Consideration
14 Before the primary judge, the appellants succeeded in securing:
(1) An order providing for the consolidation of the two Arasor proceedings in her Honour's docket;
(2) The Court's approval in respect of certain minor amendments to their pleading; and
(3) The Court's acceptance in principle that it was open to the appellants to plead market-based causation in respect of their claims based upon the respondents' alleged misleading and deceptive conduct in respect of two prospectuses and several Financial Statements although the primary judge also observed in respect of these claims that they had not been adequately pleaded.
15 Before her Honour, the appellants failed in their argument that direct or individual reliance was not a necessary integer of the claims which they sought to make pursuant to s 728 and s 729 of the Act. Her Honour took the view that such reliance was a necessary element of such a claim and therefore held that, unless such reliance was pleaded and the claims thereby confined to claims where direct reliance was able to be pleaded and established, leave to amend should be refused. This is the matter in respect of which we disagreed with the primary judge.
16 The primary judge did not deal with the question of costs in her Reasons for Judgment published on 23 December 2014. At [126] of those Reasons, her Honour said that she would afford to the parties an opportunity to be heard on the question of costs.
17 Then, on 24 December 2014, her Honour made an order requiring the parties to confer on the issue of costs. She also fixed a date for any necessary argument in respect of costs in the event that agreement could not be reached.
18 On 4 March 2015, the primary judge heard argument in respect of the orders to be made in light of her Reasons for Judgment and in respect of costs. On that occasion, Counsel who appeared for the appellants sought an order reserving the costs of the Interlocutory Application filed by the appellants on 21 March 2014. He accepted that the costs thrown away by the orders for consolidation and the minor amendments allowed by the Court should be paid by the appellants. Otherwise, he submitted that costs should be reserved. The respondents argued that they should have their costs of the appellants' Interlocutory Application because her Honour had disallowed the amendments by which they had sought to raise market-based causation. At the conclusion of argument, her Honour said (p 17, ll 4-17):
HER HONOUR: Okay. Beguiling as Mr Hyde's submissions usually are, I don't think he's won on these ones. I do consider that it is appropriate to order that the applicants pay the costs in respect of each of the heads that you've identified. For the reasons that even though I made orders that would permit consolidation, in light of the concessions that were ultimately made by the applicant, I don't think that the opposition was unreasonable to the pleading as originally propounded. I always have a difficulty when parties finally make a concession - in essence punishing it - but it isn't a punishment, it's, I think, an indication that it would have been appropriate for there to have been an earlier coming to the realisation that some of those issues needed to be dealt with in terms of time.
MR HYDE: May it please the court.
HER HONOUR: I realise sometimes it only comes out in argument, but at the end of the day I think that opposition wasn't an unnecessary or futile opposition.
19 It seems from that extract that her Honour was of the view that the respondents' opposition to the proposed amendments was neither unnecessary nor futile.
20 It also seems that her Honour considered that the result of the applications before her as summarised at [14]-[15] above warranted an order for costs against the appellants in favour of the respondents. As a result, on 6 March 2015, her Honour ordered the appellants to pay the respondents' costs thrown away as a consequence of the consolidation of the two proceedings before her and also as a consequence of the minor agreed amendments contained in the Consolidated Statement of Claim. She also ordered the appellants to pay the respondents' costs of and incidental to the Interlocutory Application filed on 21 March 2014.
21 On 29 June 2015, at the conclusion of the hearing of the appeal, the Full Court ordered a variation to Order 6 made by the primary judge on 6 March 2015 (the costs thrown away order) but reserved for further consideration the question of whether Order 7 made by her Honour should stand, be set aside or be varied. That order was in the following terms:
The Applicants are to pay the Respondents' costs of the interlocutory application filed 21 March 2014 as agreed or assessed.
22 In their Written Submission directed to the question of the costs of the application below, the appellants submitted that the Full Court should set aside Order 7 made by the primary judge on 6 March 2015 and, in lieu thereof, make an order requiring the respondents to pay 75% of the appellants' costs of that application. The appellants submitted that costs should follow the event. They submitted that, in light of the outcome of the appeal and the other successes which they had before the primary judge, they had won the day. They accepted that a discount of 25% was warranted because there were arguably some technical defects in the pleading that had been propounded before the primary judge which had been remedied by the ASC.
23 The second to fourth respondents argued that the Full Court should not disturb Order 7 made by the primary judge on 6 March 2015. They submitted that the appellants ultimately only succeeded on appeal on a pleading that had never been placed before the primary judge and that the pleading that was before the primary judge was deficient. They said that the changes to the pleading reflected in the ASC were substantial. These respondents also argued that their position as to the date when the amendments embodied in the ASC were to take effect was vindicated by the Full Court's decision on that point on appeal and that the appellants had adopted an unreasonable stance before the primary judge in relation to this point.
24 The other active respondents made similar submissions.
25 In Kazar (Liquidator) v Kargarian (2011) 197 FCR 113, the Full Court explained the considerations which generally should guide the proper exercise of the Court's discretion to award costs in favour of one party against another pursuant to s 43 of the Federal Court of Australia Act 1976 (Cth). At 115-116 [4]-[9], Greenwood and Rares JJ said:
4 Although the discretion to award costs is unconfined or "absolute and unfettered" (Latoudis v Casey (1990) 170 CLR 534 per Dawson J at 557) the discretion must be exercised judicially, that is, according to relevant considerations, and take account of the contextual features and facts of the litigation. Although the discretion is unconfined or unfettered, the exposed reasoning explaining the factors informing the exercise of the discretion might reveal factors taken into account extraneous to the objects adopted by the legislature in conferring the statutory power and in that respect, plainly enough, the discretion is not "at large" (Water Conservation and Irrigation Commission (NSW) v Browning (1947) 74 CLR 492 at 505 per Dixon J).
5 Although the discretion is said to be unconfined, absolute and unfettered, the public interest in the quelling of controversies and the administration of justice is secured by recognising that the discretion ought to be exercised according to settled principle. Settled principle guides the exercise of the discretion and recognises that the modern embodiment of the post Judicature Act discretion as to costs has escaped "arterial hardening" (Oshlack v Richmond River Council (1998) 193 CLR 72 per Gaudron and Gummow JJ at [38]) and has avoided elevating guiding principles into narrow legal rules controlling the exercise of the discretion (Norbis v Norbis (1986) 161 CLR 513 at 537 per Brennan J; Wilson and Dawson JJ at 533). Because settled principle merely guides the exercise of the discretion, there is no automatic or absolute rule controlling the exercise of the discretion to the effect that costs always follow the event. Nor is there an automatic or absolute rule that in the absence of disentitling conduct, a successful party is to be compensated by an unsuccessful party. Moreover, the jurisdiction conferred by s 43(1), exercised by reference to the broad discretion conferred by s 43(2), is not constrained by any rule that there is no jurisdiction to order a successful party to bear the costs of the unsuccessful party (Oshlack per Gaudron and Gummow JJ at [40] and [41]). As their Honours observe at [41] in Oshlack, there is nothing surprising or remarkable about the absence of hard arterial propositions in construing the scope of the discretion as the discretion must take account of the "myriad circumstances presenting themselves in the institution and conduct of litigation, and to the very nature of litigation" within the scope of the Court's jurisdiction. See also Probiotec Ltd v University of Melbourne (2008) 166 FCR 30 per Finn J at [1]; Rares J at [45]-[52] and Besanko J at [82] subject to the observations at [83]-[92].
6 Some of the important principles however which guide the exercise of the discretion are reflected in the unifying judgment of Gleeson CJ, Gummow, Hayne and Crennan JJ in Foots v Southern Cross Mine Management Pty Ltd (2007) 234 CLR 52 at [25]-[34]. Their Honours observe at [25] that the award of costs is "discretionary but generally that discretion is exercised in favour of the successful party" (emphasis added). Of course, there are no automatic or absolute rules atrophying the true underlying scope of the discretion.
7 The operation of the pre judicature system with respect to costs infuses the approach to the flexibility of the discretion in the post Judicature Act environment and particularly in the modern treatment of costs applications operating under rules which are the genetic descendents of the Judicature Act provisions (such as s 43 of the Federal Court Act). In reflecting upon the practice of the High Court of Chancery (as described in Daniell's Practice of the High Court of Chancery, 5th Ed (1871), Vol 2, p 1239) and the discretionary nature of the award of costs in that Court, Gleeson CJ, Gummow, Hayne and Crennan JJ observe at [34] in Foots that the discretion historically was not inflexibly constrained by the rule of awarding the costs of the suit to the successful party but that the Court would, in exercising the discretion to award costs, take into consideration the circumstances of the particular case before it or the situation or conduct of the parties.
8 The practice guiding the exercise of the discretion was that the Court of Chancery did not regard the awarding of costs as a penalty or punishment but merely a necessary consequence of a party having created litigation in which the party had failed. Daniell's Practice also recognised that the Court was "generally, governed by certain fixed principles which it [had] adopted upon the subject of costs, and [did] not, as was frequently supposed, act upon the mere caprice of the Judge before whom the [controversy happened] to be tried" (Foots at [34]). In other words, without subsuming the discretion within inflexible rules, the discretion would be exercised according to broad settled principle as described. Having observed these matters about the practice of the Chancery Court, their Honours concluded those remarks by observing at [34] that "[t]he similarity with the modern treatment of costs applications will be readily apparent".
9 The exercise of the discretion takes account of all of the contextual circumstances of the litigation and the conduct of the parties. One aspect of the award of costs is a recognition that a party has been put to expense which, taking account of the merits as ultimately found on the trial of the action, might otherwise have been avoided. That consideration does not infuse the award of costs with any sense of penalty or punishment but simply recognises the compensatory nature of an award of costs, in context and according to principle. That is why an award of costs, although involving the exercise of a discretion, generally favours the successful party. As to the importance the community attaches to legal costs incurred of and incidental to the resolution of controversies before courts, see Clark v Federal Commissioner of Taxation [2010] FCA 415 at [90]; Uniline Australia Ltd v SBriggs Pty Ltd (No. 2) (2009) 82 IPR 56 at [38]; and Sagacious Legal Pty Ltd v Wesfarmers General Insurance Ltd [2011] FCAFC 53 at [130]-[132].
26 In the same case, at 124-125 [44]-[47], Foster J said:
44 Section 43 confers a broad discretion on the Court to award costs. Costs do not automatically follow the event (Foots v Southern Cross Mine Management Pty Limited (2007) 234 CLR 52 at [26] and at [34] per Gleeson CJ, Gummow, Hayne and Crennan JJ; Oshlack v Richmond River Council (1998) 193 CLR 72 at [63] per McHugh J). This is reinforced by the terms of s 43(3). The amplitude of the Court's discretion to order costs is illustrated, but not constrained, by the specific instances listed in s 43(3).
45 This Court's discretion as to costs must be exercised judicially and with due regard to precedent, established principle and factors directly connected with the litigation (Oshlack at [65] per McHugh J). The discretion must not be exercised arbitrarily, capriciously or so as to frustrate the legislative intent (Oshlack at [22] per Gaudron and Gummow JJ). As Gaudron and Gummow JJ went on to say in Oshlack at [22]:
… the discretion conferred is … unconfined except insofar as "the subject matter and the scope and purpose" of the legislation may enable an appellate court to pronounce the reasons given by the primary judge to be "definitely extraneous to any objects the legislature could have had in view" (Water Conservation and Irrigation Commission (NSW) v Browning (1947) 74 CLR 492 at 505).
(See also the observations of the plurality in Foots at [34] where their Honours cited a passage from Daniell's: Practice of the High Court of Chancery (5th ed, 1871) with apparent approval).
46 The successful party should, generally speaking, have the benefit of an order for costs in his or her favour (Foots at [25] per Gleeson CJ, Gummow, Hayne and Crennan JJ; Oshlack at [66]-[68] per McHugh J). Costs are awarded to indemnify the successful party to some extent against his or her outlays on costs, not by way of punishment of an unsuccessful party (Oshlack at [1] per Brennan CJ and at [67] per McHugh J).
47 At [134] in Oshlack, Kirby J made some general remarks concerning the way in which statutory provisions giving a court a broad discretion in respect of costs (such as s 43 of the Federal Court Act) should be interpreted and applied. The following propositions relevant to the present case may be extracted from his Honour's observations at [134]:
(a) In civil non-jury trials, a successful party, in the absence of special circumstances, has a reasonable expectation of obtaining an order for costs in its favour unless for some reason connected with the case a special and different order is warranted (subpar (2) of [134]);
(b) Notwithstanding that the statutory prescription gives to the Court a broad discretion, that discretion should be exercised in accordance with established guidelines referable to the considerations of which the Court should generally take account (subpar (3) of [134]); and
(c) Costs generally follow the event in order to give effect to the notion that orders for costs are intended to provide a partial indemnity for outlays made by the successful party (subpar (4) of [134]).
These remarks may be compared with the observations of McHugh J in his dissenting judgment in Oshlack at [69]-[70]. In those paragraphs, his Honour explained that the courts have, for some time, been quite firmly in favour of the proposition that the successful party should have his or her costs paid by the unsuccessful party and that the benefit of that "usual" order for costs would only be denied to the successful party if he or she was guilty of disentitling conduct or if some other exception to the usual order could be invoked. In the passages referred to, it may be that his Honour adopted an overly rigid view in favour of "the usual order for costs" when regard is had to the views of the majority in Oshlack and the plurality in Foots. Nonetheless, an order for costs in favour of the successful party will very often be a sound exercise of the Court's discretion as to costs.
27 Before the primary judge, the appellants succeeded in respect of the matters summarised at [14] above. Before her Honour, they failed on the market-based causation point in respect of claims made pursuant to s 728 and s 729 of the Act although, at the level of principle, they succeeded on that point in respect of the misleading and deceptive conduct case based on other statutory provisions under the Act, the ASIC Act and the FTA. Her Honour also took the view that the proposed pleading propounded before her suffered from technical pleading defects.
28 On appeal, the appellants succeeded on the point of substance concerning market-based causation and resolved all other matters effectively by consent. We have held that her Honour should have allowed the Rejected Amendments. Had she done so, the pleading defects would then have been remedied, as they were on appeal.
29 In our view, the appellants have substantially succeeded in the claims for relief made in the Interlocutory Application filed on 21 March 2014. We see no reason why costs should not follow the event. However, given that the appellants accept that they should not have all of the costs of the application before the primary judge, we will apply a discount in order to reflect the circumstance that there were defects in the pleading propounded before the primary judge which could have and should have been remedied before the hearing of the application before her Honour. Having regard to the guidance given by Kazar and to the concessions made by the appellants in their Written Submission, we think that the discount of 25% suggested by the appellants is appropriate.
30 Accordingly, we will set aside Order 7 made by the primary judge on 6 March 2015 and, in lieu thereof, make an order that the active respondents pay 75% of the appellants' costs of the hearing below.
I certify that the preceding thirty (30) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justices Gilmour and Foster.