Applicable Legal Principles in Relation to the Payment of Costs Where One Party Discontinues the Proceedings
23Costs in discontinued Class 4 proceedings in this Court are determined pursuant to s 98 of Civil Procedure Act 2005 and the application of r 42.19 of the Uniform Civil Procedure Rules 2005 ("UCPR").
24Rule 42.19 of the UCPR relevantly provides as follows:
42.19 Proceedings discontinued
(1) This rule applies to proceedings that are discontinued by the plaintiff, as referred to in rule 12.1.
(2) Unless the court orders otherwise or the notice referred to in rule 12.1 (2) otherwise provides, the plaintiff must pay such of the defendant's costs as, at the date on which the notice of discontinuance was filed, had been incurred by the defendant in relation to each claim in respect of which the proceedings have been discontinued.
25It is trite law that orders for costs are designed to compensate for expenses reasonably incurred and not to punish a particular party (Latoudis v Casey [1990] HCA 59; (1990) 170 CLR 534).
26In Baulderstone Hornibrook Engineering Pty Limited v Gordian Runoff Limited (No 2) [2009] NSWCA 12 Allsop P noted the following in relation to costs applications (at [5]):
5. Three things need be borne in mind in a judgment such as this on costs: the desirability of avoiding unnecessary recitation of cases (abounding as they are in this area); the desirability of not restating, in different terms, approaches to the broad discretion that have been well settled; and the desirability of dealing with the arguments without over-elaboration, if this is possible.
27His Honour's observations are equally apposite here.
28Generally costs will follow the event in Class 4 proceedings. But where, as in the present case, the proceedings are discontinued absent a determination on the merits, and thus an 'event', the issue of costs becomes complex. Thus, in ONE.TEL Ltd v Deputy Commissioner of Taxation [2000] FCA 270; (2000) 101 FCR 548 Burchett J said (at [6]):
6. In my opinion, it is important to draw a distinction 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 bear the costs. In Ex Parte Lai Qin, McHugh J was careful to state (at 624) that the principles with which he was concerned were those that "govern an application for costs when a party elects not to pursue an action because he or she has achieved the relief sought in the action either by settlement or by extra-curial means". ...
29In Kiama Council v Grant [2006] NSWLEC 96; (2006) 143 LGERA 441 Preston J drew together some of the relevant guiding legal principles governing the position at that time and said (at [80]):
80. The principles that emerge from these cases are that in a civil enforcement or judicial review case where there has been no hearing on the merits:
(a) where one party effectively surrenders to the other party by:(i) discontinuing without the consent of the other party; or(ii) giving undertakings to the Court or submitting to the Court making orders against the party substantially in the terms or to the effect claimed by the other party; the proper exercise of the costs discretion will ordinarily be to make the usual order as to costs, unless there is disentitling conduct on the part of the other party; and(b) where some supervening event or settlement so removes or modifies the subject of the dispute that no issue remains except that of costs, the proper exercise of the costs discretion will ordinarily be to make no order as to costs unless:(i) one of the parties has acted so unreasonably that the other party should obtain the costs of the action; or(ii) even if both parties have acted reasonably, one party was almost certain to have succeeded if the matter had been fully tried so that the party should obtain the costs of the action.
30In Kiama, however, no reference was made to r 42.19 of the UCPR because it was not applicable. The decision must therefore be read with this in mind.
31It has been said that r 42.19 does not give rise to a "presumption" that costs will be ordered against the discontinuing party (Fordyce v Fordham [2006] NSWCA 274; (2006) 67 NSWLR 497; Prodromos Anastasi Foukkare v Angreb Pty Limited [2006] NSWCA 335 (at [65]); Bitannia Pty Ltd v Parkline Constructions Pty Ltd [2009] NSWCA 32 (at [53]).
32But in Bitannia it was stated that (at [54]):
54. However, like UCPR 42.20, UCPR 42.19 states what the order for costs is to be unless there is a discretionary decision to order otherwise: Australiawide Airlines Limited v Aspirion Pty Limited [2006] NSWCA 365 at [53]. This means there is an onus on the discontinuing party to make an application in respect of costs if it does not propose to pay the costs of the other parties: Foukkare at [65]. In my opinion, it also means that there must be "some sound positive ground or good reason for departing from the ordinary course": Australiawide Airlines at [54].
33This view is consistent with the opinion expressed by Santo JA in Fordyce (at [3]) where his Honour said:
3. I would wish to add this observation on one aspect of the reasons on UCPR 42.19 and 42.20. I consider the fact of discontinuance is likely to be a factor of some weight in exercising the discretion to determine whether the discontinuing party should be ordered to pay the other party's costs. While it is true the Court may otherwise order, the onus remains on the discontinuing party to justify such an order by reference to the circumstances said to justify exception to the normal cost outcome in such event. That the Court retains discretion to accommodate such circumstances does not alter their character as being by way of exception nor the consequence in terms of onus. That said, the discretion remains to otherwise order.
34To the extent that the earlier 'non-presumptive' position expressed in Fordyce may be seen as inconsistent with subsequent pronouncements as to the intended operation of r 42.19 of the UCPR, in Bitannia Basten JA attempted to reconcile the tension in the following nuanced way (at [72]-[75]):
72. One question raised in these proceedings is the relevance of the default provision with respect to the exercise of the discretion to otherwise order. In Fordyce v Fordham [2006] NSWCA 274; 67 NSWLR 497, McColl JA (Beazley JA agreeing) concluded that the "default orders do not create a presumption" that the plaintiff ought to pay the costs of the proceedings: at [84]. Her Honour also indicated that the default order is "a relevant, but not determinative, consideration".
73. The use of the term "presumption" in this context is unclear and was properly rejected. In some circumstances, a presumption may do no more than indicate on which party lies the onus of proof of primary facts. In other cases it will supply evidence of the fact presumed: see McCormack v Federal Commissioner of Taxation [1979] HCA 18; 143 CLR 284 at 314 (Jacobs J). In other cases again, clearly not relevant to the present circumstance, it may be a way of stating a rule of law, as with respect to the capacity of a young child to form a relevant criminal intent. In other circumstances, the burden of persuasion may be expressed in terms of a presumption. For example, in Australian Coal & Shale Employees' Federation v The Commonwealth [1953] HCA 25; 94 CLR 621 at 627, Kitto J expressed the principle limiting appellate review of discretionary judgments in terms that "there is a strong presumption in favour of the correctness of the decision appealed from, and that that decision should therefore be affirmed unless the court of appeal is satisfied that it is clearly wrong". This range of meanings undoubtedly renders adoption of such terminology undesirable.
74. However, it is less clear what was intended in Fordyce by stating that the default order constituted a material consideration in exercise of the discretion to otherwise order. No doubt it is true to say that the default order is relevant in the sense that it identifies that from which the court is invited to depart. Beyond that, the existence of the default consequence is not itself helpful in deciding whether to depart from it. Rather, it is the underlying reason for the default position with respect to costs that may bear upon the exercise of the discretion. A party which seeks to discontinue must generally, in a relevant sense with respect to costs, be treated as an unsuccessful party. The general costs rule set out in s 98 of the Civil Procedure Act 2005 (NSW) does not identify the limits of the court's discretion with respect to costs. The most important limitation for present purposes is the requirement that, again subject to the court otherwise ordering, costs should follow the event: see r 42.1. If that rule were to be applied, absent persuasion that the court should otherwise order, the plaintiff would be required to pay the costs of discontinuance. It seems likely that it is consistency with that general principle which underlies the default consequence provided in r 42.19. If that rule has application with respect to a discontinuance (and no reason was proffered as to why it should not) the discretion to make a costs order under r 42.19 will be confined by that general principle. In that respect, it may be misleading to describe the discretion under r 42.19 as "unconfined": see Fordyce at [87]. In some cases (though not necessarily all) discontinuance will involve the termination of proceedings without the court knowing what the result would have been had they been determined on the merits. In one sense, the existence of a hearing on the merits may be largely irrelevant, just as the actual result of a hearing on the merits will not be affected by the fact that the proceedings might have been run differently and might then have achieved a different result.
75. There are, nevertheless, circumstances in which it is entirely appropriate for the court, by order, to depart from the consequence provided by the rule. For example, discontinuance may result from the plaintiff obtaining a favourable result in other proceedings, in circumstances where it had not been unreasonable to commence the discontinued proceedings. Such cases frequently arose in challenges to decisions made under the Migration Act 1958 (Cth), when the scope for judicial review in the Federal Court was limited and it was commonplace for applicants to commence proceedings in both the Federal Court and in the original jurisdiction of the High Court.
35To summarise, while not rising as high as a presumption, pursuant to r 42.19 of the UCPR the discontinuing party must demonstrate a good reason why a court should not exercise its discretion in the ordinary way by ordering that the discontinuing party pay the costs of the other parties. Such an approach is consistent with both the language and objective purpose of the rule.