First Plaintiff v Defendant

"Except as provided by these Rules or any order of the Court costs shall be taxed on a party and party basis."

9 The general rule in litigation is that costs follow the event and that the successful party will be awarded costs on a party and party basis. It is recognised that this will leave the successful party out of pocket. The "gap" between the amount of costs in fact paid by a successful litigant and the amount of party and party costs which are recoverable is often substantial.

10 Rule 63.28 of the Rules provides a range of alternative bases upon which costs may be ordered. These include an award of costs on an indemnity basis, such as is sought by the plaintiffs in this proceeding. Rule 63.30.1 provides in respect of costs ordered on an indemnity basis that:

"(1) Subject to paragraph (2), on a taxation on an indemnity basis all costs shall be allowed except insofar as they are of an unreasonable amount or have been unreasonably incurred.

(2) Any doubt which the Taxing Master may have as to whether the costs were unreasonably incurred or were unreasonable in amount shall be resolved in favour of the party to whom the costs are payable."

11 There are many cases which have considered the appropriate principles to be applied in exercising the discretion to award costs on a basis other than party and party. It is accepted that something special or unusual must be demonstrated in order to justify a departure from the ordinary costs order. In PCRZ Investments Pty Ltd v National Gulf Holdings Ltd[1] Chernov JA noted the need to establish something special or unusual in order to justify a departure from the ordinary costs order and continued:

"It is true that the categories of such circumstances are not closed. Nevertheless, the authorities indicate that, generally, the ordinary cost rule should only be departed from where the losing party has misconducted itself in relation to the proceeding or where the institution of the proceeding was plainly unreasonable or where the proceeding was issued for an ulterior or collateral purpose."

12 In the same case, Callaway JA noted the gap between the actual costs incurred by a successful party and the amount of costs recoverable under the general party and party rule and added "but that should not lead judges into readily opting for an extraordinary order." [2]

13 In NMFM Property Pty Ltd v Citibank Ltd (No. 2)[3] Lindgren J stated:

"The ordinary rule is that an award of costs is on the party and party basis, and that it is only in a special case that the discretion to depart from that rule will be properly exercised... In my opinion there is no counterpart ordinary rule that in the absence of special circumstances indemnity costs will be ordered where the losing party was guilty of ethical or moral delinquency in the antecedent facts which have given rise to the litigation. Even in a proved case of fraud, for example, in my opinion the presumption is that a costs order against the fraudulent party will be on the party and party basis. The conduct of a party that is relevant to the issue of indemnity costs is the party's conduct as litigant. But, as noted below, the knowledge that a party has, including knowledge of his or her past conduct, may be relevant to an assessment of his or her conduct as litigant." (Original emphasis; citations omitted.)

14 Later, in his reasons Lindgren J said[4]:

"It seems to me that the presumption which prevails in favour of party and party costs requires the Court to accept the underlying or background facts of a case as 'a given' and to consider how the parties have conducted themselves subsequently as litigants, while taking into account their knowledge of past events which they carry into that role."

15 In Ali v Hartley Poynton Pty Ltd (No. 3)[5] Smith J considered a submission that pre-litigation conduct alone could justify an indemnity costs order. Smith J quoted part of the passage from the judgment of Lindgren J in MNFM Property v Citibank which I have quoted above and continued:

"If his Honour was attempting to limit the costs discretion there may be difficulties in the quoted statement. Further, there are judicial statements to the effect that the conduct giving rise to the litigation can justify departure from the ordinary rule.

On any view, however, the wrongs done to the successful party will provide the context within which to judge the subsequent conduct leading up to and during any subsequent litigation. It may make the subsequent conduct more difficult to justify and appear more high handed. It appears to me that the present case should be approached in this way." (Citations omitted.)

16 In Aljade and anor v Oversea-Chinese Banking Corporation Ltd[6] Redlich J considered the relevance of pre-litigation conduct in the exercise of a discretion as to whether a special costs order should be made. Redlich J summarised the position as follows[7]:

"The Australian position is that it [the pre-litigation conduct] must be connected to the conduct of the litigation and deserving of criticism. Some element of delinquency in the conduct of the proceedings is required before a special costs order will be made.

Pre-litigation conduct and a party's knowledge of past events may be relevant to the assessment of a party's conduct during the litigation." (Citations omitted.)

17 On behalf of the plaintiffs, it was submitted that the defendant's conduct, both before the litigation and as a litigant, was properly to be described as misconduct. Reliance was placed upon the criticisms which I have made of the defendant's conduct in my reasons for judgment and, in addition, to some further failings on the part of the defendant in relation to discovery of documents in the proceeding.

18 It is true that I have been critical of Mobil in my reasons for judgment. These criticisms extend to both pre-litigation conduct and conduct by Mobil during the course of the trial. However, notwithstanding these criticisms, I am not persuaded that this is an appropriate case for me to exercise my discretion to make a special costs order as sought by the plaintiffs. In my view, even when the conduct of the defendant as a litigant is viewed in the context of my criticisms of its pre-litigation conduct, the conduct of the defendant as a litigant is not sufficiently delinquent or unmeritorious so as to justify departure from the ordinary rule as to the basis of assessment of costs.

19 In my reasons for judgment I was critical of the defendant's conduct as a litigant in two respects. First, I was critical of the failure of the defendant to discover an internal email dated 3 October 2005 from Mr Samardjiev to Mr DeFina. That email ought to have been discovered in compliance with the defendant's continuing discovery obligations. It was only produced in response to a notice to produce served on the defendant the day before trial.

20 In my view, although it is regrettable that the defendant did not comply with its on-going discovery obligations, it is not uncommon that parties overlook these obligations when they are preparing for a trial which is imminent. When the email was produced, it did not cause any substantial disruption to the trial and certainly did not cause any prejudice to the plaintiffs. Indeed, they relied heavily upon it.

21 I am not prepared to infer that a deliberate decision was made to withhold the email in circumstances where its relevance was appreciated by the defendant and its advisers. Even if the discoverability of the email had been considered by the defendant and its advisers prior to the service of the notice to produce pursuant to which it was produced, the only inference which I would be prepared to draw is that it was considered to be irrelevant. Indeed, when it was produced, the only basis for opposition to its admission into evidence was that it was irrelevant. After hearing argument, I decided to admit the email into evidence.[8] Even though the defendant was unsuccessful on this argument, I am not satisfied that its opposition was such as to amount to misconduct.

22 Secondly, the plaintiffs relied upon my findings that Mobil and its solicitors instructed Mr Samardjiev to put all of the proposed clean up works at the land "on hold" pending the completion of the trial of the proceeding. In this respect, I was critical of the defendant in my reasons for judgment on two grounds. First, because the direction to Mr Samardjiev had the effect of delaying Mobil complying with its obligations under the clean up notice issued by the EPA. This is not a matter which relates to the conduct of the defendant as a litigant. It had no effect upon the plaintiffs.

23 Secondly, I was critical of the conduct of the defendant in this regard because it may have had the consequence that evidence as to the actual state of contamination in the soil at the land was not available to the Court. However, even if the proposed clean up works had been completed before the end of the trial, an adjournment would most likely have been necessary to deal with any evidence resulting from testing for contamination during the clean up process. Further, in circumstances where the clean up works had been put "on hold", the plaintiffs could have made an application for the trial to be adjourned pending the completion of those works and the gathering of evidence in connection with them. No such application was made.

24 Although I remain critical of the defendant's conduct in this regard, this conduct was not, in my view, conduct of the defendant as a litigant. The fact that the defendant's conduct in this regard was obviously influenced by the existence of this proceeding does not make it conduct of the defendant as a litigant. In any event, this aspect of the defendant's conduct is not of itself a sufficient ground upon which I would be prepared to order that the defendant pay costs on an indemnity basis. I note that no evidence which in fact existed was withheld from the Court or the plaintiffs.

25 Finally, I note that the plaintiffs also relied upon the failure of the defendant to discover its Environmental Remediation Specifications and some reports by IT Environmental and related correspondence of September 2005. Reliance was also placed upon the fact that the notes made by Mr Williams of the 20 March 2001 meeting were not discovered. However, there is no evidence that those notes are still in existence.

26 In my view, the submissions by the plaintiff overstated the significance of the documents which were not discovered. Further, there were many documents which the plaintiffs failed to discover until a very late stage. The fact that there were discovery issues as the trial approached and in the early stages of the trial is not, in my view, sufficient to warrant an indemnity costs order. It appears that both sides had some deficiencies in their discovery and that these were, in one way or another, made good so that no party was deprived of any relevant document which was in existence.

27 For the above reasons, I refuse to exercise my discretion to make a special costs order. The plaintiffs are entitled to be paid their costs in the ordinary way, on a party and party basis.

[1] [2002] VSCA 24 at [35]- [36].

[2] [2002] VSCA 24 at [2].

[3] [2001] FCA 480; (2001) 109 FCR 77 at [56].

[4] [2001] FCA 480; (2001) 109 FCR 77 at [63].

[5] [2002] VSC 292 at [9]- [10].

[6] [2004] VSC 351 at [18]- [21].

[7] [2004] VSC 351 at [20]- [21].

[8] Ruling, 16 November 2005.