Australian Securities and Investments Commission v TerraCom Limited

1. I gave judgment in these proceedings concerning the claim against the second to fifth defendants on 4 July 2025: Australian Securities and Investments Commission v TerraCom Limited [2025] FCA 726 (the Judgment). I set a timetable for the filing and service of affidavits and written submissions on the question of costs and I expressed a tentative preliminary view at [129] that, properly advised, ASIC should have known that the proceedings against the second to fifth defendants had no realistic chance of success, except perhaps in relation to some minor aspects which would not have significantly affected the amount of costs incurred by the second to fifth defendants.
2. The second to fifth defendants seek their costs on the indemnity basis, either (a) for the whole of the proceedings, or (b) in the case of the second and fifth defendants, from the date of the mediation conducted on 24 April 2025, or (c) from the date of expiry of an offer of compromise being 19 June 2025. Their ultimate fall-back position is that they should be awarded costs on the ordinary basis. The second to fifth defendants also seek costs on a lump sum basis, and have provided cogent evidence as to the calculation of the lump sum on each of the proposed bases.
3. ASIC accepts that it should pay the second to fifth defendants' costs:

(a) from the date of commencement of the proceedings up to 19 June 2025 on a party-party basis; and

(b) from 19 June 2025 on the indemnity basis.

1. ASIC also agrees to pay the second to fifth defendants' costs in a lump sum fixed under r 40.02(b) of the Federal Court Rules 2011 (Cth) in the amounts proved by each of the second to fifth defendants (as at 18 July 2025 when the second to fifth defendants filed their initial affidavits on costs) relating to the division between party-party and indemnity costs referred to in the previous paragraph, namely:

(a) in relation to the second defendant (Mr McCarthy), the amount of $1,284,525.60;

(b) in relation to the third and fourth defendants (Mr Boom and Mr Ransley), the amount of $1,356,063.44; and

(c) in relation to the fifth defendant (Mr King), the amount of $1,029,623.21.

1. The second to fifth defendants filed further affidavits on 11 August 2025 updating their costs calculations to take into account costs incurred up to 11 August 2025 which had not previously been taken into account. These additional costs were incurred after 19 June 2025, and thus should be assessed on the indemnity basis. The supplementary evidence proceeds on the basis that solicitors' fees should be assessed at 95% of costs actually incurred, and disbursements (including counsel's fees) should be assessed at 100% of costs actually incurred. The additional figures, which I accept as appropriate, are as follows:

(a) in relation to the second defendant (Mr McCarthy), the amount of $56,472.68;

(b) in relation to the third and fourth defendants (Mr Boom and Mr Ransley), the amount of $42,844.74; and

(c) in relation to the fifth defendant (Mr King), the amount of $52,798.80.

1. Those amounts do not include interest on costs, which was initially (but is no longer) claimed by Mr McCarthy and appears still to be claimed by Mr King under s 51A(1)(a) of the Federal Court of Australia Act 1976 (Cth). I accept ASIC's submission that s 51A(1)(a) does not confer power to order interest on costs, as the Full Court held in Flower & Hart v White Industries (Qld) Pty Ltd [2001] FCA 370; (2001) 109 FCR 280 at [57]-[59], [63]-[64] and [76]-[77] (Drummond, Dowsett and Hely JJ), which was followed in Spedding v Nobles (No 2) [2007] NSWCA 87 at [16]-[17] (Basten JA, with whom Beazley and McColl JJA agreed). That position is consistent with the principle subsequently upheld by the High Court that, given the costs of legal proceedings are in the discretion of the Court, until an order for payment of costs is made, there is no obligation or liability to pay them, there is no right to recover them and they do not constitute a contingent claim: Foots v Southern Cross Mine Management Pty Ltd [2007] HCA 56; (2007) 234 CLR 52 at [35]-[36] (Gleeson CJ, Gummow, Hayne and Crennan JJ).
2. The main issue is whether indemnity costs should be payable for the period from the commencement of the proceedings up to 19 June 2025. The second to fifth defendants submit that the circumstances satisfy one or more of the recognised categories of case for indemnity costs as expressed by the Full Court in Melbourne City Investments Pty Ltd v Treasury Wine Estates Ltd (No 2) [2017] FCAFC 116 at [5] (Jagot, Yates and Murphy JJ), namely (i) where allegations are made which ought never to have been made; (ii) where the case is unduly prolonged by groundless contentions; (iii) where the applicant, properly advised, should have known that it had no chance of success; and (iv) where the applicant persists in what should, on proper consideration, be seen to be a hopeless case.
3. ASIC relies on the reasons of Wigney J in Australian Competition and Consumer Commission v Colgate-Palmolive Pty Ltd (No 5) [2021] FCA 246; (2021) 151 ACSR 26 (ACCC v Colgate-Palmolive), which helpfully set out the relevant principles at [6]-[18]. Justice Wigney rightly observed that the descriptions of the types of cases in which an indemnity costs order may be warranted (which are relied upon by the second to fifth defendants in the present case) use expressions which suggest a high degree of certainty concerning the deficiencies in the losing party's case, and it is not sufficient to establish that the losing party's case was simply weak or tenuous: at [11]. His Honour also observed that the deficiencies must be sufficiently manifest and clear such that it can be inferred that the losing party would or should have appreciated them when the action was commenced or continued, at least if they had given proper consideration to, or been properly advised about, the merits of their case: at [11]. His Honour also cautioned against reasoning with the benefit of hindsight: at [12].
4. ASIC also submits that there are additional considerations bearing upon the determination of applications for indemnity costs orders against regulators, citing Australian Competition and Consumer Commission v Leahy Petroleum Pty Ltd [2007] FCA 1844 at [24], in which Gray J referred to the significant public responsibilities of the ACCC, and said that excessive readiness to force the ACCC to compensate the winning party to a greater extent than the normal party-party costs incurred might operate as a deterrent to the ACCC against bringing proceedings in the exercise of its public functions. ASIC also relies on the comment by White J in Australian Competition and Consumer Commission v Australian Egg Corporation Ltd [2016] FCA 447 at [60], to the effect that Gray J's observations in relation to regulators remain pertinent.
5. In ACCC v Colgate-Palmolive at [15], Wigney J said that caution must be exercised before elevating such observations to a general principle that regulators occupy a special position when it comes to the consideration of orders for indemnity costs. His Honour said that while, on the one hand, it would obviously be generally undesirable to deter the ACCC from bringing proceedings in the exercise of its public function, on the other hand, the ACCC should generally be deterred from commencing or pursuing proceedings if they are such that the ACCC ought to have realised that they were doomed to fail. His Honour said that the Court should generally be slow to infer, in the absence of fairly compelling facts and circumstances, that a regulator charged with important statutory functions and duties would commence or pursue penalty proceedings in enforcement of regulatory legislation in such circumstances. His Honour also noted that a regulator which chooses only to pursue easy cases and easy targets would not be doing its job, and the public responsibilities of regulators mean that they must on occasion pursue hard cases: at [18].
6. In my view, there is no general principle to the effect that regulators occupy a special position in relation to orders for indemnity costs. ASIC has very substantial executive power and litigious resources which must be used responsibly, and orders for indemnity costs provide one way of holding ASIC accountable. If ASIC decides to conduct litigation which is doomed to fail because of some ultimate policy objective, it should generally face the risk of indemnity costs in the same way as any other litigant. The consequences of such litigation for wrongly accused parties (in terms of the expense of money and time, personal strain and obstacles to business or career progression) are at least as great where the claimant is a regulator as they are where the claimant is a commercial entity. Further, it is clearly in the public interest, consistently with ASIC's statutory obligations, that decisions about the institution of civil penalty proceedings be made with care: Australian Securities and Investments Commission v Lindberg (No 2) [2010] VSCA 19; (2010) 26 VR 355 at [51] (Maxwell P, Buchanan and Weinberg JJA). That said, there may well be particular features of cases which arise because the proceedings are brought by a regulator, and those particular circumstances may well need to be taken into account. An example is provided in the reasons of Allsop J (as his Honour then was) in Australian Competition and Consumer Commission v Baxter Healthcare Pty Ltd [2005] FCA 860 at [12], where his Honour said, in the context of an application for indemnity costs against the ACCC based on the ACCC's rejection of an offer of compromise, that a rejection of an offer in a civil penalty case brings with it considerations of public responsibility for the administration of an important piece of Commonwealth legislation that do not apply to an offer in a civil suit. As Wigney J said in ACCC v Colgate-Palmolive at [16], the point Allsop J was making (at [8]) was that the nature of penalty proceedings, involving as they often do important questions of public policy arising from the enforcement of regulatory legislation, does not make them as amenable to commercial settlement as ordinary civil litigation, and the issues involved in such litigation extend well beyond commercial considerations.
7. The ultimate question in the present case is whether the circumstances meet the demanding tests as to certainty of outcome so as to justify an order for indemnity costs, rather than the case simply being weak or tenuous. I regard that issue as finely balanced, especially in circumstances where ASIC could not have anticipated whether the second to fifth defendants would give evidence until ASIC had closed its case. Bearing in mind that at least some of the deficiencies dealt with in the Judgment arose from flaws in ASIC's pleading and the insufficiency of its affidavit evidence, the effect of which might conceivably have been lessened by closer attention to those matters, the absence of correspondence by the second to fifth defendants pointing out the weaknesses in ASIC's case is a material factor. In the particular circumstances of the present case, I do not regard the circumstances as meeting the demanding tests for indemnity costs in the absence of such correspondence. I note that similar reasoning was adopted in Australian Competition and Consumer Commission v Amcor Printing Papers Group Ltd [2000] FCA 163 at [23], in which Sackville J said in relation to a claim for indemnity costs (which was made independently of reliance on offers of compromise) that the relevant respondents had not sufficiently driven home the weaknesses of the ACCC's case to warrant an order for indemnity costs. Correspondence of that kind is not always required in order to support an order for indemnity costs, but I respectfully agree with Sackville J's general proposition (at [23]) that the more specific a party is in identifying the insurmountable obstacles said to be faced by his or her opponent in litigation, the greater the likelihood that an order for indemnity costs will be made if the obstacles prove to be insurmountable. In saying that, I am not being critical of the second to fifth defendants for not having conveyed to ASIC the deficiencies in its pleading and evidence. There was clearly a large measure of tactical prudence in deciding not to interrupt opponents who were persistently engaged in making fundamental mistakes. Nor am I saying that wrongly accused defendants have an obligation to alert ASIC to the weaknesses in ASIC's case, that being a matter for which ASIC itself must accept responsibility. However, in the particular and finely balanced circumstances of this case, in my view the price to be paid for remaining silent is that the second to fifth defendants are not entitled to indemnity costs for the period up to the expiry of their offer of compromise.
8. Counsel for Mr McCarthy also submits that, in an interlocutory judgment relating to legal professional privilege, Stewart J observed that one of the pleaded representations concerning the February Announcement did not correspond to what the announcement said: TerraCom Ltd v Australian Securities and Investments Commission [2022] FCA 208; (2022) 401 ALR 143 at [55]. However, his Honour's earlier reasoning on that particular point at [25] (to which cross-reference was made in [55]) was perhaps more equivocal, and in any event the observation dealt only with one particular aspect of ASIC's pleading.
9. I do not see that the mediation on 24 April 2025 gives rise to a claim for indemnity costs. There is (entirely properly) no evidence as to what was communicated between the parties at the mediation in view of the privilege in those communications.
10. Finally, I note for completeness that ASIC relies on the fact that ASIC was advised by experienced senior counsel. I do not regard the seniority of a party's legal advisers as a relevant matter in deciding whether an indemnity costs order should be made.

I certify that the preceding fifteen (15) numbered paragraphs are a true copy of the Reasons for Judgment of the Honourable Justice Jackman.