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[2003] FCAFC 162
respondent. Ordered that Kebaro Pty Ltd pay the costs of the third and fourth respondents of and incidental to the Notice of Motion filed on 20 November 2002, and that Kebaro Pty Ltd pay the costs of this...
Appellants discontinued their appeal and so were liable for respondents' costs. The respondents sought to join Kebaro to make it jointly and severally liable for costs. After this Court's earlier decision in Kebaro v Saunders removed Kebaro's resistance, Kebaro acknowledged liability and the respondents abandoned their claim for indemnity costs. The Full Court held Kebaro had effectively surrendered on costs and ordered Kebaro to pay the third and fourth respondents' costs of the Notice of Motion and of the application.
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1,758 words · generated 23/06/2026
This Full Court decision resolves a residual costs dispute arising after appellants discontinued an appeal. On 15 November 2002 the appellants filed a Notice of Discontinuance of the appeal fixed for 18 November 2002, and by operation of the Federal Court Rules (Cth) O 51 r 19(1A), (3) the appellants became liable to pay the respondents' costs occasioned by the appeal (Reasons [2]). The third and fourth respondents then filed a Notice of Motion on 20 November 2002 seeking, among other things, that Kebaro Pty Ltd be joined as a party for the purpose of making Kebaro jointly and severally liable for the respondents' costs of the appeal, and that the respondents be completely indemnified for their costs except as to unreasonable amounts (the motion framed indemnity-style relief) (Reasons [3]).
No linked legislation citations have been extracted yet.
On 12 March 2003 Beaumont J, sitting for the Full Court, made consent orders: the appellants were to be liable for costs of the appeal taxed party/party, and Kebaro was to pay respondents' costs of the appeal on a joint and several basis; liberty to apply was reserved on the costs of the Notice of Motion (Reasons [4]). The parties could not agree as to those outstanding costs, and written submissions were filed and taken on the papers. The Full Court then delivered reasons and ordered Kebaro to pay the costs of the third and fourth respondents of and incidental to the Notice of Motion filed on 20 November 2002, and ordered Kebaro to pay the costs of the application (Orders; Reasons [8]).
Key factual trigger: Kebaro initially resisted liability for costs, but after this Court's judgment in Kebaro v Saunders (10 February 2003) which affirmed a third party costs order at trial against Kebaro, Kebaro acknowledged liability and the respondents abandoned their claim for indemnity costs (Reasons [6]). The Full Court treated that development as an effective surrender by Kebaro on the costs issue and exercised its discretion to make a costs order against Kebaro (Reasons [8]).
The Court’s decision rests on two linked propositions drawn from authorities and applied to the case facts.
First, the Court reiterates the well-known caution that, where a proceeding terminates before there has been a hearing, a court should not determine costs by engaging in the nature of a hypothetical trial (citing Australian Securities Commission v Aust-Home Investments Ltd) (Reasons [7]). That principle limits courts from guessing how a full trial would have resolved issues and from awarding costs based on that speculation.
Second, however, the Court recognises exceptions: costs may be ordered where either (a) an examination of the reasonableness of party conduct provides a basis to do so, or (b) the judge is confident one party was almost certain to have succeeded had the matter been fully tried (citing Re Minister for Immigration & Ethnic Affairs; Ex parte Lai Qin and ONE.TEL Ltd v Deputy Commissioner of Taxation) (Reasons [7]). The Court also draws a useful distinction between (i) cases where one party surrenders after litigating for some time and (ii) cases where a supervening event or settlement removes or modifies the dispute leaving only costs to determine; the latter can create difficulty in selecting who should bear costs (Reasons [7]).
Applying these propositions to the present case, the Court found that Kebaro had effectively surrendered on costs once the earlier Full Court judgment in Kebaro v Saunders removed the basis for Kebaro’s resistance. The removal of that 'obstacle' meant the costs issue was readily resolved; the Court considered it appropriate to order Kebaro to pay the respondents' costs of the Notice of Motion and the application (Reasons [6], [8]). In short, the Court exercised its discretion because the circumstances showed Kebaro had ceased contesting costs, and the result was efficient and plainly just.
Before this decision the general legal landscape was already settled in these respects:
What this Full Court clarifies or applies:
Thus, the decision operates within established authority, applying the exception to the no-hypothetical-trial rule where a party’s conduct and the changed circumstances make a costs order appropriate.
"As a result of the Notice of Discontinuance being filed, the appeal was abandoned and the appellants became liable to pay the respondents' costs occasioned by the appeal: Federal Court of Australia Rules (Cth) O 51 r 19(1A), (3)." (Reasons [2])
"By the Notice of Motion filed on 20 November 2002 the third and fourth respondents sought ... Kebaro do pay to the third and fourth respondents their costs of the appeal on the footing that the liability of the appellants or any of them and of Kebaro to pay such costs be joint and several." (Reasons [3])
"The authorities establish ... 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." (Reasons [7])
"In our view, the present case is one in which Kebaro effectively surrendered to the third and fourth respondents on the issue of costs in the light of this Court's judgment in Kebaro v Saunders." (Reasons [8])
This Full Court’s reasoning and order are most likely triggered where:
If these elements are present, termination before trial, a supervening judgment altering parties’ positions, and a clear practical surrender, this decision supports making an order against the party that has relinquished its contest.
This judgment itself cites prior authorities to explain the relevant principles (Reasons [7]). The reasons do not canvass subsequent judicial treatment of this Full Court decision, nor does the judgment purport to overrule or create a new rule beyond applying earlier authorities to the facts. Accordingly, from this document alone there is no material in the text about subsequent judicial treatment of Chapman v Luminis. Practitioners should check later reported decisions and citators to see how later courts have applied or distinguished this reasoning in subsequent cost disputes involving third parties or discontinuances.
The Full Court’s decision resolves costs in the particular circumstances of effective surrender after a linked judicial determination. But some questions remain for future cases:
For practitioners advising clients or litigating residual costs disputes, the practical lesson is to monitor developments that might remove a party’s defence to costs and to consider whether a court is likely to view the party as having effectively surrendered, making it an appropriate target for a costs order. Also, where liberty to apply is reserved, expect a court to resolve outstanding costs by written submissions, and prepare focused, documentary material on why a costs order should or should not be made without a full hearing (see the Court’s direction and use of written submissions at Reasons [4]).
REASONS FOR JUDGMENT THE COURT: 1 The background circumstances of this application are explained in the decision of this Full Court in Kebaro Pty Ltd v Saunders [2003] FCAFC 5 and in the decisions of von Doussa J in Chapman v Luminis Pty Limited (No 5) [2001] FCA 1106 and Chapman v Luminis Pty Limited (No 7) [2002] FCA 1098. For present purposes it is unnecessary to repeat them. 2 On 15 November 2002 the appellants filed a Notice of Discontinuance of the appeal to the Full Court which had been fixed for hearing on 18 November 2002. As a result of the Notice of Discontinuance being filed, the appeal was abandoned and the appellants became liable to pay the respondents' costs occasioned by the appeal: Federal Court of Australia Rules (Cth) O 51 r 19(1A), (3). 3 By the Notice of Motion filed on 20 November 2002 the third and fourth respondents sought the following orders: '1. Kebaro Pty Ltd (Kebaro) be joined as a party to the within appeal for the purpose of enabling the third and fourth respondents to seek orders with respect to their costs of the appeal as against Kebaro. 2. Kebaro do pay to the third and fourth respondents their costs of the appeal on the footing that the liability of the appellants or any of them and of Kebaro to pay costs be joint and several. 3. The third and fourth respondents' costs of the appeal be assessed in a sum to be ascertained on the basis that such sum is to comprise all costs except so far as they are of an unreasonable amount or were unreasonably incurred, so that, subject to such exception the third and fourth respondents will be completely indemnified for their costs. 4. Costs. 5. …' 4 On 12 March 2003 Beaumont J, on behalf of the Full Court, made the following orders by consent: '1. The first and second appellants by virtue of the Notice of Discontinuance filed on 15 November 2002 be liable for the costs of the appeal, such costs to be taxed on a party/party basis. 2. Kebaro do pay to the third and fourth respondents their costs of the appeal … on the footing that the liability of the first and second appellants or any of them and of Kebaro to pay such costs be joint and several.' The transcript of the proceedings on that date makes it clear the liberty to apply was reserved in case the parties were unable to reach agreement as to the costs of the Notice of Motion. That proved to be the case. The Court directed that the parties should lodge written submissions on the issue of costs, and indicated that it would determine the cost question 'on the papers'. The written submissions of the parties have been placed with the papers, and except to the extent necessary to explain our decision, we do not propose to summarise the contents of those submissions. 5 In substance, the third and fourth respondents contend that they were the successful parties on the motion, and for that reason should receive their costs. On the other hand, Kebaro contends that the consent orders made by Beaumont J represent a genuine compromise between the parties in that Kebaro accepted a liability to pay the costs of the appeal, and the third and fourth respondents abandoned their claim for indemnity costs. In those circumstances, Kebaro submits that it is appropriate that no order be made as to costs, or alternatively, that cost orders should be made on an issues basis. 6 Kebaro was resisting any order that it should pay the costs of the appeal whether on an indemnity basis or otherwise. Kebaro only acknowledged a liability for the costs of the appeal after this Court handed down its judgment in Kebaro v Saunders on 10 February 2003. That judgment affirmed the third party costs order which von Doussa J had made against Kebaro in relation to the costs of the trial. Once Kebaro acknowledged that liability, the third and fourth respondents did not persist in their claim for indemnity costs. 7 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). 8 In our view, the present case is one in which Kebaro effectively surrendered to the third and fourth respondents on the issue of costs in the light of this Court's judgment in Kebaro v Saunders. Once the obstacle of Kebaro's resistance to any order for costs was removed, the issue of costs on the appeal was resolved relatively quickly and efficiently. In those circumstances, the appropriate order is that Kebaro Pty Ltd should pay the costs of the third and fourth respondents of the Notice of Motion, and of this application. I certify that the preceding eight (8) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Court.
Solicitor for the Appellants: Lynch Meyer Lawyers
Solicitor for the Respondents: Australian Government Solicitor
Chapman
Luminis Pty Ltd
Ordered that Kebaro Pty Ltd pay the costs of the third and fourth respondents of and incidental to the Notice of Motion filed on 20 November 2002, and that Kebaro Pty Ltd pay the costs of this application (Orders; Reasons [8]).