"In most jurisdiction today, the power to order costs is a discretionary power. Ordinarily, the power is exercised after a hearing on the merits and as a general rule the successful party is entitled to his or her costs Latoudis v Casey (1990) 170 CLR 534. Success in the action or on particular issues is the fact that usually controls the exercise of the discretion. A successful party is prima facie entitled to a costs order Latoudis (1990) CLR 534, 566-568. When there has been no merits, however, a court is necessarily deprived of the factor that usually determines whether or how it will make a costs order."
5 When proceedings are brought to an end without a determination after a trial, the judge may find it difficult, even impossible, to make an award of costs. If the judge does make an award, it will generally be because the judge is satisfied that one party has had a substantial victory and the other a substantial loss, or that there has been a marked difference in the reasonableness of the actions taken by the parties, so that one party should be rewarded for its reasonable actions and the other party should suffer a detriment in costs. In One Tel Ltd v Commissioner of Taxation (2000) 101 FCR 548 at 552-3, Burchett J expressed the point in this way:-
"It is accepted that, in a case which 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; Re Minister for Immigration and ethnic Affairs; Ex parte Lai Qin (1997) 186 CLR 622 at 624. But this does not mean that the 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, respectively, may provide the basis of an order, or 'a judge may feel confident that, although both parties have acted reasonably, one party was almost certain to have succeeded if the matter had been fully tried', as McHugh J put it in Ex parte Lai Qin at 625. His Honour added:
'If it appears that both parties have acted reasonably in commencing and defending the proceedings and the conduct of the parties continued to be reasonable until the litigation was settled or its further prosecution became futile, the proper exercise of the cost discretion will usually mean that the court will make no order as to the cost of the proceedings.'
Although his Honour thought this would 'usually' be so, he made it clear that he was not laying down an invariable rule. At the beginning of his discussion of the applicable principles (at 624), he referred to the discretionary nature of the power to order costs, and to the 'general rule [that] the successful party is entitled to his or her costs', and he said:
'In an appropriate case, a court will make an order for costs even when there has been no hearing on the merits and the moving party no longer wishes to proceed with the action.'
As Sackville J pointed out in Rizal v Minister for Immigration and Multicultural Affairs [1999] FCA 334 at [16], the remarks made by McHugh J evince ' a somewhat more flexible approach' than that taken by the Court in Gribbles Pathology Pty Ltd v Health Insurance Commission (1997) 80 FCR 284 at 287, when it suggested 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'. What is well established is that frequently the determining factor will be the reasonableness of the conduct of the parties, a matter which was emphasised in each of the decisions I have cited, and also in Reddy v Hughes (1996) 37 IPR 413; Sun Zhan Qui v Minister for Immigration and Ethnic Affairs [1999] FCA 119; and Australian Securities Commission v Berona Investments Pty Ltd 18 ASCR 772. In the last case, Cooper J commented, concerning the principles laid down in Australian Securities Commission v Aust-Home Investments (at 774):
'These propositions are of assistance in focussing attention upon some of the relevant circumstances which should be considered in the exercise of the discretion to award costs where proceedings do not proceed to a final hearing. However they are not the only circumstances; nor are they intended to limit the discretion.'
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."
6 A similar approach was enunciated by McHugh J in Lai Qin at 624-5.
7 In the subject action, the appellant Edwards Madigan Torzillo Briggs Pty Ltd ("EMTB") was a member of a consortium of six entitled "Capital Works Management " (CWM). The State Rail Authority had sourced to CWM the overall management supervision of a project to upgrade and refurbish railway stations in and around the Metropolitan area. In the course of the works which were being undertaken, a gas line was fractured, allowing gas to escape and to explode in a basement area, causing injury to persons and property. The first respondent, Gloria Stack, the plaintiff below, was the most severely injured. However, there were another twenty cases awaiting the result of her claim. There were fourteen defendants in proceedings, the third to eighth defendants being members of the CWM consortium, it being alleged that CWM failed to take reasonable care to bring to the attention of the persons, who arranged the disconnection of the gas line, that the works area extended over the position where the gas line was left.
8 It had been expected that the hearing of the case would take six weeks. However, after four or five days of hearing, the ninth and tenth defendants agreed to accept judgment against them and the first and eighth defendants each agreed to accept judgment against it in respect of 7.5 percent of the plaintiff's damages. Terms of settlement were drawn up as between all parties other than EMTB, the seventh defendant, and the eleventh defendant, who had not filed an appearance. The terms of settlement provided in respect of all defendants, other than the four defendants against whom there was to be judgment, that judgment would be entered in their favour with no orders to costs. The eighth defendant was one of the CWM consortiums. Accordingly, four members of the consortium were to have a judgment in their favour but no order as to costs.
9 That was the way matters stood when the matter came before the trial Judge on 8 November 2002. However, EMTB, whilst prepared to have judgment in its favour, contended that its costs should be paid by the plaintiff on an indemnity basis or alternatively on a party and party basis. It was the term of the settlement agreement that, if an order of costs was made in favour of EMTB, the plaintiff should be indemnified in respect of those costs by the first, eighth, ninth and tenth defendants in the same proportions as they shared liability for damages.
10 It became apparent that the matter could not be resolved without the approval of EMTB, for EMTB had served a number of cross-claims and objected to judgment being entered in favour of the defendants from whom EMTB sought contribution.
11 After the luncheon adjournment, senior counsel for EMTB informed his Honour that, having had an opportunity to speak with all the other parties, EMTB was content to have its cross-claims dismissed with no orders to costs. Counsel said, however, that EMTB still wished the trial judge to rule upon its claim against the plaintiff for costs. Counsel for the sixth defendant, TMG International Pty Ltd ('TMG'), one of the CWM consortiums, informed his Honour that his client sought costs against EMTB, as EMTB's refusal to accept a reasonable offer in July 2001 had caused his client and other members of CWM to incur a great deal of unnecessary costs.
12 The matter then proceeded on the basis that his Honour would enter judgment as set out in the terms of settlement and would enter judgment in favour of EMTB. The cross-claims would be dismissed. His Honour would rule upon the applications for costs made by EMTB and TMG.
13 Therefore, because the first, eighth, ninth and tenth defendants' acceptance of liability which was adequate for the plaintiff's purposes and because there was nothing to be gained by continuing the proceedings against the other defendants, the proceedings were brought to an end without there being any determination on the merits of the plaintiff's claim against EMTB. Counsel for EMTB joined in that course and consented to the dismissal of its cross-claims thus making the settlement feasible.
14 I need not discuss the claim for costs made by TMG against EMTB. His Honour ordered that both parties bear their own costs of that cross-claim.
15 In relation to the claim for costs which EMTB made against the plaintiff, his Honour took into account the following factors, inter alia:
· That the issue of the liability of EMTB was not to be fought out because the plaintiff had received a 100 percent outcome in her favour and no purpose was to be served by continuing the trial so as to determine the liability of other defendants.
· That it was eminently reasonable for the plaintiff to have joined all of the defendants to the action.
· That, save for the eighth defendant which had accepted liability for 7.5 percent of the damages and for EMTB, the other members of the CWM consortium were prepared to accept that the action be finalised on the basis that each party bear its own costs.
· That, although it was impossible for his Honour to say whether or not EMTB would have been completely exonerated from liability, his Honour was satisfied that, at the very least, the plaintiff had an arguable case against EMTB.
· That, on 25 July 2001, the plaintiff had sufficient evidence against the remaining defendants to cause it to negotiate for the dismissal from the action of members of the CWM consortium other than the eighth defendant and it offered to discontinue against them on the basis that each party pay its own costs. By 29 September 2001, it was pointed out to the solicitors for EMTB that it alone of members of CWM was holding out for a costs order in its favour.
· That the complexity, duration and expense of the litigation could have been considerably reduced as long ago as the end of July 2001 if EMTB had not demanded costs on a party / party basis up to 6 February 1998 and thereafter on an indemnity basis. The complexity, duration and expense of the litigation could have been considerably reduced if EMTB had not had an over-inflated view of the righteousness of its cause.
16 Taking all relevant circumstances into account, his Honour concluded that the plaintiff, Gloria Stack, should pay the costs of EMTB on a party and party basis up to and including 31 July 2001 but that, thereafter, there should be no orders as to costs.
17 In my opinion, the facts which his Honour took into account were relevant to his assessment of costs. The order which he made was an order that was open to him. Of particular importance is the point that, once the litigation had reached the point that no purpose would be served by determining the liability of defendants other than the four defendants, who were prepared to accept judgment against them, his Honour had to make an assessment of costs in the absence of a finding of liability.
18 In the present case, when all parties, including EMTB, joined in the making of orders which brought the proceedings to an end, there was no prima facie entitlement on the part of EMTB to costs merely because the proceedings were to be dismissed against EMTB. The position at that stage was that the parties had effectively settled the substance of the case leaving it to the trial Judge to make whatever order as to costs he thought was appropriate. His Honour would have been entitled to order that EMTB bear its own costs of the proceedings. EMTB was in the same position as all the other defendants who were dismissed from the action. They had agreed that they should bear their own costs.
19 Had EMTB had a prima facie entitlement to costs, then it may be that the grounds on which his Honour relied to express his disapproval of EMTB's actions would not have been sufficient to deprive EMTB of the costs to which it was otherwise entitled. However, in the context that his Honour's discretion was at large, it seems to me that the factors, which his Honour took into account, were relevant and were appropriately expressed.
20 Counsel for EMTB submitted that his client was entitled to costs on an indemnity basis because of two letters, one of 24 September 1997 and one of 6 February 1998, in which EMTB offered to pay its own costs if the plaintiff withdrew the proceedings against EMTB within fourteen days.
21 The principles respecting a Calderbank letter were enunciated by Meagher, Beazley and Santow JJA in Jones v Bradley (No. 2) [2003] NSWCA 258. Their Honours pointed out that such an offer should be reasonable in the circumstances.
22 A Calderbank offer should be one which it would be reasonable for the other party to accept and should be written at a time when the other side has a reasonable opportunity to consider and to respond to it. The subject letters were written at such an early stage of the complex litigation that the plaintiff did not have a fair opportunity to consider the offer. Moreover, the fourteen days provided in the notices, much less that the period specified in Part 22 rule 3 of the Supreme Court Rules, was unreasonable.
23 In my view, the trial Judge was justified in refusing indemnity costs.
24 These reasons have addressed the key issues as developed in the oral submissions, read together with the detailed summary of argument presented by the claimant in aid of its application for leave to appeal.
25 That detailed summary addresses four of the five grounds of appeal as formulated in the draft notice of appeal.
26 The first ground contends that the primary judge made errors of law in two "findings" said to have been made. The simple answer is that the reasoning does not turn upon such findings, certainly not upon findings expressed as categorically as suggested in the draft notice of appeal. Cooper AJ's conclusions at [66]ff of his judgment are much more nuanced and were well open to his Honour, for the reasons set out above.
27 The second ground contends that the "finding" of "disentitling conduct" was not reasonably open to the primary judge. This submission attracts a similar response.
28 The third ground contends that Cooper AJ took account of an irrelevant consideration, namely a finding that it was reasonable for the plaintiff to have joined the claimant as a defendant in the proceedings. In my view this was a relevant matter and it was reasonable for the plaintiff to have acted as she did.
29 The fourth ground has no merit. It can hardly have been "arbitrary and premature" for the judge to have embarked upon the very task he was requested to perform.
30 The fifth ground is not addressed in the written submissions, but it too is without merit in light of par [79] of Cooper AJ's reasons.
31 For these reasons, I would refuse leave to appeal. The appellant should pay the respondents' costs.