What order should be made?
58 Ordinarily, costs follow the event. Ordinarily, however, there is a hearing on the merits and it is the determination of the merits that dictates who should pay the costs. It is well accepted that where proceedings come to an end before hearing, a court should not decide costs by engaging in a hypothetical trial. As McHugh J explained in Re Minister for Immigration and Ethnic Affairs; ex parte Lai Qin (1997) 186 CLR 622 at 624-625:
The Court cannot try a hypothetical action …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.
Cf. Australian Securities Commission v Aust-Home Investments Ltd (1994) 44 FCR 194 ("ASC v Aust-Home Investments") per Hill J and One Tel Ltd v Commissioner of Taxation (2000) 101 FCR 548 per Burchett J.
59 The Court has a very broad discretion in relation to costs: see FCA Act, s 43(1). Where a party wishes to discontinue proceedings, however, FCR r 26.12(7) provides:
Unless the terms of a consent or an order of the Court provide otherwise, a party who files a notice of discontinuance under subrule (2) is liable to pay the costs of each other party to the proceeding in relation to the claim, or part of the claim, that is discontinued.
60 This rule, which in substance is the same as r 42.19 of the Uniform Civil Procedure Rules 2005 (NSW), establishes a default or prima facie position (Armstrong v Australian Community Pharmacy Authority [2012] FCA 577 per Rares J at [9]). It does not create a presumption that costs will be awarded against the discontinuing party, but it puts an onus on it to make an application to the Court where, absent an agreement to the contrary, it does not propose to pay the costs of the other parties (Foukkare v Angreb Pty Ltd [2006] NSWCA 335 at [65]). And the Court will require "some sound positive ground or good reason for departing from the ordinary course": Australiawide Airlines Ltd v Aspirion Pty Ltd [2006] NSWCA 365 at [54], Bitannia Pty Ltd v Parkline Constructions Pty Ltd [2009] NSWCA 32 at [54].
61 Here, there is good reason why the default position should not apply. This is not a typical case. The applicants did not effectively surrender. To the contrary, it was Mr Stone and Mr Banh who surrendered. The Secretary's decision was the optimum result for the applicants. They argued that this situation only came about because of their decision to bring the proceedings and because of the manner in which and the vigour with which they prosecuted them.
62 At first the applicants urged me to find that they would almost certainly have succeeded had their amended originating application proceeded to a hearing. Quite properly, however, they resiled from this position during oral argument. Ultimately, they submitted that the respondents had both behaved unreasonably, Mr Stone and Mr Banh from the outset, but especially from 24 April 2013, and the Commonwealth from 3 May 2013. For these reasons the applicants argued that the respondents should pay their costs.
63 The Commonwealth submitted that there should be no order as to costs up to 20 May 2013 because all parties had acted reasonably until then. On 20 May the Commonwealth's offer (made on 17 May 2013) that the applicants discontinue with no order as to costs expired. The applicants did not accept that offer and, according to the Commonwealth's submission, continued to prosecute their application. That conduct, the Commonwealth contended, "effectively forced" the Commonwealth to file an interlocutory application to have the proceedings dismissed, to prepare submissions and appear at an interlocutory hearing. Consequently, the Commonwealth asks for an order that the applicants pay the Commonwealth's costs on and from 21 May 2013.
64 In my view, between 24 April 2013, when Messrs Stone and Banh asked Coles to terminate the agreements for lease and 17 May 2013, when the Secretary's delegate decided to reject the Authority's recommendation, Mr Stone and Mr Banh should pay the applicants' costs. Otherwise, there should be no order as to costs. I have come to this view for the following reasons.
65 First, in ASC v Aust-Home Investments Hill J observed at 201:
It will rarely, if ever, be appropriate, where there has been no trial on the merits, for a Court determining how the costs of the proceeding should be borne to endeavour to determine for itself the case on the merits or, as it might be put to determine the outcome of a hypothetical trial… This will particularly be the case where a trial on the merits would involve complex factual matters where credit could be an issue.
66 In Gribbles Pathology Pty Ltd v Health Insurance Commission (1997) 80 FCR 284 Finkelstein J said at 287 that, save in special circumstances, it was difficult to see how, in the absence of a hearing on the merits, any order could be made other than that the parties bear their own costs. His Honour said that if a claim was "patently hopeless" or a defence was "bound to fail", that would be a good reason to make an order for costs. But he suggested that there would be very few cases where the issues would be sufficiently clear without a hearing for a costs order to be made in favour of a party.
67 In the present case, no-one contended that the application was "patently hopeless". The case did raise some complex factual matters and, having regard to the fraud allegation, credit would undoubtedly have been an issue. The Commonwealth never conceded that the applicants' case had merit. Even after Messrs Stone and Banh filed a submitting appearance, they maintained their opposition. On the other hand, the letter Mr Rush wrote to Coles on 8 March 2013 suggests that the decision by Mr Stone and Mr Banh to apply for a termination of the agreements for lease was actuated, at least in part, by a recognition that the proceedings were likely to succeed. Moreover, despite what was said in correspondence with the other parties and in Ms Bokarina's affidavit, I suspect that the decision to file a submitting appearance was motivated by the same consideration. But I cannot act on suspicion. And none of this material amounts to an admission that victory for the applicants was inevitable. Nor am I independently persuaded that the applicants were bound to succeed.
68 Secondly, I accept that the applicants acted reasonably throughout. There was a proper basis to call into question the Authority's decision and the applicants prosecuted the proceedings diligently.
69 The Commonwealth contended that "in hindsight" it would have been preferable for the applicants to wait to see what the Secretary did, or apply for an order to restrain the Secretary from acting on the Authority's recommendation. It submitted that the applicants had made a tactical decision to challenge the Authority's recommendation in the absence of a restraining order against the Secretary and it was always open to the Secretary to decide not to accept the Authority's recommendation. Yet, they conceded that the applicants did not act unreasonably in commencing the proceedings. In these circumstances the submission goes nowhere. A similar submission was made on behalf of Mr Stone and Mr Banh but they, too, did not contend that the applicants' decision to bring the proceedings was unreasonable.
70 It is true that the applicants could have waited for the Secretary to decide whether or not to accept the Authority's recommendation, but it was certainly reasonable for them not to. During that time it is at least possible, if not likely, that Mr Stone and Mr Banh would sign the lease (which was for a five-year term) and spend money fitting out the shop and acquiring stock so that they could be ready to open for business. Consequently, even if the applicants were able to prove that the Authority's decision was affected by error of a relevant kind, there might be powerful discretionary reasons why they would not get the relief sought. It is true that they could have pursued their application to restrain the Secretary from making a decision before the determination of the proceedings, but Mr Dean told Mr Flaherty that the Secretary's usual practice was to wait until the matter had been determined or six months after the date of the recommendation.
71 The Secretary's decision vindicated the applicants' forensic choice. I accept that in substance this means that they have won their battle against Mr Stone and Mr Banh. But the win occurred not because the Secretary accepted that the Authority's recommendation was flawed but because of the termination of the agreements for lease. True it is, it was because of the proceedings that Messrs Stone and Banh decided to ask for the agreements to be terminated. But they might have done so in any event because of the withdrawal of prospective tenants after the Authority made its recommendation.
72 Thirdly, until 24 April 2013 I am not satisfied that the respondents acted unreasonably.
73 The applicants were critical of the Commonwealth's decision to oppose the application after Mr Stone and Mr Banh had been joined and especially after they filed a submitting appearance. This raises issues similar to those considered in The Queen v Australian Broadcasting Tribunal; ex parte Hardiman (1980) 144 CLR 13, but I do not think the proceedings are truly analogous. The Authority is not a tribunal. Even so, as the Commonwealth submitted, in the absence of a contradictor it had a role to play in assisting the Court and its written submissions were essentially directed to questions of law, not fact. There is nothing unreasonable about the Secretary proceeding to determine the application by rejecting the Authority's recommendation.
74 Although the evidence does raise a number of questions about the conduct of Messrs Stone and Banh and they could have put on evidence to answer them, no inference should be drawn from the absence of such evidence. The significance to be attributed to the failure of a witness to give evidence ultimately depends on "whether, in the circumstances, it is to be inferred that the reason why the witness was not called was because the party expected to call him feared to do so": Fabre v Arenales (1992) 27 NSWLR 437 at 449. In the present circumstances, where the only question is who should pay costs and where there has been no hearing on the merits, where Mr Stone and Mr Banh filed a submitting notice before any occasion arose for them to put on evidence, and where they provided an explanation for doing so, there is no basis for such an inference.
75 In the course of their submissions the applicants pointed to discrepancies between the material submitted to the Authority and other documents. In particular, they compared the proposed floor plan for the shopping centre attached to the development consent from the Council with the floor plan Mr Stone and Mr Banh submitted to the Authority. The former showed one tenancy in a rectangle marked T11. In contrast, the latter showed three in the same space (marked T11, T12 and T13). But the floor plan annexed to the development consent was dated 10 October 2011. The floor plan submitted with the application to the Authority was undated. A table appearing in annexure A to Mr Peachey's statutory declaration purportedly showed the names of the tenants who had accepted signed lease offers for the three areas marked T11, T12 and T13, as at 11 December 2012, fourteen months after the date of the floor plan annexed to the development consent. There is therefore no necessary inconsistency. Additional tenants could have come on board since the development consent was obtained.
76 Indeed, emails passing between Mr Stone and Mr Peachey in 2012 refer to plans by Mr Stone to convert T11 into up to four premises for "medical tenancies" including a general medical practice. And evidence was tendered to show that on 9 and 10 December 2012 (just before Mr Peachey signed his statutory declaration) Mr Stone entered into three separate agreements to sub-lease shop 11, dividing the area previously occupied by shop 11 into three separate premises.
77 The inescapable inference is that these agreements were entered into for the purpose of ensuring that Mr Stone and Mr Banh could satisfy the Authority that Fletcher Village contained the requisite number of commercial establishments. Mr Flaherty said in an affidavit filed on 14 May 2013 that the documents Coles produced on subpoena showed that these agreements were forwarded to Coles by email on 14 March 2013. These circumstances are curious, but there is no evidence to indicate that the agreements were not genuine. On the contrary, in an email from Mr Stone to Mr Peachey dated 1 February 2013 (that is after the Authority had made its recommendation), Mr Stone referred to "officially start[ing] design/documentation" the previous day, with a view to what he described as "the medical tenancies" opening at the same time as the pharmacy.
78 The applicants also pointed to emails indicating that Mr Stone had been intimately involved in the preparation of Mr Peachey's statutory declaration. Of itself, that circumstance is innocuous. Mr Peachey could not be expected to know what information a pharmacist would require in order to meet the requirements of the ACPA rules. Either Mr Stone or someone on his behalf would have to liaise with him to ensure that the statutory declaration covered all relevant matters.
79 Thus, as I said, before 24 April 2013, I am not satisfied that any of the respondents behaved unreasonably. The position is different, however, after 24 April 2013.
80 I accept that generally speaking a party who files a submitting notice can expect not to have to pay costs from the date the notice is filed. Doubtless the reason for this is that, by playing no active part in the proceedings, the submitting party makes no contribution to the costs incurred by the other parties. But that is not this case.
81 Once the decision was made to ask Coles to terminate the agreements for lease, it was inevitable that these proceedings would be brought to a swift end. Messrs Stone and Banh must have known that. They also knew that at the same time they wrote to Coles asking it to terminate the agreements, the other parties were preparing for a trial, that the applicants were due to file the court book within six days and their further evidence and submissions within two weeks. Yet, they took no steps to inform the other parties of their decision. At the very least, that was thoughtless or inconsiderate. As the applicants put it, Messrs Stone and Banh effectively stood by, knowing that in the likely event their proposal were accepted, they had no legal right to occupy any premises in Fletcher Village. As the applicants submitted, if they had been informed on or about 24 April 2013, they could have approached the Court for orders to excuse them from having to prepare the additional documents. In large part the costs that were incurred after 24 April were incurred unnecessarily and only because the parties, especially the applicants, were kept in the dark about what Messrs Stone and Banh were doing.
82 Section 37M(1) of the Federal Court of Australia Act 1976 (Cth) provides that the overarching purpose of the civil practice and procedure provisions is to facilitate the just resolution of disputes according to law and as quickly, inexpensively and efficiently as possible. The power to award costs must be exercised in the way that best promotes that purpose (s 37M(3)). As Messrs Stone and Banh accepted, all parties are required to conduct the proceeding in a way that is consistent with that purpose (s 37N(1)). In exercising the discretion to award costs in a civil proceeding I am bound to take into account any failure to comply with that obligation (s 37N(4)). In my view, from 24 April 2013 Mr Stone and Mr Banh did not conduct the proceeding in a way that is consistent with the overarching purpose. While they set out to ensure that they, themselves, did not incur unnecessary costs, they proceeded without regard to the costs they knew or must have known the other parties were running up. The failure to promptly inform the other parties (particularly the applicants) of their actions was unreasonable.
83 For these reasons Mr Stone and Mr Banh should pay the applicants' costs from 24 April 2013 until 17 May 2013, when the Secretary's decision was made.
84 The applicants also submitted that the Commonwealth acted unreasonably in not informing them of the termination of the agreements for lease on 3 May 2013, when Esplins wrote to Mr Dean. But that was a Friday and on the Monday (6 June), the same day Ms Jones informed the applicants, she emailed the respondents to let them know what she had done. The email was copied to Mr Flaherty. On this basis the Commonwealth was therefore entitled to work on the assumption that by then the applicants knew as much as it did.
85 After 17 May, however, the picture is not so clear.
86 The applicants contended that the Commonwealth could have consented to the orders sought. That is undoubtedly true. The applicants had repeatedly invited them to do so in a number of Calderbank offers. As the Commonwealth pointed out, however, the sting in the tail was that the applicants required the respondents to pay their costs. None of these offers, I would point out, involved any genuine element of compromise on the applicants' part. On 17 May 2013, three days after the applicants' second Calderbank offer, the Commonwealth wrote to the applicants to inform them of the Secretary's decision and to propose a different means of resolving the proceedings with different costs consequences. The letter reads:
Without prejudice save as to costs
We are instructed that the delegate had today rejected the Third and Fourth Respondents' s 90 application. Please find attached a copy of the letter from the delegate to a representative of the Third and Fourth Respondents, dated 17 May 2013.
In the circumstances, your clients (sic) Amended originating Application for Judicial Review no longer serves any purpose, and in our clients' submission there is no relief that the Court can grant with respect to the decision under review that would have any substantive impact or effect. On that basis, we anticipate our clients will instruct us to move the Court for an order that your clients' application be dismissed for lacking utility.
However, such a motion will only be necessary in the event that your clients press their Amended Originating Application for Judicial review. Accordingly, our clients invite your clients to withdraw their application at the earliest opportunity (which, in our view, will be no later than 21 May 2013). We are instructed that, in the event that your clients withdraw their application, our clients will not seek a costs order against them.
If this offer is not accepted by close of business on 20 May 2013, the offer is withdrawn, and we will be likely to seek the instructions that are foreshadowed above.
(Emphasis added.)
87 The offer was not accepted. As I mentioned earlier, the Commonwealth submitted that the applicants "continued to prosecute their application" and "this course of action effectively forced [the Commonwealth] to file [the interlocutory application] to have the proceedings dismissed, and to prepare submissions and appear at an interlocutory hearing". Consequently, the Commonwealth sought an order that the applicants pay its costs on and from 21 May 2013.
88 I reject the submission. Although the applicants did not accept the Commonwealth's offer, it is not correct to say that they continued to prosecute the proceedings. There was no dispute that the proceedings should be brought to an end and that the hearing scheduled for 28 May 2013 should not go ahead. The dispute was about the means of doing so and above all, about who should pay costs. The parties could have reached an agreement about discontinuing the proceedings. Indeed, they did so on 28 May. But they were never going to reach an agreement about costs. I can understand the applicants' desire that the respondents pay their costs. In the unusual circumstances of this case, I do not think that they were unreasonable to refuse an offer that would have seen them recover no costs. I also understand the Commonwealth's desire to bring the matter to a head, but I consider that to do so by applying for summary dismissal was heavy handed. In any event, when the application was listed for hearing the Commonwealth did not press for the relief sought. In those circumstances, the Commonwealth should pay the costs of its interlocutory application for summary dismissal filed on 21 May 2013. To avoid doubt, this should include the filing of the interlocutory application, affidavits in support and submissions on the interlocutory application but not the costs of the hearing on 28 May 2013 as the applicants were pressing to bring the matter back before the Court in any event. Each party has had a measure of success on the question of who should pay costs but there is no obvious victor.
89 There remains the question of the reserved costs. Mr Stone and Mr Banh should pay the costs of their interlocutory application heard on 17 April 2013 and filed in the registry the following day (18 April 2013). No order should be made with respect to the Secretary's application of 16 April 2013.
90 All costs should be paid on the ordinary basis. Although, as I have said, it was unreasonable for Messrs Stone and Banh not to let the parties know what they were doing on 24 April 2013, I do not think that their neglect is such as to warrant an award of indemnity costs.
91 There will be orders accordingly.
I certify that the preceding ninety-one (91) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Katzmann.