Supreme Court New South Wales Medium Neutral Citation: Kelly; Lawrence v Scenic Tours Pty Limited [2020] NSWSC 394 Hearing dates: 26 March 2020 Date of orders: 14 April 2020 Decision date: 14 April 2020 Jurisdiction: Common Law Before: Rothman J Decision: (1) The plaintiffs, Darran Kelly and Gavin Lawrence, pay 90% of the costs of and incidental to the proceedings, including the costs of the appeal and the proceedings before Harrison AsJ; (2) The plaintiffs pay the defendant's costs incurred, if any, in the production of documents pursuant to the orders issued by the Court; (3) The costs paid as a result of the foregoing orders shall be the plaintiffs' costs in the cause in any substantive proceedings that may be commenced against the defendant, or any other person, in relation to any one or more of the river cruises identified in the Summons commencing the proceedings for preliminary discovery; (4) Otherwise the proceedings are dismissed. Catchwords: COSTS – Appeal – Costs below – substantive matter resolved – ordinary rule – effect of involvement of litigation funder – orders made. Legislation Cited: Civil Procedure Act 2005 (NSW), s 98 Uniform Civil Procedure Rules 2005 (NSW), rr 5.3(1), 42.19 and 42.20 Cases Cited: Council of the City of Sydney v Goldspar Pty Ltd [2003] FCA 769 Fordyce v Fordham (2006) 67 NSWLR 497; [2006] NSWCA 274 Hunter Development Corporation v Save Our Rail NSW Incorporated (No 2) (2016) 93 NSWLR 704; [2016] NSWCA 375 Latoudis v Casey (1990) 170 CLR 534; [1990] HCA 59 Moore v Scenic Tours (No 2) [2017] NSWSC 733 Moore v Scenic Tours Pty Ltd (No 3) [2017] NSWSC 1555 Nichols v NFS Agribusiness Pty Ltd (2018) 97 NSWLR 681; [2018] NSWCA 84 Norwich Pharmaceutical Co v Customs and Excise Commissioners [1973] UKHL 6; [1974] AC 133; [1973] 2 All ER 943 Ohn v Walton (1995) 36 NSWLR 77 Oshlack v Richmond River Council (1998) 193 CLR 72; [1998] HCA 11 Re Minister For Immigration and Ethnic Affairs; ex parte Lai Qin (1997) 186 CLR 622; [1997] HCA 6 Scenic Tours Pty Ltd v Moore (2018) 361 ALR 456; [2018] NSWCA 238 Scenic Tours Pty Ltd v Moore (No 2) [2018] NSWCA 300 Steffen v ANZ Banking Group [2009] NSWSC 883 Totalise plc v Motley Fool Ltd [2003] 2 All ER 872 Category: Costs Parties: Darran Kelly (First Plaintiff) Gavin Lawrence (Second Plaintiff) Scenic Tours Pty Limited (Defendant) Representation: Counsel: J Hogan-Doran (Plaintiffs) D S Weinberger (Defendant) Solicitors: Somerville Legal (Plaintiffs) SWS Lawyers (Defendant) File Number(s): 2019/96228 Judgment 1. HIS HONOUR: The only matter remaining, with which the Court is required to deal, is the question of costs. The issue between the parties relates to the costs of the appeal and cross-appeal, which proceedings were resolved by consent order on 18 March 2020, and the costs of the proceedings below. 2. It is necessary to set out a brief procedural history, before embarking upon a very brief recitation of any additional facts. 3. By Summons dated 27 March 2019, and filed on the same day, the plaintiffs, Darran Kelly and Gavin Lawrence, sought preliminary discovery pursuant to the Uniform Civil Procedure Rules 2005 (NSW) ("UCPR"), and in particular to r 5.3(1) for preliminary discovery. The preliminary discovery, as initially claimed, sought ten classes of documents and was supported by an Affidavit of Cameron Graham, the solicitor for the plaintiffs. 4. After a number of preliminary Directions, the matter came for Hearing, on 2 August 2019, before Harrison AsJ. On 24 September 2019, her Honour issued an order allowing preliminary discovery in four categories of documents in respect of 14 disrupted cruises, 18 probably disrupted cruises and 15 possibly disrupted cruises set out in the Affidavit of Mr Graham, to which earlier reference has been made. Her Honour reserved costs and ordered a stay of the order until 8 October 2019. 5. By Motion, notice which was filed on 18 October 2019, the defendant, Scenic Tours Pty Ltd ACN 002 715 602, sought a stay of the orders of Harrison AsJ and appealed the whole of the decision to which earlier reference has been made. The defendant/appellant alleged 10 errors in the judgment at first instance and sought orders setting aside the orders made by her Honour and for the Summons, initially filed and heard by her Honour to be dismissed. It also sought costs of the appeal and costs below. 6. On 18 November 2019, by Motion on notice, the plaintiffs cross-appealed, seeking preliminary discovery of a larger group of cruises operated, to which the four categories, allowed by her Honour, were directed, put in two alternative ways. Further, the plaintiffs also sought costs, it seems, of the appeal. The plaintiffs alleged three errors in the judgment below, some of which had sub-categories. 7. The Appeal and Cross-Appeal were listed for hearing on 26 March 2020, on which occasion the parties provided to the Court consent orders, previously provided by electronic means, which orders were made on that date. The effect of the Consent Orders was that Order 1 of the Court, issued on 24 September 2019 by her Honour, was vacated and orders, 4, 5, 6 and 8, issued by the Court, Registrar K Jones, on 26 November 2019 were also vacated. 8. The orders vacated that were originally issued by the Registrar were orders relating to the hearing of the Appeal and Cross-Appeal and Order 1 issued by Harrison AsJ was the order requiring the defendant to give preliminary discovery of certain categories of documents relating to particular cruises. Facts 1. As is obvious from the foregoing, the defendant operates river cruises and the allegation of the plaintiffs was that the river cruises did not proceed as advertised, promised or represented. It is necessary for the Court to note that the plaintiffs are supported by a Litigation Funder, the activities of which and the requirements of which were the subject of evidence before the Court. 2. On the question of costs, the plaintiffs rely upon the Affidavits of Cameron Graham, affirmed 27 March 2019, 25 November 2019 and 24 March 2020. The evidence refers to correspondence between the parties. It is necessary to deal with that in a little more detail. 3. While it is unnecessary to deal with a significant amount of the material, most of which was adduced for the purpose of the substantive proceedings, the material should be read, at least for the purpose of background. That material refers to the potential entitlement of each of the plaintiffs (Affidavit of Cameron Graham of 27 March 2019 at [21]-[88]); the cruises operated by Scenic; the effect of drought conditions on river levels, which, in turn, affected the capacity of Scenic Tours to conduct the tours as originally advertised; the nationality of passengers and a number of the cruises to which reference has been made. 4. Similar proceedings occurred, by way of representative action, in relation to the effect of a flood on river cruises conducted by the defendant: see Moore v Scenic Tours (No 2) [2017] NSWSC 733; Moore v Scenic Tours Pty Ltd (No 3) [2017] NSWSC 1555; Scenic Tours Pty Ltd v Moore (2018) 361 ALR 456; [2018] NSWCA 238; Scenic Tours Pty Ltd v Moore (No 2) [2018] NSWCA 300. Applications for special leave were filed in the High Court of Australia. The Application brought by Scenic Tours was refused and the application brought by Moore was granted and the appeal has been heard by the Full Court. The High Court has reserved judgment: see Scenic Tours Pty Ltd v Moore; Scenic Tours Pty Ltd v Moore [2019] HCATrans 189; Moore v Scenic Tours Pty Ltd [2020] HCATrans 7. 5. As is clear from the foregoing, essentially, the river tours did not occur as was expected. In the Moore proceedings, because of flood, and, in the substantive allegations for which preliminary discovery was sought in these proceedings, because of drought. 6. In the Affidavit of Cameron Graham of 27 March 2019, which was evidence before her Honour below, the circumstances giving rise to the need for preliminary discovery were outlined. The Affidavit of 27 March 2019 set out the enquiries, said to be reasonable enquiries that had been made and the results of those enquiries. 7. Those enquiries included contact and conversations by and with passengers on board a number of cruises, Internet searches and enquiries that were made of the defendant. The Affidavit makes clear that the plaintiffs intended, should substantive proceedings be instituted, to conduct a class action on behalf of the passengers (at least the Australian passengers) that were booked on certain river tours, which were unable to proceed. 8. At [473] of the Affidavit of 27 March 2019, the deponent concludes that, in his belief, the size of the class consisting of Australian passengers on board 14 of the cruises range from approximately 400 to 1200 passengers and calculates that the average amount paid by each passenger would be approximately 150% of a table set out at [474]. As a consequence of that rough estimate, the deponent calculates the average price paid by Australian passengers on the 14 cruises to be $11,000 per person. 9. There is then an estimate of the likely cost of proceedings commenced on behalf of a class that consists of 400 to 1200 group members and that is estimated to be in the vicinity of $549,900-$709,900 (plus GST). The basis for that calculation, including charge out rates is provided. 10. At [488] of the Affidavit of 27 March 2019, the deponent makes clear that the application for preliminary discovery is funded by Litigation Lending Service Ltd ("LLS"). It sets out the manager on behalf of LLS who is "managing the proceedings" and attests to the fact that LLS would provide funding for the preliminary discovery to the amount of $40,000; indemnification of the plaintiffs against any adverse costs order; and the provision of any security for costs ordered by the Court, each of which was provided in return for a first option over the funding of any proceedings arising out of the application. 11. Further, at [500] the deponent attests to the fact that LLS generally undertakes steps to determine whether it would provide funding for the proceedings and those steps include: an examination of the potential claim; assessment of that claim by litigation manager; the determination whether the claim may be worth pursuing; the obtaining of more information, if the first hurdle has been satisfied; further assessment after the obtaining of that information; if the litigation manager were to believe the claim was worth funding, the presentation of the claim to a Case Assessment Committee of LLS, with a request for funding; assessment by the Case Assessment Committee; and the approval or denial of the funding request. 12. At [507] and following, the deponent sets out the usual policy associated with representative proceedings and whether LLS will fund them. Prior thereto, namely at [506], the deponent makes clear that "if the total claim value is not at least 10 times the expected costs of the proceedings, a 100% funded action is unlikely to be viable". It is necessary to deal with some of the correspondence between the parties. 13. On 3 February 2020, the solicitors for the plaintiffs wrote to the defendant's solicitors, referring to discussions seemingly had between Counsel the week prior to the correspondence. In the course of that correspondence, the plaintiffs, through their solicitors, state: "As set out in the proposed orders, our clients are willing to discontinue their pursuit of preliminary discovery on the basis that, should representative proceedings be commenced by 31 May 2020, the costs of these proceedings will become costs in the cause of the representative proceedings. If no representative proceedings are commenced by 31 May 2020, or no further agreement is made between the parties, your client would then become entitled to their costs of the proceedings." 1. Without dealing with all the correspondence, the defendant's solicitors responded to the letter of 3 February, and a later letter, agreeing that, depending upon the commencement date of substantive proceedings, if they be commenced, the ultimate hearing before the Court on 26 March 2020 would be confined to the issue of costs. The defendant proposed orders which, apart from the question of costs, were in or to the effect of the orders made by the Court, by consent, on 26 March 2020. 2. On 10 March 2020, the solicitors for the plaintiffs wrote to the defendant, responding to its letter of 6 March 2020, making clear that they did not consent to the orders proposed. This lack of consent related to the issue of costs. 3. The letter states: "However, it appears that the parties are in agreement that no further costs should be expended in preparation for a substantive hearing of the appeal and cross-appeal, and that the hearing listed for 26 March 2020 should be used to argue the issue of costs. In those circumstances, we consider it unnecessary for the matter to be relisted, and instead propose that the parties enter into consent orders making clear that the 26 March 2020 hearing will be used for that purpose." 1. Consent Orders were proposed in the correspondence of 10 March 2020, which are the orders that eventually issued. 2. A number of aspects to the foregoing need to be restated. LLS funded the application for preliminary discovery and the costs of the plaintiffs, including any costs order against the plaintiffs. There was an Appeal and Cross-Appeal. It is clear from the Affidavits, particularly the Affidavits of Cameron Graham of 24 March 2020 and 27 March 2019, that the plaintiffs, or the litigation funder, formed the view that they no longer require preliminary discovery and the categories of documents sought will be available through the regular process of discovery, if a representative proceeding commenced: see Affidavit of 24 March 2020 at [50]. 3. Preliminary discovery has also been rendered unnecessary because, it seems, LLS no longer wished to provide funding for the immediate commencement of representative proceedings: Affidavit of 24 March 2020 at [45(a)]. Further, the application, funded by LLS, was for the purpose of determining "accurately … whether funded representative proceedings against Scenic would be viable": Affidavit of 27 March 2019 at [647]. This determination was one based, not on the issue of liability, but on an ability to estimate the financial viability, in accordance with its policies, of the representative proceedings: see Reasons for Judgment of Harrison AsJ [2019] NSWSC 1266 at [29]-[32], in which her Honour said: "[29] Mr Graham and his employer firm have estimated the costs of a representative proceeding based on the range of possible numbers of Australian paying passengers estimated at 400 to 1200, taking only Cruises 1-14 as a starting point. Their estimation puts the costs of a representative proceeding at $549,900 to $709,900 (Aff Graham, [478]). [30 The plaintiffs argue that when calculations allow for an increasing number of passengers from among the approximately 304 other cruises in 2018, scale benefits are likely to apply, such that after 800 passengers, each additional 100 passengers will require only declining additional costs (Aff Graham, [483]-[486]). By way of illustration, the total cost will be $713,307.25 for 1,000 passengers; $834,111.88 for 1,500 passengers; $887,713.54 for 2,000 passengers and $911,496.88 for 2,500 passengers. [31] Given the cost calculations, representative proceedings are likely to become viable if the class size reaches approximately just over 1,500 group members. (Aff Graham, [525]). At 2,000 passengers, assuming a 50% refund per passenger, costs would be about 8% of the total quantum of $11,055,000. [32] The plaintiffs acknowledge that there is real variability in cost estimates, especially in quantum of return. The plaintiffs argue that the more information is obtained, the greater efficiency can be achieved, as the plaintiffs' solicitors can choose cruises which were most disrupted, had the largest proportion of Australian paying customers, and had the highest likely ticket cost. However, as the class grows significantly in size, the likelihood is that litigation costs will fall well below 10% of likely quantum (Aff Graham, [540]-[545]). Mr Graham has conducted a sensitivity analysis that indicates that representative proceedings with a class size of 3,600 members, which is only 16% of his estimate of likely Australian passengers, will be viable at a 50% refund entitlement per passenger, assuming that costs are 50% higher than estimated and scale benefits are cut by two-thirds." 1. The foregoing comments are plainly based upon the Affidavit of 27 March 2019, to which reference has already been made. The estimates of the plaintiffs and the application of the policy of LLS require the conclusion that the cost of the representative proceedings is somewhere between $550,000-$710,000; the group size will be somewhere between 400 and 1200 passengers; in order for the 10% policy to be satisfied, the substantive proceedings would need an estimated claim value of between $5.5 million and $7.1 million; and the estimated claim value is approximately $4.5 million. Each of those figures derives from the Affidavits of Mr Graham. 2. It may be that the plaintiffs can receive funding for the litigation from LLS to an amount of $442,000 (Affidavit of 27 March 2019 at [518] and [519]), but the plaintiffs are not in a position to fund any part of the proceedings and LLS does not consider there is sufficient information available, presently, to determine whether it is viable to fund the representative proceedings to any greater extent (Judgment of Harrison AsJ at [33]). 3. As earlier stated, the defendant seeks its costs in the appeal proceedings and below; the plaintiffs submit that the Court should make no order as to costs of the appeal or in the Court below. Costs in the Court below, as stated, were reserved. Principles 1. The principles applicable to issues such as these are not such that that they point only in one direction. The fundamental principle, in every issue as to the Court's discretion to order costs, is that the discretion is a wide one, governed as it is by s 98 of the Civil Procedure Act 2005 (NSW) and was and is part of the inherent jurisdiction of a superior court of record. While the power to order costs is a broad one and the power contained in s 98 should be liberally construed, the discretion should be exercised judicially: Oshlack v Richmond River Council (1998) 193 CLR 72; [1998] HCA 11. 2. Most importantly, the award of costs is not intended to be a punishment, but part of the power of the Court to compensate one or other of the parties in asserting and enforcing its rights or in defending its rights for: Ohn v Walton (1995) 36 NSWLR 77. It provides compensation for the costs incurred in successfully prosecuting or defending the proceedings: Latoudis v Casey (1990) 170 CLR 534; [1990] HCA 59. 3. Where a party is legally aided, or legally funded, that fact ought not to make any difference to the application of the general principles and the fact, accepted by the Court as presently constituted, that the plaintiffs are legally aided or, more accurately legally funded, does not affect the exercise of the discretion on the issue that is now before the Court. 4. There are, however, interesting issues. On one view, each of the appeals has been discontinued (or dismissed by consent). To what extent should that affect the order for costs? 5. Further, to what extent should the Court's exercise of discretion be influenced by the proposition, again accepted by the Court as presently constituted, that the proceedings for preliminary discovery were not for the purpose of determining which, of a number, of defendants ought be the subject of suit, but, rather, whether, financially, the class-action was a viable business proposition for the litigation funder? 6. There is much to be said for the proposition, suggested in the correspondence, that, as a matter of principle, in matters such as this, the defendant should have its costs, which then become costs in the cause against any ultimate defendant, if substantive proceedings were to commence. Such an outcome would compensate the defendant in respect of the costs of preliminary discovery, in this case of a huge number of documents, yet protect the plaintiffs (and any funder of the plaintiffs) from the costs reasonably incurred in ascertaining information necessary for the commencement of the substantive proceedings. 7. However, the authorities do not lend weight to that approach. 8. First, as a matter of both form and practicality, the Appeal and Cross-Appeal were dismissed; not discontinued. Secondly, the costs of the proceedings below were reserved and the Court is required to deal with them. 9. Ordinarily, costs follow the event. The obvious justification for such a proposition rests upon the fundamental principle that costs are compensatory. 10. In the present proceedings, preliminary discovery was opposed and some, albeit limited, orders for preliminary discovery were made. It was unnecessary for the defendant to oppose the preliminary discovery in those areas that were ordered. 11. Further, those categories of documents could have been provided to the plaintiffs on request and the cost of providing them would have been required as a condition of their provision. In other words, preliminary discovery applications need not be the subject of contest. 12. There are judgments that proceed on the basis that the party against whom preliminary discovery has been sought is entitled to the costs of appearing in response to the application, but not necessarily opposing the application: see Council of the City of Sydney v Goldspar Pty Ltd [2003] FCA 769 and compare Totalise plc v Motley Fool Ltd [2003] 2 All ER 872. 13. In Norwich Pharmaceutical Co v Customs and Excise Commissioners [1973] UKHL 6; [1974] AC 133; [1973] 2 All ER 943, the Court took the view that the person against whom preliminary discovery is sought ought properly obtain the costs reasonably incurred from the successful party that has sought discovery. However, in Steffen v ANZ Banking Group [2009] NSWSC 883; which were conducted as adversarial proceedings for preliminary discovery, McDougall J took the view that, where proceedings have been conducted adversarially, there was no reason to depart from the general rule that costs should follow the event and ordered the defendant, which was required to provide preliminary discovery for most of the categories sought, to pay the costs of the plaintiff. 14. Ignoring the Appeal and Cross-Appeal for the time being, it would have to be said that the plaintiff did not obtain preliminary discovery on approximately 80 to 90% of the documents or classes of documents that it had sought. I am mindful of the comments of McHugh J at Re Minister For Immigration and Ethnic Affairs; ex parte Lai Qin (1997) 186 CLR 622; [1997] HCA 6, in which his Honour restated the fundamental rules as to the power to order costs being discretionary; the power being exercised, usually, after a hearing on the merits; and, as a general rule, the successful party being entitled to his or her costs. His Honour went on to make clear that where there has been no hearing on the merits, "a court is necessarily deprived of the factor that usually determines whether or how it will make a costs order", but it will not try a hypothetical action. That approach was adopted and applied by the Court of Appeal in Nichols v NFS Agribusiness Pty Ltd (2018) 97 NSWLR 681; [2018] NSWCA 84. 15. In Hunter Development Corporation v Save Our Rail NSW Incorporated (No 2) (2016) 93 NSWLR 704; [2016] NSWCA 375; the Court, in the judgment of Beazley P, at [40], to which Macfarlan and Meagher JJA agreed, made it clear that where, on an appeal, it becomes unnecessary to resolve the substantive matter in dispute between the parties because of an intervening circumstance, but there is a question of costs still remaining, particularly costs of the first instance proceedings, it may be appropriate for the Court to proceed to determine the substantive proceedings fully, so that the question of costs at first instance may be resolved. 16. Moreover, the Court of Appeal, McColl JA, with whom Beazley JA (as her Honour then was) agreed, in Fordyce v Fordham (2006) 67 NSWLR 497; [2006] NSWCA 274 made it clear that the default orders in rr 42.19 and 42.20 of the Uniform Civil Procedure Rules 2005 (NSW) do not create a presumption in circumstances where an appeal was discontinued or dismissed such that the plaintiff ought to pay the costs of proceedings. 17. The dismissal and discontinuance of an appeal are relevant but not determinative. Other considerations apply such as whether the parties acted reasonably in commencing and defending the proceedings and whether the conduct of parties continued to be reasonable until the matter was settled or its further prosecution became fertile: see Fordyce at [27]-[28], in which McColl JA referred to the judgment of McHugh J in Lai Qin, supra. Consideration 1. Ultimately, the issue, in the exercise of the judicial discretion reposed in the Court, is who should bear the costs of the proceedings below and which party should bear the costs of the appeal, if either? Not unusually, there are good reasons for a number of outcomes. 2. On the face of it, it seems that the defendant below, Scenic, was successful in the substantial part of the proceedings. Further, it acted reasonably in opposing the preliminary discovery in the width and to the extent it was sought. 3. Further again, given that it was preliminary discovery and there is no question associated with the substantive rights of the parties, the costs of providing the discovery, if it were provided, and the costs of defending the discovery beyond the classifications actually granted by the Court, ought to be costs that the defendant obtains in compensation for the grant of discovery and/or defending its rights. 4. On the Appeal, notwithstanding the view expressed in Fordyce, supra, it does not seem appropriate to determine the merits or otherwise of either the Appeal or the Cross-Appeal. Since there was both an Appeal and a Cross-Appeal, each of which was dismissed, it seems most appropriate for the costs of the appeal proceedings to fall in the same way as the costs of the proceedings below. 5. It would seem to me appropriate that, should substantive proceedings be commenced, the costs incurred in the preliminary discovery should be costs that are recovered or recoverable if the plaintiff were to be successful in those substantive proceedings. That view is based upon the proposition that the plaintiffs have acted reasonably in seeking preliminary discovery, even where that preliminary discovery is sought for the purpose of determining whether it is financially viable to conduct the litigation. 6. As a consequence of the foregoing, the Court makes the following orders: 1. The plaintiffs, Darran Kelly and Gavin Lawrence, pay 90% of the costs of and incidental to the proceedings, including the costs of the appeal and the proceedings before Harrison AsJ; 2. The plaintiffs pay the defendant's costs incurred, if any, in the production of documents pursuant to the orders issued by the Court; 3. The costs paid as a result of the foregoing orders shall be the plaintiffs' costs in the cause in any substantive proceedings that may be commenced against the defendant, or any other person, in relation to any one or more of the river cruises identified in the Summons commencing the proceedings for preliminary discovery; 4. Otherwise the proceedings are dismissed. ********** DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 01 May 2020