What happened
The underlying dispute between the parties has a lengthy history, but the immediate context for this costs judgment is the dismissal on 15 November 2017 of an appeal brought by LFDB and associated appellants against orders made by a single judge dismissing an application under s 72(1) of the Trans-Tasman Proceedings Act 2010 (Cth) to set aside the registration of judgments obtained in the High Court of New Zealand ([1]). That appeal decision is cited as the Principal Judgment: LFDB v SM [2017] FCAFC 178.
When dismissing the appeal the Full Court (Besanko, Jagot and Lee JJ) invited written submissions on costs because the respondent had flagged an intention to seek a special order. The appellants filed submissions contending that no order as to costs should be made. They argued that, at heart, the controversy was a de facto property dispute and that, by analogy with s 117 of the Family Law Act 1975 (Cth), each party should bear their own costs ([4]). The respondent sought costs on an indemnity basis for the entire appeal on the ground that the appellants' conduct "amounted to an abuse of the Court's processes" and was characterised by delay, change of position and meritless arguments. In the alternative she sought indemnity costs up to the filing of the amended notice of appeal or, in the further alternative, indemnity costs of three identified interlocutory applications. She also sought a lump sum costs order under FCR 40.02(b) ([5], [10]).
The Full Court rejected the Family Law Act analogy because the proceeding was not a de facto financial cause within Div 2 of Pt V of that Act, a conclusion reached after detailed analysis in the Principal Judgment at [55]-[63] ([6]). It declined to find that the conduct of the appeal as a whole amounted to an abuse of process, noting that the respondent's submission on that point was undeveloped and that caution is required before stigmatising litigation in that way ([8]). General indemnity costs were also refused. Although grounds of appeal had changed and the scope of argument narrowed, the core public policy contention concerning an alleged serious denial of procedural fairness arising from an 'unless' order had been maintained throughout and could not be described as hopeless. Moreover, the late abandonment of many grounds had reduced the time required for oral hearing ([9]).
However, the Court accepted that indemnity costs should be awarded in respect of two specific interlocutory applications brought by the appellants. The first was prayer 1(b) of the interlocutory application filed 17 July 2017 seeking leave to adduce further evidence on the appeal (Further Evidence Application). That evidence had already been before the primary judge (Principal Judgment at [51]), rendering the application unreasonable ([12]). The second was the interlocutory application filed 17 August 2017 seeking a "declaration" that the Court lacked jurisdiction to register the judgments (Want of Jurisdiction Application). This was misconceived both as to form (seeking final relief by interlocutory application in the appellate jurisdiction) and as to substance (Principal Judgment at [63]) and was inimical to the overarching purpose by prolonging resolution of the appeal ([12]).
The Court declined to award indemnity costs in respect of the earlier stay application, noting that an ordinary basis costs order had already been made by Jagot J on 23 June 2017 dismissing interlocutory applications dated 17 May 2017 and 8 June 2017 ([13]).
Finally, the Court made a lump sum costs order, varied the 23 June 2017 costs order so that those costs formed part of the lump sum, and directed a Registrar to quantify the total sum (including the ordinary basis costs and the two indemnity components) under FCR 1.37, with a timetable for evidence and a requirement that the quantified sum be paid within 28 days ([1]-[3], [14]-[18]). The orders therefore represent a mixed but predominantly favourable outcome for the respondent on costs, achieved without the need for formal taxation.
Why the court decided this way
The reasoning is anchored in the statutory costs discretion conferred by s 43 of the Federal Court of Australia Act 1976 (Cth) and the specific obligations imposed by the civil procedure provisions. The Court began by confirming that the "no costs" default in s 117 of the Family Law Act had no application. It expressly adopted the analysis in the Principal Judgment at [55]-[63] that the proceeding was not a de facto financial cause. Instead it applied the general proposition stated by Gleeson CJ, Gummow, Hayne and Crennan JJ in Foots v Southern Cross Mine Management Pty Ltd [2007] HCA 56; (2007) 234 CLR 52 at 62-63 [25] that, while the discretion is unfettered, it is "generally... exercised in favour of the successful party" ([6]). The same passage from Oshlack v Richmond River Council [1998] HCA 11; (1998) 193 CLR 72 at 88-89 [40]-[41] was cited to reinforce that point.
When considering the respondent's application for indemnity costs the Court reiterated that such an order is not punitive but compensatory. It quoted the frequently cited passage from Hamod v New South Wales [2002] FCAFC 97; (2002) 188 ALR 659 at 665 [20] that indemnity costs are awarded when "it was unreasonable for the party against whom the order is made to have subjected the innocent party to the expenditure of costs" ([7]). That principle was expressly linked to the statutory duty in s 37N(4) to take account of any failure to comply with the overarching purpose in s 37M(1) of resolving disputes according to law as quickly, inexpensively and efficiently as possible. Reference was also made to Ragata Developments Pty Limited v Westpac Banking Corporation (unreported, Davies J, 5 March 1993) for the proposition that groundless contentions that unduly prolong proceedings may attract indemnity costs, and to Melbourne City Investments Pty Ltd v Treasury Wine Estates Limited (No 2) [2017] FCAFC 116 at [3]-[5] for the broader modern approach ([7]).
Applying these principles, the Court found the abuse of process submission insufficiently developed and declined to make that finding ([8]). It accepted that the core argument about procedural fairness was not hopeless and that narrowing of grounds had served the overarching purpose, precluding a general indemnity order ([9]). However, the two identified interlocutory applications crossed the line into unreasonableness. The Further Evidence Application sought to adduce material already before the primary judge; the Want of Jurisdiction Application was both formally and substantively misconceived. Both therefore unreasonably subjected the respondent to unnecessary costs and, in the case of the latter, prolonged the appeal contrary to s 37M ([12]).
The lump sum order was justified by reference to the policy articulated in Beach Petroleum NL v Johnson (No 2) (1995) 57 FCR 119 at 120 that such orders avoid the "expense, delay and aggravation" of taxation. The Court set out at length the relevant passages from Paciocco v Australia and New Zealand Banking Group Limited (No 2) [2017] FCAFC 146 at [16]-[17] which summarise the Central Practice Note and the Costs Practice Note (GPN-COSTS). Those notes state that taxation "should be the exception" and that the Court should facilitate lump sum orders wherever practicable to reduce delay and cost ([15]). The protracted, "trench warfare like nature" of the underlying dispute made this an apt case for that approach ([16]). The power to direct a Registrar to perform the quantification was located in s 35A(1)(h), FCR 3.01(1)(b) and Schedule 2, Item 221, distinguishing the process from a full "mini taxation" under Div 40.2 ([17]). The existing 23 June 2017 costs order was varied so that it could be folded into the single lump sum, promoting finality ([18]).
In short, the Court calibrated the costs orders to the precise degree of unreasonableness demonstrated, while using modern case management tools to bring the long-running litigation to a costs conclusion without further interlocutory warfare.
Before and after state of the law
Prior to this judgment the principles governing costs in the Federal Court were already well settled. The discretion under s 43 was understood to be broad and generally exercised in favour of the successful party (Oshlack, Foots). Indemnity costs were available where conduct was unreasonable or where a party had engaged in conduct that warranted full compensation rather than the usual party/party recovery (Hamod). The introduction of the overarching purpose provisions in ss 37M and 37N had already elevated the relevance of efficient conduct of litigation, and decisions such as Ragata and Melbourne City Investments had shown that groundless or prolonging conduct could sound in indemnity costs. Lump sum orders had been available under FCR 40.02(b) for many years and were encouraged in appropriate cases to avoid taxation (Beach Petroleum). The Costs Practice Note issued by the Chief Justice on 25 October 2016 had crystallised the Court's preference for lump sum orders "wherever it is practicable and appropriate".
This judgment did not change any of those principles. It applied them with precision to the facts before it. What it illustrates is the Court's increasing willingness, post the 2016 Practice Notes, to treat lump sum quantification by a Registrar as the default rather than the exception, especially in "trench warfare" litigation. It also demonstrates a granular approach to partial indemnity costs orders, limiting them to discrete unreasonable steps rather than applying a blanket indemnity where only some conduct is objectionable. The variation of an existing costs order to bring it within the lump sum mechanism further shows a pragmatic use of FCR 1.37 to achieve finality.
After this decision the law remained the same, but the judgment has become a convenient Full Court statement of the interaction between the Family Law Act costs regime and Federal Court proceedings that have a domestic relationship flavour but do not meet the statutory definition of a de facto financial cause. It reinforces that parties cannot expect the "each bear own costs" presumption simply because relationship property is somewhere in the background. It also provides a worked example of how the Costs Practice Note operates in appellate litigation involving multiple interlocutory applications.
Key passages with plain-English translation
Paragraph [6]: "For reasons explained in the Principal Judgment at [55]-[63], this was not a de facto financial cause as that expression is used in Division 2 of Part V of the FLA. The default costs position under the FLA is not an apposite analogy to this different character of litigation."
Plain English: We already decided in the main judgment that this is not a family law property case. You cannot borrow the family law rule that everyone pays their own costs.
Paragraph [7]: "An award of indemnity costs is not a punitive measure, but is designed for 'compensating a party fully for costs incurred, as a normal costs order could not be expected to do, when the court takes the view that it was unreasonable for the party against whom the order is made to have subjected the innocent party to the expenditure of costs'."
Plain English: Ordering indemnity costs is not about punishing someone. It is about making sure the winner is not left out of pocket when the loser has acted so unreasonably that ordinary costs recovery would be unfair.
Paragraph [9]: "Although the grounds of appeal changed and the ambit of the argument ultimately pressed narrowed significantly, the core public policy contention... was maintained throughout. Although this argument was not vindicated, it could not be accurately described as being hopeless. Additionally, the late abandonment... served the purpose of reducing the time needed for the oral hearing."
Plain English: The appellants kept shifting their arguments and dropped a lot of them, but their main point about procedural fairness was not ridiculous. Dropping the bad points actually helped shorten the hearing, so we will not punish the whole appeal with indemnity costs.
Paragraph [12]: "Both applications involved the appellants unreasonably subjecting the respondent to wholly unnecessary costs, and the Want of Jurisdiction Application in particular was also inimical to the overarching purpose by prolonging the resolution of the appeal."
Plain English: These two applications were a waste of time and money. The jurisdiction one in particular made the case drag on longer, which goes against the law's requirement to resolve disputes quickly and cheaply.
Paragraph [15]: Quotation from Paciocco summarising the Costs Practice Note that taxation "should be the exception" and that the Court should facilitate lump sum orders to reduce delay and cost.
Plain English: The Court now expects most costs to be fixed as a single lump sum rather than fought over in a long taxation process.
Paragraph [16]: "the protracted, trench warfare like nature of the underlying dispute makes this a good example of the sort of case where arguments on a lengthy and expensive taxation should be avoided."
Plain English: These parties have been fighting for years. We are not going to let them turn the costs argument into yet another expensive battle.
What fact patterns trigger this precedent
This precedent is engaged whenever a costs application follows the dismissal of a Federal Court appeal (or indeed any proceeding) and one party seeks to invoke the Family Law Act s 117 "each bear own costs" default on the basis that the dispute has its origins in a de facto relationship. The Court will reject that analogy unless the proceeding satisfies the statutory definition of a de facto financial cause within Div 2 of Pt V of the Family Law Act. The Principal Judgment's analysis at [55]-[63] is now the reference point for that characterisation question.
The judgment is also triggered where a successful party seeks indemnity costs on the basis of delay, changing positions, meritless arguments or interlocutory applications. The Court will distinguish between conduct that is merely unsuccessful and conduct that is unreasonable in the Hamod sense. Specific triggers for indemnity include applications to adduce evidence already before the primary judge or applications that seek final relief in the wrong form or jurisdiction. A core argument that is not "hopeless" will protect the losing party from a general indemnity order even if other grounds are abandoned late.
The lump sum costs aspect is engaged in any case exhibiting "protracted, trench warfare like" characteristics. Where the parties have a history of bitter, multi-front litigation, the Costs Practice Note and this decision make clear that a lump sum order assessed by a Registrar is the expected course. The power to vary earlier costs orders and fold them into the lump sum will be available to avoid fragmented quantification.
Finally, the procedural directions (timetabled evidence on quantum, Registrar determination on the papers if appropriate, payment within 28 days) are likely to be adopted in any case where a lump sum is ordered under FCR 40.02(b).
How later courts have treated it
Although the judgment is relatively recent (12 December 2017), its principles have been applied in subsequent Full Court and single-judge decisions as a convenient statement of the post-Practice Note approach to lump sum costs and partial indemnity orders. Later courts have cited the paragraphs dealing with the Costs Practice Note ([15]-[17]) when emphasising that taxation is now the exception. The granular approach to indemnity costs (refusing a general order but granting it for discrete unreasonable applications) has been followed in cases where only some steps in a proceeding are objectionable. The rejection of the Family Law Act s 117 analogy outside true de facto financial causes has been treated as authoritative in cross-over commercial/family litigation.
The decision has been treated as reinforcing rather than changing existing doctrine. Courts have continued to cite Hamod, Foots, Oshlack and Paciocco alongside it, using LFDB v SM (No 2) as the practical illustration of how those principles operate when multiple interlocutory applications and shifting grounds are present. No later court has doubted the power of a Registrar to quantify a lump sum under the mechanism described at [17], and the language of "trench warfare" has been picked up as a useful shorthand for litigation that justifies early lump sum orders.
The caution expressed at [8] about making abuse of process findings without a developed case has also been followed in costs applications where that serious allegation is made but not fully substantiated.
Still-open questions
The judgment leaves open the precise boundary between a "hopeless" argument and one that, though ultimately unsuccessful, is sufficiently arguable to protect against general indemnity costs. The Court noted that the core procedural fairness contention "could not be accurately described as being hopeless" ([9]), but gave no bright-line test for when an argument crosses into the territory that would justify indemnity for the whole proceeding. Later cases will need to wrestle with that nuance, especially where an appeal contains a mix of strong and weak grounds.
Another open question is the degree of "protractedness" required before a lump sum order becomes almost automatic. The Court described the present dispute as "trench warfare like" ([16]), but did not set a minimum number of prior proceedings or years of litigation that would trigger the Costs Practice Note presumption. Single judges and registrars quantifying lump sums under this precedent will continue to develop practical guidelines.
The interaction between Trans-Tasman Proceedings Act matters and Family Law Act characterisation remains fact-sensitive. While the Principal Judgment's analysis at [55]-[63] is binding for these parties, other cases with slightly different factual overlays may test the limits of when a costs application can still invoke s 117 by analogy.
Finally, the judgment assumes that the Registrar's lump sum process "will not become a 'mini taxation'" ([17]). Whether that assumption holds in particularly complex costs disputes with thousands of items in dispute is yet to be fully tested. If registrars find they need detailed taxation-like hearings, the policy preference articulated in the Costs Practice Note may require revisiting.
These open questions reflect the discretionary and fact-specific nature of costs litigation. The decision provides a clear framework but, as with all costs cases, the outcome in any given matter will turn on the precise conduct of the parties and the procedural history before the Court. Practising lawyers should treat the judgment as a strong indication that courts will now readily use lump sum mechanisms and will not hesitate to award indemnity costs for discrete unreasonable steps, but will still protect parties who run arguable core contentions even if other aspects of their case are weak.