Asta v Amasya [2016] VSCA 186

1 On 10 October 2013 the applicant agreed to construct an industrial facility for the respondents ('the contract'). The applicant commenced works under the contract in December 2013.

2 On or about 10 October 2014 the applicant builder served a payment claim on the respondent proprietors under the Building and Construction Industry Security of Payment Act 2002 ('the Act'). No part of the payment claim was paid by the due date for payment. Accordingly, by application dated 29 October 2014, the applicant sought adjudication under s 18 of the Act.

3 On 18 November 2014 the adjudicator determined that the payment claim was validly made under the Act ('the adjudication determination'). The claim was not paid.

4 On or about 12 December 2014 the applicant builder entered judgment against the respondents in the sum of $2,030,222.86 pursuant to s 28R of the Act. The judgment was entered according to the procedure outlined in the Act, on the basis of the adjudication determination and an adjudication certificate subsequently issued under s 28Q of the Act following non-payment of the adjudicated amount.

5 On 16 December 2014 the respondents commenced proceedings seeking judicial review under Order 56 of the Supreme Court (General Civil Procedure Rules) 2005 of the adjudication determination on a number of grounds.

6 At an initial directions hearing the applicant builder submitted that the respondents' proceedings could not be maintained because there could not be a challenge to the judgment by reason of s 28R(5)(a)(iii) of the Act. This section relevantly provides:

(5) If a person commences proceedings to have the judgment set aside, that person -

(a) subject to subsection (6), is not, in those proceedings, entitled -

...

(iii) to challenge an adjudication determination or a review determination; ...

7 The court then ordered, pursuant to r 47.04, that the following question be fixed for a separate trial:

Whether the [respondents'] challenge to the adjudication determination dated 18 November 2014 can be sustained in the light of s 28R(5) of the [Act]?

8 On 2 June 2015 Vickery J determined the preliminary question ('the preliminary question decision'). He held that a proceeding to set aside an adjudication determination made under the Act could be properly founded upon jurisdictional error, even after judgment has been entered pursuant to s 28R of the Act, and in spite of the apparent effect of s 28R(5)(a)(iii).[1]

9 In a subsequent judgment, on 18 September 2015, Vickery J found in favour of the respondents ('the judicial review decision').[2] On 14 October 2015 his Honour declared that the adjudication determination was void and ordered that it be quashed.

10 In November 2015 the applicant filed an application for extension of time for leave to appeal and an application for leave to appeal from the preliminary question decision and the judicial review decision. The extension of time was required for the application for leave to appeal the preliminary question decision.

11 In the meantime, on 20 April 2015, the respondent proprietors had referred the dispute to arbitration by serving the applicant builder with a Notice of Dispute under cl 32.1 of the contract.

12 On 7 March 2016 the arbitrator made an interim award ('the award') in favour of the applicant. In the award, the arbitrator found that the contract had been mutually abandoned and that by reason of the mutual abandonment, the applicant was entitled to claim on a quantum meruit basis for the work which it had actually performed.[3] The arbitrator found the respondent proprietors jointly and severally liable to pay to the applicant builder the sum of $977,804.78 and interest of $69,477.72 on that amount to the date of the interim award and thereafter to the date of payment at the daily rate of $254.50.[4] This sum was significantly less than the adjudicated amount ($2,030,222.86).

13 On 7 April 2016 the applicant builder filed an originating application to enforce the award under s 35 of the Commercial Arbitration Act 2011 ('the Arbitration Act').

14 On 13 April 2016 the respondent proprietors filed an originating application to set aside the award under s 34 of the Arbitration Act.

15 The two originating applications were heard before Croft J. On 17 June 2016 his Honour delivered judgment determining to enforce the award and dismissing the respondents' application to set it aside.[5]

16 Upon becoming aware of the outcome of the arbitration proceedings, this Court contacted the parties to ascertain what, if anything, they considered to be the continuing utility of the matters before the Court.

17 In correspondence with the Court the applicant submitted that the continuing utility of the applications was liability for costs and, as a matter of public importance, whether Vickery J's interpretation of s 28R(5) of the Act was correct. A mention hearing was then fixed for 7 July 2016.

18 At the mention hearing senior counsel for the applicant quickly conceded that no substantive controversy continued. Counsel for the respondents submitted that the appeal should be dismissed as it had been rendered nugatory.

19 The Court exercised its summary power to dismiss the application for extension of time for leave to appeal and the application for leave to appeal. In doing so, the court referred to the observations of Phillips JA, with whom Winneke P and Kenny JA agreed, in Leibler v Air New Zealand Ltd,[6] to the effect that the Court could decline to proceed to hear an appeal if satisfied that the subject matter had become wholly academic so that there was no live controversy between the parties.[7] Further, the Court noted that it is only in exceptional cases that leave to appeal will be granted on the issue of costs.[8]

20 The Court ordered that the question of costs on the application for extension of time for leave to appeal and the application for leave to appeal be determined on the papers after receiving written submissions from the parties. The parties each filed written submissions.

21 The respondent proprietors seek their costs up to the date of the summary dismissal, 7 July 2016. The respondents make the following submissions:

(a) Pursuant to r 64.29(4), an appellant who discontinues an appeal shall pay the respondent's costs up to the date of discontinuance, unless the court otherwise orders;

(b) The application for extension of time for leave to appeal and the application for leave to appeal were made and filed with the court during the period when the arbitrator was preparing his award. The parties always knew that the arbitrator's award was going to overtake any interim entitlements under the Act;

(c) The lack of any prospect of success in the applications is so obvious that costs should follow the usual rule.

22 The applicant builder submits that the applications were dismissed, not discontinued; that the award was not enforceable and payable until the application to set aside the award was dismissed and was not 'final' until 7 July 2016 when the respondents undertook to the Court not to appeal Croft J's orders; and that the grounds of appeal were neither reckless nor frivolous. The applicant submits that the Court should make no order as to costs.

23 The applications were dismissed by this Court. They were not discontinued by the applicant. To this end, r 64.29(4) has no operation. The Court has its usual discretion to make such order as to costs as it thinks fit: r 64.38(1).

24 A problem in dealing with arguments about costs in a case such as this is that there has been no hearing on the merits. As McHugh J pointed out in Re The Minister for Immigration and Ethnic Affairs of the Commonwealth of Australia; Ex parte Lai Qin ('Lai Qin'):[9]

In most jurisdictions today, the power to order costs is a discretionary power. Ordinarily, the power is exercised after a hearing on the merits and as a general rule the successful party is entitled to his or her costs. Success in the action or on particular issues is the fact that usually controls the exercise of the discretion. A successful party is prima facie entitled to a costs order. When there has been no hearing on the merits, however, a court is necessarily deprived of the factor that usually determines whether or how it will make a costs order.

25 In Australian Securities Commission v Aust-Home Investments Ltd,[10] Hill J summarised the following principles concerning the exercise of a court's discretion to order costs where the parties to a proceeding no longer wish to continue:[11]

(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. ...

(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.

26 In Lai Qin, McHugh J endorsed this approach:[12]

In an appropriate case, a court will make an order for costs even when there has been no hearing on the merits and the moving party no longer wishes to proceed with the action. The court cannot try a hypothetical action between the parties. ... In some cases, however, the court may be able to conclude that one of the parties has acted so unreasonably that the other party should obtain the costs of the action. ...

Moreover, in some cases a judge may feel confident that, although both parties have acted reasonably, one party was almost certain to have succeeded if the matter had been fully tried. ...

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 cost discretion will usually mean that the court will make no order as to the cost of the proceedings. This approach has been adopted in a large number of cases.

27 We do not consider that the applicant's decision to seek an extension of time and leave to appeal can be characterised as unreasonable. The arguments have not been canvassed but we have considered them sufficiently to conclude that it was unlikely that the prospects of success on the foreshadowed appeal would have been found to be fanciful.[13]

28 While the respondents are correct in submitting that the arbitrator's award always had the potential to overtake the interim entitlements under the Act, that potential did not render it unreasonable for the applicant to seek to challenge Vickery J's orders which, on a view which is at least open to argument, had the effect of depriving the applicant of significant cash flow benefits provided for under the Act.

29 Finally, senior counsel for the applicant adopted a reasonable position at the mention before us ensuring that further costs were not incurred unnecessarily.

30 On the applications before us which were dismissed on 7 July 2016 we make no order as to costs.

[1] Amasya Enterprises Pty Ltd v Asta Developments (Aust) Pty Ltd [2015] VSC 233.

[2] Amasya Enterprises Pty Ltd v Asta Developments (Aust) Pty Ltd (No 2) [2015] VSC 500.

[3] Amasya Enterprises Pty Ltd v Asta Developments (Aust) Pty Ltd (Interim Award of Michael Heaton QC, 7 March 2016) [963]-[964] ('Award') cited in Amasya Enterprises Pty Ltd v Asta Developments (Aust) Pty Ltd [2016] VSC 326 [13].

[4] Award [1067] cited in Amasya Enterprises Pty Ltd v Asta Developments (Aust) Pty Ltd [2016] VSC 326 [14].

[5] Amasya Enterprises Pty Ltd v Asta Developments (Aust) Pty Ltd [2016] VSC 326.

[6] [1998] 2 VR 525.

[7] See also Black v Rafa Pastoral Pty Ltd [2009] VSCA 295; Shire of Yarra Ranges v Russell (2009) 25 VR 560; Kennedy v Shire of Campaspe [2015] VSCA 47.

[8] See 24 Hour Fitness Pty Ltd v W & B Investment Group Pty Ltd [2015] VSCA 216.

[9] [1997] HCA 6; (1997) 186 CLR 622, 624 (citations omitted).

[10] [1993] FCA 585; (1993) 44 FCR 194.

[12] Lai Qin [1997] HCA 6; (1997) 186 CLR 622, 624-5 (citations omitted).

[13] See Kennedy v Shire of Campaspe [2015] VSCA 47.