Permanent Trustee Company Limited v Gulf Import and Export Company & Anor (No 2) [2008] VSC 307 (20 August 2008)


IN THE SUPREME COURT OF VICTORIA		Not Restricted

PERMANENT TRUSTEE COMPANY LIMITED	Plaintiff

v

GULF IMPORT AND EXPORT COMPANY and EMIRATES TRADING AGENCY LLC	Defendants

JUDGE:	HANSEN J
WHERE HELD:	Melbourne
DATE OF HEARING:	29 May 2008
DATE OF JUDGMENT:	20 August 2008
CASE MAY BE CITED AS:	Permanent Trustee Co Ltd v Gulf Import and Export Co (No 2)
MEDIUM NEUTRAL CITATION:	[2008] VSC 307

Costs – Plaintiff successfully sued defendants on guarantees – Guarantees provided that legal costs payable on “full indemnity basis or solicitor and own client basis, whichever is the higher” – Defendants conceded pre-trial costs on a party and party basis but submitted there should be no order for costs after commencement of the trial because of plaintiff’s conduct in the litigation – Alternative submission that the trial costs payable to plaintiff not include costs of issues of discovery and provenance of documents, the defendants’ costs of which should be paid by the plaintiff on an indemnity basis – Exercise of discretion.

APPEARANCES:	Counsel	Solicitors
For the Plaintiff	Mr P J Jopling QC and Mr J F Styring	Minter Ellison

For the Defendants	Mr R M Garratt QC	Aitken Walker & Strachan

1 On 14 May 2008 I published reasons for decision[1] in which I found for the plaintiff against each defendant. I then adjourned the proceeding to a date to be fixed when I would hear the parties as to the orders to be made and on the question of costs. I heard counsel on these matters on 29 May 2008. They agreed on an order that each defendant pay the plaintiff $7,796,819.99 including interest, and I duly made those orders. However, they had substantial differences on costs, as to which they addressed oral submissions which complemented extensive written submissions. I reserved my decision on the question of costs and ordered that execution under the judgment be stayed until the expiration of 14 days after the question of costs was determined by order. I now set out my reasons and decision on costs.

2 The plaintiff sought its costs of the proceeding, including reserved costs, on an indemnity basis. Counsel submitted that although the general rule is that a successful party is entitled to costs on a party and party basis, where a contract between the parties provided for costs to be paid on some other basis, it was proper in the exercise of discretion to have regard to the agreed basis[2]. In this case, the guarantees successfully enforced in the proceeding provided for the payment of enforcement costs on a basis other than the general rule. The plaintiff relied on cl 15.1 of the guarantees which stated:

(b) the costs, charges and expenses of the Security Trustee in connection with any consent, approval, exercise, or non-exercise of rights (including, without limitation, in connection with the contemplated or actual enforcement or preservation of any rights under this guarantee and indemnity), waiver, variation, release or discharge in connection with this guarantee and indemnity; and

Including in each case, without limitation, legal costs and expenses on a full indemnity basis or solicitor and own client basis, whichever is the higher.”

The plaintiff was the Security Trustee and each defendant was, respectively, the Guarantor. By cl 15.3 the defendants indemnified the plaintiff against liability or loss arising from non-compliance with cl 15.1.

3 The defendants accepted that the plaintiff was entitled to its costs of the proceeding, including costs reserved or made in the cause at directions hearings, up to and including 28 May 2006 on a party and party basis. It was common ground that costs orders previously made should not be disturbed.

4 As to the costs of the trial, the defendants submitted that the plaintiff had conducted the litigation in such a way as to warrant a departure from the general rule that costs follow the event. As to this, counsel for the defendants relied on the following matters:

(b) the plaintiff’s sustained efforts to prevent the defendants laying before the court incontestable documents on which the defendants wished to base their case;

(c) the failure of the plaintiff to comply with orders of the Court requiring disclosure of the provenance of documents; and

(d) the disruption wrought by the plaintiff to the trial, due to its unpreparedness and pursuit of tactics, and the consequent prolongation of the trial, and repeated working up required to run the trial.

5 The defendants’ primary submission was that, viewing the matter overall, the just and appropriate exercise of the discretion on costs was that there be no order as to costs from and including 29 May 2006, that being the day the trial had been scheduled to commence and on which day I granted the defendants’ application to adjourn the commencement of the trial to 31 May 2006. That is, the parties should abide their own costs. The defendants’ alternative submission was that if it were considered that the plaintiff should have its costs of the trial, those costs should not include the costs of the issues of discovery and provenance of documents, the defendants’ costs of and concerning which should be paid by the plaintiff on an indemnity basis.

6 In reply, the plaintiff submitted that the trial was not prolonged by its conduct but, rather, by the way the defendants ran their case, particularly their lack of attention to detail before the trial. Counsel emphasised two matters. First, despite the fact that the defendants’ amended defence and counterclaim (filed on 16 July 2003) stated that particulars of fraud and the bankers’ knowledge thereof would be provided “after discovery and non-party discovery”, prior to the trial the defendants never made an application for non-party discovery from the banks. Whether or not in substitution for non-party discovery, throughout 2004 and up to the commencement of the trial in May 2006 the defendants inspected bank documents which were in the possession of the Australian Securities and Investments Commission (“ASIC”). Secondly, while the defendants did apply to join the banks as third parties, which application was refused by a Master in 2004, the defendants never sought to join Bustan International as a third party from which they would seek an indemnity, which in turn might have led Bustan International to join the banks as fourth parties if so advised. I interpolate that in October 2005 the shareholders of Bustan International and Bustan Australia Holdings Pty Ltd sought leave under s 237 of the Corporations Act 2001 (Cth) to commence a proceeding in the names of those companies against the banks[3]. On 2 December 2005, Mandie J dismissed the application, observing that “The issues crucial to the existence of a cause of action against the banks, based upon the second limb of Barnes v Addy[4] are not elucidated by specific evidence but are simply the subject of allegation, assertion and conclusion“, and concluding that he could not be satisfied that there was a serious question to be tried, nor that the applicants were acting in good faith[5].

7 The plaintiff submitted that the defendants’ failure to seek non-party discovery against the banks before the trial, and the failure to deal appropriately with the joinder of parties, caused the defendants problems at the trial. The defendants began the trial unprepared and, to overcome this, sought admissions as to the provenance of documents in the course of running the trial, and in circumstances where the defendants were, before the trial commenced, alive to the issues relating to discovery and provenance of documents and should have resolved such issues before the trial commenced.

8 It is convenient to begin by setting out some general principles, which were not disputed by the parties. First, while the general rule is that costs follow the event, the Court has a discretion on costs, which must be exercised judicially having regard to all relevant circumstances. In a passage in Keddie v Foxall[6] which is as relevant today as it was when written more than fifty years ago, the Full Court observed that:

“The cases do show, we think, that in exercising his discretion on costs a Judge may have regard to conduct – not necessarily misconduct – of any party which is calculated to occasion unnecessary expense.”

9 In Lollis v Loulatzis (No 2)[7] Kaye J referred to this passage in Keddie and stated:

“In my view, that principle is particularly applicable in light of the trend, in recent years, for the trial of cases to take an unduly long period of time to complete. As the consequential burden of costs to all parties is increasing exponentially, it behoves trial judges to be conscious of the principle that a losing litigant ought not to be required to bear that portion of the successful party’s costs which is attributable to conduct of the successful party which has unduly protracted the length of the trial.”

10 I also note that in Unioil International Pty Ltd v Deloitte Touche Tohmatsu (No 2)[8] Ipp J observed that[9]:

“... in modern times, there is an overriding duty on lawyers to assist in the prompt and economical disposal of litigation. In my view, the traditional requirement of honesty and candour on the part of lawyers and the modern duty to reduce unnecessary issues and costs, are inimical to the practice of denying or putting parties to the proof of facts which, according to the instructions in the lawyers’ possession, should be admitted.”

11 I respectfully agree with the statements and sentiments reflected in the above passages.

12 I now consider the plaintiff’s conduct of the trial, dealing in turn with each of the four matters relied on by the defendants.

13 As to (a), I observed in my judgment that the plaintiff’s application to split the case should have been made earlier than it was. I do not overlook the plaintiff’s submission that the application was properly made to the trial judge, in that the splitting of the case was a trial issue and if raised before a Master would have inevitably been referred to the trial judge as the Master would not have wished to “tie the trial judge’s hands”. That may be so, but at the very least in this litigation with its attendant circumstances the application should have been made on notice to the defendants. The case had been fixed for a witness statement trial on an estimate of duration of 20 days more than a year in advance (at a directions hearing on 14 April 2005) and although the proceeding was not in a judge-managed list, there were numerous directions hearings and applications to Masters and Judges along the way yet, as the defendants correctly pointed out, the plaintiff never raised the issue of splitting the case until the trial commenced.

14 It was a heavy case with a number of witnesses and difficult issues which would require careful organisation and management. The splitting of the case exacerbated the difficulties facing the defendants in seeking to establish their para 20A case by way of putting relevant documents and transactions to the plaintiff’s witnesses and exploring their knowledge of the matters related therein. True it is that the defendants’ counsel was ultimately able to explore these matters when the plaintiffs finally called their “rebuttal witnesses” in 2007, but as at May 2006 the defendants’ anticipated conduct of the trial was disrupted as a result of not being able to cross-examine all of the plaintiff’s witnesses prior to going into the defendants’ case. Further, as I have already observed in my judgment, it was an indulgence that, having been permitted to split the case, the plaintiff sought further time to prepare its evidence once the defendants closed their case in 2007. This caused additional prolongation of the trial, and further preparation work by counsel for the defendants who had to consider additional witness statements. Doubtless there was duplication of work as counsel were required to re-read in 2007 materials they would have already read in May 2006.

15 I take all of these matters into account when considering the plaintiff’s conduct in the case. Nevertheless, in my view the defendants overstated the effect of the trial being split. In particular, I do not accept the assertion in the defendants’ written submission that “if the trial had been conducted in the usual manner”, discovery, provenance issues, and all preparation would have been completed before the trial and “the trial would have run without significant interruption”. The fact is that the defendants had not completed discovery before the trial, and the plaintiff’s application to split its case on the first day of the trial could not alter that fact. Even if the plaintiff had been required to call all its witnesses first, in circumstances where discovery had not been completed and no agreement had been reached as to the provenance of documents in the Court Book I think it likely that the same interruption and fragmentation that did in fact occur would have occurred during the cross-examination. Regardless of whether the trial was split, the discovery and provenance issues should have been resolved before the trial. I refer further to these matters below.

16 As to (b), the defendants’ counsel emphasised what he referred to as the plaintiff’s sustained efforts to prevent the defendants laying before the court incontestable documents on which the defendants wished to base their case. The documents he referred to were those documents indicating that there had been fraudulent foreign currency speculation conducted on Bustan International’s account with the banks. He submitted that the plaintiff did not challenge the defendants’ expert witnesses as to the existence of the fraud alleged by the defendants, and manifest in the documents.

17 In my view, the plaintiff’s counsel did challenge both the defendants’ experts Everist and Bissland as to their opinions that there had been speculative foreign currency trading in fraud of Bustan International. The basis of the challenge in each case was that the witness had based his report on a selected number of dealing tickets, and had not inspected Bustan International’s trading books and other relevant records, and thus could not know whether the company had genuine commodity contracts underlying the foreign exchange transactions, and further could not exclude the possibility that the company in fact permitted the speculative trading in the hope of making a profit. I note that consistent with this approach to cross-examination, the plaintiff’s final submissions at trial argued that in the absence of Bustan International officers giving evidence as to the operation of the company’s foreign exchange policy, the court could not assume from a written policy (stating that it was not the company’s “objective” to speculate in foreign currency) that the company policy was in fact that foreign exchange contracts should only be entered into in respect of genuine underlying commodity transactions. Nevertheless, as I stated in my judgment[10], there was speculative trading in foreign currency on the Bustan International account. That conclusion flowed readily from the evidence. But that conclusion could not, without more, establish the defendants’ para 20A case, which in essence asserted that at relevant times and based on the documents then in their possession and the surrounding circumstances, bank officers knew or should have known about the speculative trading. It may be said that the real issue on the para 20A case was the question of knowledge, not the mere existence of speculative trading. However, the establishment of speculative trading was more than the gateway to the knowledge case, it was an essential linkage to that case. Knowledge was not to be asserted or established in the air, but in reference to specific speculative trades. That is, speculative trading was not to be asserted and established in the air as some sort of general proposition, but by proof of specific instances which could provide the foundation for the knowledge case. Thus is to be understood the plaintiff’s reluctance to concede the existence of speculative trades, whether authorised or not, and the approach of putting the defendants to the proof of their case on both issues.

18 The question really is whether the plaintiff could and should, with a view to expedition and economy, have modified its approach and facilitated the evidentiary process concerning speculative trades. In my view that could have happened without prejudice to the plaintiff’s position. In my view, the plaintiff’s approach led to some prolongation of the trial, including in terms of the disputation surrounding the admissibility of the defendants’ experts’ reports, and the cross-examination of the experts. I take these matters into account when assessing the plaintiff’s conduct of the trial overall.

19 I now turn to consider the matter of discovery. In dealing with this matter, it is convenient to also deal with the issue raised in (c) above, namely the failure of the plaintiff to comply with orders of the Court requiring disclosure of the provenance of documents. That is because the two issues are closely related. It is necessary to go into some detail as to how the case progressed to trial, in order to make sense of the disputation over discovery and provenance of documents.

20 It is convenient to begin on 11 April 2003 when a Master dismissed the plaintiff’s application for summary judgment and ordered the parties to make discovery of documents by 18 September 2003. The defendants solicitors then sought confirmation from the plaintiff’s solicitors as to whether the plaintiff’s discovery would include documents held by the banks. On 22 August 2003 the plaintiff’s solicitors advised by letter that “all files” of HSBC and Rabo relating to lending arrangements with the Bustan companies had been subpoenaed by ASIC and that the banks consented to these documents being inspected by the defendants’ solicitors. The defendants’ solicitors attended at ASIC on 28 and 29 August and 5 September 2003 to inspect bank documents and they obtained copies of some of them.

21 On 10 October 2003, the plaintiff filed an affidavit of documents, essentially limited to the relevant agreements, guarantees, certificates and demands. The plaintiff did not, at that stage, discover any documents relating to the transactions between Bustan International and the banks[11]. However, the defendants’ solicitor deposed[12] that on 10 October 2003 he received a letter from the plaintiff’s solicitors enclosing a schedule of “further original and copy documents provided to [the plaintiff’s solicitors] by [the banks] relating to the proceeding”. The defendants’ solicitors were provided with copies of these documents by the plaintiff’s solicitors on 4 December 2003.

22 On 18 December 2003 a Master referred the proceeding to the Listing Master for pre-trial directions on 10 February 2004, on the basis that all interlocutory steps had been completed. The Listing Master gave the defendants leave to make application to join the banks (which application was refused by a Master on 29 March 2004) and on 6 April 2004 fixed the trial of the proceeding for 15 November 2004 on an estimate of ten days. On 1 November 2004 the plaintiff filed a summons seeking orders that several preliminary questions (including whether the defendants should be permitted to maintain as against the plaintiff the matters alleged in para 20A of their defence) be tried pursuant to r 47.04 of the rules. On 4 November 2004 Byrne J refused the application.

23 On 4 November 2004 the defendants filed a summons seeking leave to file and serve a further amended defence and amended counterclaim. On 8 November 2004 the plaintiff applied to vacate the trial date. In her affidavit in support, the plaintiff’s solicitor deposed that the defendants were seeking to expand the “knowledge of fraud” case against the banks and in so doing rely on many additional documents, with the consequence that the plaintiff would need to take further instructions and would not be ready for the trial scheduled to commence on 15 November 2004.

24 On 9 November 2004 the Listing Master vacated the trial date with each party bearing its own costs of the application to vacate, and granted leave to the defendants to amend their pleadings. The defendants filed their amended pleadings on 3 December 2004. I accept the plaintiff’s contention that the amendment to the pleading significantly expanded the “knowledge of fraud” case raised by the defendants.

25 Returning to the matter of discovery, there was much correspondence between the respective solicitors during 2004 as to the adequacy of the banks’ provision of documents to the defendants’ solicitors. It is not necessary to set out this correspondence, save to note the following. By letter dated 5 August 2004 the defendants’ solicitor expressed concern as to whether there were further bank documents that had not been provided to ASIC, and to that end sought a copy of any notices issued by ASIC to the banks, an undertaking that the plaintiff had discovered all documents relevant to the issues in the proceeding, and stated further that failure to provide these documents would leave his client “no option but to make immediate application ... for third-party discovery” from the banks. The plaintiff’s solicitor responded by letters dated 9 and 30 August respectively, the latter of which contained a proposal for the defendants to inspect further “supporting documents” held by Rabo, and invited the defendants to identify particular transactions related to HSBC as to which HSBC would search its records and provide copies of the relevant documents. The letter stated that if the defendants were not satisfied with the proposal stated therein, the plaintiff “invited” them to make an application for third party discovery from the banks. It further stated that the banks would consent to making discovery of agreed categories of documents in accordance with the court rules. The defendants’ solicitors responded by letter dated 8 September seeking further information as to documents held by the banks, outlining their intention to inspect certain other bank documents, and reserving their position as to third party discovery “pending our inspection of documents and your response to this letter”. Further correspondence ensued which need not be set out.

26 The next directions hearing took place on 10 March 2005. The defendants’ solicitors wrote to the plaintiff’s solicitors on the morning of that hearing and stated that they were considering the completeness of the plaintiff’s discovery and would shortly provide a letter regarding the issue. The defendant’s solicitor informed the Listing Master that the defendants had concerns regarding discovery and foreshadowed an application for non-party discovery. The Listing Master adjourned the proceeding for pre-trial directions on 31 March 2005 and noted in Other Matters that “Any application for further discovery be issued forthwith”.

27 Then followed correspondence in which the defendants’ solicitors stated that they had identified a number of areas where relevant documents may not have been informally discovered by the banks, and that they required relevant documents to be discovered prior to the trial, whether informally or by court order. They reiterated their intention to make application for non-party discovery if the plaintiff failed to provide an “appropriate response”. By letter dated 12 April, the plaintiff’s solicitors reiterated that they considered that the banks had been “more than accommodating” in providing relevant documents and that if the defendants were not satisfied with the banks’ response, they should apply for non-party discovery. The defendants filed an affidavit on 14 April 2005 in support of an application to interrogate the plaintiff in respect of certain HSBC documents.

28 At the next directions hearing on 14 April 2005 the Listing Master refused the application to interrogate, but having done so asked junior counsel for the defendants whether he still wanted to consider the issue of non-party discovery, as to which he said that he did. The proceeding was adjourned to 28 April 2005, with the defendants to make any application for non-party discovery by 21 April 2005. The Listing Master also fixed the proceeding for trial on 29 May 2006 on an estimate of 20 days. The setting down orders provided for the plaintiff and defendants to serve on each other, by 2 and 14 April 2006 respectively, a list of documents they intended to tender in evidence.

29 On 15 April 2005 the plaintiff’s solicitors wrote to the defendants’ solicitors stating that any non-party discovery should be by categories of documents, and that in light of the extent to which the banks had already provided informal discovery, “the categories of any outstanding documents should be of short compass and can be agreed relatively quickly”. The letter urged the defendants to advise as soon as possible the categories of documents they would seek. By letter dated 22 April 2005 the defendants’ solicitors replied that “at this point” they did not propose to apply for non-party discovery. They would review their position in due course and “make an application for the leave of the Court at the appropriate time we consider third party discovery to be appropriate”.

30 Subsequently, the issue of non-party discovery by the banks appeared to have gone away. It appears that the matter was not mentioned again in court until after the trial commenced.

31 In the meantime, disputation arose as to other matters. One matter was whether documents produced by the defendants’ expert Everist under a subpoena filed by the plaintiff on 18 November 2004 were privileged. The Listing Master reserved her decision on this matter on 6 June 2005 and, on 18 October 2005, upheld the defendants’ claim of privilege.

32 On 18 October 2005, the plaintiff filed a summons seeking non-party discovery from the defendants’ former auditors Ernst & Young, as to which on 27 October 2005 the Listing Master ordered Ernst & Young to provide non-party discovery to the plaintiff.

33 On 11 January 2006 the plaintiff filed a notice to admit. Not having responded to the notice within 14 days, the defendants sought leave on 10 February 2006 to withdraw certain deemed admissions. The application came on before the Senior Master on 22 February 2006 and was adjourned to allow the defendants to consider their pleadings. As to that, on 3 March 2006 the defendants filed a summons seeking leave to further amend their pleadings. The affidavit in support deposed that the effect of the proposed amendment was to particularise the knowledge of the banks by reference to documents provided to the defendants by the banks. I interpolate that there was no mention in the affidavit of any need to seek further documents from the banks. On 9 March 2006 the Senior Master granted leave to the defendants to withdraw the deemed admissions. He adjourned the pleading application to the following week to allow the defendants to further consider the content of the proposed pleading. It seems that there was also some disputation as to the appropriate time for exchange of experts’ reports, and the Senior Master ordered that the plaintiff make any application in that regard by 10 March 2006. The plaintiff duly filed a summons seeking orders that the defendants file and serve their expert reports by 31 March, and that the plaintiff do the same by 1 May 2006, but the Senior Master ultimately refused the application.

34 The plaintiff appealed from the Senior Master’s order permitting the defendants to withdraw the deemed admissions. On 7 April 2006 Harper J allowed the plaintiff’s appeals, but granted the defendants leave to file and serve an amended pleading (in the form initialled by the Senior Master) by 13 April 2006. The defendants filed their amended pleading on 13 April 2006.

35 After the disputation referred to above had finished, the matter of discovery of bank documents re-emerged, little more than a month before the trial was due to commence, in the following circumstances. On 13 April 2006 the defendants filed subpoenas for production to the Prothonotary, directed to HSBC and Rabo respectively and seeking, amongst other things, correspondence between the banks relating to the Bustan companies in the relevant period. On 28 April 2006 the banks each filed a summons seeking to set aside the subpoenas. The affidavit in support of the banks’ summonses deposed that the defendants had not raised the issue of non-party discovery since late April 2005, but had inspected the banks’ documents at ASIC in late March or early April 2006, and deposed further as to the practicalities and magnitude of the task of providing the documents sought within particular timeframes.

36 On 3 May 2006 counsel for the banks (who was not counsel for the plaintiff) and senior counsel for the defendants reached an agreement as to the subpoenas and the disposition of the summonses. The agreement relevantly provided that the defendants would pay the banks’ reasonable costs of complying with the subpoenas, and the banks’ costs of and incidental to the summonses would be costs in the cause. As the defendants’ submissions put it, pursuant to the agreement, on 10 and 25 May 2006 the banks produced numerous documents in their possession to the defendants, including, among many other documents, lists of foreign exchange transactions entered into between Bustan International and the banks, and documents that the banks had not previously produced to ASIC.

37 I note that also on 10 May 2006 the plaintiff provided further discovery by way of a supplementary affidavit of documents, which included some documents relating to the transactions between the Bustan companies and the banks.

38 On 25 May 2006, the defendants made their first request to the plaintiff regarding the provenance of documents in the Court Book, the request being contained in a letter from the defendants’ solicitors to the plaintiff’s solicitors which enclosed an annotated copy of the Court Book index stating their view as to the provenance of the documents, and asked the plaintiff’s solicitors to confirm whether they agreed or not with the stated provenance. On 26 May, the defendants’ solicitors sent a letter enclosing an electronic copy of the annotated Court Book index and reiterating their request as to provenance. I interpolate that the defendants’ submission states that “no response was received”. It must be borne in mind, however, that these letters were sent on the Thursday and Friday before the trial was to begin on the following Monday. The number of documents was large and the plaintiff’s solicitors were no doubt busy preparing for the trial. Nevertheless, as I mention below, the parties should have worked cooperatively on the question of provenance of documents.

39 The above provides a sufficient overview of the position regarding pre-trial discovery.

40 On 29 May 2006, the day the trial was scheduled to commence, I granted the defendants’ application for an adjournment of two days, to enable counsel to (as he put it) “be across” all 33 volumes of the Court Book in order to cross-examine the plaintiff’s witnesses. Counsel had referred to the fact that new volumes had been added to the Court Book and documents had only recently been received in the discovery process.

41 The trial then having commenced on 31 May 2006, the defendants’ counsel sought, during cross-examination of the plaintiff’s witness Cenciotti on 1 June 2006, a response from the plaintiff as to the provenance of documents in the Court Book index. Also, by letter that day the defendants’ solicitors asked the plaintiff’s solicitors to confirm, as to each document in the Court Book index, whether they were Rabo or HSBC business records. On 2 June 2006 the plaintiff’s counsel stated that “our position is we don’t agree to the document [the annotated Court Book index prepared by the defendants]”. When I asked whether there was any greater particularity as to the disagreement, counsel said “No, your Honour, I’m afraid. Those are my instructions”. The defendants’ counsel explored the issue of provenance briefly in the cross-examination of Sabine, but ultimately did not pursue the matter and it was apparent that the witness was not in a position to state the provenance of the documents.

42 In effect, the request as to provenance of documents was put on hold when the defendants made an application for non-party discovery from the banks on 2 June 2006. The plaintiff opposed the application. On 6 June I ordered that unless by 4.00pm on 13 June 2006 the banks filed and served affidavits of discovery of documents in the manner and to the effect that they would if a party to the proceeding in response to a notice of discovery, the proceeding would be stayed until further order. The matter of discovery was next raised on 15 June 2006 when counsel for the plaintiff stated that affidavits would be sworn and filed that day, and that Rabo might need to provide a further affidavit as they had not finished reviewing the documents. I adjourned the trial to a date to be fixed, reserved the costs of the trial thus far, and ordered a directions hearing on 29 June 2006. On 15 June, Rabo filed an affidavit of documents, and on 5 July filed a supplementary affidavit of documents (sworn 3 July) and an affidavit of documents (sworn 4 July), the latter in substitution for the earlier affidavit (but not affecting the supplementary affidavit). On 5 July, HSBC filed an affidavit of documents and a supplementary affidavit of documents (both sworn 4 July).

43 The matter returned to Court on 7 July 2006. Junior counsel appeared for both parties, and the defendants’ counsel expressed some concern as to the adequacy of the descriptions of bundles of documents referred to in the banks’ affidavits of discovery. The defendants had at that stage, however, only just begun inspecting the documents, and, following some discussion, both counsel accepted that the practical course was for the parties and their lawyers to work cooperatively to clarify any difficulties in the descriptions of documents in the affidavits, and that if any difficulties remained unresolved, they could be raised at a later time and by reference to specific problems encountered during the inspection of the documents, rather than by reference to theoretical considerations. On that basis, I ordered that the defendants complete inspection of documents by 31 July 2006, adjourned the proceeding to 4 August and reserved costs.

44 On 4 August, senior counsel for the defendants complained that the banks had not yet completed discovery, and further submitted that the matter should have been stood over for two weeks to allow the completion of inspection and that the matter was only in court that day as the plaintiff had insisted on it. I ordered the defendants to complete inspection of documents held by ASIC by 16 August, the plaintiff to file and serve any further affidavit of discovery by 16 August, and the defendants to file and serve a supplementary Court Book by 31 August 2006. I adjourned the proceeding to 1 September 2006 and reserved costs. Each bank filed a further supplementary affidavit of documents on 17 August 2006.

45 On 25 August 2006, the defendants’ solicitors wrote to the plaintiff’s solicitors, enclosing a supplementary Court Book index which included documents obtained in the banks’ non-party discovery, and requested that the plaintiff accept (or correct) the provenance of the documents in the annotated Court Book index previously provided, as well as in the supplementary Court Book index. The plaintiff did not do so.

46 On 1 September 2006 the case returned to court and the plaintiff sought a direction that the proceeding be referred to the Listing Master for setting down for trial. The defendants opposed such direction on the basis that an estimate of duration could not be given until the provenance issue was resolved. I ordered that by 22 September the plaintiff file and serve a notice stating, so far as it could, the provenance of the documents listed in the index and supplementary index to the Court Book. I adjourned the proceeding to 29 September and reserved costs.

47 On 26 September 2006, the plaintiff filed a notice (118 pages long). There was disputation as to whether the notice complied with my orders, and the matter was raised in court on 29 September 2006. In short, the defendants complained that the plaintiff did not deal with all documents in the indexes and, more importantly, the plaintiff failed to state whether the version of each document in the Court Book was, or had been, in the possession of the respective banks. Similarly, rather than stating whether copies of documents came from the banks, the plaintiff dealt with provenance by reference to the entity that created the document. I ordered that by 6 October 2006 the plaintiff file and serve a supplementary notice stating, so far as it could, the provenance of any document listed in the index and supplementary index and not specifically dealt with in the first notice. I ordered that any further applications be made to me, but otherwise referred the proceeding to the Listing Master for fixing for trial, and reserved costs.

48 On 18 October the plaintiff filed a supplementary notice (222 pages long), but there was again disputation as to whether the notice complied with my orders. The matter came to a head on 17 November 2006 when the case was listed at the defendants’ request and I heard submissions from counsel. The plaintiff submitted that “the defendants now seek an order that the plaintiff file a notice stating whether documents in the Court Book are derived from specified sources, including the books and records of the respective banks”. The plaintiff further submitted that the defendants’ purpose was not to secure a simple admission that a copy of the document was a true copy of the original but rather to “obtain admissions going to possession”. I reserved my decision.

49 On 8 December 2006 I gave written reasons in which I indicated my general view, without ruling on particular documents, that there were instances in which the plaintiff had not properly complied with my earlier orders. It is sufficient to note that non-compliance is clear enough when one notes that in the supplementary notice the plaintiff says that it was “unable to state” the provenance of numerous documents, notwithstanding that these very documents were listed[13] by ASIC as being documents of the banks produced to ASIC, and further that a letter dated 8 May 2006 from the plaintiff’s solicitors to the defendants’ solicitors (consenting to the copying of certain documents of the banks held at ASIC) referred to the documents as bank documents held by ASIC. I stood the matter over to allow the parties the opportunity to consider my reasons, and reserved costs.

50 On 15 December 2006 I ordered that the plaintiff by 10 January 2007 file and serve a notice identifying which of the documents, being documents copies of which were contained in the Court Book and the Supplementary Court Book, were prior to 2 November 2001 in the possession, as the case may be, of the plaintiff, or the four banks, and identifying the entity in the possession of which the particular document was. I also ordered the plaintiff to pay the defendants’ costs of the application made on 17 November 2006 including reserved costs and the costs of 15 December, the question whether such costs be paid on an indemnity basis or as between solicitor and client being reserved.

51 On 6 February 2007, the plaintiff filed a third notice. As the defendants’ submission on costs put it, the third notice “made appropriate admissions (in all but a few cases)” as to the provenance of the copies of the documents contained in the Court Book. At the very least there was then no need to mention the case in court again on account of disputation about provenance of documents. However, some problems remained for the defendants who, on 18 May 2007, filed subpoenas directed to the banks and obtained some further documents pursuant thereto which had not been dealt with by the provenance notices. Many of those documents were tendered in evidence. I note that counsel for the plaintiff opposed the tender of numerous documents which, in the context of the subpoenas, the banks had not admitted were in their possession.

52 The above is a sufficient overview of the disputation as to discovery and the provenance of documents in the Court Book.

53 Having regard to all of the above, the defendants submitted that the plaintiff’s approach was obstructive, caused undue delay, and increased the defendants’ costs in that the defendants were obliged to scrutinise the plaintiff’s and banks’ discovery recurrently, prepare for the four discovery related hearings referred to above, and undertake additional inspection of documents because of multiple affidavits of documents. The defendants also complained that, during the course of the proceeding, the plaintiff repeatedly took the position that because the banks were not parties to the proceeding, their documents were not discoverable, and copies of those documents in the plaintiff’s possession were privileged.

54 Counsel for the defendants also sought to refute the plaintiff’s argument that the defendants had been late in attending to discovery, by submitting that the defendants had been working on the assumption that all relevant documents were at ASIC, and there should have been no real dispute as to the provenance of the documents in the Court Book.

55 The discovery process was a considerable burden to both parties. I accept that the defendants expended much time and money in dealing with discovery. But the same can be said for the plaintiff. Much of the difficulty arose because (a) the defendants went into the trial without having inspected all documents they considered necessary to properly put their case, and without having planned how tender of relevant documents was to be achieved; and (b) the parties did not agree on the provenance of documents in the Court Book.

56 Taking discovery first, in my view the defendants should have pursued the matter of non-party discovery from the banks well before the trial. The defendants submitted that they proceeded on the basis that they could access all necessary documents by inspecting what was available at ASIC. Yet, the foundation for that assumption – apparently a statement from the plaintiff’s solicitors that all relevant files had been subpoenaed by ASIC - was made very early in the proceeding, and subsequent correspondence, referred to above, indicates that the plaintiff’s solicitors provided the defendants’ solicitors with documents additional to those held at ASIC, or at least additional to what the defendants had inspected at ASIC. It was presumably for that very reason that the defendants, apart from inspecting documents at ASIC, also sought (and obtained) further documents from the plaintiff’s solicitors. Further, the defendants’ solicitors stated on many occasions that they intended to seek non-party discovery. Viewed overall, the defendants’ solicitors’ conduct was not consistent with their proceeding on the assumption that every document relevant to the case could be obtained from ASIC. Put simply, the defendants were minded to, but ultimately did not, make an application to a Master for an order for non-party discovery, in advance of the trial. There may have been good reasons why the defendants chose not to do so, and as to that I cannot and do not speculate, but nothing can change the fact that the defendants should have ensured that they had completed their review of all relevant documents (whether discovered by the plaintiff, produced to ASIC, or produced by the banks under the subpoenas) well before the trial commenced in May 2006. They also had to determine how they were going to prove and tender documents at the trial; that involved consideration of the provenance of documents, hence the matters of provenance should have been resolved before the trial.

57 As I noted in my reasons on 8 December 2006, in all litigation, but even more so in a commercial case, the parties, led by their lawyers, should endeavour to conduct the case in an expeditious, economic and commonsense manner, keeping in mind at all times the substance of the matters in dispute. That fundamental requirement was not always observed in the present case. In substance, what the defendants had sought, and what I ordered be done, was that the plaintiff and banks state, as far as they could, whether the documents in the Court Book were, or had been, in the possession of either of the banks, or the plaintiff, or otherwise as the case may be. It was no answer for counsel for the plaintiff to submit, as he did at the time, that the plaintiff should not be compelled to make admissions as to possession of the subject documents, by the plaintiff and the banks, when such admissions would be used by the defendants, by medium of tender of the documents, as evidence to establish the banks’ knowledge of the alleged fraud. As I said in my reasons for decision on 8 December 2006, the ultimate use to be made of the documents in the Court Book was a separate issue, to be determined later according to the admissibility and probative value of the particular documents. The orders I made as to the provenance notice were an anterior step, designed to facilitate the process of discovery, which necessarily involved identification of documents which were or had been in the possession, custody or power of the banks.

58 Similarly, as I observed in my reasons on 8 December 2006, my orders of 1 September 2006 were not concerned with who might have created a subject document, as distinct from the matter of whether the banks and the plaintiff had possessed in their files documents, copies of which were in the Court Book.

59 I agree with the defendants’ submission that there should have been no dispute as to what was required by the order of 1 September 2006. It is not to be overlooked that when push came to shove, the plaintiff was (on the third attempt) able to file a notice of provenance which satisfactorily dealt with the documents in the Court Book, apart from some remaining documents dealt with later by subpoena.

60 In these circumstances, I consider that the plaintiff took a calculated, and deliberately stubborn approach to the notices relating to the provenance of documents in the Court Book.

61 As to (d), I understood this complaint to encompass the combined effect and consequences of the matters referred to in (a), (b) and (c) above. As counsel for the defendants submitted, the splitting of the case, the discovery and provenance issues, the fact that the trial went off for a year, then the further delay in 2007 while the plaintiffs prepared witness statements, all had a cumulative effect. It led to repetition of work as the defendants effectively had to prepare for trial twice and fight battles on multiple fronts. Counsel submitted that it was not enough to simply look at the particular days spent on discovery or provenance issues, or look at the time spent on the case in excess of the original 20 day estimate, and to disallow the plaintiff the costs of those days. Rather, he submitted, one had to look at the question of justice overall and, accepting that the purpose of a costs order is compensatory rather than punitive[14], ask the question what the plaintiff should be compensated for? The “rolling stone” effect of the plaintiff’s conduct, which had “inflicted so much harm and dislocation” meant that in all the circumstances it was not just that the plaintiff be compensated at all for the costs of the trial.

62 In my view, it would not be just in all the circumstances to act on the defendants’ submission and totally deny the plaintiff costs of the trial. Although the plaintiff took an obstructive approach to admitting the provenance of documents in the Court Book, in my view the defendants’ submissions overstated the extent to which that matter, combined with the splitting of the case and the extra time taken by the plaintiff to prepare witness statements in 2007, caused the trial to go off the rails. No doubt these matters contributed to the excessive length of the trial and the palpable atmosphere of frustration which pervaded at trial. Yet, more fundamentally, the dislocation and length of the trial was a result of the defendants’ failure to properly prepare their case for trial.

63 The defendants’ approach to discovery resulted in the plaintiff (or at least the plaintiff’s lawyers who also acted for the banks) being put to considerable time and expense in making discovery at the very time when the trial should have been proceeding. Nor do I overlook the fact that the defendants sought, and were permitted, to amend their pleadings on numerous occasions, with many of these amendments being made on the basis that the defendants should be permitted to incorporate in their defence further documents which they said they wished to rely on. I should also note that, as counsel for the plaintiff pointed out, documents tendered by the plaintiff accounted for only about three of the 39 volumes making up the Court Book, many of the documents the subject of the notices as to provenance were not included in the final version of the Court Book, and the plaintiff’s positive case (as opposed to the defendants’ case and cross-examination of the plaintiff’s witnesses in rebuttal) occupied relatively few of the 32 days spent at trial.

64 In short, the plaintiff was entirely successful on what was a relatively straightforward case on the guarantees. The complexity and vexation in the proceeding arose mainly in respect of the defendants’ attempt to run a defence which was unsustainable on the face of the guarantees.

65 In my view, the appropriate way to deal with costs, and that which is just as between the parties in all of the circumstances, is as follows. The plaintiff should pay the defendants their costs of and incidental to the hearings on 29 September, 17 November, 8 and 15 December 2006 (those being the hearings relating to the provenance notice after 1 September when I first ordered that a notice be filed) as between solicitor and client. It is implicit that the plaintiff bear its own costs of and incidental to those hearings. Otherwise, the defendants should pay the plaintiff’s costs of the proceeding including reserved costs but not including the costs of the second and third provenance notices filed on 18 October 2006 and 6 February 2007 respectively. That means that the plaintiff will have its costs of the discovery hearings during the trial in 2006, the subsequent directions hearings as to discovery, and the costs of the hearing on 1 September 2006 and the first notice which in my view could and should have sufficiently dealt with the matter. I consider that in all the circumstances, and bearing in mind all of the matters discussed concerning issues (a) to (d) above, the appropriate basis of taxation is not on an indemnity basis as provided for in the guarantees, but rather as between solicitor and client.

66 The final matter is the costs of subpoenas. There was no issue between the parties on this. I will order that the defendants pay the reasonable costs and expenses of HSBC and Rabo of complying with the subpoenas filed on 13 April 2006, that the plaintiff pay the reasonable costs and expenses of the defendants, Everist and Bissland of complying with the subpoenas filed on 25 May 2006, and that in default of agreement thereon the costs and expenses be taxed or assessed by the Taxing Master.

[2] The plaintiff’s submission referred to relevant authorities, which I do not set out although I have regard to them.

[3] Al Ghurair v Bustan International Pty Ltd (Receiver and Manger Appointed) [2005] VSC 461

[11] The plaintiff filed a supplementary affidavit of documents on 11 May 2006 which included documents relating to transactions between the banks and the Bustan companies.

[12] See paragraph 12 of the affidavit of Michael John O’Brien sworn 25 February 2004.

[13] When the defendants’ solicitors attended at ASIC on 7 April 2006 to inspect documents produced by the banks to ASIC, ASIC provided the defendants’ solicitors with a list of the electronic copies of the bank documents which the defendants were to inspect.

[14] See Oshlack v Richmond River Council (1998) 193 CLR 72 at 97 per McHugh J.

Supreme Court of Victoria Decisions

Permanent Trustee Company Limited v Gulf Import and Export Company & Anor (No 2) [2008] VSC 307 (20 August 2008)