RELEVANT PRINCIPLES
23 The Court undoubtedly has a broad discretion to award costs under s 43 of the Federal Court of Australia Act 1976 (Cth).
24 The exercise of the discretion in relation to costs is usually relatively straightforward when there has been a hearing on the merits and there is a clear outcome of the proceedings. In such cases, costs usually follow the event: Latoudis v Casey (1990) 170 CLR 534 at 543, 566-568. Where, however, there has been no hearing on the merits because the moving party no longer wishes to pursue the action, usually because of some supervening event, the situation is not so clear. General principles have emerged to guide the exercise of the costs discretion in such cases.
25 In Re Minister for Immigration and Ethnic Affairs; Ex parte Lai Qin (1997) 186 CLR 622, an applicant for a protection visa, whose application had been refused by the Minister for Immigration and Ethnic Affairs and who had failed in review proceedings before the Refugee Review Tribunal, commenced proceedings against the Minister for prerogative relief. Shortly after the proceedings were commenced, the Minister exercised his discretion to grant a protection visa to the applicant. That obviously meant that it was unnecessary for the applicant to proceed with her action against the Minister. The applicant did, however, seek her costs on the basis that the Minister should have advised her prior to the commencement of the proceedings that he was reconsidering her application. In that context, McHugh J said (at 624-625):
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. The court cannot try a hypothetical action between the parties. To do so would burden the parties with the costs of a litigated action which by settlement or extra-curial action they had avoided. In some cases, however, the court may be able to conclude that one of the parties has acted so unreasonably that the other party should obtain the costs of the action. In administrative law matters, for example, it may appear that the defendant has acted unreasonably in exercising or refusing to exercise a power and that the plaintiff had no reasonable alternative but to commence a litigation. …
Moreover, in some cases 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. ... But such cases are likely to be rare.
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. This approach has been adopted in a large number of cases.
(Footnotes omitted)
26 The principles enunciated by McHugh J in Lai Qin were not particularly new or novel, but were derived from a number of earlier cases. The principles have also been adopted and applied in subsequent cases too numerous to mention. It is necessary to refer to only one further case, if only to emphasise or underline the height of the hurdle over which a party in a case such as the present case must leap in order to persuade a court to make a costs order if, to resolve the question of costs, the court would have to address the merits of the settled or discontinued proceeding, or consider voluminous evidence concerning contested facts.
27 In Nichols v NFS Agribusiness Pty Ltd (2018) 97 NSWLR 681, the plaintiff company commenced proceedings against the defendants (a former employee and his associates) alleging that the employee had taken the company's confidential information. Interim orders were made against the defendants. Those interim orders led to the inspection of the defendants' electronic devices and the destruction of any of the company's information found on those devices. The plaintiff company subsequently abandoned its claim for compensation and the balance of the proceeding was resolved by consent save as to costs. The consent orders included orders permanently restraining the defendants from using the relevant information, though there was no determination as to whether that information was confidential or had been used by the former employee or his associates.
28 The parties invited the unfortunate judge who heard the subsequent costs applications to read all the affidavit and documentary evidence filed in the proceedings. That evidence ran to over 200 pages. The judge did not rule on any of the objections which had been made in respect of the evidence. There was no cross-examination of the deponents. The judge ordered the defendants to pay the plaintiff company's costs, apparently on the basis that the defendants had "capitulated", or that the plaintiff company would "almost certainly" have succeeded, or that the company had acted reasonably in commencing the proceeding and the defendants had acted unreasonably in defending the proceeding. Those findings were based on the judge's reading of the voluminous affidavits. The defendants successfully appealed those orders.
29 Payne JA, with whom Basten and Meagher JJA agreed, referred to Lai Qin and some subsequent authorities and summarised the principles in the following terms (at [30]):
If both parties to a proceeding which has been settled without a hearing on the merits 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.
30 Payne JA found that the approach taken by the primary judge was contrary to the principles espoused in Lai Qin and subsequent cases. In particular, his Honour found (at [54]) that the case was not one where the plaintiff company "could make good its claim that, without addressing the merits, the primary judge could be satisfied that it would have succeeded in any event" or that it was a case where "without addressing the merits, it was clear that [the plaintiff company] had acted reasonably in commencing and prosecuting the claim and [the defendants] had acted unreasonably in defending the claim". Payne JA also noted that a number of the factual findings made by the primary judge were not available, or could not be made "on the papers" and without cross-examination. That was because the facts were in issue and (at [47]) "permitting the cross-examination of witnesses to determine costs issues in a case determined other than on the merits, is antithetical to the principles explained in Lai Qin".
31 While Basten JA agreed with Payne JA, his Honour also set out his own statement of principle so as "to avoid any reagitation of matters which should not have been agitated below" (at [11]). His Honour's statement of principle included as follows (at [2] and [3]):
Where the parties resolve their differences, except as to the costs already incurred in litigation, they should usually expect that the court will not award costs. That is because the general rule applicable in civil litigation in superior courts is that costs will "follow the event". That rule is frequently paraphrased by reference to its purpose, namely that the successful party should generally recover its costs from the unsuccessful party. But where there has been no trial there is no "event" because, except in unusual cases, it is not possible to say that one party has been successful and the other unsuccessful. The orders made by consent may or may not demonstrate capitulation by the "unsuccessful" party.
In unusual cases, it may be possible to identify success which is manifest on the face of the record. However, to manufacture a dispute in order to resolve that question is to disregard the statutory obligation imposed on the parties, their legal representatives and the court to conduct civil proceedings so as to facilitate the just, quick and cheap resolution of the "real issues in the proceedings." As explained in Expense Reduction Analysts Group Pty Ltd v Armstrong Strategic Management and Marketing Pty Ltd:
"[57] That purpose may require a more robust and proactive approach on the part of the courts. Unduly technical and costly disputes about non-essential issues are clearly to be avoided."
The court further stated:
"[59] It could hardly be suggested that the pursuit of satellite interlocutory proceedings of the kind here in question in any way fulfils the overriding purpose of the [Civil Procedure Act]. To the contrary, it is the very kind of conduct which should be avoided if those purposes are to be achieved."
(Footnotes omitted)
32 In the course of considering a number of what were said to be "fundamental errors" by the primary judge in disposing of the proceedings in the way he had, Basten JA also made it clear that it was a fundamental error for the trial judge to have reviewed the voluminous affidavit evidence with a view to determining the reasonableness of the conduct of the parties. His Honour said as follows in relation to that issue (at [8]):
… although it is possible to make an order for costs against one party if it can be shown that it has invited the litigation by its unreasonable behaviour, or has unreasonably pursued the litigation, such an order should only be made where that judgment is manifest by reference to known circumstances, not in dispute between the parties. If the question cannot be answered without reviewing large swathes of evidence and resolving, on a tentative basis, disputed questions of fact, the task should not be embarked upon.
33 Like Payne JA, his Honour considered that the primary judge erred in making factual findings in respect of matters in dispute on the basis of the affidavit evidence. His Honour said, in that regard, that once it became apparent that the determination of the disputed issues could not occur without permitting the parties to challenge the other party's witnesses, "the inquiry should stop" (at [10]).