FEDERAL COURT OF AUSTRALIA Sheahan, in the matter of B.C.I. Finances Pty Ltd (in liq) (No 2) [2016] FCA 566 File number: SAD 143 of 2014 Judge: YATES J Date of judgment: 23 May 2016 Catchwords: COSTS – where there is no hearing as to the merits of the proceeding – whether the conduct of the parties was reasonable – indemnity costs Legislation: Corporations Act 2001 (Cth) s 596A Cases cited: Australian Securities Commission v Aust-Home Investments Limited (1993) 44 FCR 194; [1993] FCA 585 Re Doran Constructions Pty Ltd (in liq) (2002) 194 ALR 101; [2002] NSWSC 215 Re Minister for Immigration and Ethnic Affairs; Ex parte Lai Qin (1997) 186 CLR 622; [1997] HCA 6 Date of hearing: Heard on the papers Registry: New South Wales Division: General Division National Practice Area: Commercial and Corporations Sub-area: Corporations and Corporate Insolvency Category: Catchwords Number of paragraphs: 48 Counsel for the Plaintiffs: Mr EAJ Hyde Solicitor for the Plaintiffs: Cosoff Cudmore Knox Counsel for Margaret Binetter: Mr S Golledge Solicitor for Margaret Binetter: Henry Davis York Counsel for Andrew John Binetter and associated entities: Mr DL Cook Solicitor for Andrew John Binetter and associated entities: Polczynski Lawyers ORDERS SAD 143 of 2014 IN THE MATTER OF B.C.I. FINANCES PTY LTD (IN LIQUIDATION) ACN 055 988 531 JOHN SHEAHAN AND IAN RUSSELL LOCK AS JOINT AND SEVERAL LIQUIDATORS OF B.C.I. FINANCES PTY LTD (IN LIQUIDATION) Plaintiffs MARGARET BINETTER First Other ANDREW JOHN BINETTER (and others named in the Schedule) Second Other JUDGE: YATES J DATE OF ORDER: 23 MAY 2016 THE COURT ORDERS THAT: 1. Andrew John Binetter and each of the companies identified in paragraph 1 of the affidavit of David John Edney, made 23 September 2014, and Margaret Binetter, pay the plaintiffs' costs of and incidental to obtaining access to the documents produced and marked "S2" on 7 August 2014 in answer to the order for production made 31 July 2014, on an indemnity basis. Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011. REASONS FOR JUDGMENT YATES J: 1 There is an outstanding question of costs in relation to the resolution of a disputed claim of access by the plaintiffs to documents produced under an order for production made on 31 July 2014 (the order for production) in examination proceedings conducted under s 596A of the Corporations Act 2001 (Cth). Background 2 The plaintiffs are the joint and several liquidators of B.C.I. Finances Pty Ltd (in liquidation) (BCI). BCI is a member of a group of companies which can be described as the Binetter Group. It was incorporated for the sole purpose of obtaining loans from banks resident in Israel and then on-lending the funds to other companies within the Binetter Group. Its directors included Andrew John Binetter and Margaret Binetter, each of whom was appointed on 25 January 1994. 3 In 2006, the Commissioner of Taxation commenced an audit into the affairs of various entities associated with the Binetter family, including BCI. This culminated in the issuing of a number of assessments of income tax to those entities, which resulted in objections, and gave rise to various legal proceedings, including a proceeding commenced in this Court on 12 May 2011 by BCI: NSD 626 of 2011 - B.C.I Finances Pty Limited v Commissioner of Taxation. Signet Lawyers Pty Limited (Signet Lawyers) acted for BCI in that proceeding. On 10 March 2014, the proceeding was dismissed by consent. 4 On 19 June 2014, on the application of the plaintiffs, an order was made for the examination of Mr Binetter. As I have noted, the order for production was made on 31 July 2014. This order was directed to Mark Craig Douglass of Signet Lawyers in respect of the following documents: 1. All documents which set out, record, contain evidence of or relate to the terms pursuant to which Signet acted for or advised BCI Finances (whether or not Signet was also acting for or advising any other entity pursuant to those terms). 2. All documents which set out, record, contain evidence of or relate to any amount of money (in any currency) which is or has at any time been held by or controlled by Signet either for or on behalf of BCI Finances or for the purposes (whether to secure payment for legal services and, or, disbursements, or for any other purpose) of Signet acting for or advising BCI Finances, whether alone or with any other entity or entities (whether or not those documents relate in any way to any other entity or entities). 3. All documents for the period from 1 January 2005 to date, which set out, record, contain evidence of or relate to: 3.1 any fees charged by Signet; 3.2 records of time spent by any person for or on behalf of Signet; or 3.3 disbursements incurred by Signet, for the purposes of acting for or advising BCI Finances (whether or not Signet was also acting for or advising any other entity or entities and whether or not those fees and disbursements were charged to, or paid by, BCI Finances or any other entity or entities). 4. Without limiting the categories set out above and without limitation by reference to the categories set out above, all documents prepared, received, maintained or held by Signet during the period from 1 January 2005 to date for the purpose of acting for or advising BCI Finances (whether or not Signet was also acting for or advising any other entity or entities), except for copies of documents the originals of which have already been produced by Signet to the Liquidators. 5 On 7 August 2014, documents were produced, comprising about 50 folders, which were marked "S2" at the examination. Claims of legal professional privilege were subsequently asserted in respect of a large number of the documents by Mr Binetter and Mrs Binetter. 6 On 1 September 2014, at a further examination hearing, the plaintiffs complained that the basis or bases on which the asserted claims of privilege were being advanced had not been set out. An order was then made to the effect that any person objecting to access to the documents on the ground of privilege was to file and serve an affidavit in support of that claim, setting forth the grounds and the facts relied upon, by 4.00 pm on 22 September 2014. 7 On 23 September 2014, an affidavit of Sarah Jane Worsfield was filed in respect of the claims asserted by Mrs Binetter. Ms Worsfield is a partner at Henry Davis York, the solicitors for Mrs Binetter. 8 On 24 September 2014, an affidavit of David John Edney was filed in respect of the claims asserted by Mr Binetter and by entities associated with him. Mr Edney is an employed solicitor at Polczynski Lawyers, the solicitors for Mr Binetter and 13 companies which Mr Edney described as the "Binetter Group of Companies". For the purpose of these reasons, reference to Mr Binetter's claims should be understood as including the corresponding claims of the 13 companies referred to in Mr Edney's affidavit. 9 On 11 December 2014, the matter came before me for determination of the claims for privilege and access. However, during the course of submissions made on behalf of Mr Binetter, it became apparent that a consensus could be reached between him and the plaintiffs as to access. This arrangement came to be embodied in orders made by consent on that day. Mrs Binetter, who raised her own claims of privilege, and who was separately represented on 11 December 2014, joined in the agreed arrangement. 10 It is not necessary for me to detail the respective submissions on the question of privilege. It is only necessary for me record that, on the basis of the affidavits filed, the plaintiffs did not accept that any of the documents or parts of documents for which they sought access (and in respect of which access was resisted) were covered by legal professional privilege. It is convenient to refer to those documents as the disputed documents. Nevertheless, the plaintiffs argued that, if the disputed documents were covered by privilege, then the privilege was a joint privilege shared by BCI with other companies in the Binetter Group. Accordingly, the claims of privilege could not be asserted against them as liquidators of BCI. 11 On the other hand, Mr Binetter argued that each document or part for which access was resisted was privileged and that this privilege was, at least, a joint privilege, but not one shared by BCI. Indeed, the thrust of Mr Binetter's argument was that the Court should not concern itself with the scope of the privilege because, whatever its scope, the privilege did not enure for BCI's benefit. In other words, the scope of the privilege asserted in respect of any one document was said to be one that could, arguably, be owed to all companies in the Binetter Group, but not BCI. 12 This rationale was, with respect, never satisfactorily explained, especially when the only retainer in evidence was one between Signet Lawyers and, apparently, all companies in the Binetter Group (including BCI), acting as a group. There was no evidence of individual retainers (that is, between Signet Lawyers and individual companies in the Binetter Group) and certainly no evidence of a retainer between Signet Lawyers and the Binetter Group that excluded BCI. Mr Binetter's approach tended to divert attention from the fact that, if a claim of privilege was to be asserted by him, whether on his own behalf or on behalf of entities associated with him, it was for him to make good that claim, including the identity of the person or persons entitled to the privilege. 13 It is also difficult to understand the rationale of excluding BCI from the privilege, if it exists, when the order for production called for documents that arose out of, or related to, the specific relationship between Signet Lawyers and BCI, whether alone or with other entities: see the terms of the order for production quoted at [4] above. Presumably the documents marked "S2", including the disputed documents, were produced by Mr Douglass (see [5] above) because they met the call of the order for production. 14 Nevertheless, as matters transpired, it was not necessary for the Court to determine any of the asserted claims of privilege because the parties agreed to the access arrangement to which I have referred. In fairness, I should record that Mr Binetter's counsel's approach was to urge on the Court the desirability of making orders very similar to those that were eventually agreed upon and made by consent in order to avoid requiring the Court to consider each communication (represented by a disputed document), and the circumstances surrounding that communication, to see whether it was made on a joint advice basis or not: see the observations of Campbell J in Re Doran Constructions Pty Ltd (in liq) (2002) 194 ALR 101; [2002] NSWSC 215 (Re Doran Constructions) at [64]-[81]. As Mr Binetter's counsel put the matter, the privilege claimed is a fundamental one that should not readily be abrogated for convenience sake. For completeness, I should also record that, in respect of her claims of privilege, Mrs Binetter argued that, in circumstances where ambiguity exists as to whom each disputed communication was made, it fell to the Court to review the documents concerned and to determine whether the documents identified by Ms Worsfield (see [7] above) had the character claimed. 15 Although the consent orders envisaged that, following agreement on the appropriate access arrangement, the parties might also come to an agreement on costs and file a consent order, provision was also made for the parties to file submissions on costs in the event that an agreement on costs could not be reached. As matters transpired, no agreement on costs was reached. The plaintiffs and Mr Binetter filed submissions on costs. Mrs Binetter did not file submissions on costs. The evidence on the question of costs 16 The plaintiffs filed an affidavit of Adam Scott Rosser, a partner in Cosoff Cudmore Knox, the solicitors for the plaintiffs. Mr Binetter filed an affidavit by Monique Aaliz Cowden, an employed solicitor at Polczynski Lawyers. These affidavits deal with communications between the legal advisers for the plaintiffs, and Mr Binetter and the entities associated with him, in the period 5 to 10 December 2014. 17 In summary, on 5 December 2014 counsel for Mr Binetter and the entities associated with him informed counsel for the plaintiffs that it was hoped that the question of access could be resolved by proposing orders to give effect to an arrangement under which the plaintiffs would be granted access for the purposes of inspection; Mr Binetter and Mrs Binetter would not be taken to have waived their claims of privilege; and that, provisionally, the plaintiffs would treat the documents as subject to a joint privilege (covering Mr Binetter and Mrs Binetter), reserving to the plaintiffs the right to contend otherwise on 7 days' notice. 18 On 9 December 2014, Cosoff Cudmore Knox submitted draft orders to Polczynski Lawyers which, they said, "would be acceptable to the liquidators". The draft orders reflected, broadly, the arrangement referred to above, but included an order that Mr Binetter pay the plaintiffs' costs of the application for access, fixed in the amount of $40,000. 19 On 10 December 2014 Polczynski Lawyers submitted an alternative draft which deleted the proposed order for costs. 20 Later that day, a series of telephone conversations took place between Mr Rosser and Dajana Malnersic, a partner at Polczynski Lawyers. In the first conversation, Mr Rosser said that the plaintiffs were willing to resolve the matter on the basis that the draft orders be amended to read that Mr Binetter would pay costs "as agreed or assessed". In a second telephone conversation, Ms Malnersic informed Mr Rosser that her clients were prepared to resolve the matter on the basis of the plaintiffs' draft orders "but with $10,000 for costs". In that conversation, Ms Malnersic informed Mr Rosser that she had instructions to "run the application tomorrow if our clients' offer isn't accepted, and we'll be seeking costs". In a third conversation, Mr Rosser informed Ms Malnersic that his instructions were that "Mr Binetter pay the liquidators $20,000". Mr Rosser said the offer was open for 30 minutes. In a fourth conversation, Ms Malnersic informed Mr Rosser that she did not have instructions to accept "the $20,000 costs order" but that "my client is willing to pay $15,000". In a fifth telephone conversation, Mr Rosser informed Ms Malnersic that the proposal to pay $15,000 in costs was not accepted. He repeated the offer of the plaintiffs to accept $20,000 in costs, which offer would remain open to 6.30 pm that evening. 21 Later that evening, Mr Rosser sent Ms Malnersic an email, seeking to summarise the offers and counter-offers that had been made. In her affidavit, Ms Cowden described this as "a selective history" of the attempts to resolve the dispute between the parties. 22 In her affidavit, Ms Cowden also deposed to the fact that, on 11 December 2014, at around midday, during the course of the hearing before me, Mr Rosser informed Ms Cowden that the plaintiffs were willing to "reinstate their previous offer", including that Mr Binetter pay $40,000 for the plaintiffs' costs. The plaintiffs' position 23 The plaintiffs submit that an order should be made that Mr Binetter and each of the 13 companies identified as entities associated with him, and Mrs Binetter, pay the plaintiffs' costs in connection with their claim for access to the produced documents on an indemnity basis. 24 The plaintiffs argue that it is appropriate that an indemnity costs order be made because: Mr Binetter and the entities associated with him, and Mrs Binetter, have at all times, up to an including the hearing on 11 December 2014, opposed access by the plaintiffs to all of the produced documents; the plaintiffs offered to consent to orders which would give them access to all of the produced documents on the basis that there would be no finding as to whether legal professional privilege attached to any of the documents, but on their undertaking not to disclose any of the documents to any person without giving prior written notice to Mr Binetter and Mrs Binetter; and the plaintiffs have now been given access to the produced documents without there being any finding as to whether legal professional privilege attaches to the communications represented by any of them. 25 In support of these overarching submissions, the plaintiffs submit, firstly, that all the documents produced and marked "S2" can be taken to have related to Signet Lawyers acting for or advising BCI: see my observations at [13] above. Accordingly, at least prima facie, the produced documents were documents to which the plaintiffs were entitled to have access. 26 Secondly, the plaintiffs submit that, since 7 August 2014, when the examination of Mr Binetter was before a Registrar of the Court, BCI would at least have been a party to a joint privilege in respect of the documents. In this connection, the plaintiffs submit that the only evidence before the Court on 11 December 2014 was that there was a joint retainer; that there was no evidence from any solicitor at Signet Lawyers or from any controller of the companies in the Binetter Group on this question; and that counsel for Mr Binetter accepted, on 11 December 2014, that no other retainers with Signet Lawyers were known. 27 Thirdly, the plaintiffs submit that the affidavits filed in support of the claims for privilege were insufficient to discharge the onus of establishing that the communications represented by the disputed documents were privileged communications. 28 Fourthly, the plaintiffs point to the fact that they had been denied access to the disputed documents for some four months in circumstances where, they submit, no real attempt had been made to discharge the onus of establishing that the communications represented by each of the documents was properly the subject of a claim for privilege that could be asserted against BCI. 29 Fifthly, the plaintiffs say they made several offers to consent to orders providing access which would have had the same effect as the consent orders made on 11 December 2014 in that regard. 30 Sixthly, the plaintiffs submit that they have incurred costs which, having regard to the work involved, would have been significant and exceeded, on a party-party basis, the sum of $40,000 originally claimed. 31 Finally, the plaintiffs submit that the opposition by Mr Binetter, the Binetter Group and Mrs Binetter to the access sought by the plaintiffs was, at all times, "entirely unreasonable and without any proper basis". Mr Binetter's position 32 Mr Binetter submits that the plaintiffs should pay costs. 33 He says, firstly, that even during argument on 11 December 2014, the plaintiffs would not concede that the relevant documents were subject to a joint privilege. I pause to note here that this does not accurately reflect the plaintiffs' position which was that, if indeed the produced documents were privileged—a matter which the plaintiffs said was not established on the evidence—the privilege must be a joint privilege which included BCI. 34 Secondly, Mr Binetter says that, by reason of the compromise reached, the Court was not required to rule on whether there was a joint privilege. Nevertheless, he submits: … whatever final view the Court may have come to in relation to what retainers existed, it is clear that, at the very least, that a joint retainer came into existence and, given the specific classes of documents sought by the production order (namely, documents evidencing advice and litigation services provided by Signet Lawyers), that the documents were subject to a joint privilege. 35 Thirdly, Mr Binetter then argues that, given what he says was the plaintiffs' position, the Binetter Group was compelled to incur substantial costs in reviewing 50 folders of documents for privilege and to argue the matter. 36 Fourthly, Mr Binetter says that, on a without prejudice basis, he offered an arrangement whereby the plaintiffs would be given access to the disputed documents and that, on final analysis, the consent orders made on 11 December 2014 were substantially to the effect of the arrangement he had proposed. 37 Fifthly, Mr Binetter submits that at no stage have the plaintiffs offered to treat the documents as subject to any obligation of confidentiality (because the plaintiffs have not accepted that any privilege, joint or otherwise, exists in respect of the documents) and that, as a consequence, "the Court's orders were necessary in the circumstances" to provide "a sufficient safeguard for the protection of the confidentiality attaching to the documents". 38 Mr Binetter argues that, for these reasons, the Binetter Group "achieved substantial success" against the plaintiffs, notwithstanding that the matter was resolved by a compromise. Thus, he says, "the ordinary consequence should follow" and the plaintiffs should pay costs. Consideration 39 There are a number of difficulties with Mr Binetter's position. I expressed concern about that matter at the hearing on 11 December 2014. That may have been the reason why, during the course of the hearing on 11 December 2014, the plaintiffs "reinstated" their original offer to compromise on the basis that Mr Binetter pay costs of $40,000 even though, less than 24 hours earlier, the plaintiffs were willing to compromise on the basis that Mr Binetter pay costs of half that amount. 40 On the one hand, Mr Binetter seeks to assert the existence of a joint privilege and criticise the plaintiffs for not accepting that position, with the consequence (so he argues) that the Binetter Group was put to cost and expense for which the plaintiffs should pay. On the other hand, he eschews the existence of a joint privilege, at least to the extent that BCI has the benefit of that privilege, and says that, in order for his claims of privilege to be considered properly, the Court should inspect each disputed document individually to form a view as to whom the benefit of the privilege is owed. It is important to understand that, in this connection, Mr Binetter does not say to whom, specifically, obligations of confidentiality are owed. He merely says that there is a possibility that the disputed documents represent communications which did not arise in the context of the joint retainer that was in evidence—hence, on his argument, the need for a determination to be made in respect of each disputed document. But even on this limb of Mr Binetter's argument, BCI remained, for reasons not explained, outside any joint privilege that might be shared by other companies in the Binetter Group. 41 As I have pointed out, contrary to Mr Binetter's submissions, the plaintiffs did not merely adopt the position that there was no joint privilege. On proper analysis, they embraced the existence of a joint privilege. Their argument, maintained on 11 December 2014, was that neither Mr Binetter nor Mrs Binetter had established, by evidence, the existence of legal professional privilege in respect of any disputed document, even though the produced documents can be taken to have related to Signet Lawyers acting for or advising BCI. Nevertheless, the plaintiffs said, if the documents were privileged, the privilege could only be one which BCI shared jointly with other companies in the Binetter Group. Thus, either way, the claims of privilege raised by Mr Binetter (for himself and the 13 companies) and Mrs Binetter could not be maintained against the plaintiffs as liquidators of BCI. 42 It was, of course, for Mr Binetter and Mrs Binetter to establish their respective claims of privilege on a proper evidential basis. I do not accept Mr Binetter's submission that, because of the plaintiffs' non-acceptance, such as it was, of the existence of a joint privilege, Mr Binetter and the relevant companies were put to the cost of reviewing 50 folders of documents for privilege and maintaining their claims in that regard. That submission simply cannot be sustained. It was Mr Binetter and Mrs Binetter who sought to prevent access to the documents on the ground of legal professional privilege. They were under no obligation to raise the privilege they respectively asserted. It was for them to make good their asserted claims. 43 Whilst the plaintiffs raise a number of persuasive arguments as to why the claims made by Mr Binetter and Mrs Binetter might not withstand scrutiny when the disputed documents are considered globally, the fact remains that the question of privilege in respect of each disputed document has not been determined and, indeed, may never need to be determined. The discussion of the relevant principles by Campbell J in Re Doran Constructions shows that the required determination is much more nuanced than the broad approach advocated by the plaintiffs in their submissions on costs. Further, even the plaintiffs' own approach on 11 December 2014 required each claim of privilege to be made out. Whilst they were prepared to assert the existence of a joint privilege, they were not prepared to accept that any of the disputed documents attracted the asserted privilege, contrary to the prima facie position on which they now rely. The agreed arrangement for access obviated the need for any determination on the question of privilege, whether directed to the nature of the communication involved or whether the privilege was a joint privilege and, if so, between whom. The simple fact is that there has been no hearing on the merits on these matters and it would be inappropriate for me to embark, now, on what could only be a speculative determination for the purpose of resolving the question of costs: Re Minister for Immigration and Ethnic Affairs; Ex parte Lai Qin (1997) 186 CLR 622; [1997] HCA 6 (Lai Qin) at 624-625; Australian Securities Commission v Aust-Home Investments Limited (1993) 44 FCR 194; [1993] FCA 585 at 201. 44 The agreed access arrangement embodied in the consent orders made on 11 December 2014 was, without doubt, a sensible resolution of the dispute that had arisen. That resolution could have been reached earlier but for the disagreement between the parties on the question of costs. As the facts summarised at [17]-[22] above reveal, by 9 December 2014, the relevant parties had reached substantial agreement on the access arrangement. The sticking point was costs. Thus, it can be seen that, regrettably, the hearing on 11 December 2014 was not really about access; it was about costs. Even after the Court made the consent orders on that day, the disagreement remained one about costs. Therefore, but for the dispute about costs, there was no need for the hearing on 11 December 2014. 45 In Lai Qin, McHugh J (at 625) said: 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 costs discretion will usually mean that the court will make no order as to the costs of the proceedings. This approach has been adopted in a large number of cases. 46 On the evidence before me, I am unable to form a concluded view about whether Mr Binetter and Mrs Binetter were correct as a matter of law in asserting their claims of privilege in respect of the disputed documents. Certainly, by making those claims, they were seeking to deny the plaintiffs access to documents the plaintiffs wanted for the purpose of conducting Mr Binetter's examination and, perhaps, the examinations of other persons. At some point, Mr Binetter's attitude changed; the question was no longer one of access but simply the terms on which access should be permitted. I infer that Mrs Binetter's attitude similarly changed. The reason for the change in attitude has not been given. But, whatever the reason, the change was significant. This prompts the question: if it was reasonable to permit the plaintiffs access to the disputed documents on the terms agreed on 11 December 2014, why would it not have been reasonable to permit such access at all times? Why was the position at 7 August 2014 (when documents were produced under the order for production) any different to the position as at 11 December 2014? 47 I am satisfied that, had access (on the terms agreed on 11 December 2014) been offered significantly earlier, as it could and should have been, the plaintiffs, in all likelihood, would have been prepared to accept that access, at least provisionally. Moreover, the plaintiffs would not have been put to the cost and expense of seeking access. 48 In the circumstances, I am satisfied that Mr Binetter (and the 13 companies) and Mrs Binetter acted unreasonably in seeking to deny the plaintiffs access to the disputed documents. I am satisfied, accordingly, that an order for costs should be made in favour of the plaintiffs. Further, I am satisfied that the conduct of Mr Binetter (and the 13 companies) and Mrs Binetter was so unreasonable in the circumstances that costs should be awarded on an indemnity basis. Their refusal to permit access to the plaintiffs was entirely unnecessary, as events have shown. I certify that the preceding forty-eight (48) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Yates. Associate: Dated: 23 May 2016 SCHEDULE OF PARTIES SAD 143 of 2014 Others Third Other ERMA NOMINEES PTY LIMITED Fourth Other LIGON 158 PTY LIMITED Fifth Other BINQLD FINANCES PTY LIMITED