Federal Treasury Enterprise (FKP) Sojuzplodoimport v Spirits International B.V.

BETWEEN: FEDERAL TREASURY ENTERPRISE (FKP) SOJUZPLODOIMPORT First Cross-Claimant FEDERAL PUBLIC UNITARY ENTERPRISE EXTERNAL ECONOMIC UNION SOJUZPLODOIMPORT (FGUP VO) Second Cross-Claimant AND: SPIRITS INTERNATIONAL B.V. (REGISTERED IN THE NETHERLANDS) Cross-Respondent

BETWEEN: SPIRITS INTERNATIONAL B.V. (REGISTERED IN THE NETHERLANDS) Applicant

AND: FEDERAL TREASURY ENTERPRISE (FKP) SOJUZPLODOIMPORT First Respondent FEDERAL PUBLIC UNITARY ENTERPRISE EXTERNAL ECONOMIC UNION SOJUZPLODOIMPORT (FGUP VO) Second Respondent JUDGE: PERRAM J DATE OF ORDER: 29 JANUARY 2018

1. The stay ordered on 20 November 2017 be varied, to the extent necessary only, so as to permit the Cross-Respondent's interlocutory application dated 13 December 2017 to be determined and to permit the Cross-Claimants to defend themselves on that application.
2. The Cross-Respondent's interlocutory application of 13 December 2017 be dismissed.
3. The Cross-Respondent pay the Cross-Claimants' costs of that interlocutory application. Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

1. Introduction 1 On 20 November 2017, the Court stayed the Cross-Claimants' proceedings on their cross-claim until further order. It did this because the Cross-Claimants, which are emanations of the Russian Federation, had failed to arrange for the Russian Federation to give proper discovery following an invitation from this Court that it do so: Federal Treasury Enterprise (FKP) Sojuzplodoimport v Spirits International B.V. (No 4) [2017] FCA 1345 ('Spirits (No 4)'). At the same time, the Court granted leave to the Cross-Respondent to seek the dismissal of the entire proceeding if, by 30 November 2018, the Russian Federation had still not given proper discovery. 2 The Cross-Respondent now applies by an interlocutory application dated 13 December 2017 for orders that its costs on the stay application be paid by the Cross-Claimants forthwith and that those costs be assessed in a lump sum by a Registrar of the Court. The application was supported by an affidavit of Mr John Swinson, the solicitor for the Cross-Respondent, sworn 12 December 2017. The Cross-Claimants resisted the application and relied upon an affidavit of Mr Thomas John Pilsneniks, a solicitor who has the carriage of the matter on their behalf. Written submissions were received from the Cross-Respondent on 13 December 2017 and in reply from the Cross-Claimants on 17 January 2018. The Cross-Respondent indicated in its written submissions that it was amenable to the matter being determined on the papers. The Cross-Claimants did not object to that course. I have decided, therefore, to determine the application in that manner having satisfied myself that the legal arguments which arise can be dealt with adequately by written submissions: Federal Court of Australia Act 1976 (Cth) s 20A(2)(c)(ii). 3 For the reasons which follow, the Cross-Respondent's interlocutory application of 13 December 2017 will be dismissed with costs.

2. Jurisdiction 4 The Cross-Claimants take a preliminary point that the Court cannot entertain the application for costs because '[t]he proceedings have been stayed for all purposes'. I reject this submission. What has been stayed is 'the proceeding': Order 1 of 20 November 2017. The proceeding is the Cross-Claimants' cross-claim against the Cross-Respondent. The effect of the Order is to prevent the Cross-Claimants taking any further step to advance the proceeding. I do not accept that the effect of the stay is to prevent the Cross-Respondent taking a step because the Cross-Respondent is not itself proceeding under the Cross-Claimants' cross-claim. I do accept, however, that the effect of the stay may be to prevent the Cross-Claimants from defending themselves on the interlocutory application. Accordingly, and to avoid any doubt about the matter, I will vary the stay granted on 20 November 2017 so that it does not prevent either party from taking a step under the interlocutory application of 13 December 2017.

3. Costs - payable forthwith? 5 The stay order made on 20 November 2017 was accompanied by an order that the Cross-Claimants pay the Cross-Respondent's costs of that interlocutory application: Order 2. The ordinary rule is that where an order for costs is made on an interlocutory application 'the party in whose favour the order is made must not tax those costs until the proceeding in which the order is made is finished': Federal Court Rules 2011 (Cth) ('FCR') r 40.13. The Rule does not appear to include an express power for the Court to permit a different course to be taken although it is accompanied by a note which says 'The Court may order that costs of an interlocutory application be taxed immediately.' The Court's power to disengage Rule 40.13 springs, however, not from the note which is after all just a note, but from Rule 1.35 which allows the Court to make an order inconsistent with the FCR, or from Rule 1.34 which allows the Court to dispense with compliance with any of the Rules: Georgiou v Spencer Holdings Pty Ltd (No 5) [2011] FCA 1233 at [4]; Clipsal Australia Pty Ltd v Clipso Electrical Pty Ltd [2016] FCA 37 ('Clipsal') at [12]; Stone v Melrose Cranes & Rigging Pty Ltd, in the matter of Cardinal Project Services Pty Ltd (in liq) [2016] FCA 1113 at [54]; Bideena Pty Ltd v Growth Super Fund Pty Ltd [2016] FCA 1440 at [14]. 6 The predecessor to Rule 40.13 was Order 62 Rule 3(3) of the Federal Court Rules 1979 (Cth) (repealed) and, unlike Rule 40.13, it included a specific power to override the general rule that interlocutory costs could not be taxed until the proceeding was completed ('…unless the Court otherwise orders…'). Why that was removed from the Rule and replaced with a note in the FCR remains something of mystery. Nevertheless, a number of first instance decisions have proceeded on the basis that the exercise of the discretion under new Rule 40.13 is governed by the same kinds of considerations as were used to guide the Court under the former O 62 r 3(3): QS Holdings Sarl v Paul's Retail Pty Ltd (No 2) [2011] FCA 1038 at [37]; Australian Mud Company Pty Ltd v Coretell Pty Ltd (No 4) [2013] FCA 567 at [29]; Axent Holdings Pty Ltd v Compusign Pty Ltd (No 3) [2018] FCA 6 at [13]. 7 The principles guiding the exercise of the discretion involved are well established. First, at a high level of generality, Rule 40.13 confers a discretion which 'should be exercised in favour of a party who establishes that the demands of justice require that there be a departure from what appears to be the general practice…' (Thunderdome Racetiming and Scoring Pty Ltd v Dorian Industries Pty Ltd [1992] FCA 291; (1992) 36 FCR 297 at 312). 8 Secondly, in the exercise of the discretion, the Court should bear in mind the twin policy considerations underpinning Rule 40.13. These are that the Court should avoid exposing the parties to the perils of multiple taxation proceedings (Vasyli v AOL International Pty Ltd [1996] FCA 804) and should keep in mind that subsequent events in the litigation may generate costs orders going in the opposite direction and in respect of which set-offs may ultimately be available (Bailey v Beagle Management Pty Ltd [2001] FCA 60; (2001) 105 FCR 136 at 145 [37]). A corollary of that latter consideration - particularly relevant to this case - is that prior costs orders may be available to set off the interlocutory costs order sought to be taxed. On the other hand, where no credit risks attend the parties to the litigation, this set-off consideration may be somewhat less significant (Courtney v Medtel Pty Limited (No 3) [2004] FCA 347 at [24]). 9 Thirdly, a range of factors may justify departure from the ordinary rule: where the final determination of the proceedings is far away: Allstate Life Insurance Co v Australia and New Zealand Banking Group Ltd (No 13) [1995] FCA 1459 at [5] ('It would be wrong if the successful parties do not enjoy the fruits of their order for costs for such a long time.'); where a party has been required to incur significant costs over and above those which it would have incurred had the opposing party acted in handling the proceeding with competence and diligence (Life Airbag Company of Australia Pty Ltd v Life Airbag Company (New Zealand) Ltd [1998] FCA 545 ('Life Airbag')); where, following a successful amendment application, a case is essentially a new proceeding (McKellar v Container Terminal Management Services Ltd [1999] FCA 1639 at [19] and [40]); where a discrete issue has been resolved (Australian Flight Test Services v Minister for Industry, Science and Technology [1996] FCA 1425 at [7]); or where there is some reason to think that interlocutory disputation is having the effect of draining the ability of one side to conduct the litigation (Clipsal at [12]). 10 The Cross-Respondent submits that the behaviour of the Russian Federation has been unreasonable and that was the basis upon which the stay was ordered. I accept this submission which is supported by the conclusion at [60] in Spirits (No 4): 'It follows from what I have set out above that Sprits has proved that: • there has been a failure by the Russian Federation to produce documents which fall within the discovery categories; • the inquiries which have been made on the Russian Federation's behalf to find the documents are insufficient; and • no proper explanation has been provided as to how it is approaching the task.' 11 By itself this is not compelling, however. What is generally required is not just unreasonable behaviour but unreasonable behaviour which has required a party to incur significant costs over and above what it would have incurred had the case been handled with competence and diligence: Life Airbag. An order that costs be payable forthwith, in that regard, is not to be thought of as some form of especially emphatic indemnity costs order. Although the considerations underlying the two costs rules may, at times, overlap, they are driven by quite different considerations. Where costs are incurred as a result of unreasonable litigation behaviour of the opposing party the usual remedy is the award of indemnity costs: Colgate-Palmolive Company v Cussons Pty Ltd [1993] FCA 801; (1993) 46 FCR 225 at 233-34. It is only where unreasonable behaviour has the additional consequence of causing the incurring of significant additional expenditure by the opposing party that Rule 40.13 comes into view. In this case, the Russian Federation's behaviour has not cost the Cross-Respondent anything more than the costs of bringing the application for the stay. It is different to a situation where, for example, a party maintains a significant but hopeless case for a substantial period which it subsequently abandons. In that case, the opposing party has been put to significant wasted expenditure in meeting the initial case. 12 In any event, the evidence of Mr Pilsneniks establishes that the Cross-Claimants have four costs orders in their favour. These are, first, a complex costs order made partially in the Cross-Claimants' favour following their successful appeal to the Full Federal Court on 13 August 2007; secondly, a costs order made in their favour following an unsuccessful application by the Cross-Respondent for special leave to appeal in the High Court on 5 October 2007; thirdly, a costs order made on 20 May 2011 in the Cross-Claimants' favour by the Full Federal Court following an unsuccessful application for leave to appeal from the primary judge's orders brought by the Cross-Respondent; and finally, a costs order made in the Cross-Claimants' favour on 9 February 2012 on a motion for discovery brought by the Cross-Respondent filed on 23 December 2010. 13 Mr Pilsneniks has estimated that the total amount which may be recovered by the Cross-Claimants from the Cross-Respondent under those costs orders lies approximately in a range between $1,028,564.59 and $1,064,453.37. Mr Swinson's estimate of the Cross-Respondent's recoverable costs on the stay application, on the other hand, are much less at between $332,000 and $347,000. 14 It would be surprising to order the Cross-Claimants to pay the Cross-Respondent that much smaller amount when it seems possible that the Cross-Respondent may ultimately owe the Cross-Claimant more under orders which already exist. Further, it is possible that the Russian Federation may give proper discovery during the course of this year which, provided this occurs prior to 30 November 2018, will result in the stay being lifted. If that occurs, there must be some possibility that the Cross-Claimants may win the entire case. If that comes to pass, they will have an even more substantial costs order in their favour to augment their already sufficient set-offs. 15 It is true that there does not appear to be any credit risk associated with the Cross-Respondent which is a multinational beverage provider. If necessary, I accept it will be able to repay any costs if ordered to do so. But even so, I do not think it would be just or fair to make the Cross-Claimants meet the Cross-Respondent's costs on this single application when there are already substantial costs orders against it. Further, the topic of discovery is not yet closed. No doubt, the Cross-Respondent has had a significant victory but the orders envisage the possibility that the Russian Federation may yet put its house in order with the result that the proceedings will be re-enlivened. 16 Accordingly, I decline to order that the Cross-Respondent be permitted to tax its costs under Order 2 of 20 November 2017. The Cross-Claimants took a secondary position in relation to the Cross-Respondent's application. It was that if the Cross-Respondent's application were successful, then the Court should consider making an additional order that the four sets of costs orders in favour of the Cross-Claimants also be made payable forthwith. It was submitted that an interlocutory application seeking this relief had been filed by the Cross-Respondent on 17 January 2018. This does not appear to be correct. There is no record of such an application having been filed with the Court. In any event, the Cross-Respondent's application has not been successful and so the Cross-Claimants' secondary argument does not call for determination at present. If the Cross-Claimants still wish to move on their own application then they can file it in the ordinary way and the Court will determine it in due course.

4. Relief 17 The Cross-Respondent's application for an order that its costs be assessed by a Registrar on a lump sum basis does not arise. The Cross-Respondent has failed on its application and should bear the Cross-Claimants' costs thereof. I make the following orders:
   1. The stay ordered on 20 November 2017 be varied, to the extent necessary only, so as to permit the Cross-Respondent's interlocutory application dated 13 December 2017 to be determined and to permit the Cross-Claimants to defend themselves on that application.
   2. The Cross-Respondent's interlocutory application of 13 December 2017 be dismissed.
   3. The Cross-Respondent pay the Cross-Claimants' costs of that interlocutory application.

I certify that the preceding seventeen (17) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Perram.