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Giannarelli v Wraith (No 2) [1991] HCA 2; (1991) 171 CLR 592 (20 February 1991)

CATCHWORDS

HEARING

DECISION

2. On 13 October 1988, this Court dismissed an appeal by the appellants against an order of the Supreme Court of Victoria and ordered that they pay the respondents' costs of the appeal. The respondents submitted for taxation a bill of costs totalling $44,159.23. The appellants raised a number of general objections to the bill. But the principal objection was that the respondents were not entitled to recover the costs of the appeal because they were never at risk in respect of costs. The basis of this contention was that the costs were, and always were intended, to be fully paid by the respondents' insurer. Since a party cannot recover costs if that party is not liable in any circumstances to pay his or her solicitors' costs, the taxing officer had to determine whether there was an agreement between the respondents and their solicitors that the respondents would not have to pay their solicitors' costs in any event. (See generally Adams v. London Improved Motor Coach Builders Ltd. (1921) 1 KB 495; Davies v. Taylor (No. 2) (1974) AC 225.)

3. At the request of the taxing officer, both parties made written submissions in respect of the preliminary objections raised by the appellants. After considering these submissions, the taxing officer formed the opinion that it would be necessary for him to have more factual material before he could make a decision. On 19 April 1990, he wrote to the solicitors for the respondents requesting that the respondents produce at the taxation the following documents:
(a) a copy of the insurance policy between the respondents and
their solicitors;
(b) all correspondence between the respondents and their
solicitors concerned with the solicitors' retainer to act on
their behalf in respect of the proceedings in the High Court;
(c) all correspondence (if any) between the respondents'
solicitors and the respondents' insurer pertaining to the
conduct of the proceedings in the High Court;
(d) all correspondence (if any) between the respondents and their
insurer pertaining to the conduct of the proceedings in the
High Court;
(e) all accounts rendered by the respondents' solicitors in
respect of the proceedings in the High Court.
4. The taxation of costs formally commenced in Melbourne on 26 April 1990. During the hearing, the respondents filed an affidavit of Ian Peter Scott O'Donahoo, a solicitor in the employ of the solicitors for the respondents, in which he deposed:

"2. I have perused my Principals' files in relation to
the conduct of the proceedings instituted by the
Appellants/Plaintiffs. This matter has been run as
a single file on the Respondents' behalf. From time
to time, interim solicitor client bills detailing
professional costs and disbursements incurred in acting
on the Respondents' behalf have been rendered by my
Principals and paid in full. The amounts paid pursuant
to these interim solicitor client bills of professional
costs and disbursements exceed the sum of the
professional costs and disbursements claimed in the
party party bills of costs filed in this Honourable
Court and the Supreme Court of Victoria.
3. I am informed by Andrew Morris Robson, and I verily
believe, that there is no agreement pursuant to which
my Principals have foregone their right to recover the
professional costs and disbursements incurred in acting
on the Respondents' behalf."

5. In his reasons for decision dated 23 May 1990, the taxing officer stated that, pursuant to O.71, r.70 of the Rules, he had the power to order production of the documents referred to in the letter of 19 April 1990. He also said:

"Mr O'Donahoo's affidavit does nothing to satisfy me that
there was no agreement binding on the solicitors that the
respondents would not have to pay the costs in any event.
There remains a doubt in my mind that I have been provided
with sufficient information with which to make a considered
decision that no agreement of the kind alleged by the
appellants is in existence."

6. In a letter dated 8 June 1990, the respondents' solicitors stated that they had no documents which came within category (a). They enclosed with the letter documents which came within categories (d) and (e). They refused to produce documents in their possession which came within categories (b) and (c) on the ground that the documents were protected from production by legal professional privilege.

7. On 31 July 1990, the taxing officer heard further argument from the parties in respect of the question of legal professional privilege. Subsequently, he referred four questions to me pursuant to O.71, r.19(3) of the Rules:
Question 1

8. Question 1 asks:

"On the basis of the evidence before the taxing
officer, is he entitled to require the respondents to
produce to him:
(a) a copy of the insurance policy between the respondents
and their solicitors;
(b) all correspondence between the respondents and their
solicitors concerned with the solicitors' retainer to
act on their behalf in respect of the proceedings in
the High Court;
(c) all correspondence (if any) between the respondents'
solicitors and the respondents' insurer pertaining to
the conduct of the proceedings in the High Court;
(d) all correspondence (if any) between the respondents
and their insurer pertaining to the conduct of the
proceedings in the High Court;
(e) all accounts rendered by the respondents' solicitors in
respect of the proceedings in the High Court;
for:-
(i) the purpose of determining if there was no
agreement binding on the solicitors that the
respondents would not have to pay the costs of the
proceedings in the High Court in any event,
(ii) any other (purpose) and, if so, what purpose?"

9. Order 71, r.70 of the Rules provides:

"The taxing officer may, for the purpose of taxation of
costs -
(a) summon and examine witnesses either orally or upon
affidavit;
(b) administer oaths;
(c) direct or require the production of books, papers and
documents;
(d) issue subpoenas;
(e) make separate or interim certificates or allocaturs;
(f) require a party to be represented by a separate
solicitor; and
(g) do such other acts and direct or take all such other
steps as are directed by these Rules or by the Court or
a Justice."

10. The power of the taxing officer to require the production of papers and documents under this rule is conditional upon any request being "for the purpose of taxation of costs". But once the taxing officer believes that the production of documents may help him or her to resolve a factual issue arising in the course of the taxation, the requirement to produce the documents is "for the purpose of taxation of costs" and falls within the rule.

11. Question 1, however, asks whether "on the basis of the evidence" before the taxing officer he is entitled to require production of the documents. The only "evidence" submitted by the appellants in support of the allegation that the respondents are or were not liable to pay their solicitors' costs in this Court is contained in the bill of costs filed in the action in the Supreme Court of Victoria. According to the written submissions of the appellants, the bill shows that the respondents' solicitors "sought and receive(d) instructions from a person other than the respondents and referred to as the insurer and reported regularly to the insurer" and that the bill of costs filed for taxation in this Court confirms "the continuity of the relationship disclosed in the Supreme Court Bill of Costs". In those submissions the appellants, in support of an allegation of maintenance which was raised before the taxing officer but not before me, also state that the Supreme Court bill "discloses attendances on Counsel and insurer 'as to figures of the commercial impact of Mr Justice Marks' decision on insurance for barristers'". The "evidence" relied on by the appellants, however, falls far short of establishing that the respondents and their solicitors have entered into an agreement whereby the respondents did not have to pay their solicitors' costs in any circumstances.

12. The respondents, of course, rely on the affidavit of Mr O'Donahoo. His affidavit, however, does not address the central dispute in the taxation, that is, whether the solicitors have foregone their right to recover their costs from the respondents. The respondents also rely on the fact that, as was pointed out in Davies v. Taylor (No.2) (at p 234), an agreement of the sort alleged by the appellants "would be most unusual". There is a presumption, therefore, that such an agreement does not exist: Reg. v. Miller (1983) 1 WLR 1056, at p 1061; (1983) 3 All ER 186, at pp 190-191; Hudgson v. Endrust (Australia) Pty. Ltd. (1986) 11 FCR 152, at pp 154-155.

13. The respondents submit that on the evidence the taxing officer was not entitled to exercise his power under O.71, r.70. They submit that a taxing officer should only require production of documents under that rule when production is necessary to obtain information in order to make a decision and that there must be a genuine dispute, "not a sham or fanciful dispute": Pamplin v. Express Newspapers Ltd. (1985) 1 WLR 689, at p 696; (1985) 2 All ER 185, at p 190. They contend that in this case the taxing officer could not exercise the power unless there was some evidence before him that would cause him to doubt that the respondents are liable for their solicitors' costs and require him to explore the matter further. They rely on Miller where Lloyd J. said (at p 1061; p 191 of All ER):

"If it appears to the taxing officer that there is doubt
whether there was an express or implied agreement, binding
on the solicitors, not to seek to recover the costs from the
client, the taxing officer should ask for further evidence."

14. However, the statements in Miller are not necessarily applicable in this Court. In England, the taxing officer peruses the whole of the solicitor's file before he or she decides to exercise the power under O.62, r.20(d) of the Rules of the Supreme Court to:

"order the production of any document which may be relevant
in connection with those proceedings".

"it is well within the discretion and expertise of the
master to decide when there is in truth a factual issue
which needs to be decided, and therefore calls for the
adducing of evidence by the claimant. It is essential to
the efficient and economic conduct of the taxation that the
master should have this discretion."

15. The "evidence" before the taxing officer in the present case did not come anywhere near proving the agreement alleged. At best the "evidence" was equivocal. But it was a matter for the taxing officer's discretion whether on that "evidence" he should exercise the power. It cannot be said that in acting on that "evidence" he was acting unreasonably or capriciously.

16. Accordingly, the taxing officer acted within power when he called for production of the documents by the respondents' solicitors.

17. Question 1 should be answered: yes.
Question 2

18. Question 2 asks:

"Are the respondents entitled to refuse to produce
to the taxing officer any of the documents referred to in
question 1:
(a) on the grounds that such documents are subject to the
benefit of legal professional privilege;
(b) without stating any ground whatsoever?"

19. The respondents are not entitled to refuse to produce to the taxing officer any of the documents referred to in question 1 without stating the ground of refusal. However, they can refuse to produce the documents on the ground that the documents are subject to the benefit of legal professional privilege. Baker v. Campbell [1983] HCA 39; (1983) 153 CLR 52 decides that a claim of legal professional privilege can be made in administrative as well as judicial and quasi-judicial proceedings. It follows that such a claim can be made in a taxation of costs. As Deane J. said in Baker v. Campbell (at pp 115-116):

"Once one recognizes that the principle underlying legal
professional privilege is that a person should be entitled
to seek and obtain legal advice without the apprehension of
being prejudiced by subsequent disclosure of confidential
communications and that the privilege is not confined
to such communications as are made in the course of or
in anticipation of litigation but extends generally to
confidential communications of a professional nature between
a person and his lawyer made for the purpose of obtaining
or giving legal advice, common sense points to a conclusion
that the principle should not be seen as restricted to
compulsory disclosure in the course of (judicial or
quasi-judicial) proceedings. Indeed, the doctrine of legal
professional privilege would represent an aberration of
the common law if it withheld from the courts information
or documents which were material in the search for truth
in circumstances where the disclosure thereof could be
compelled as a matter of course by any administrative
officer with a relevant and general statutory mandate to
require the provision of information or the production of
documents."

20. Moreover, in Hobbs v. Hobbs and Cousens (1960) P 112, Goldman v. Hesper (1988) 1 WLR 1238; (1988) 3 All ER 97 and Pamplin it was assumed that a party to a taxation of costs can assert legal professional privilege. However, in each of those cases, the party had disclosed the privileged documents to the taxing officer and only sought to rely on the privilege for the purpose of preventing the other party seeing the documents. The other party, relying on the principles of natural justice, had asserted a right to examine all documents submitted to the taxing officer. The courts resolved this tension between natural justice and legal professional privilege in varying ways but never denied that legal professional privilege could be asserted in taxation proceedings. In Hobbs, Stevenson J. said (at p 117):

"There is, however, an abundance of authority in support
of the proposition that once legal professional privilege
attaches to a document ... that privilege attaches for all
time and in all circumstances."

21. In Pamplin, an appeal was still pending and Hobhouse J. was conscious of the need to maintain confidentiality in those circumstances. His Lordship said (at p 698; p 192 of All ER):

"In the most extreme case, the claimant may have to ask
for an adjournment of the taxation (or review) of some
items until a time when the privilege has become academic,
for example, the disposal of a pending appeal in the litigation."

22. Question 2 should be answered:

(a) yes;
(b) no.

23. Question 3 asks:

"In the event that the respondents refuse to produce to
the taxing officer any or all of the documents referred to
in question 1:
(a) is the taxing officer empowered to compel production of
all the documents;
(b) is the taxing officer entitled to refuse to tax the
respondents' bill of costs until production of the
documents or such of them as he is empowered to require
the respondents to produce?"

24. Obviously, the taxing officer cannot compel production of privileged documents. However, the consequences of a party's refusal to produce documents on the ground of legal professional privilege are not clear. The appellants contend that the respondents are not entitled to their costs if they do not produce the documents. They rely on Pamplin and Goldman for this proposition. However, neither of those cases supports the contention.

25. In Pamplin, an order for costs was made in favour of the defendants. At the taxation the plaintiff argued that he was entitled to inspect all the papers which the defendants had lodged under O.62, r.21 of the Supreme Court Rules and which therefore had been examined by the taxing master. Order 62, r.21(5)(b) required that the claimant lodge "the bill of costs together with all necessary papers and vouchers". According to a practice direction ((1979) 1 All ER 958), the necessary papers and vouchers were:

"(i) The bill of costs.
(ii) A bundle comprising all civil aid certificates and
amendments thereto ...
(iii) A certificate of times or a copy of the associate's
certificate ...
(iv) A bundle comprising counsel's fee notes and accounts
for other disbursements.
(v) One complete set of pleadings arranged in
chronological order. ... To this set should be
annexed any interlocutory summonses and lists of
documents.
(vi) Cases to counsel to advise with his advices; opinions
and instructions to counsel to settle documents and
briefs to counsel with enclosures, all arranged in
chronological order.
(vii) Reports and opinions of medical and other experts
arranged in chronological order.
(viii) The solicitor's correspondence and attendance notes.
Files should be left intact and not for the purpose
of taxation divided into different sections to relate
to different portions of the bill.
(ix) Any additional papers should be bundled and so labelled."

"ultimately, the principle that each party must have
the right to see any relevant material which his opponent
is placing before the tribunal, and which that tribunal
is taking into account in arriving at its decision,
must prevail (over the principle of legal professional
privilege). In the final resort, the claimant must be put
to his election whether he wishes to waive his privilege
and use the material, or to assert his privilege and retain
the confidentiality of the document which the respondent is
asking to see."

"The claimant then has to choose what evidence he will
adduce and to what extent he will waive his privilege. That
is a choice for the claimant alone. The master then has to
decide the issue of fact on the evidence. In considering
whether he is satisfied by the evidence, the master will
no doubt take into account that the claimant may have a
legitimate interest in not adducing the most obvious or
complete evidence, and may prefer to rely on oral evidence
rather than producing privileged legal documents."

26. The facts in Goldman were very similar. An order for costs was made in favour of the defendant who filed her bill of costs and lodged the papers required by O.62, r.29(7) which was in accord with the practice direction set out above. The plaintiff's request to inspect the papers was rejected. In the Court of Appeal, the argument of the plaintiff was summarised by Taylor L.J. (at p 1243; p 101 of All ER) as follows:

"openness of justice should prevail so that the paying party
should see such documents as are necessary to enable him to
challenge the bill if appropriate. 'Can't see - won't pay'
is the terse expression of that argument."

"the taxing officer has the duty of being fair to both
parties: on the one hand, to maintain privilege so far
as possible and not disclose the contents of a privileged
document to the paying party unnecessarily; on the other
hand, he has to see that that party is treated fairly and
given a proper opportunity to raise a bona fide challenge.
... There may be instances in which a taxing officer may
need to disclose part, if not all, of the contents of a
privileged document in striking the appropriate balance. He
will no doubt use all his expertise and tact in seeking to
avoid that situation wherever he can. I do not envisage it
occurring, except very rarely. Of course it is always open
to the claimant not to rely on privileged documents which he
regards as peculiarly sensitive."

27. There are a number of obvious and important differences between these two English cases and the present case. In the English cases, legal professional privilege was relied upon to prevent the party who had to pay the costs from seeing the documents. The claimant in each case had already disclosed the documents in question to the taxing officer; that disclosure was not considered to be a waiver of the privilege. Further, the party claiming legal professional privilege was also the party who sought to prove a fact by use of the privileged documents. The suggestion in Pamplin that, if privilege is not waived, the claimant will be penalised is attributable to this point. In the present case, however, the party relying on legal professional privilege (the respondents) is not seeking to prove a fact by the use of the privileged documents. These differences alone make it difficult to apply the reasoning in the English cases to this particular fact situation. Moreover, those cases do not support the basic proposition of the appellants that the respondents must elect to waive their privilege or to have the taxation of the bill of costs rejected.

28. What the English cases show is that a party cannot be compelled to waive his or her privilege. They also show that, if a party elects to rely on privilege, that person will often risk not being able to prove a claim because the taxing officer can only decide the claim on the basis of the evidence before him or her: see Pamplin, at pp 696-697; pp 190-191 of All ER. The failure of the party taxing the bill to produce legally privileged documents is no ground, however, for the taxing officer refusing to tax the bill. To require a party to waive his or her privilege or forfeit a claim to $44,159.23 would be to make the privilege meaningless.

29. In the present case, the respondents have asserted their privilege and chosen to rely on the affidavit of Mr O'Donahoo. His affidavit is conspicuous for its omission to deal with the central point at issue in the proceedings. In those circumstances, the taxing officer has to decide, on all the "evidence" before him, whether there was an agreement between the respondents and their solicitors that the respondents would not be liable for their solicitors' costs in any event. No inference adverse to the respondents can be drawn from their reliance on legal professional privilege: Wentworth v. Lloyd [1864] EngR 492; (1864) 10 HLC 589.

30. Question 3 should be answered:

(a) no;
(b) no.

31. Question 4 asks:

"Upon production of the documents, if any, is the
taxing officer entitled or obliged to make copies of the
documents available to the appellants or their legal
advisers notwithstanding objection from the respondents to
such being done?"

32. In light of the answers to the previous questions, this question is probably hypothetical. However, if the respondents do produce documents which are not privileged, they cannot, in accordance with the principles of natural justice, prevent the appellants seeing them. As was said in Pamplin (at p 691; p 186 of All ER):

"Natural justice requires that each party should have an
equivalent right to be heard. This means that if one
party wishes to place evidence or persuasive material before
the tribunal, the other party or parties must have an
opportunity to see that material, and if they wish, to
submit counter material and, in any event, to address the
tribunal about the material. One party may not make secret
communications to the court."

33. As I have already said, the conflict between natural justice and legal professional privilege arose in Hobbs, Pamplin and Goldman. In Hobbs, a husband had successfully sued for divorce and an order was made that the co-respondent should pay the costs of the suit. The husband's bill of costs for taxation included an item of "instructions for brief" amounting to 200 guineas. During the taxation, the co-respondent asked to be allowed to inspect the brief which had been delivered to counsel for the husband in order that he might contest items in the bill, particularly the 200 guineas for instructions for brief. Stevenson J. held that the brief was privileged and that the co-respondent could not see it. He said that the co-respondent would not be assisted by seeing the brief and that the taxing officer could be trusted to properly scrutinise the brief to make sure that it was not overloaded with surplus matter. In Goldman (at p 1244; p 102 of All ER) this approach was criticised as "too rigid and uncompromising".

34. In Pamplin, Hobhouse J. said that the conflict between privilege and natural justice is usually avoided because of the flexibility and informality of taxation proceedings. When it does arise, however, the rules of natural justice must prevail. He concluded that, if a claimant wished to rely on his or her privileged documents to support a claim for costs, then the claimant waives the privilege and must let the opposing party see the documents. Alternatively, if the claimant asserts the privilege, he or she risks not being able to prove the claim.

35. In Goldman, a flexible approach was advocated. Taylor L.J. said it is the duty of the taxing officer to strike the appropriate balance between the two opposing legal principles. The results will vary with the facts of each case. Occasionally part of a privileged document may have to be revealed to the opposing party but the claimant may always choose not to rely on privileged documents which are particularly confidential.

36. In the present case, unlike the English cases, the initial disclosure to the taxing officer must amount to waiver of privilege. Goldman can be read as suggesting that, even when privilege has been waived, the taxing officer may still prevent the other party seeing the document. But in Pamplin expressly and in Goldman by inference, the courts said that ultimately a party either waives the privilege entirely and allows the taxing officer and the other side to see the privileged documents or asserts the privilege and maintains the confidentiality of his or her documents. This is the only acceptable view.

37. Accordingly, in this case, if the respondents decide to disclose privileged documents to the taxing officer, he is obliged to make copies of the documents available to the appellants.

38. Question 4 should be answered: yes.

ORDER

Answer the questions as follows:
1. On the basis of the evidence before the taxing officer,
is he entitled to require the respondents to produce to him:
(a) a copy of the insurance policy between the
respondents and their solicitors;
(b) all correspondence between the respondents and
their solicitors concerned with the solicitors'
retainer to act on their behalf in respect of
the proceedings in the High Court;
(c) all correspondence (if any) between the
respondents' solicitors and the respondents'
insurer pertaining to the conduct of the
proceedings in the High Court;
(d) all correspondence (if any) between the
respondents and their insurer pertaining
to the conduct of the proceedings in the
High Court;
(e) all accounts rendered by the respondents'
solicitors in respect of the proceedings
in the High Court;
for:-
(i) the purpose of determining if there
was no agreement binding on the
solicitors that the respondents would
not have to pay the costs of the
proceedings in the High Court in any event;
(ii) any other purpose and, if so, what purpose?
Answer: Yes.
2. Are the respondents entitled to refuse to produce to the
taxing officer any of the documents referred to in
question 1:
(a) on the grounds that such documents are subject
to the benefit of legal professional privilege;
(b) without stating any ground whatsoever?
Answer: (a) Yes;
(b) No.
3. In the event that the respondents refuse to produce
to the taxing officer any or all of the documents
referred to in question 1:
(a) is the taxing officer empowered to compel
production of all the documents;
(b) is the taxing officer entitled to refuse to
tax the respondents' bill of costs until
production of the documents or such of them
as he is empowered to require the respondents
to produce?
Answer: (a) No;
(b) No.
4. Upon production of the documents, if any, is the taxing
officer entitled or obliged to make copies of the
documents available to the appellants or their legal
advisers notwithstanding objection from the respondents
to such being done?
Answer: Yes.

Remit the matter to the taxing officer to be dealt with in the light of these reasons.

Certify for counsel.