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42.19(1) This rule applies to proceedings that are discontinued by the plaintiff, as referred to in rule 12.1.
(2) Unless the court orders otherwise or the notice referred to in rule 12.1(2) otherwise provides, the plaintiff must pay such of the defendant's costs as, at the date on which the notice of discontinuance was filed, had been incurred by the defendant in relation to each claim in respect of which the proceedings have been discontinued."
27 The effect of those rules and their relationship has now been clarified in a series of Court of Appeal decisions (Fordyce v Fordham [2006] NSWCA 274; Prodromos Anastasi Foukkare v Angreb Pty Limited [2006] NSWCA 335, Australiawide Airlines Limited v Aspirion Pty Limited [2006] NSWCA 365 and Bitannia Pty Limited v Parkline Constructions Pty Limited [2009] NSWCA 32. Even though Australiawide Airlines related to rule 42.20(1), the approach in each sub-rule is similar, i.e. unless the Court exercises its discretion to otherwise order, the plaintiff must pay the defendant's costs.
28 The nature of the test has been conveniently stated by Bryson JA and Basten JA in Australiawide Airlines as follows:
"48 This passage from Lai Qin is not readily applicable to decision under r 42.20(1). UCPR r 42.20 is not entirely consistent with McHugh J's observation that the proper exercise of the costs discretion will usually mean that the Court will make no order as to costs. Justice McHugh's observations were directed to the discretionary power in O 71 r 39 of the High Court Rules (Cth), set out in Lai Qin at 623, which was discretionary overall, whereas in contrast r 42.20(1) creates a starting point by requiring "… the plaintiff must pay the defendant's costs of the proceedings …" unless that outcome is displaced by a discretionary decision. It should in my opinion no longer be said that if the moving party, or if both parties have acted reasonably in commencing and defending proceedings the proper exercise of the costs discretion will usually mean that the Court will make no order as to the costs of the proceedings; observance of the starting point under r 42.20 will make this outcome less usual than it earlier was.
…
53 Rule 42.20(1) would be overstated if described as creating a presumption about the disposition of costs. It goes no further than to state the first point of consideration; there is no presumption which must be outweighed; what the rule says is what the order for costs is to be unless there is a discretionary decision to order otherwise. At the discretionary stage the matters to be considered are little altered: cf Fordyce v Fordham [2006] NSWCA 274 at [87] (McColl JA):
[87] Once it is recognised, however, that the costs discretion conferred by UCPR 42.19 and 42.20 is unconfined, the matters referred to in the Lai Qin line of authority are plainly pertinent, although, again, not necessarily determinative."
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65 In order to avoid the statutory order, it was necessary for the plaintiff to show more than justification, in the sense that it commenced proceedings in the exercise of a statutory right available to it. It would have needed to show some additional factor, such as that conduct of the defendant led it to the reasonable belief that litigation would be necessary to enforce its right to payment in a timely fashion or that winding up the defendant was an appropriate means of obtaining payment. As Bryson JA has shown, by detailed reference to the facts before the Court, Aspirion was unable to demonstrate any such basis for the Court to otherwise order." (Basten JA)
29 Ludon submitted that the obtaining of the necessary authority from Michael Doyle on 22 October 2009 rendered the need for the appeal otiose. It submitted that it had moved to obtain that authority as soon as the proceedings in the Local Court were completed and that the only reason for a delay was Mr Doyle's initial recalcitrance and his presence overseas.
30 It submitted that since neither party wished to proceed with the litigation, the Court should be ready to facilitate the conclusion of the proceedings by making an appropriate costs order. The appropriate order in this case should be that each party pay his or its own costs because there had been no trial on the merits. It submitted that the authorities made it clear that where there had been no trial on the merits, it would be rare for the Court considering the costs application to determine for itself the case on the merits. This was particularly so where a trial on the merits would involve complex factual matters where credit could be in issue. It submitted that what the Court needed to determine was whether the party seeking to discontinue had acted reasonably in commencing the proceedings and whether the other side had acted reasonably in defending them.
31 Ludon submitted that if those principles were properly applied, there should be an order that each party pay his or its own costs. It submitted that the Court should not embark upon a hearing of the appeal on its merits, since the Court had not received full submissions on that question. It submitted that Ludon had acted reasonably, both in obtaining the authority from Mr Doyle and in bringing the appeal within time following the decision in the Local Court. In the circumstances, it submitted that it had no alternative but to bring the appeal since it was not possible to obtain an authorization from Mr Doyle before he departed for overseas.
32 Ludon's submissions should be rejected. The obtaining of an authority from Mr Doyle was not a supervening event which rendered the appeal otiose. It was a step which should have been taken before the Local Court retainer application was allowed to proceed. As was clearly appreciated by Ludon and SE Doyle & Associates after the Local Court proceedings, sections 236 and 237 of the Corporations Act 2001 provided the method for obtaining the cooperation of a recalcitrant director or if that cooperation was not forthcoming, an avenue whereby appropriate representation for Ludon could be obtained. The tone and content of the correspondence from SE Doyle & Associates leading up to Mr Doyle providing an authorization for them to act on behalf of Ludon was precisely that which should have preceded the motion in the Local Court.
33 I appreciate that in discontinuance cases such as this, where a contest on the merits has not taken place, it is usually not appropriate for the Court considering costs to base its decision on the merits of the claim. The circumstances of this case, however, are different.
34 This was an appeal from a decision of the Local Court in point of law only. There were no credit or factual issues which would arise which had not already been decided in the Local Court. The issue was a discrete and relatively simple one. Had her Honour correctly articulated the onus to be discharged by each side in a challenge to retainer case and if she had correctly articulated the test, did she properly apply it?
35 In my opinion her Honour did correctly state the test. Insofar as its application was concerned, the only issue of law to arise was whether the evidence before her Honour was capable of satisfying the test. Put another way, the legal issue thrown up by that question was a "no evidence" point. If there were evidence capable of establishing the negative onus borne by Barton then her Honour's finding on that issue was unassailable on appeal in point of law to this Court.
36 If Ludon's appeal failed on that issue, then it could not be seriously argued that any positive evidence had been put forward in response by SE Doyle & Associates to establish any form of retainer. In any event that issue was not raised in the appeal.
37 On my analysis of the transcript and her Honour's reasons, the appeal had no prospects of success. There was clearly evidence before her Honour which justified her Honour's finding. It follows that Ludon was not justified in bringing it.
38 As indicated above, it should have been obvious to Ludon and SE Doyle & Associates when the issue of retainer was raised in correspondence that no proper retainer existed and that this situation needed to be remedied. The time to remedy the situation was before the motion in relation to the retainer came on for hearing in the Local Court, not after those proceedings had been lost.
39 For those reasons, I am not satisfied that any proper basis has been established by Ludon for why it should not pay the costs of the appeal. Apart from anything else, the effect of its notice of discontinuance is to provide Barton with a successful outcome. He has in effect succeeded on the appeal. In the application of UCPR 42.19(2) nothing has been put on behalf of Ludon which would take the matter beyond the starting point specified by that rule, i.e. that it should pay Barton's costs. All the discretionary considerations, to which I have referred, favour that outcome.
40 Accordingly, absent other considerations I would have ordered that Ludon pay Barton's costs of the appeal generally and of this application.
41 It was submitted on behalf of Barton that in relation to the appeal and this application the costs order should be made personally against SE Doyle & Associates. The basis for that submission was that in the cases where a solicitor's retainer has been successfully challenged, the solicitor has to pay the costs personally.
42 That may well be so in such cases. This is not such a case. It is an appeal from a decision of the Local Court in point of law. Specifically, no challenge to SE Doyle & Associate's retainer by Ludon has been made in these proceedings. Accordingly, I decline to make such an order.
43 Relying upon the letter to SE Doyle & Associates of 18 September 2009 Barton submitted that its entitlement to costs should not be as agreed or assessed but should be on an indemnity basis. It submitted that its offer was a reasonable one in the circumstances, it complied with the formalities required of a Calderbank offer and a reasonable time for compliance was allowed. He emphasised that a proper analysis of the position at the time of the letter should have led Ludon and its legal advisers to conclude that the appeal had no chance of success.
44 In response Ludon submitted that there was no real element of compromise in that letter. What it was seeking was complete capitulation and because of that, it was unreasonable.
45 Although the letter did require Ludon to, in real terms, give up its appeal it did offer some benefits. The costs of preparation, i.e. the preparation of written submissions would have been saved. As matters have turned out, the filing of the notice of discontinuance has operated as a complete capitulation. Significant additional costs, however, have now been incurred which would have been saved had the offer of 18 September 2009 from Barton been accepted.
46 As previously indicated, a proper analysis of its position should have led Ludon and its solicitors to conclude that its appeal had no reasonable prospects of success. In those circumstances, it was unreasonable of Ludon to continue with the appeal in the face of the offer of 18 September 2009. It follows that Barton has established his entitlement to have his costs paid on an indemnity basis.