Corporation of Burford v Lenthall 2 Atk 551 mentioned

REASONS FOR JUDGMENT HIS HONOUR: This litigation has been resolved in all respects other than the issue of costs. Each side maintains that it is entitled to the costs. Each side asks the Court to make a costs order in its favour. To complicate matters the parties want the Court determine the matter without considering the merits of the case. First, I need to say something about the nature of the dispute that the parties have now settled. The applicant provides pathology services of the type specified in the regulations made under the Health Insurance Act 1973 (Cth). By that Act, subject to certain exceptions, a medicare benefit is payable in respect of those services: see s 10. Section 16A of the Act sets out the circumstances in which a medicare benefit is not payable in respect of pathology services that are specified in the regulations. Those circumstances include the following: (a) where the pathology specimen required for the rendering of the service was not collected from the patient either by the patient or by his or her treating practitioner or by an employee of the treating practitioner (s 16A(5AA)(c)), (b) where the pathology specimen was not collected from a licensed collection centre (as defined) (s 16A(5AA)(d)), and (c) where the treating practitioner who made the request for the service did so because of some consideration given by the pathologist to the treating practitioner (s 16A(5A)). The first respondent (the Commission) is charged with the administration of the Act. On 19 March 1997 the Commission wrote to the applicant alleging that medicare benefits were not payable in respect of pathology services provided by the applicant where the specimens in respect of which those services were rendered had been collected by the staff of Australian Metropolitan Medical Services Pty Ltd (AMMS) at the premises of six medical practitioners. The particular premises were identified. The letter suggested, but did not make clear, that there were two reasons why medicare benefits were not payable. One was that the specimens had not been collected by a person specified in s 16A(5AA)(c) and the other was that the specimens had not been collected at a licensed collection centre as required by s 16A(5AA)(d). On 27 June 1997 the Commission again wrote to the applicant this time advising that pathology services rendered in respect of specimens collected at a further fifty-five identified premises would also not qualify for a benefit. The letter went on to say that a decision had been taken that all claims relating to specimens collected at all the identified premises would "be pended immediately". As a result of this advice the applicant commenced this proceeding. The principal relief sought by the applicant was a declaration that specimens in relation to which the applicant rendered pathology services had been collected by an appropriate person as required by s 16A(5AA)(c) of the Act. In its statement of claim the applicant did not allege that pathology services rendered in respect of specimens collected at all of the premises mentioned in the two letters were eligible for a benefit. Instead the applicant selected one of the premises where a particular medical practitioner carried on his medical practice and alleged that the pathology services that were rendered with respect to specimens collected at those premises were eligible for a benefit. The applicant assumed that if it succeeded in its claim in respect of those premises the Commission would not persist in its allegations in respect of the others. This seems to have been a reasonable assumption. By their defence the respondents (the Commission, the Commonwealth and the person who wrote the two letters) alleged that there were two reasons why the pathology services rendered by the applicant in respect of specimens collected at the nominated premises were ineligible for a benefit. The first was that the specimens had not been collected by a person specified in s 16(5AA)(c). The second reason was that the applicant had provided consideration to the treating practitioner who had requested those services and therefore s 16A(5A) prevented any benefit being paid. In a statement of reasons provided pursuant to s 13 of the Administrative Decisions (Judicial Review) Act 1977 (Cth) the third respondent had explained the facts giving rise to this allegation. It was said that nurses employed by AMMS collected specimens from the patients of a number of treating practitioners and passed those specimens on to the applicant for the provision of pathology services. It was also said that the treating practitioners paid no consideration for the services provided to them by AMMS. The third respondent considered that by these arrangements the applicant, who had some connection with AMMS, was indirectly providing consideration to the treating practitioners. In order to overcome the difficulty caused by the involvement of AMMS in the collection of specimens AMMS terminated all arrangements it had in place with the treating practitioners who conducted their respective practices at the locations set out in the two letters. The Commission was advised of this in mid August 1997. Thereafter the Commission reversed its decision to "pend" all claims for benefits in respect of specimens collected at those premises. The Australian Government Solicitor then wrote to the applicant's solicitors suggesting that as the Commission had reversed its decision no further purpose would be served by the applicant continuing with the proceeding. An offer was made that if the proceeding was withdrawn the respondents would bear their own costs. The applicant did not accept this offer. The applicant's solicitors asserted that the applicant's costs should be paid by the respondents. After a good deal of negotiation the parties did agree that the proceeding should be dismissed but the question of costs remains outstanding. Next I turn to deal with the Court's power to award costs. For centuries courts of equity and courts of common law have had that power. The power of the court of equity was inherent. In Corporation of Burford v Lenthall 2 Atk 551 at 553 Lord Hardwicke explained that "Courts of Equity have in all cases done it [i.e. ordered costs] not from any authority but from conscience and arbitrio boni viri, as to the satisfaction on one side or the other, on account of vexation" (citations omitted). It seems that generally costs were only awarded in favour of a successful party: see Andrews v Barnes (1888) 39 ChD 133 at 141. The common law courts had no inherent power to award costs. These courts were obliged to rely on an authority given by statute the first being the Statute of Gloucester, 6 Edw.1. From the time of that statute until the passing of the Judicature Act in 1875 the rule was that costs followed the event and this rule could not be departed from except for certain statutory exceptions: see Garnett v Bradley (1878) 3 App Cas 944. By the Judicature Act both courts of equity and common law had vested in them a discretion to award costs according to the circumstances of the case. This notwithstanding, the general rule has always been that costs follow the event unless special circumstances require it to be otherwise. Thus there are cases where a successful plaintiff has been deprived of some or all of his costs (see e.g. Walter v Steinkopff [1892] 3 Ch 489, Jenkins v Hope [1896] 1 Ch 278) and where a successful defendant has been deprived of his costs (see e.g. Ritter v Godfrey [1920] 2 KB 47). For a collection of many of the cases on this topic see Williams, Supreme Court Practice (2nd ed) vol 2 paras 65.1.6 to 65.1.10. I have examined quite a number of the cases and in each of them an order for costs was only made after there had been a hearing on the merits. The jurisdiction of the Federal Court to award costs is found in s 43 of the Federal Court of Australia Act 1976 (Cth). Section 43(2) provides that the award of costs is in the discretion of the Court or a Judge. How is that direction to be exercised when the Court has not considered the merits of a case? In JT Stratford and Son Ltd v Lindley [No. 2] [1969] 1 WLR 1547 the Court of Appeal suggested that the appropriate order in such a circumstance was that each party bears its own costs. Lord Denning, with the concurrence of Winn and Cross LJJ said (at 1554): "Finding that neither side wishes to go on with this action, I think the master and the judge exercised their discretion wisely in giving leave to discontinue on the footing that each side is to bear its own costs including costs in the cause." A number of cases in Australia have also looked at this problem. Many of them have been considered by Hill J in Australian Securities Commission v Aust-Home Investments Ltd & Ors (1993) 44 FCR 194. His Honour was able to draw the following propositions from the cases (at 201): "(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) For my own part I should wish to emphasise that in 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 the claimant. Likewise if a defence was bound to fail that would be 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. Applying these principles to the present case I should observe at once that it is by no means apparent to me that the respondents' case is so hopeless that an order for costs should be made against them. True it is that the decision about which complaint was made has been revoked. But I do not infer from that fact, as the applicant invited me to do, that the respondents regarded their defence of the claim as being without merit. I might just as easily infer that the change of attitude on the part of the Commission was the direct result of the termination of the arrangements between AMMS and the medical practitioners being an arrangement which the applicant thought might offend against s 16A(5A). On the other hand, there are two factors that might support an order for costs being made in favour of the respondents. The first is that the treating practitioner who had been selected to test the applicant's claim was not a practitioner who collected the specimens in respect of which the applicant rendered pathology services, nor were those specimens collected by the patient or by the practitioner's staff.. As a result unless the applicant amended its claim its application would fail. However, I think that it is likely that if this matter had proceeded to trial an application to amend the statement of claim would have been made in order to ensure that the substantive issues that gave rise to the dispute between the parties were resolved by the Court. Even if no amendment had been sought it is likely that the Court would have decided whether the arrangement in place between AMMS and the particular medical practitioner was one by which consideration was provided by the applicant to the medical practitioner contrary to s 16A(5A) as had been alleged by the respondents. That issue might have been resolved in favour of the applicant although not resulting in the grant of any relief. Nonetheless, its success on such a substantive issue may have led the trial judge to refuse to order the applicant to pay all of the respondents' costs. The second factor is that the applicant rejected what I regard as a reasonable offer of compromise namely that the respondents will bear their own costs of the proceeding if it was withdrawn. Ordinarily it would be a proper exercise of discretion to award the respondents their costs incurred after the date of that offer: compare Cutts v Head [1984] Ch 290. However, rather than maintain their position on costs the respondents made application for an order that they be paid all of their costs of the proceeding. This was just as unreasonable as was the rejection by the applicant of the respondents' offer. It seems to me that all of the parties must bear some of the responsibility for the further costs that have been incurred since the rejection of the offer. Senior Counsel for the respondents put forward a number of other grounds in support of his general contention that the applicant's claim was unlikely to succeed and that justified an order for costs being made against it. However, during the course of his submission Senior Counsel frankly conceded that a number of those grounds could not be resolved without a hearing. I think that is true of all of the grounds that I have not specifically mentioned for the reason that some require an investigation of disputed facts and others of them involve a detailed consideration of complex legal issues. I was expressly invited not to embark upon that exercise to determining the issue of costs. I have no doubt that in all of the circumstances the only order that I should make, having regard to my limited knowledge of the facts of the case, is that both applications for costs should be dismissed and that no order for costs should be made on those applications. The result will be that the costs of the proceeding will lie where they fall.