GENERAL PRINCIPLES
24 There is no need for a trial to determine the disposition of costs. Indeed, the authorities establish that, where a case has settled or otherwise come to an end, there should not be a trial for the sole purpose of deciding the disposition of costs: see, for example, Australian Securities & Investments Commission v Kyriackou [2008] FCA 1860 at [6]; Re the Minister for Immigration and Ethnic Affairs of the Commonwealth of Australia; ex parte Lai Qin (1997) 186 CLR 622 ('Lai Qin') at 624; Chapman v Luminis Pty Ltd [2003] FCAFC 162 ('Chapman') at [7]; and Australian Securities Commission v Aust-Home Investments Ltd (1993) 44 FCR 194 at 201, where Hill J referred to the previous cases, saying:
(1) Where neither party desires to proceed with litigation the Court should be ready to facilitate the conclusion of the proceedings by making a cost order.
(2) It will rarely, if ever, be appropriate, where there has been no trial on the merits, for a Court determining how the costs of the proceeding should be borne to endeavour to determine for itself the case on the merits or, as it might be put, to determine the outcome of a hypothetical trial. This will particularly be the case where a trial on the merits would involve complex factual matters where credit could be an issue.
(3) In determining the question of costs it would be appropriate, however, for the Court to determine whether the applicant acted reasonably in commencing the proceedings and whether the respondent acted reasonably in defending them.
(4) In a particular case it might be appropriate for the Court in its discretion to consider the conduct of a respondent prior to the commencement of the proceedings where such conduct may have precipitated the litigation.
(5) Where the proceedings terminate after interlocutory relief has been granted the Court may take into account the fact that interlocutory relief has been granted. [Citations omitted.]
25 Subsequently, after quoting this passage, Finkelstein J said in Gribbles Pathology Pty Ltd v Health Insurance Commission (1997) 80 FCR 284 at 287:
[I]n the absence of a hearing on the merits it is difficult to see how any order, other than an order that each party bear its own costs, can be made except in special circumstances. To do otherwise would require some prediction of the outcome of the case. It seems to me that the third proposition stated by Hill J was intended to cover the situation where the Court was in fact able to form a clear view about the merits of a case without a trial. So, if a claim is patently hopeless that would be a good reason to make an order for costs against a claimant. Likewise if a defence was bound to fail that would be a good reason for awarding costs in favour of the claimant. But I venture to suggest that there will be very few cases where the issues will be sufficiently clear, in the absence of a hearing, for an order for costs to be made in favour of a party.
26 In Champagne View Pty Ltd v Shearwater Resort Management Pty Ltd [2000] VSC 214 at [47], Gillard J said that, whilst he would not go as far as Finkelstein J "in stating that any other order other than each party bear its own costs can only be made "in special circumstances", "[a]s a general proposition if there is no other material before the court other than the pleadings then it would be extremely difficult to make any order other than each party bear its own costs". His Honour went on to observe (at [49]) that whilst "evidence may be adduced which establishes with some degree of certainty the likely outcome of the trial", such "evidence must be confined and not venture into areas of disputed fact". In Australian Securities & Investments Commission v Kyriackou [2008] FCA 1860, Finkelstein J in fact agreed with this last-mentioned proposition, adding (at [10]):
It is a very sensible rule that where an action has been settled or is to be discontinued that costs should be determined without a trial. Not only is the trial hypothetical, in the sense that there is no longer a controversy about the substantive issues raised in the litigation, it would be extraordinary wasteful, both of the court's time and the parties' resources, to require a trial solely confined to costs.
27 In Lai Qin 625, McHugh J said that, in a case involving no hearing on the merits, "[i]f it appears that both parties have acted reasonably in commencing and defending the proceedings and the conduct of the parties continued to be reasonable until the litigation was settled or its further prosecution became futile, the proper exercise of the cost discretion will usually mean that the court will make no order as to the cost of the proceedings".
28 In Chapman at [7], Beaumont, Sundberg and Hely JJ said:
The authorities establish the following propositions in relation to the making of costs orders in circumstances such as the present:
- where a proceeding terminates before there has been a hearing, the Court should not resolve the issue of costs by engaging in something in the nature of a hypothetical trial: Australian Securities Commission v Aust-Home Investments Ltd (1993) 44 FCR 194 at 201;
- this does not mean that a Court can never make an order for costs. Often it will be unable to do so, but in other cases an examination of the reasonableness of the conduct of the parties may provide the basis for an order, or a judge may be confident that one party was almost certain to have succeeded if a matter had been fully tried: Re Minister for Immigration & Ethnic Affairs; Ex parte Lai Qin (1997) 186 CLR 622 at 625 (McHugh J);
- a distinction is to be drawn between cases in which one party, after litigating for some time, effectively surrenders to the other, and cases where some supervening event or settlement so removes or modifies the subject of the dispute that, although it could not be said that one side has simply won, no issue remains between the parties except that of costs. In the former type of case, there will commonly be lacking any basis for an exercise of the Court's discretion otherwise than by an award of costs to the successful party. It is the latter type of case which more often creates problems, since there may be difficulty in discerning a clear reason why one party, rather than the other, should be bear the costs: ONE.TEL Ltd v Deputy Commissioner of Taxation (2000) 171 ALR 227 at 231-232 (Burchett J).
29 Recently, in Australian Securities and Investments Commission v Kyriackou (2010) 76 ACSR 428, [2010] FCA 9, Goldberg J applied the principles discussed in these authorities, observing that the issues involved in Kyriackou were complex and controversial. His Honour went on to say (at [68]-[69]):
Having regard to the authorities … it is not necessary, appropriate nor desirable to resolve all these contentious issues which can only be resolved at a full trial of the proceeding when the merits of ASIC's case and the defendants' case can be investigated in detail. These contentious issues are such that at this stage, on the material and submissions before me, I am unable to say that ASIC's case was almost certain to fail or that the defendants' case was almost certain to succeed. Nor am I able to form a clear view about the merits of ASIC's case without a full trial.
There was little dispute between the parties as to the relevant principles applicable in this area, namely where there has been discontinuance or an agreement to discontinue with the question of the costs of the proceeding being left for the court. The significant difference between the parties was whether in the particular circumstances of this case an exception to the usual rule that there be no order as to costs had arisen.
Goldberg J concluded (at [75]) that this was "not one of those rare cases … where the court should determine how the costs should be borne without a trial of the contested issues" and that there were "no special circumstances … which warrant me in making any order other than that there be no order as to costs of the proceeding, so that the parties each bear their own costs of and incidental to the proceeding".
30 The fourth cross-respondent, Mr Carey, seeks to avoid this line of authorities, first, by reference to provisions of the Rules other than O 22 r 2(1)(d) and, second, by characterising KPMG's conduct as a simple abandonment of its claims against it. I reject the analysis that Mr Carey would have me make.
31 The cross-claimant has specifically applied for leave to discontinue the claim against Mr Carey pursuant to O 22 r 2(1)(d) of the Rules. It was open to the cross-claimant to do so. Order 22 r 2(1)(d) provides that a party making a claim for relief may discontinue "at any time - with the leave of the Court". The capacity of a party to apply under O 22 r 2(1)(d) is not dependent on the position that the other party takes with respect to discontinuance and costs. A party desiring to discontinue is not obliged under the Rules to proceed under O 22 r 2(1)(c) in preference to O 22 r 2(1)(d). Discontinuance under either provision raises a question of costs. If discontinuance occurs under O 22 r 2(1)(c), then, as Mr Carey notes, O 22 r 3(2) applies. Order 62 r 26 applies only when there has been a discontinuance without leave, as under O 22 r 2(1)(a), (b) or (c). It is unsurprising that there is no specific provision for the disposition of costs when O 22 r 2(1)(d) is activated, because, in such a case, the disposition of costs is in the court's discretion. I accept the cross-claimant's submission that the Rules do not compel a litigant to discontinue without leave where, as here, there is agreement between the parties with respect to discontinuance, save as to the issue of costs.
32 Furthermore, I reject Mr Carey's submission that KPMG's conduct should be characterised as a simple abandonment of the claims against him and "complete capitulation" as opposed to discontinuance on account of some supervening circumstance. It is important to recall that the claim against Mr Carey is for contribution. Contribution was sought because of the plaintiffs' claims against KPMG. The Third Party Statement of Claim filed on 27 November 2009 shows that the claim was for contribution from each of the named cross-respondents - the directors of the Mezzanine Companies - for breaches of duties owed to the Mezzanine Companies in the event that KPMG was found liable to those Mezzanine Companies. In these circumstances, there is nothing to indicate that, in instituting this cross-claim, KPMG acted other than reasonably in seeking contribution. In this context, I note that, in the Directors Actions, the Mezzanine Companies also commenced separate proceedings against the same five directors (and named cross-respondents in the main proceeding). As the cross-claimant observed, the allegations made against Mr Carey in its cross-claim are consonant with the allegations made against him in the Directors Actions. I hasten to add, however, that this is not a case in which the court could take any view about the merits of any claim. Since the plaintiffs' claims are no longer pursued against KPMG, there remains little or no point in pursuing the claim for contribution. In the circumstances set forth above, I accept that the cross-claim against Mr Carey is otiose, as the cross-claimant submits.
33 Following settlement and dismissal of the proceedings against the cross-claimant and the other cross-claims brought by the cross-claimant, with no order as to costs, and the discontinuance or dismissal of the Directors Actions with no order as to costs, I accept that the cross-claimant has acted expeditiously and reasonably to seek to discontinue its cross-claim against Mr Carey.
34 In the circumstances of this case, including that Mr Carey accepts that discontinuance is appropriate, it is no longer material that Mr Carey remains prepared to defend the claims brought against him by KPMG. By analogy with Australian Securities and Investment Commission v Kyriackou (2010) 76 ACSR 428, as the cross-claimant submits, the only genuinely live issue is the disposition of costs. Indeed, this was in truth accepted by Mr Carey's lawyers in the email correspondence to which I have previously referred.
35 The legal principles as to the disposition of costs in the present circumstances are set out in the previously mentioned authorities. In circumstances where there will be no trial on the merits, the usual rule is that the court makes no order as to costs. In this case, there are no special circumstances that warrant the court in making any different order. As noted already, there is no evidence of demonstrably unreasonable conduct on the cross-claimant's part. There are no non-complex facts that demonstrate the likelihood of a particular party's success or failure had the matter come to trial. On the contrary, as the pleadings amply demonstrated, the issues in dispute in the now discontinued or dismissed proceedings and in KPMG's cross-claim against Mr Carey were complex. The court could not now take any view of the likely outcome of a hypothetical trial. I thus accept the cross-claimant's submission that, in the circumstances of this case, it cannot be said that the cross-claimant's claim against Mr Carey was "patently hopeless to the extent that [Mr Carey] is entitled to his costs".
36 In his principal submissions, Mr Carey relied particularly on Foundation for Aboriginal and Torres Strait Islander Research Action Aboriginal Group v Minister for Aboriginal & Torres Strait Islander Affairs [2002] FCA 9 ('the Foundation Case') in which Copper J said (at [7]-[8]) that:
Where an applicant abandons its proceedings there is an underlying policy in the Rules that the discontinuing party should be liable for the other party's costs unless the Court orders otherwise …
In the present case it falls upon the applicant to persuade me that there are circumstances which would justify departure from the underlying principle. [Citations omitted.]
37 The occasion for the desired discontinuance in the Foundation Case was the delivery of judgment in Pilbara Aboriginal Land Council v Minister for Aboriginal and Torres Strait Islander Affairs (2000) 103 FCR 539 ('Pilbara Case') by Merkel J, which made it clear that the applicant in the Foundation Case was unlikely to succeed. The applicant thus determined that it wished to discontinue. This was indeed a case of abandonment of claims. The circumstances set out above make it plain enough that the present case is different, in that the rationale for the cross-claim disappeared with the resolution of the other related proceedings. It is not a case of simple abandonment as Mr Carey would have it. In any event, as the cross-claimant notes, the Foundation Case only dealt with costs arising from the date upon which the applicant advised the respondent of the decision in the Pilbara Case, whereas Mr Carey is claiming costs incurred since the date the cross-claim was instituted against him. Furthermore, an important basis for Cooper J's costs order in favour of the respondent from the date the respondent was advised of the Pilbara Case lay in Cooper J's finding that the applicant had acted unreasonably within the relevant period: see Pilbara Case at [16]. As I have said, there is no evidence that the cross-claimant has acted unreasonably or tardily after the settlement of the main proceeding to end the cross-claim.
38 Mr Carey's principal submissions also relied on the comments of Burchett J in One.Tel Ltd v Deputy Commissioner of Taxation (2000) 101 FCR 548 ('One-Tel Ltd') at 553 [6], to support the proposition that the abandonment of a case would result in costs being awarded to the non-discontinuing party. Goldberg J in Kyriackou 76 ACSR 428 considered much the same argument (at [50] et seq), noting especially that Burchett J drew a distinction between cases in which one party, after litigating for some time, effectively surrenders to the other, and cases where some supervening event so removes or modifies the subject of the dispute that, although it could not be said that one party has simply won, no issue remains between the parties except as to costs. Goldberg J applied this distinction, finding that there was no evidence showing that ASIC had surrendered its case. Instead, there was shown a long procedural history and a matter, which if it had come to trial, would have involved complex factual issues. Against this background, his Honour found (at [61]) that the parties had agreed to settle, with the result that the only remaining issue was the disposition of costs, to which the 'no order as to costs' rule applied.
39 As I have already indicated, I do not consider that the cross-claimant's application for leave to discontinue constitutes abandonment or surrendering of its claim, within the meaning of the authorities; and, in the absence of a trial, one cannot properly say that it was likely that one or other party would have been successful. Instead, in the circumstances as outlined, the only remaining issue between the parties is as to costs. This case is relevantly indistinguishable from Kyriackou 76 ACSR 428.
40 Save for one matter, there are disclosed no special circumstances that would justify the court in making any other order than that there be no order as to costs. Save for this one matter, this, then, is the order that I would propose to make.
41 The cross-claimant has sought that Mr Carey pay the costs of and incidental to this application. In support, the cross-claimant has referred the court to the emailed correspondence to which reference has already been made. This makes it plain that Mr Carey might have consented to the making of the orders sought by the motion, without the need to file and serve the motion with which the court is presently concerned. So far as the motion is concerned, the cross-claimant is entitled to its costs.
42 For the reasons stated, I would order that:
1. The cross-claimant be given leave pursuant to Order 22 rule 2(1)(d) of the Federal Court Rules to discontinue its cross-claim against the fourth cross-respondent.
2. The fourth cross-respondent pay the cross-claimant's costs of and incidental to this application.
3. There otherwise be no order as to the costs of the cross-claim.
I certify that the preceding forty-two (42) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Kenny.