for that expense'.     

    [8] J Aron Corporation v Newmont Yandal Operations Pty Ltd [2004] NSWSC 996 [24]. See also Marsden v Amalgamated Television Services Pty Ltd [2001] NSWSC 77 [20] ‑ [21] (Levine J); Re Pan Pharmaceuticals Ltd; Selim v McGrath [2004] NSWSC 129 (Barrett J).

Whether the Court should fix the amount of the reasonable loss or expense incurred

1. In the commentary to O 36B of the Rules of theSupreme Court in Civil Procedure in Western Australia, Dr Kendall and Judge Curthoys say:[9]

   [t]he question of the extent to which the expenditure actually made should be recovered from the defendant will usually be for the taxing officer.  He or she will determine when a particular item or expenditure were reasonably incurred and, if so, whether the sum claimed in respect of each particular item is reasonable sum.

   [9] See C Kendall & J Curthoys Civil Procedure Western Australia [36B.0.35]

2. The authors are undoubtedly correct that this is the approach that has been historically taken, perhaps even until relatively recently.[10]  Indeed, although Wesfarmers referred the court to a myriad of cases, very helpfully provided electronically, most of those cases support the proposition quoted above rather than contradict it.  Older cases concerning the reasonable costs and expenses of a subpoena reflect the general rule that it is for a taxing officer to tax the reasonable loss or expense of compliance with a subpoena.

   [10] Australia and New Zealand Banking Group Limited v Actus Australia Pty Ltd [22].

3. Wesfarmers submitted that the approach taken by a court today should be that costs should generally be fixed by the court rather than referring the matter to a taxing officer.  Wesfarmers said that this court is better placed to fix the costs of the subpoena than a taxing officer.  In some cases, this observation may be accurate.  In this Commercial and Managed Cases list it may be that the judge managing the litigation will generally fix the reasonable cost and expense of compliance with a subpoena provided that he or she is confident that it can be done in a logical, fair and reasonable manner.

4. The principles by which the court can fix costs in order to avoid the expense and delay involved in taxation are now well known.  As Newnes JA has explained, '[c]onsistent with that objective, in fixing the sum the court will not subject the costs to the detailed scrutiny often applied in taxation of costs.  It is appropriate instead to apply a 'much broader brush' than would be applied on a taxation.'[11]

   [11] Brookvista Pty Ltd v Meloni [2009] WASCA 180 [26]. See also Hadid v Lenfest Communications Inc(No 2) [2000] FCA 628 [35] (Lehane J)

5. The efficiency gained by the application of the broad brush approach can come at the expense of the accuracy of the outcome.  The point of trade-off between efficiency and accuracy is impossible to state any more precisely than to say that a broad brush approach to fixing costs must still be logical, fair and reasonable[12] and the court must, at least, 'have available to it sufficient material that it is confident it can arrive at an appropriate sum'.[13] 

   [12] Beach Petroleum NL v Johnson (No 2) (1995) 57 FCR 119, 123 (von Doussa J).

   [13] Brookvista v Meloni [27] (Newnes JA); Harrison v Schipp [2002] NSWCA 213; (2002) 54 NSWLR 738, 743 [22] (Giles JA).

6. On the material before me, I am not confident in this case that any amount of costs which I fixed would be a just sum.  I explain below two reasons why I consider that it would be inappropriate for me to fix the amount of reasonable loss and expense in this case. 

7. First, this matter was admitted to my list in November 2012, months after the issue and compliance with the subpoena.  It had two previous case managers.  I accept the submission by Wesfarmers that there will be a strong impetus, and possibly a significant advantage, for a reasonable loss or expense to be fixed by a case manager who has had conduct of the litigation throughout.  But that is not the case here.

8. Secondly, the complexity of the determination might sometimes weigh against a summary 'broad brush' determination of reasonable loss or expense.  The costs claimed by Wesfarmers in this case are $219,815.50.  By itself, the amount of the reasonable loss or expense of compliance should not prevent the Court making a broad brush order fixing the amount of reasonable loss or expense.  But if the size of the amount claimed means that there are substantial issues in dispute which cannot be resolved with reasonable confidence then a broad brush approach may be too great a sacrifice of accuracy at the expense of efficiency.  In contrast, where reasonable loss or expense claimed is not great, or where the likely recoverable amount may be far less than the amount awarded due to solvency concerns,[14] there is a strong impetus to fix that amount to spare a potentially disproportionate cost of taxation.  Once this is understood, the authority relied upon in considerable detail by Wesfarmers has little direct relevance to this case:  Areva NC (Australia) Pty Ltd v Summit Resources (Australia) Pty Ltd.[15]  In that case, the Chief Justice fixed the third party's reasonable loss or expense in complying with the subpoena in the amount $8,138.23.

   [14] As in Gallaher International Ltd v Tlais Enterprises Ltd [2008] EWHC 2046 (Comm) and Beach Petroleum NL v Johnson (No 2) (1995) 57 FCR 119.

   [15] Areva NC (Australia) Pty Ltd v Summit Resources (Australia) Pty Ltd.

9. It is this second factor, namely the concerns I have about expressing with confidence an amount of reasonable loss or expense, which means that I am not satisfied that an appropriate sum that is logical, fair and reasonable could be awarded on a broad brush approach to the fixing of reasonable loss or expense. 

1. The amount initially claimed by Wesfarmers in their written submissions and affidavit material was $219,815.50.  More than half of this amount concerns legal costs incurred by Wesfarmers.  The exercise in compliance, according to Wesfarmers' affidavit evidence, involved an extensive search and review process in which 6,830 documents, out of thousands of documents potentially falling within the subpoena, were located and provided to their solicitors for review.  The solicitors then, using Ringtail software, de-duplicated (if that is a word) the documents to remove 2,846 duplicates and reviewed the remainder. 

2. Amongst the matters in dispute include:

   (i)the number and identity of fee earners involved in the services provided by the solicitors to Wesfarmers;

   (ii)the appropriate rates for those fee earners in relation to the tasks involved, which rates vary from $157 per hour to $470 per hour (including GST);

   (iii)the extent to which Wesfarmers should have undertaken compliance tasks themselves rather than relying upon their solicitors and the information technology to which their solicitors could take advantage;

   (iv)various disbursements by Wesfarmers' solicitors which are said to be unexplained on the affidavit material, although to the extent that these matters relate to the security for costs application they are no longer in dispute.

3. The defendants say that even on a cursory sampling of the invoices annexed to Mr Dragovich's affidavit the amount of time spent by the various practitioners is excessive.  Some concessions were helpfully made during oral submissions this morning by counsel for Wesfarmers.  For instance, counsel conceded that instructions, advice and an initial review concerning security for costs, amounting $2,512.11, is not recoverable as compliance costs.  It appears, however, that there may still be a remaining dispute concerning whether all of the costs concerning the security for costs issue were removed from the amount claimed.  Counsel for Wesfarmers also conceded that it is not entitled to GST, which was an amount of approximately $20,000, because Wesfarmers are entitled to an imputation credit and therefore this is not a loss or expense.

4. Despite the helpful concessions made this morning by Wesfarmers, I am not satisfied that I can reach a logical, fair and reasonable assessment of the appropriate amount of reasonable loss and expense incurred by Wesfarmers in compliance with the subpoena, especially having regard to the quantification of any legal costs. 

5. By these remarks I am saying nothing about the amount of any recoverable legal costs incurred by Wesfarmers as reasonable losses and expenses in compliance with the subpoena.  That amount is wholly within the discretion of the taxing officer.   

Conclusion

1. I will make orders to give effect to O 36B r 11(2) directing that the amount of any reasonable loss or expense incurred in complying with the subpoena be determined by a taxing officer.

2. In oral submissions counsel for the defendants said that the determination of reasonable loss or expense by a taxing officer would not necessarily be a difficult task. He submitted that it could be inferred from the submissions that the significant difference between the parties concerned the legal question of construction of O36B r 11. That issue has now been resolved. It is strongly to be hoped that the parties will therefore be able to agree the amount without the further time and expense involved in consideration by a taxing officer of this Court.

Postscript

1. It is necessary to say something about a matter which arose after the hearing of this matter this morning and after the preparation of these reasons. 

2. In written submissions filed and served by the defendants on 8 February 2013, the defendants squarely raised the issue of the absence of any evidence of a costs agreement between Wesfarmers and their solicitors (see par 20).  Oral submissions were made on the basis that there was no such costs agreement in existence.  Counsel for Wesfarmers confirmed in oral submissions, in response to a question from me, that there was no evidence of any costs agreement. 

3. After the hearing this morning, I adjourned to prepare these reasons, having informed the parties that I intended to deliver them after lunch.  At about 2.00 pm, after I had prepared a draft of these reasons, Wesfarmers purported to file, without leave, a further affidavit, deposing to matters including the existence of a costs agreement.  Obviously, no submissions were made about this agreement or its terms.  The defendants have had no opportunity to respond to the affidavit evidence.  No application has been made for leave effectively to re-open the application and to programme further submissions and evidence.  If such an application were to be made, one issue will be the time, expense and mounting cost of this application.  I will defer making any orders until hearing from counsel on these issues.  At the very least, the parties must confer properly in light of these reasons.  It can only be hoped that a full and proper conferral between the parties will lead to a result without further delay and expense.