Did her Honour err in the exercise of her discretion?
134 The discretion conferred on the trial judge by r 42.4 is a broad discretionary power to specify the maximum costs that may be recovered by one party from another. The discretion so conferred must be exercised in the context of the overriding statutory purpose of the Civil Procedure Act and the UCPR in facilitating the just, quick and cheap resolution of the real issues in the proceedings: the Civil Procedure Act, s 56; the prescribed objects of case management: s 57; the requirement for the court to follow the dictates of justice: s 58; and the object of resolving disputes in a way that the costs are proportionate to the importance and complexity of the subject matter in dispute: s 60.
135 In Halpin & Ors v Lumley General Insurance Ltd [2009] NSWCA 372 Basten JA, at [20]-[29], observed that the application of the various criteria in those sections is not without difficulty. There is some tension between the provisions. However, as Sackville AJA observed, at [95] (Tobias JA agreeing), whatever difficulties there are in reconciling those objectives, the court has wide powers to make directions for the conduct of proceedings.
136 Halpin was concerned with whether the court had power to make a direction that an affidavit intended to be used in proceedings not be served. This case, of course, is quite different. There is an undoubted power for the Court to make a maximum costs order and the discretion conferred by r 42.4 is in general terms. Nonetheless, the power must be exercised judicially and ss 56-60 are mandatory considerations to which the court must have regard. The manner in which those considerations operate will depend upon the facts of the particular case.
137 In this regard, sight cannot be lost of the fact that the criteria of the "just, quick and cheap resolution of disputes" and the "dictates of justice" apply to both parties. It may not be just to limit the amount of costs recoverable if the amount specified is disproportionate to the reasonable costs likely to be incurred by the opposing party. That is a factor to which the court must have regard. As Palmer J identified in Sherborne, the proportionality of costs to the value of the result is central to the just and efficient conduct of proceedings. His Honour made this comment in the context of disproportionately high costs to the value of the proceedings. However, it holds good as a general proposition. The outcome in a particular case will depend upon the total mix of factors relevant to the exercise of the discretion and the importance that the court gives to any particular factor or factors. I consider that in the mix of factors it may be relevant that the party has brought proceedings under a standing provision such as s 252. However, I do not consider that that factor will compel any particular conclusion.
138 The courts have thus far identified the central purpose of r 42.4 as providing a means to curb the tendency of parties to engage in disproportionate expenditure, especially in cases where the quantum involved is relatively low or the proceedings are not complex. I agree that may undoubtedly be a purpose in an appropriate case. However, the general terms of the discretion are such that it is not confined by or to that purpose. The preferable approach to the discretion conferred is to determine whether, having regard to the particular circumstances of the case, an order should be made. The caselaw to date has provided an inventory of circumstances that have been considered relevant in those cases. Such factors may usefully assist in the determination of a particular case. However, the discretion under r 42.4 is not confined by such considerations and the court is not compelled to apply them in the same way.
139 In this case, a significant feature of the appellant's argument was that there was a general rule that costs follow the event and that the discretion to make an order under r 42.4 had to be exercised, first, in the context that if successful in the litigation, it had at least a prima facie entitlement to costs, and secondly, that in the just disposition of the case, regard ought to have been had to the proportionality of any order that the trial judge proposed to make and the reasonable estimated costs of the litigation.
140 The submission that there is a 'general rule that costs follow the event' is an oft-stated proposition presumably based on the heading to UCPR, r 42.1. Stated in those broad terms, the proposition is not very helpful in the resolution of the question whether her Honour erred in the exercise of her discretion in this case. In the first place UCPR, r 42.1 is subject to the court making any other order. Further, UCPR, r 42.4, operates sympathetically with UCPR, r 42.1, in the sense that if a maximum costs order is made, costs may follow the event pursuant to UCPR, r 42.1; however, the amount of the costs payable will have been determined by the Court at an earlier stage of the proceedings. It must also be borne in mind that the LEC Rules, r 4.2, which have precedence over the UCPR, empowers the court to make a costs order against an unsuccessful litigant in public interest litigation. Such an order can be made in any event under UCPR, r 42.1.
141 In making the order in this case, her Honour stated that the factors referred to in Corner House in a generally similar statutory context and the factors referred to in Corcoran to which I have referred above provided a useful guide to the relevant criteria to be considered in this case. Her Honour then considered the following factors: the timing of the application; whether the claim appeared arguable; whether the claim was properly characterised as public interest litigation; whether the plaintiff had a private interest in the proceedings; whether the proceedings would continue if the order was not made; whether counsel was acting pro bono; the parties' financial means; and whether in making the order the Court was rewarding inefficient litigation.
142 I have already dealt with her Honour's finding that this was public interest litigation. I have something more to say about the relevance of the public interest as considered in Corner House. Leaving that aside for the moment, however, I accept that her Honour's finding that this was public interest litigation was open to her and that was a relevant consideration for her Honour to take into account in determining whether to make a maximum costs orders.
143 Her Honour dealt with the other factors in the following manner. Her Honour found that the application had been brought in a timely manner; the substantive proceedings were arguable, as had been conceded; and her Honour surmised that the matter would be complex and would involve novel issues. In this regard, her Honour identified the proceedings as in the nature of a test case; and that the respondent would derive no financial benefit from the proceedings. Her Honour found that the respondent's counsel was acting pro bono and that there was evidence that the respondent would not proceed if an order limiting costs to $20,000 was not made. Her Honour considered that notwithstanding the costs the appellant estimated it would incur, it would not suffer financial hardship if the order was made. Her Honour considered that if, in the course of the proceedings, it appeared that the respondent was running the proceedings inefficiently, a further order could be made under r 42.2(4), which enabled a court to later vary any order made under the rule. I have difficulty with this latter consideration in this case, given the respondent's stated position that it had committed $20,000 to the litigation, but no point was expressly taken by the appellant in respect of her Honour's consideration of that matter.
144 Subject to the relevance her Honour attached to the respondent's position that it would not proceed unless a maximum costs order were made and the manner in which her Honour considered the appellant's financial means, the only challenge the appellant made to these findings was the finding that the proceedings were in the nature of a test case. I do not consider that there was any error in that finding. It might be contestable whether that pointed in favour of the making of a maximum costs order, however, that was a matter for her Honour's determination. No error has been demonstrated in this regard.
145 That leaves for consideration the manner in which her Honour dealt with the appellant's financial means and the respondent's evidence that it would not continue with the proceedings if an order limiting costs was not made. That issue is closely associated with the proposition raised by the appellant, namely, that her Honour failed to have regard to the financial resources of those who stood behind the respondent. There is also the fundamental issue in the appellant's argument of a need for some proportionality between a maximum costs order and the costs reasonably likely to be incurred in the litigation.
146 As I have indicated, her Honour derived a series of factors that she considered relevant in this case from the factors enumerated in Corner House and Corcoran. Insofar as she dealt with the appellant's position in relation to the litigation, her Honour said, at [64], under the heading "Continuation of proceedings":
"The evidence of [the respondent's] President is that the proceedings will not continue if a PCO is not made in the amount of $20,000".
147 It is apparent from her Honour's judgment that she took that matter into account favourably to the respondent. It is also apparent that her Honour recognised this would result in requiring the respondent to commit a greater sum to the proceedings than it had resolved to do, as her Honour commented that, contrary to the respondent's submission, it appeared likely that the respondent would be able to raise that money.
148 The question whether the proceedings would continue if an order was not made has been considered a relevant consideration, both in the United Kingdom (Corner House) and in Australia. In Corner House, in respect of a PCO, this was put in terms:
"… if the order is not made the applicant will probably discontinue the proceedings and will be acting reasonably in so doing."
149 In the Australian decisions, it is apparent that the courts have not been persuaded to make a maximum costs order based simply upon an assertion that an applicant will not continue the proceedings unless an order is made. Rather, that factor has been considered having regard to all the surrounding circumstances and there is an underlying consideration in the authorities as to whether the applicant's withdrawal from the proceedings would be reasonable.
150 In Corcoran Bennett J referred to the statement in Corner House to which I have referred in the previous paragraphs. Bennett J also referred to the Canadian authorities where the ability of the party to continue with the litigation has been accepted as a relevant consideration, as is whether the litigant could show that he or she genuinely cannot afford to pay for the litigation and that no other realistic option exists for bringing the issues to trial. The courts in Canada have also referred to the need to be satisfied that there is a prima facie case of sufficient merit. Bennett J commented, at [13], that:
"If present, there are, therefore, a variety of factors that may be taken into account in exercising the Court's discretion."
151 It will be recalled that in Woodlands, the Court was concerned to know whether there had been a call on the membership of the relevant group to contribute to the costs of the litigation. Then, in making the order, the Court fashioned it such that the respondent would be in no worse position than if the proceedings had been brought in the State Court. In other words, the court balanced the position between the applicants who were faced with the uncertainty of an unexpected argument that they would not have the costs protection contained within the State legal aid legislation and the respondents, who, if the proceedings had been brought in the State Courts, would have been confined by that legislation to the recovery of limited costs. It was also apparent in Woodlands that the Court considered the applicants would reasonably be required to abandon the proceedings if an order was not made, given their impecunious circumstances.
152 In making these observations, I have not overlooked that Woodlands involved private litigation which had a public interest element. However, the point to be made is that the relevant consideration in that case was not merely whether the applicants would not continue with the proceedings. That factor was considered in the context of other matters to which I have referred. A similar observation can be made in respect of the approach taken in Hanisch where the court had regard to the fact that the proceedings could have been brought in a lower costs jurisdiction.
153 Her Honour's finding, at [64], needs to be considered against this background. Her Honour accepted that the respondent had committed $20,000 to the undertaking of the proceedings. The evidence established that the respondent has certain of its own costs to bear, which are somewhat, but not substantially in excess of $10,000. That sum and the order initially sought of a maximum costs order in the sum of $10,000 presumably represented the intended extent of that commitment. The respondent at that stage was thus committed to spending about $20,000, or 11 per cent of its then net assets on the litigation. The effect of the Court's order is that it is committed to spending approximately $30,000, or 17 per cent of its net assets on the litigation.
154 The respondent's net assets include managed fund investments of approximately of $134,000 and current assets, including bank or financial accounts, of approximately $25,000. Its asset position had been depleted by about $50,000 from the 2008 financial year, mainly due to the global financial crisis.
155 One of the appellant's challenges to her Honour's order was that her Honour failed to have regard to the financial resources of the respondent's membership, which numbered approximately 970 persons. An examination of the respondent's 2008/2009 accounts revealed that its membership fees were $14,194: that is, a yearly membership fee in the order of $15.00. The appellant relied upon the absence of evidence of any levy on the membership to support the litigation.
156 The question whether there are and the extent of financial resources available to an applicant for a maximum costs orders is, in my opinion, a relevant consideration. Preston CJ adverted to this in Caroona Coal Action Group when his Honour observed that a public interest litigant may have access to financial resources sufficient to fund the litigation. However, much depends upon the manner in which the parties conduct the proceedings; in this case, the respondent's application for a maximum costs order.
157 In this case, the appellant cross-examined Ms Cameron, the President of the respondent society, to ascertain whether the membership of had been asked to "make a donation or to contribute to a fighting fund will or something of that kind" to support the litigation. However, Ms Cameron was not cross-examined to suggest that that was a course that reasonably ought to have been taken. Nor was it suggested to Ms Cameron in cross-examination that the reasons she gave in respect of the respondent's proposed withdrawal from the proceedings if a maximum costs order was not made, were unreasonable. Ms Cameron also gave evidence that the respondent had many priorities, including these proceedings. However, her evidence was that the respondent's funds were limited and in part had been built up historically by the nursery receiving income and that was not likely to be replicated. There was no cross-examination to suggest that even given these matters, the respondent's decision not to proceed if a maximum costs order in excess of $20,000 was not made, was in any way unreasonable.
158 The appellant, having chosen to conduct the proceedings in that way, cannot now complain that the trial judge failed to take into account a relevant consideration. The failure of the respondent to approach the membership for funding may have been relevant to the exercise of the discretion if, for example, it pointed in some way to the unreasonableness of the respondent's stated position that it would not proceed with the litigation unless a maximum costs order in the stated sum was made.
159 However, it was never suggested to Ms Cameron that the respondent had acted unreasonably in not approaching the membership. Merely ascertaining as a fact in cross-examination that the members had not been approached to make a specific contribution to the litigation by way of donation or the establishment of a fighting fund, is not a sufficient basis to assert error in the exercise of her Honour's discretion. If the appellant intended to assert that the financial status of those behind the respondent was relevant to the exercise of the discretion, it was incumbent upon the appellant to give the respondent an opportunity to deal with the basis upon which it proposed to make such an assertion and to demonstrate to the trial judge why it was a relevant factor. However, the appellant's case in this regard did not rise any higher than the factual assertion identified above.
160 I have indicated that I wish to say something further in relation to Corner House. The English Court of Appeal, although eschewing the development and application of rigid rules in the exercise of the discretion, stated that a PCO may be made, provided the Court is satisfied of the matters it specified (which are set out above at [95]). It is apparent, however, from the manner in which the Court of Appeal expressed itself that the factors to which it referred are not merely a 'tick list', but are the minimum requirements of which the Court needs to be satisfied if it is to make an order, although they do not mandate the making of an order.
161 Those considerations are also intended to have an internal synergy. The court must be satisfied that the identified public interest requires the issues to be resolved. It must be fair and just to make the order having regard to the financial resources of the parties and the amount of costs likely to be incurred. However, it will not be fair and just to make an order merely because one party does not have the resources to fund the litigation. Rather, whether it is fair and just to make the order depends not only on whether the applicant can fund the litigation. As I have said, the public interest must require that the issues, which must be of public importance, be resolved.
162 Having regard to her Honour's reliance on the factors referred to in Corner House, it is relevant to again observe that the English rules under which the PCOs have been developed are not precisely mirrored in the NSW legislation. In particular, there is no requirement in the NSW Acts and Rules that the court ensure, so far as possible that parties be put on an equal footing. That provision would appear to powerfully underwrite the development of the discretionary considerations relevant to the making of a PCO in England in circumstances where it has been said that the court must be satisfied that the public interest requires the issues of general public importance be resolved. It is understandable that the courts would have identified as an underlying purpose of such orders the facilitation of litigation by a person or entity with little or no assets against a State entity, with significant assets and financial resources.
163 It is also relevant in my opinion that the purpose of a PCO is to protect the assets of a party bringing public interest litigation. That is not the purpose underlying r 42.4. Although one of the purposes of r 42.4 is to facilitate access to the courts, an order under r 42.4 is not directed to protecting the assets of the applicant in the same way as a PCO made by the English courts. Accordingly, the relevance of proportionality as between the amount of costs ordered under r 42.4 and the reasonable estimated costs of the other party is likely to have more significance than is the case with a PCO.
164 Her Honour did not give express consideration to the question of the proportionality of any proposed maximum costs to the costs likely to be incurred by the appellant. She may have considered this to be irrelevant, having regard to her focus on the financial position of the parties, a factor derived from Corner House. Her Honour's reasoning in this regard was that the appellant, as a large government entity, would not suffer financial hardship as a result of a maximum costs order being made.
165 However, in my opinion, that consideration should have taken its hue from other considerations, including the proportionality of the order sought as compared to the reasonable costs likely to be incurred. As I have said, that factor does not appear to feature in the matters relevant to the exercise of the discretion in respect of a PCO. However, the dictates of justice must be seen to operate in both directions and I consider that was a relevant consideration in this case and was a matter that was raised in the conduct of the case before the trial judge.
166 An alternative approach to this same issue is that the disproportionality between the order made and the reasonable estimate of the appellant's costs is such that the order falls outside a reasonable exercise of the discretion. For that reason also, I consider that her Honour erred in the exercise of her discretion.
167 That leaves the question as to what should be done. This may well be a case where it is appropriate to make a maximum costs order. However, given that I have concluded that her Honour failed to take into account a relevant consideration or, alternatively, the order her Honour made fell outside the wide bounds of the discretion conferred by the section, I propose that the appeal be allowed and that the matter be remitted to the Land and Environment Court for redetermination.
168 Finally, I should note that the respondent filed a notice of contention in which it contended that subs 98(1) and (3) conferred on the trial judge the discretionary power to make the order in the terms she did. There is no doubt that her Honour had the discretion to make such an order. The only question is whether her Honour erred in the exercise of the discretion in accordance with House v R principles. It is not necessary, therefore, to deal specifically with the notice of contention.
169 BASTEN JA: The applicant ("Delta") is a state-owned corporation which generates electricity from a coal-fired power station at Wallerawang near Lithgow. The respondent ("the Society") is an incorporated association having objects related to environmental protection in the Blue Mountains region of New South Wales. It has brought proceedings in the Land and Environment Court seeking to prevent pollution (or further pollution) of the Coxs River resulting from alleged discharge of pollutants by the applicant.
170 On 9 September 2009 Pain J granted the Society an order pursuant to Uniform Civil Procedure Rules 2005 (NSW) ("the UCPR"), r 42.4 fixing the maximum costs "that may be recovered by one party from another in these proceedings" at the sum of $20,000. (The order originally sought was in a lesser sum.)
171 The applicant seeks leave to appeal and, if leave be granted, to have the order set aside. I agree with Beazley JA that leave should be granted but the appeal should be dismissed with costs.