Costs - appeals as to costs - Whether leave required - costs are "by law left to the discretion of the judge" within meaning of s50(2) Supreme Court Act notwithstanding Supreme Court Rule 101.02(l) - appeal by defendant against order for costs in favour of plaintiff is from order as to "costs only" notwithstanding that same Notice of Appeal contains appeal against judgment in favour of third parties - existence of appeal by plaintiff as to merits immaterial - leave required notwithstanding alleged error of law unless there is no jurisdiction or judge has not exercised the discretion - leave must be obtained from judge making order appealed from. Supreme Court Acts50(2). Donald Campbell and Co Ltd v Pollak (1927) AC 732 at 811 and Jones v McKie (1964) 1 WLR 960 at 966, applied.

Practice - Appeal against order striking out Notice of Appeal as to Costs - whether leave to appeal required

• order not final order conferring appeal as of right - leave required. Supreme Court Act 50(3)(b). Licul v Corney [1976] HCA 6; (1976) 50 ALJR 439 a 441; Carr v Finance Corporation of Australia [1981] HCA 20; (1981) 147 CLR 246 at 248 and Trams Pty Ltd v Grand Hotel (1993) 170 LSJS 312, applied.

Counsel for plaintiffs: Mr S W Tilmouth QC with

Solicitors for plaintiffs: Wallace Degaris and Co

Counsel for defendant ANZ McCaughan Ltd: Ms R A Layton QC with Mr N G Rochow

Solicitors for defendant ANZ McCaughan Ltd: Knox And Hargrave

Remaining defendants/third parties No appearance

ORDER Answer the questions in the Case Stated as follows:- (a) Yes. (b) Yes. (c) Yes. (d) Not applicable.

JUDGE1 KING CJ This is a case stated to the Full Court by Perry J pursuant to section 49 of the Supreme Court Act 1935.

The plaintiffs sued the defendant for losses alleged to have been suffered by them as a result of two transactions. The first was an offshore loan made by the defendant in October 1984. The second was a hedge contract entered into between the plaintiff Perball Pty Ltd and the defendant in April 1985. The learned trial judge dismissed the plaintiffs' claim with respect to the offshore loan but allowed it as to the hedge contract. He gave judgment in favour of Perball Pty Ltd against the defendant in the sum of $183,898.62 inclusive of interest. He ordered that the defendant pay to Perball Pty Ltd 75 per cent of its costs of action. There were third party claims. The learned judge held two of the third parties liable to the defendant for 25 per cent of the judgment and costs. He dismissed the claims against the other two of the third parties.

By notice of appeal dated 3 June 1994 the plaintiffs appealed against the dismissal of their claim with respect to the offshore loan transaction. By notice of cross appeal dated 17 June 1994 the defendant appealed against the order for costs in favour of Perball Pty Ltd. The defendant also appealed against the findings and orders on the third party claims. In consequence of an intimation by the plaintiffs that they would object that the cross appeal as to costs was incompetent as leave had not been obtained pursuant to section 50(2)(b) of the Supreme Court Act, the defendant applied to the trial judge for leave so far as that might be necessary. On 11 August 1994 the learned judge refused leave to appeal. He struck out so much of the notice of cross appeal as relates to the order for costs. On 18 August 1994 the defendant gave notice of appeal against the order of 11 August striking out part of the notice of cross appeal. The plaintiffs applied to have that notion of appeal struck out as incompetent and an abuse of the process of the court. The learned judge expressed his views and the reasons for those views but stated this case reserving certain questions to the Full Court.

The questions reserved are as follows:- "(a) Section 50(2)(b) of the Supreme Court Act 1935 of application so as to prevent the defendant from bringing an appeal to the Full Court in terms of so much of its purported Notice of Cross Appeal dated the 17th day of June, 1994 (court file document number 189) as relates to costs other than with leave? (b) If yes to (a), is it only the Trial Judge who has made the order for costs complained of, who may grant or refuse leave to the exclusion of any other Judge or of the Full Court?

(c) Is the Order of The Honourable Justice Perry made the 11th day of August, 1994 insofar as it strikes out so much of the said Notice of Cross-Appeal as related to costs, an order which, pursuant to Section 50(3)(b) of the Supreme Court Act 1935 may only be made the subject of appeal by leave? (d) Even if the Order of the 11th day of August, 1994 may be appealed without leave, should the notice of appeal nonetheless be struck out as an abuse of process, insofar as to allow the notice to stand would circumvent the requirement for leave under Section 50(2)(b), in circumstances where the appellant has prematurely lodged a notice of appeal without leave?"

Section 50 of the Supreme Court Act so far as material is as follows:- "(1) Subject to the rules of court an appeal shall lie to the Full Court against every judgment, including every declaratory judgment entered pursuant to section 30B of this Act and any final assessment made thereon, order, or direction of a judge, whether in court or chambers, and also from the refusal of any judge to make any order: Provided that - (1) ... (2) No appeal shall lie without the leave of the judge from any order - (a) ... (b) as to costs only which by law are left to the discretion of the judge. (3) ... "

The judge's discretion with respect to costs is conferred by section 40 of the Supreme Court Act which, so far as material, is as follows:- "40. Subject to the express provisions of this Act, and to the rules of court, and to the express provisions of any other Act whenever passed, the costs of and incidental to all proceedings in the court, including the administration of estates and trusts, shall be in the discretion of the court or judge, and the court or judge shall have full power

to determine by whom and to what extent such costs are to be paid."

Ms Layton QC, who appeared for the defendant, argued that the discretion conferred by section 40 is removed or fettered by the provisions of Rule 101.02(1) of the Rules of Court 1987 which is in the following terms:- "Subject to these Rules, the costs of and incidental to a proceeding shall follow the event unless the Court otherwise orders."

She relied upon authorities as to the meaning of costs following the event in Rules of Court in other jurisdictions governing costs of jury trials. The prototype of such rules is Rule LV of the English Rules of Court of 1875. The history of that rule was explained by Lord Finlay LC in Reid Hewitt and Co v Joseph (1918) AC 717 at 723:- "To solve this question it is necessary to follow to some extent the history of the law as to costs. Before the Judicature Acts the costs at common law followed the event in this sense, that, while the party who had on the whole

succeeded in the action got the general costs of the action and of any issues on which he had succeeded, the costs of any issue on which the other party had succeeded were recovered by him. Sect. 81 of the Common Law Procedure Act, 1852, which in substitution for earlier provisions allowed the pleading of several matters, provided that the costs of any issue either in fact or law should follow the finding or judgment upon such issue, and this was worked out by r.62 of the Regulae Generales of Hilary Term, 1853, which were made under the Act and will be found in Day's Common Law Procedure Act (3rd ed.), beginning at p.347. The first two Judicature Acts were passed in 1873 and 1875, and to the second of these were annexed in Sched.I. certain rules, one of which was Order LV., corresponding to the present Order LXV., r.1, which replaced it in 1883. In these Rules of 1875 there was nothing to correspond to r.2 of the Rules of Court now in force. From 1875 to 1883 the old practice as to costs continued to be in force so far as it was not inconsistent with Order LV. It was in 1883 that r.2 was first introduced, and it then consisted merely of the first sentence of r.2 as it now stands. The second sentence of r.2 as it now stands was added in 1902 - the first half of it in January of that year and the remainder in July. Rule 2 is merely declaratory of the practice which was in use before that rule was made. Order LV. of 1875 was, for the purposes of the present case, identical in its effect with the present Order LXV., r.1; it ran as follows: 'Costs. - Subject to the provisions of the Act, the costs of and incident to all proceedings in the High Court shall be in the discretion of the Court; but nothing herein contained shall deprive a trustee, mortgagee, or other person of any right to costs out of a particular estate or fund to which he would be entitled according to the rules hitherto acted upon in Courts of Equity: Provided, that where any action or issue is tried by a jury, the costs shall follow the event, unless upon application made at the trial for good cause shown the judge before whom such action or issue is tried or the Court shall otherwise order.' The great change made by Order LV. of 1875 was that the costs were put in the discretion of the Court, but an exception was made in case of trial by jury, as it was provided at the end of the order that where any action, or issue is tried with a jury the costs should follow the event, unless the judge or Court should for good cause otherwise order. This proviso was obviously introduced for the purpose of preserving in jury cases the old practice as to costs. It was no doubt apprehended that if the discretion of the judge as to costs applied to such cases the result might be that a judge who had taken a strong view against the party in whose favour the jury found might exercise his discretion as to costs in such a way as to deprive the successful party to a great extent of the fruits of victory, or possibly throw costs upon him. The expression 'costs shall follow the event' had a definite meaning and imported that the costs of the several issues went to the party who succeeded upon them respectively, while the general costs went to him who on the whole succeeded in the action. I cannot doubt that this is the sense in which the expression was used in Order LV. The object was not to alter, but to preserve, the old practice in jury cases."

I refer also to Forster v Farquhar (1893) 1 QB 564, Colburt v Beard (1992) 2 Qd R 67 and Thiess v TCN Pty Ltd (No 5) (1994) 1 QDR 156 at 207.

Rule 101.02(1) was introduced into the Rules of the Supreme Court by the 1987 Rules. Prior to that the rule governing costs was Order 65 Rule 1 of the 1947 Rules which so far as material was in the following terms:- "Subject to the provisions of the Act and these Rules, the costs of and incidental to all proceedings in the Supreme Court, including the administration of estates and trusts, shall be in the discretion of the Court or Judge ... "

Ms Layton QC argued that the effect of the introduction of the new Rule is to impose on the Court the same fetter as was imposed on trial judges by the old Rule relating to jury trials.

I cannot accept that Rule 101.02(1) has introduced into the Rules of this Court an old rule designed for jury trials. It exists in a very different environment. The language of the Rule is different in that the power of the Court to order otherwise is not conditional upon "good cause" as in the English Rule LV. More importantly the purpose of Rule 101.02(1) is manifestly different from that of the English Rule. The purpose of the English Rule as explained by Lord Finlay was to fetter the discretion of trial judges who might not agree with the verdict of the jury and might reflect that disagreement in the costs order. There are no civil jury trials in this Court and that purpose can have no application. There is no discernible reason for imposing a fetter in this Court on the discretion of trial judges as to costs.

The existence of section 40 is also an important, even controlling factor, in the construction of the Rule. It is true that the section is expressed to be "subject to the rules". Nevertheless the legislative intention is plainly to confer on courts and judges an unfettered discretion as to costs. A construction of a Rule of court which practically negates the statutory provision is not lightly to be adopted. It may well be that the Rule, so construed, would be invalid. Where a statutory provision is made subject to Rules of Court, the Rules may prescribe procedures which condition the operation of the statutory provision or limit the mode of its operation. They may even modify or exclude its operation in defined circumstances. But a general provision in a Rule of Court which substitutes a different rule across the board for that prescribed by the statute would seem to me to be invalid as repugnant to the statute.

There is a strong presumption against construing the Rule in such a way and it is unnecessary to do so. Where costs are in the discretion of the court, the discretion must nevertheless be exercised judicially. A successful party has a reasonable expectation of obtaining his costs. The judge ought not to exercise his discretion against a successful party on grounds wholly unconnected with the cause of action, Donald Campbell and Co Ltd v Pollak (1927) AC 732. I think that Rule 101.02(1) does no more than express in the Rules that well established principle. The reference to costs following the event is an expression of the general expectation that the successful party will get the costs. The phrase "unless the Court otherwise orders" reflects the unfettered discretion of the judge to fashion the order for costs as he sees fit in the interests of justice. In my opinion the costs "by law are left to the discretion of the judge" within the meaning of section 50(2).

Ms Layton QC also argued that leave to appeal was not required by section 50(2) because this is not an appeal from an order "as to costs only". She contended that the fact that the plaintiffs' appeal raises questions as to the merits of the case and that the defendant is appealing against the orders on the third party claims, takes the appeal as to costs out of that category. The defendant's appeal is against the order made in favour of the plaintiffs. The question whether the appeal is against an order as to costs only must be tested by reference to the LIS between the plaintiffs and the defendant. It cannot be affected by any appeal in the defendant's proceedings against third parties. Those proceedings are included in the same action only for procedural convenience and by reason of the rules relating to third party proceedings. The only matter of appeal by the defendant in relation to the plaintiffs' action, relates to the order for costs. The fact that the plaintiffs have appealed on the merits does not affect the question. If a consideration of the defendant's appeal discloses that it is an appeal against an order as to costs only, the leave of the judge is required.

Ms Layton QC also argued that leave is not required where the appeal is based upon an error of law on the part of the judge making the order. The true principle is stated by Viscount Cave LC in Donald Campbell and Co Limited v Pollak (1927) AC 732 at 811 as follows:- "My Lords, it appears to me that the true view is substantially that taken by Lord Sterndale in the above quoted passage in his judgment in Ritter v Godfrey (1920) 2 K.B. 47, although I would express it in somewhat different language. A successful defendant in a non-jury case has no doubt, in the absence of special circumstances, a reasonable expectation of obtaining an order for the payment of his costs by the plaintiff; but he has no right to costs unless and until the Court awards them to him, and the Court has an absolute and unfettered discretion to award or not to award them. This discretion, like any other discretion, must of course be exercised judicially, and the judge ought not to exercise it against the successful party except for some reason connected with the case. Thus, if - to put a hypothesis which in our Courts would never in fact be realized - a judge were to refuse to give a party his costs on the ground of some misconduct wholly unconnected with the cause of action or of some prejudice due to his race or religion or (to quote a familiar illustration) to the colour of his hair, then a Court of Appeal might well feel itself compelled to intervene. But when a judge, deliberately intending to exercise his discretionary powers, has acted on facts connected with or leading up to the litigation which have been proved before him or which he has himself observed during the progress of the case, then it seems to me that a Court of Appeal, although it may deem his reasons insufficient and may disagree with his conclusion, is prohibited by the statute from entertaining an appeal from it."

The same principle is stated in another way by Willmer LJ in Jones v McKie (1964) 1 WLR 960 at 966:- "What it comes to, I think, is that, in order to justify an appeal as to costs only, this court must be able to say that the judge in the court below, however much he may have been purporting to exercise his discretion, has not really exercised his discretion at all."

That may occur because the judge has been influenced by factors wholly unconnected with the litigation. It may occur because there was no material before the judge upon which he could exercise the discretion in the way in which he purported to exercise it; Scherer v Counting Investments Ltd (1986) 2 All ER 529. It may occur because an error of law central to the case has the effect that there was not really any material upon which the discretion could be exercised; Hellyer v Sheriff of Yorkshire (1975) 1 Ch 16.

I do not think that an error of law of itself confers a right of appeal without leave. The error must be of such a kind as to enable the appellate court to say that there was no jurisdiction to make the order or that the discretion has not really been exercised. Ms Layton QC has relied upon the learned judge's citation of a passage from the judgment of Jacobs J in Crtazzo v Lombardi (1975) 13 SASR 9 at 16 "... in the course of which His Honour stressed the fact that when a plaintiff comes to court and succeeds in some issues, failing on others, the Court should not be astute to deprive the plaintiff of an element of the costs, or attempt to dissect costs with respect to issues on which the plaintiffs might have succeeded on the one hand or failed on the other".

Ms Layton QC contended that the approach of Jacobs J was based upon the concept of unfettered discretion as to costs and is not consistent with Rule 101.02(1). I have already given my reasons for holding that the unfettered discretion has survived the introduction of Rule 101.02(1). Furthermore the passage from the judgment of Jacobs J does not propound a principle of law but rather indicates a preferred approach to the exercise of the discretion. In my opinion the learned judge's reasons disclose no error of law, still less any error of law of a kind which would confer a right of appeal without leave.

In my opinion question (a) should be answered "YES".

It is clear from the language of section 50(2) that the required leave must be obtained from the judge making the order appealed from. The phrase "the judge" is clearly a reference to the judge making the order. The power to grant or refuse leave is expressly conferred on a specific judge and cannot be exercised by another judge or by the Full Court under the general power in section 48 which is expressed to be "subject to any express enactment". No doubt there is an implied qualification in the case of the unavailability of the judge making the order, which would enable the power to be exercised by another judge, but subject to that, only the judge making the order can grant leave.

24. Question (c) raises the issue whether the order striking out the appeal as to costs is a final order against which there is an appeal as of right or whether it is an interlocutory order against which an appeal lies only by leave by reason of section 50(3)(b) of the Supreme Court Act. The learned judge drew a distinction between the action which he took and the dismissal of an appeal as incompetent. He disavowed reliance upon Rule 95.08 which authorizes the dismissal of an appeal as incompetent. His Honour said:- "... But there was no application before me pursuant to Rule 95.08 when I refused leave to appeal on 11 August 1994. Neither did I, sub silentio, invoke or rely upon Rule 95.08. On the contrary, the striking out of part of the notice of cross-appeal was simply an incidence of my refusal of leave to cross-appeal with respect to costs."

25. The appeal as to costs has therefore not been dismissed as incompetent. A procedural order has been made striking out portion of the notice of appeal. The appeal as to costs has not been finally disposed of. It follows that the order is interlocutory in character; Licul v Corney [1976] HCA 6; (1976) 50 ALJR 439 at 441, Carr v Finance Corporation of Australia [1981] HCA 20; (1981) 147 CLR 246 at 248, Trams Pty Ltd v Grand Hotel (1993) 170 LSJS 312. Leave to appeal against the order is therefore required. It is hardly necessary to add that if the Court answers questions (a) and (b) in the way I propose, an application for leave is doomed to failure.

26. I would therefore answer the questions in the Case Stated as follows:- (a) YES (b) YES (c) YES (d) Not applicable

JUDGE3 NYLAND J I agree with the reasons of the Chief Justice and would answer the questions in the Case Stated as follows:- (a) Yes. (b) Yes. (c) Yes. (d) Not applicable.