Media Ocean Limited v Optus Mobile Pty Ltd (No 11) [2011] FCA 19 (20 January 2011)

Last Updated: 5 July 2011

FEDERAL COURT OF AUSTRALIA

Media Ocean Limited v Optus Mobile Pty Ltd (No 11) [2011] FCA 19

Citation:		Media Ocean Limited v Optus Mobile Pty Ltd (No 11) [2011] FCA 19
Parties:		MEDIA OCEAN LIMITED, MEDIATEL AUSTRALIA PTY LTD (ACN 105 996 736) and SOUND ADVERTISING LTD v OPTUS MOBILE PTY LTD (ACN 054 365 696) and OPTUS NETWORKS PTY LTD (ACN 008 570 330)
File number:		NSD 242 of 2009
Judge:		KATZMANN J
Date of judgment:		20 January 2011
Catchwords:		COSTS – Settlement of interlocutory application after substantial argument – whether costs order should be made – whether moving parties acted reasonably in commencing and continuing proceedings – whether costs order should be made in any event
Legislation:		Evidence Act 1995 (Cth) Federal Court of Australia Act 1976 (Cth) Federal Court Rules
Cases cited:		Ampolex Ltd v Perpetual Trustee Co (Canberra) Ltd (1995) 37 NSWLR 405 Gambro Pty Ltd v Fresenius Medical Care Australia Pty Ltd [2002] FCA 581 Kennedy v Wallace (2004) 142 FCR 185, [2004] FCAFC 337 Media Ocean Limited v Optus Mobile Pty Limited (No 7) [2010] FCA 892 Media Ocean Limited v Optus Mobile Pty Limited (No 10) [2010] FCA 1348 The Minister for Immigration and Ethnic Affairs of the Commonwealth of Australia; Ex parte Lai Qin [1997] HCA 6; (1997) 186 CLR 622 Rich v Harrington (2007) 245 ALR 106, [2007] FCA 1987 Trade Practices Commission v Sterling [1979] FCA 33; (1979) 36 FLR 244 Waterford v Commonwealth [1987] HCA 25; (1987) 163 CLR 54 Dye v Commonwealth Securities Ltd (No 5) [2010] FCA 950
Date of hearing:	7 December 2010
Place:	Sydney
Division:	GENERAL DIVISION
Category:	Catchwords
Number of paragraphs:	48
Counsel for the Applicants:	Mr F Kunc SC
Counsel for the Applicants:	Marque Lawyers
Counsel for the Respondents:	Mr R McHugh SC with Ms A Horvath
Counsel for the Respondents:	Minter Ellison

IN THE FEDERAL COURT OF AUSTRALIA
NEW SOUTH WALES DISTRICT REGISTRY
GENERAL DIVISION	NSD 242 of 2009

BETWEEN:	MEDIA OCEAN LIMITED First Applicant MEDIATEL AUSTRALIA PTY LTD (ACN 105 996 736) Second Applicant SOUND ADVERTISING LTD Third Applicant
AND:	OPTUS MOBILE PTY LTD (ACN 054 365 696) First Respondent OPTUS NETWORKS PTY LTD (ACN 008 570 330) Second Respondent

JUDGE:	KATZMANN J
DATE OF ORDER:	20 JANUARY 2011
WHERE MADE:	SYDNEY

THE COURT ORDERS THAT:

1. The costs of the first respondent’s motion filed on 1 October 2009 will be costs in the cause.
2. The motion filed by the first and second applicants on 22 October 2009 is dismissed with costs.
   

Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.
The text of entered orders can be located using Federal Law Search on the Court’s website.

IN THE FEDERAL COURT OF AUSTRALIA
NEW SOUTH WALES DISTRICT REGISTRY
GENERAL DIVISION	NSD 242 of 2009

BETWEEN:	MEDIA OCEAN LIMITED First Applicant MEDIATEL AUSTRALIA PTY LTD (ACN 105 996 736) Second Applicant SOUND ADVERTISING LTD Third Applicant
AND:	OPTUS MOBILE PTY LTD (ACN 054 365 696) First Respondent OPTUS NETWORKS PTY LTD (ACN 008 570 330) Second Respondent

JUDGE:	KATZMANN J
DATE:	20 JANUARY 2011
PLACE:	SYDNEY

REASONS FOR JUDGMENT

1. On 3 December 2010 I delivered judgment on a question arising from a notice of motion filed by the first respondent (“Optus”), at a time when it was the only respondent, but reserved the question of costs. As I mentioned in the judgment I had earlier reserved costs on a notice of motion filed by the first and second applicants (who, for convenience, I will refer to as “Media Ocean”) following a provisional ruling on a sample of what was itself a representative class of documents. Both matters related to applications the parties made to inspect discovered documents over which claims for legal professional privilege had been made. See Media Ocean Limited v Optus Mobile Pty Limited (No 10) [2010] FCA 1348.
2. This judgment is concerned with the costs of the two motions. The more controversial of the two applications relates to the Media Ocean motion. I will deal first with the Optus motion.

The Optus motion

3. The Optus motion, which was filed on 1 October 2009, was originally concerned with 38 documents. The number was reduced to 23 after Media Ocean withdrew their claims over seven documents and Optus withdrew its challenge to another eight.
4. Media Ocean sought an order that Optus pay its costs. Optus opposed such an order, arguing that Media Ocean should pay all or some of its costs or, in the alternative, that the costs of the motion should be Optus’s costs in the cause.
5. Neither party required reasons but I propose to give brief reasons.
6. The usual order is set out in O 62 r 29 of the Federal Court Rules:

Subject to this order, the costs of any application or other step in any proceedings shall, unless the court otherwise orders, be deemed to be part of the costs of the cause of the party in whose favour the application or other step is determined and shall be paid and otherwise dealt with in accordance with the provisions of this order.

7. The application was not determined wholly in favour of either party. The issue of substance on the motion and with which most of the evidence and the argument was concerned was common interest privilege which Media Ocean raised to try to defeat Optus’s contention that privilege had been waived when otherwise privileged communications were conveyed to third parties. On this issue Optus had mixed success. In my view the proper order is that the costs of Optus’s motion should be costs in the cause.

The Media Ocean motion

Background

8. Optus served its list of documents on 29 July 2009. It included approximately 4,600 documents. The Media Ocean motion was first foreshadowed in a letter from Marque Lawyers (“Marque”), Media Ocean’s solicitors, on 2 October 2009 – one day after Optus served Media Ocean with its notice of motion. No reasons were then given and the documents the subject of the challenge were not identified. The documents were simply described as “documents that are to or from your in-house legal counsel”. The timing of the objection prompted Minter Ellison, Optus’s solicitors, to describe it in correspondence as a “tit for tat” application. On 7 October 2009 Minter Ellison replied to Marque’s letter of 2 October 2009 inviting them to provide Minter Ellison, within seven days, with a list of the documents with which Media Ocean took issue and the basis for any objection reserving the right to rely on and tender their letter on the question of the costs of any motion Media Ocean might file. Marque replied on 9 October 2009 stating that they were “not currently in a position to indicate the precise documents over which privilege has been claimed with which we take issue” but advising that

[W]e are able to put your client on notice that our client will be taking issue with any internal correspondence between Optus personnel regardless of whether such correspondence and documents were between Optus’ in-house legal, or not.

9. The letter went on to request particulars of employment with respect to the people listed as senders or recipients of the documents. It sought the information by midday on 13 October 2009 and indicated that, if it were not forthcoming, Media Ocean would be challenging the claim for privilege in respect of all documents.

The motion

10. The Media Ocean motion was served on Optus on 14 October 2009 and filed on 22 October 2009. It challenged the claims for privilege over 1460 of approximately 4600 documents included in Optus’s list. It is clear from the correspondence to which I have referred that until that time Media Ocean had not identified the documents the subject of their challenge or asked Optus to explain the basis of their claims.
11. In their response dated 15 October 2009, and not without some justification, Minter Ellison described Media Ocean’s conduct as a fishing expedition. They complained of the lateness of the application and the scope of the work required to deal with it, noting that the hearing date (which was later vacated) was only ten weeks away, and foreshadowed that, in the event Media Ocean were to fail, they would seek an order that Media Ocean pay Optus’s costs on an indemnity basis and that the costs be payable forthwith. They invited Media Ocean to withdraw their motion.
12. Media Ocean ignored the invitation and pressed on. On 26 October 2009 the Court ordered that Optus notify Media Ocean as soon as possible and no later than 4 pm on 2 November 2009 of the role or position of each person identified as the author or recipient of each document disclosed in the disputed class and that Media Ocean notify Optus by 12 noon on 4 November 2009 of the documents in relation to which they challenge claims for privilege and the basis for the challenge (individually or by class). Optus supplied the list on 30 October. This prompted Media Ocean to reduce the number of its challenges from 1460 documents to 1344.
13. In response to the Court order, on 4 November 2009 Media Ocean also filed and served an affidavit sworn by Nathan Mattock of Marque Lawyers. In it Mr Mattock identified two classes of documents. The first was said to include documents falling within one or more of the following categories:

(a) Correspondence between “the applicants” and third parties which are either not privileged or over which Optus has waived privilege.

(b) Documents that have been inadequately described by Optus in its verified list.

(c) Internal correspondence between Optus personnel (“with the exception of correspondence authored and/or received by Optus’ in-house legal counsel”) which is not subject to legal professional privilege;

(d) Correspondence between the applicants and/or Marque Lawyers and the respondent and/or Minter Ellison Lawyers;

(e) Documents which are not subject to legal professional privilege.

14. Class B was described as (f) “internal correspondence between Optus personnel and/or Optus’s in-house legal counsel which is not subject to legal professional privilege”.
15. The affidavit annexed an annotated list of the challenged documents identifying the basis for the challenge to each document by the letter of the alphabet assigned to the subcategory in Mr Mattock’s affidavit.
16. The affidavit provided scant information. Category (f), for example, applied to 699 documents. It was, indeed, a mystery, as Optus put it, that Media Ocean were in a position to assert as they did that those documents were “not subject to legal professional privilege”.
17. On 19 January 2010 Optus provided Media Ocean with an amended list of documents. It included a brief description of the reason for the privilege claim in each case. This resulted in Media Ocean reducing its challenge further, from 1344 documents to 1239.
18. On 19 March 2010 Minter Ellison wrote to Marque Lawyers noting that junior counsel for the parties had conferred and it was now understood that the bases for the challenge to Optus’s claims for privilege were as follows:

(1) That the relevant internal legal counsel for Optus are not sufficiently independent, so as to be able to provide legal advice which is capable of being subject to a valid claim for legal professional privilege;

(2) Whether the communication made in respect of legal advice by internal legal counsel of the kind referred to in paragraph (1) above are made for the dominant purpose of giving commercial, rather than legal, advice;

(3) Whether emails forwarding legal advice of the kind referred to in paragraph (1) above are privileged (which turns on whether the original legal advice was privileged);

(4) Communications which Media Ocean infer were with or related to dealings with the Australian Competition and Consumer Commission;

(5) Documents which Media Ocean assert disclose the substance of other legal advice and which is the subject of an implied waiver; and

(6) Documents over which privilege is asserted on the basis that the document is the subject of without prejudice privilege, being communications between Mr Manion, Optus’s in-house counsel, and Mr Charlesworth, one of Media Ocean’s principals.

19. In the letter Optus waived privilege in the documents in (6) above as a result of newly pleaded claims Media Ocean had made.
20. The letter also contained a proposal to resolve the dispute that involved the selection of a representative number of documents to be the subject of judicial determination which might hopefully give the parties sufficient guidance to enable them to review their respective positions about the claims for privilege with regard to the balance of the documents. The proposal was substantially acceded to. Thus, on Optus’s application and by consent, on 29 April 2010 the Court made orders requiring the parties to nominate selected documents for a preliminary determination of Optus’s claims for privilege. The parties complied with the orders, Media Ocean nominating 75 and Optus 44, although Optus did not ultimately press its claim with respect to some of the documents Media Ocean had nominated. In the result the motion was concerned with 107 documents.
21. In support of its claim Optus relied on an affidavit sworn on 15 June 2010 by its solicitor, Lindsay Powers, based on information and belief.

The hearing

22. The hearing of the motion commenced on 21 June 2010 and was adjourned on Optus’s application to 19 August 2010 in circumstances to which I will return shortly.
23. Media Ocean’s argument focussed on two major issues. The first was the dominant purpose question, that is to say, whether Optus had proved that the documents came into existence for the dominant purpose of the client seeking or the lawyer providing legal advice or of providing legal services relating to pending or anticipated proceedings. Media Ocean argued, amongst other things, that the widespread dissemination of advice throughout the organisation detracted from the conclusion that the dominant purpose was a privileged one. The second was the independence question, that is to say, whether the in-house lawyers were sufficiently independent, an argument based on the reasoning of Branson J in Rich v Harrington (2007) 245 ALR 106, [2007] FCA 1987 (“Rich”), also said to be supported by the High Court’s judgment in Waterford v Commonwealth [1987] HCA 25; (1987) 163 CLR 54. A third issue concerned whether or not communications between Optus and Virgin Mobile, both subsidiaries of the same parent company, were acting in a common interest so that privilege would not be waived. See, for example, Ampolex Ltd v Perpetual Trustee Co (Canberra) Ltd (1995) 37 NSWLR 405.
24. At the conclusion of the hearing on 20 August 2010 the parties invited me to make rulings on whether 20 of the 107 documents satisfied the dominant purpose test, putting to one side for the time being the question relating to Optus’s in-house lawyers. On 17 September 2010 I handed down those rulings. It is fair to say that in each case Optus’s position was vindicated.
25. On 28 September 2010 the parties agreed to a regime involving Mr Power carrying out a further review of the documents and confirming to the solicitors for Media Ocean that he was satisfied that any continuing claims for privilege had been properly made and maintained and providing to them any documents over which such a claim could not be maintained. It was a term of the agreement that the process would conclusively determine the validity of Optus’s claim for privilege over all the documents.
26. When the matter came back before the Court the next day I was informed that the motion was no longer pressed save with respect to costs.

Media Ocean’s contention

27. Thus, it can be seen that, with the exception of the question of costs, the dispute was settled. For this reason Media Ocean asks that there be no order as to costs. They rely on The Minister for Immigration and Ethnic Affairs of the Commonwealth of Australia; Ex parte Lai Qin [1997] HCA 6; (1997) 186 CLR 622, where at 624-5 McHugh J said (footnotes omitted):

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 a 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....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 proceedings. This approach has been adopted in a large number of cases

28. Media Ocean submits that both parties acted reasonably in commencing and defending the proceedings and the conduct of the parties continued to be reasonable until the litigation was settled. Consequently, it urges that the proper order is no order. Optus, on the other hand, contends that Media Ocean did not act reasonably in commencing and then pursuing their motion and that they substantially failed in it or, alternatively, abandoned it. In the circumstances, Optus submitted, costs should follow the event and the Court should order that Media Ocean should pay Optus’s costs of the motion.
29. The first question is whether Media Ocean acted reasonably in bringing the motion. The second is whether it was reasonable to continue with it until the litigation was settled or its further prosecution became futile. The third is whether it is appropriate to make an order in favour of Optus.

The question of reasonableness

30. In an affidavit sworn on 25 November 2010 Mr Mattock explained the reasons behind the challenge to Optus’s claims of privilege. He said that a claim over so many documents appeared “on its face to be excessive”. He went on:

That implied that legal advice had been given or that a request for legal advice had been made on up to 1400 occasions within the respondent’s business regarding very specific matters which related to these proceedings.

31. This was, of course, an unduly narrow view of the scope of legal professional privilege. See, for example, Trade Practices Commission v Sterling [1979] FCA 33; (1979) 36 FLR 244. Optus characterized the assumption behind the challenge as “fundamentally flawed” partly for this reason and also because the assumption did not leave open the possibility that any such legal advice may have been forwarded to various people within Optus or that lawyers within the Optus legal department may have communicated with each other about the advice. What is more, it submitted, it also overlooked the probability that some of the documents were created by Optus officers for the purpose of ultimately providing instructions in relation to the litigation the subject of the proceeding. It pointed to the fact that 481 of the 1481 documents (nearly a third) were prepared on or after 12 March 2009 – the date Optus received a letter of demand from Media Ocean’s lawyers.
32. In the same affidavit Mr Mattock also said that, in the course of conducting the proceedings, he was aware that Mr Andrew Manion, one of Optus’s in-house legal team, had had commercial discussions with a director of Media Ocean so that it was “possible” that communications involving Mr Manion, over which Optus had made a claim of privilege, were not for the dominant purpose of providing legal advice. He added that he considered that it might also be possible in the case of other senior members of the Optus legal team. He said:

Further the question of independence of in-house legal counsel also weighed on my mind in light of the fact that I considered it likely that in-house counsel also provided other functions of a commercial nature to the respondent’s business.

33. The misconception upon which the Media Ocean motion was said to have been filed raises a real question about whether it was reasonable for it to bring the motion. Nevertheless, putting to one side the question of dominant purpose, the judgment in Rich entitled Media Ocean to argue that independence of in-house counsel was an additional matter that had to be proved in order to justify a claim of legal professional privilege. Whilst I have expressed my doubts about the correctness of this view in a case where the issue was not fully argued (Dye v Commonwealth Securities Ltd (No 5) [2010] FCA 950), Mr McHugh SC, who, with Ms Horvath, appeared for Optus, accepted that the point was reasonably available or, at least, that it was not unreasonable to take it. Until served with Mr Powers’s affidavit of 15 June 2010 Media Ocean was given no material bearing on the subject of the independence of in-house counsel, although it had raised the issue with Optus at least by March. It is also true that the point was ultimately abandoned, but it is reasonable to infer that that did not occur until shortly before settlement.
34. There is one matter however, about which I do not think Media Ocean behaved reasonably.
35. At the hearing on 21 June Mr Kunc SC, who appeared for Media Ocean with Mr Bova, argued that Mr Powers’s entire affidavit was inadmissible. First, he submitted, it was sworn on the basis of information and belief and, properly understood, the motion did not involve an interlocutory question so s 75 of the Evidence Act 1995 (Cth), which would permit evidence of this kind to be led on an interlocutory application, did not apply. Secondly, he submitted that “as a matter of form alone the material is inadmissible because of its conclusory nature”. He explained later:

The court has no real idea how good or bad the conclusion is. So that’s my reason. The first reason is the questions of form that I raised. The second reason is that it can’t be tested because they’ve chosen not to call the makers. And the third reason is that in the face of the authorities, making it clear, that one ought to, call the maker in the absence of good reason to do so, they haven’t. So they haven’t put before the court the best evidence. And your Honour has no explanation as to why six of the nine authors, including the general counsel and other important people within the legal section of Optus, aren‘t here telling your Honour this.

36. Alternatively, he submitted that the Court should exercise its discretion under s 135 of the Evidence Act to reject the affidavit, on the ground that its probative value was substantially outweighed by the danger that the evidence might be unfairly prejudicial to his clients. The basis for the claim of unfair prejudice, he contended, was his inability to cross-examine Mr Powers’s sources.
37. Optus had invited the Court to inspect the documents but Mr Kunc urged me not to, submitting:

[T]hey just haven’t even proven dominant purpose so that your Honour wouldn’t exercise a discretion to even look at the documents, because it’s a matter of discretion for the court as to whether or not it decides to actually look at the documents for itself, and [we] will take your Honour to some authority that says, really the court has got to be satisfied that it’s got off the ground before you start looking at the documents.

38. Optus then applied for an adjournment. Mr McHugh said they were concerned that, if any of Mr Kunc’s objections were successful, the real question about the claims over nearly 1400 documents remained unanswered. It was for this reason that (over objection) I granted the adjournment: Media Ocean Limited v Optus Mobile Pty Limited (No 7) [2010] FCA 892.
39. During the adjournment Optus filed an additional 24 affidavits. The affidavits came from each of the people who had given or received what was said to be legal advice or provided instructions to in-house lawyers.
40. When the matter came back before the Court on 19 August 2010 Media Ocean’s position had shifted. First, it did not require any of the deponents for cross-examination. So much for the submission made on 21 June 2010 that the affidavit of Mr Powers’s should not have been admitted because of the unfairness posed to Media Ocean by not being able to cross-examine the sources of Mr Power’s information and belief. When Media Ocean had the opportunity to do so, it elected not to. Secondly, it was not now content to have the Court determine the case on the basis of the affidavits. This time it asked the Court to inspect the documents. Why it could not have acceded to Optus’s invitation for the Court to do so on 21 June is difficult to understand.
41. This was not the only inconsistency in Media Ocean’s position. On 21 June 2010 Media Ocean’s counsel told the Court that there was no question of waiver because all the authors and recipients were “within the Optus camp”. Yet, on 17 August 2010 written submissions were filed contending that Optus had waived privilege over its communications with Virgin.
42. In the result, the course Media Ocean adopted was of no practical benefit to the parties or the Court. It resulted in the expenditure of unnecessary costs. In my judgment on the adjournment application I observed that Optus’s strategy carried an element of risk and referred to the decision of the Full Court in Kennedy v Wallace (2004) 142 FCR 185, [2004] FCAFC 337 at [13] about the dangers of relying on formulaic statements to establish a claim of privilege. Still, Media Ocean’s strategy carried a risk that Optus would do precisely as it did, that is apply, for an adjournment to enable it to present direct evidence from all the relevant players. If, as it transpired, it would not have mattered what was in the affidavit or affidavits and Media Ocean were always going to argue that the Court should inspect the documents, it is proper that they pay the price.
43. One course that therefore commends itself is that Media Ocean should pay Optus’s costs associated with the drafting, settling, filing and serving the additional 24 affidavits and that otherwise there should be no order as to costs. Ultimately, however, I am persuaded that I should not make such an order and the reasonableness of Media Ocean’s decision to fight on the issue of independence should not have this result.

The appropriate order

44. In my view, Optus should have its costs. This is a case in which there was a hearing on the merits which had all but concluded. The substantive issues on the motion were dominant purpose, independence and common interest. At the time I adjourned on 20 August 2010 to rule on the 20 documents, the parties had addressed on the matters of principle. All that remained was Media Ocean’s reply. Optus then secured rulings in its favour on the question of dominant purpose in all 20 cases upon which I was asked to rule and the settlement involved Media Ocean abandoning its arguments concerning the other two substantive issues. There is force, then, in Optus’s submission to the effect that Media Ocean capitulated when it could see the writing on the wall. It is true, as Media Ocean emphasised, that the motion sought access to many more hundreds of documents and that no assurances were given that the strategy the parties adopted would resolve all issues of privilege. But the plain object of the exercise upon which the parties had embarked was to avoid a further hearing once the Court’s decision on the representative documents was known. It is also true that Optus provided some new documents or made additional disclosures of parts of documents to Media Ocean during the period when the motion was pending. But the numbers were relatively few (43 email chains in whole or in part, according to Mr McHugh) and certainly a drop in the ocean of over 1200 documents. And some of the disclosures had nothing to do with the present motion but, on Mr Power’s evidence, which I accept, directly resulted from discovery in the Vodafone cross-claim. Moreover, as Mr McHugh submitted, in a case involving 1400-odd documents genuine mistakes will be made. There is no necessary reason to conclude that some, if not all of these additional disclosures, would not have been made in any event in conformity with Optus’s continuing disclosure obligations.
45. The first time Media Ocean intimated to Optus that they did not want to have the Court determine the independence question was in late September 2010, after their lawyers had received an open letter from Minter Ellison asking whether, in the light of my rulings, they intended to press their motion for access to the balance of Optus’s documents, notifying them that, if they did so, and they were unsuccessful, Optus would then seek indemnity costs of the motion. At that time Media Ocean had apparently abandoned the independence point but not the common interest question, asserting that the rulings I had made were subject to a ruling on the question of common interest. Within the next two days, however, they also abandoned the common interest question. As Optus put it in its submissions, taking into account all that had occurred since the time in February 2010 when Media Ocean narrowed their request to 1,239 documents, the substantive outcome of the motion from their point of view was failure or abandonment. Having regard to Optus’s repeated warnings that, should they choose to proceed with the motion and fail, Optus would pursue them for indemnity costs, it is unsurprising Media Ocean opted to limit the damage when failure appeared likely.
46. Media Ocean referred to the reluctance of the Court to order costs where the compromise of an interlocutory application does not include an agreement on costs, citing Gambro Pty Ltd v Fresenius Medical Care Australia Pty Ltd [2002] FCA 581 (“Gambro”) at [26], but the submission overstates the significance of the decision in that case. In Gambo, Tamberlin J merely reserved his decision pending the determination of the principal proceeding, a course neither party urged on me. His Honour described the orders he made as embodying to some extent “the constructive compromise and negotiation between the parties”. While there has obviously been constructive compromise in this case, there is no real evidence that Optus has given up anything to achieve it. In effect, the outcome is a complete win for Optus.
47. Making a costs order does not penalise Media Ocean for compromising the dispute. It compensates Optus for the costs it has incurred in defending a proceeding in which it was ultimately successful, although the Court did not finally determine its success. The settlement also spared Media Ocean the additional costs that prolonging the dispute would unquestionably generate. It was a sensible course to take and one which accorded with their obligations under s 37N of the Federal Court of Australia Act 1976 (Cth). Had a compromise been effected at a much earlier stage, however, and, in particular, before Optus had been put to the expense of obtaining the 24 additional affidavits, Media Ocean’s argument would have been more compelling. But Media Ocean put Optus to strict proof on all issues, only retreating from that position after considerable costs had been incurred. By the terms of the compromise and from the correspondence that preceded it Media Ocean must be taken to have accepted that its basic premise for challenging Optus’s claim for privilege was either mistaken or not worth pursuing. In those circumstances it seems to me that it would not be just to require that Optus bear its own costs.
48. I therefore order that Media Ocean’s notice of motion for inspection filed on 22 October 2009 be dismissed with costs.
    

I certify that the preceding forty-eight (48) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Katzmann.

Associate:

Dated: 20 January 2011