Ground 1 - Failure to apply the "usual rule" that costs follow the event
44Mr McCarthy's first ground alleges that the Tribunal erred in law (on the face of the record) or otherwise exceeded its jurisdiction in finding that "the usual rule that costs should follow the event unless there is disentitling conduct ... does not apply" to the Tribunal. This ground replicates the submission he made to the Tribunal, namely that the terms of reg 19 were such that, as he succeeded and, in the absence of disentitling conduct on his part, a costs order should follow. During the course of argument Senior Counsel for Mr McCarthy, Mr Dalton SC, put forward a variation on this ground. He also contended that, even if it was not accepted that the Tribunal should have applied a "rule" to the effect stated, it should have at least regarded that as the guiding principle and not simply focused on whether there was some unreasonable aspect of HRNSW's conduct which warranted a costs order being made against it.
45Counsel for HRNSW, Mr Dawson, contended that the Tribunal's construction of reg 19 was correct, and that even if it was not, any such error was immaterial to the outcome. This latter contention was to the effect that, even if the Tribunal should have applied a rule, or guiding principle, to the effect that costs follow the event, there was no "event" as the appeal was resolved by consent. Mr Dawson submitted the Tribunal's findings were consistent with a proper application of the principles stated by McHugh J in Lai Qin.
46I will address the construction of reg 19 first before addressing Mr Dawson's submission concerning materiality.
47In Latoudis v Casey [1990] HCA 59; 170 CLR 534 ("Latoudis"), the High Court considered the proper construction of a provision conferring a wide discretion upon a Magistrate to make an order for costs in favour of a defendant to criminal proceedings who successfully defended a summary charge. The majority (Mason CJ, Toohey and McHugh JJ) held that the Magistrate had erred in refusing to award costs to the defendant because the informant had acted reasonably in bringing the charges (at 544 per Mason CJ, at 564 per Toohey J, and at 570 per McHugh J).
48In Latoudis, McHugh J stated (at 568):
"In civil proceedings, the relevant statute or rule often provides that costs follow the event unless the Court thinks that some other order should be made. But even where the discretion is uncontrolled, civil courts act on the basis that a successful party has a reasonable expectation of obtaining an order for costs and that the discretion to refuse to award costs should not be exercised against the successful party except for a reason connected with the case." (emphasis added)
49The phrase "reasonable expectation" in this passage is of significance. Later in the judgment McHugh J stated that, in circumstances where there is no express rule to the effect, neither a successful party in civil proceedings or criminal proceedings has a "right to an order for costs" (at 569). Instead his Honour stated they had a "reasonable expectation" to that effect which should not be defeated "on grounds unconnected with the charge or the conduct of the litigation" (at 569). Further, his Honour found that the fact that the unsuccessful informant acted reasonably in bringing the proceedings, did so in the public interest or might be deterred from bringing charges if costs were awarded, does not defeat the expectation (at 569 to 570).
50Senior Counsel for Mr McCarthy, Mr Dalton SC, placed significant reliance on the Court of Appeal's judgment in Ohn v Walton (1995) 36 NSWLR 77 ("Ohn"). In Ohn the Medical Tribunal declined to award costs in favour of a respondent doctor who had successfully resisted disciplinary proceedings brought. The relevant regulatory regime conferred upon that tribunal a power to order, inter alia, the complainant or the medical practitioner the subject of the complaint "to pay such costs to such person as the Tribunal may determine". The medical practitioner appealed to the Court of Appeal against the refusal to award him costs. The appeal was restricted to a question of law (at 85). All the members of the Court of Appeal held that the Medical Tribunal had erred by failing to recognise that its discretion to award costs should be exercised in a manner consistent with the principles identified by the majority in Latoudis (at 79 per Gleeson CJ, 81 per Powell JA, and 85 per Cole JA).
51In Ohn, Gleeson CJ identified the imputed purpose of legislation which confers an unconfined power to award costs (at 79):
"The point of Latoudis v Casey is that the purpose of an order for costs is to indemnify or compensate the person in whose favour it is made, not to punish the person against whom it is made.
When legislation confers a power to order costs it is, in the absence of any contrary indication, to be understood as conferring a power to be exercised for that purpose.
Two things follow:
1. The usual rationale of making a costs order is that it is just and reasonable that the successful party should be reimbursed for costs incurred, in the absence of grounds connected with the charge or the conduct of the proceedings which make it unjust or unreasonable that there should be such reimbursement.
2. The test of whether an order for costs should be made against an unsuccessful plaintiff or complainant is not whether he or she has done anything to warrant punishment. It is whether, in the circumstances, the defendant or respondent should be compensated.
The majority [in Latoudis] also held that these principles are equally applicable to a case where a complainant or informant is acting under a public duty to lay a complaint or information." (emphasis added)
52This statement as to the presumed legislative purpose in the enactment of provisions conferring an unconfined discretion to award costs reconciles the outcome of Latoudis and Ohn, namely the prescription of a guideline requiring significant and perhaps presumptive weight to be attached to the fact that one party was successful, with the general proposition that ordinarily questions of the weight to be attached to a factor relevant to the exercise of a discretion are matters for the primary judge or decision maker (see House v R [1936] HCA 40; 55 CLR 499 at 504 to 505; Minister for Aboriginal Affairs v Peko-Wallsend Ltd [1986] HCA 40; 162 CLR 24 at 41 per Mason J).
53However, while a power conferred to award costs cannot be exercised "arbitrarily, capriciously or so as to frustrate the legislative intent", the relevant discretion is nevertheless "unconfined except in so far as 'the subject matter and the scope and purpose' of the legislation may enable an appellate court to pronounce the reasons given by the primary judge to be definitely extraneous to any objects the legislature could have had in view" (Oshlack v Richmond River Council [1998] HCA 11; 193 CLR 72 at [22]) ("Oshlack").
54In Oshlack, Gaudron and Gummow JJ warned against an "arterial hardening" of provisions conferring a power to award costs by elevating rules of practice to rules of law which had the effect of rendering irrelevant to the exercise of the relevant discretion considerations such as the motivation for an unsuccessful party bringing litigation, the potential benefit other than to themselves personally from the potential success and the significance of the issues sought to be raised as factors relevant to the exercise of discretion concerning costs (at [20] and [48] to [49]). Thus their Honours denied that there was any "absolute rule with respect to the exercise of the power conferred by a provision such as s 69 of the [Land and Environment Court] Act that, in the absence of disentitling conduct, a successful party is to be compensated by the unsuccessful party" (at [40]). The factors identified by Gummow and Gaudron JJ were said to be relevant in the context of environmental litigation brought by a private person apparently for the public benefit. No case since has suggested that this aspect of Oshlack is inconsistent with the analysis of McHugh J in Latoudis noted in [49] above.
55One particular feature of this case is that the Tribunal was exercising a review function, which that was not the case with the Medical Tribunal in Ohn, nor the court the subject of the appeal in Latoudis. The exercise of an unconfined power to award costs in such a context was considered in Thaina Town (On Goulburn) Pty Ltd v City of Sydney Council [2007] NSWCA 300; 71 NSWLR 230 ("Thaina Town"). In Thaina Town, Spigelman CJ (with whom Mason P and Beazley, Giles and Ipp JJA agreed) found that the Land and Environment Court had erred in law in adopting a "presumptive rule" in certain merits review proceedings of not awarding costs. The rule was found to be an "impermissible fetter" on the discretion conferred by s 69 of the Land and Environment Court Act 1979 (NSW) ("L&E Court Act") which conferred an unconfined discretion to award costs (at [68]).
56In Thaina Town the applicant for costs had been issued with a prevention notice under s 96 of the Protection of the Environment Operations Act 1997 (NSW) (the "POEO Act"). The applicant successfully appealed the issue of the notice to the Land and Environment Court. The proceedings were so called "Class 1" proceedings (see s 17 of the L&E Court Act) in respect of which the Court exercised a merits review function (s 39 of the L&E Court Act). In describing the inter-relationship between the nature of the review and the exercise of the power to award costs, Spigelman CJ stated as follows:
"73 In any event, and alternatively, identifying the relevant principle, as his Honour did, in terms of 'merits review proceedings' or 'Class 1 proceedings' is too broad. Not all 'Class 1 proceedings' are equivalent. An appeal with respect to a refusal of a development application is not capable of being equated to an appeal from a decision to issue a prevention notice. Another way of expressing this conclusion is that the fact that the proceedings involved a citizen resisting the imposition of a liability, to use the formulation of Sugerman J in Thorpes Ltd supra, was a relevant consideration which his Honour failed to take into account.
74 ...
75 I accept that the character of litigation is a relevant question in the exercise of the costs discretion. However, it is not appropriate to identify that character in such general terminology as 'merits review' or 'Class 1, 2 and 3' of the Court's jurisdiction. The very breadth of the matters encompassed by so general and wide ranging a concept leads almost inevitably to a fetter on the discretion because relevant differences in the kinds of matters so classified are not taken into account.
76 Relevantly for present purposes, in my opinion, there is a significant distinction between merits review of a decision which seeks a consent or a licence in the exercise of an administrative discretion on the one hand, and merits review of a decision to impose a liability on a person by requiring conduct to occur and expense incurred under the threat of criminal sanctions. The same approach is not appropriate in both kinds of cases.
77 Furthermore, as I have indicated above there is an important statutory difference between an appeal under Pt 9.2 of the Protection of the Environment Operations Act [("POEO Act")] and other appeals in Class 1. The primary decision-maker is said to be bound by the Court's decision, as distinct from the Court exercising the powers and performing the functions of the primary decision-maker.
78 The actual order made by the Commissioner was to revoke the Prevention Notice. This order is sufficient to prevent the enforcement provisions of the [POEO Act], ss97, 98 and 100, from having effect. It is not clear what work is done by s292(2) when it provides that the decision of the Court is 'final and binding' on the Council. Presumably, it would prevent the issue of a further notice in materially the same terms.
79 However, unlike many other Class 1 proceedings it cannot be said that the Court simply takes the place of the primary decision-maker in an appeal under Pt 9.2 of the [POEO Act]. In my opinion, the usual position on a merits review that an appeal tribunal stands in the shoes of the primary decision-maker is a significant element in the practice of such tribunals not to exercise such power, if any, to award costs as are conferred upon them. Administrative decision-makers do not award costs. Where a judicial or quasi-judicial function is expressly placed in the position of such a decision-maker then it is more appropriate that it adopt the same general approach. Part 9.2 of the [POEO Act] is different in this respect."
57In this passage Spigelman CJ identified two aspects of the statutory scheme of merits review of the decision in that case that distinguished it from other types of merit review. The first was that noted in [76], namely that the proceedings in that case did not involve the review of a decision granting or refusing a licence or permit, but instead was a review of a decision to impose a liability upon a person.
58The second was that the legislation under which the primary decision was made, namely s 292(2) of the POEO Act, did not have the effect that the Land and Environment Court stood "in the shoes" of the primary decision maker. Instead the legislation provided that the decision of that Court was "final and binding" on the appellant and the person or body whose decision was the subject of the appeal. However s 39(5) of the L&E Court Act provided that the decision of the Court was the "final decision of the person or body whose decision is the subject of the appeal and shall be given effect to accordingly". Earlier in his Honour's judgment, Spigelman CJ noted that (Thaina Town at [15]):
"There appears to me to be a tension between s292(2) [of the POEO Act] and s39(5) of the [L&E Court Act]. It is, at the least, unnecessary to provide both that the Court's decision is 'binding' on the primary decision-maker and that the Court's decision is 'deemed ... to be the final decision' of the primary decision-maker. By way of comparison, there is no such provision with respect to appeals relating to development applications under s97 and s98 of the [EPA Act], in which case the Court does stand in the shoes of the decision-maker."
59As previously noted, s 17A(2) of the Tribunal Act provides that the decision of the Tribunal "is final and is taken to be a decision of the person or body whose decision is the subject of the appeal". This provision appears to contain the same tension that concerned Spigelman CJ in Thaina Town in that it both substitutes the decisions of the Tribunal for that of the body appealed from, and also provides that it is "final" (and not just the final decision of the body appealed from). For my part, I confess to having difficulty understanding how these legislative nuances of a merits review scheme are relevant to the exercise of a reviewing court or tribunal's power to award costs. However, accepting their significance, the drafting of s 17A(2) is such that I regard this as a neutral factor.
60However the first matter noted above (at [57]) is of particular significance to Mr McCarthy's case. I have sketched the type of decisions from which the Tribunal exercises its appellate or review function at [21]ff above. The Tribunal's function in this case has strong similarities to the function exercised by the Medical Tribunal in Ohn. The Tribunal was exercising a quasi-judicial function of applying an established rule of conduct to the facts as found and, if appropriate, imposing a sanction as a consequence. Mr McCarthy's position fell within the description given by Spigelman CJ in Thaina Town of a citizen "resisting the imposition of a liability" (Thaina Town at [73]). It can be contrasted with an application for "merits review of a decision which seeks a consent or a licence" (Thaina Town at [76]).
61In the end result, none of the decisions since Ohn have undermined the continuing applicability of Gleeson CJ's statement as to the presumed purpose of the conferral of an unconfined power to award costs (see [51]). However, Oshlack confirmed that such a power does not establish a "rule" that costs follow the event unless there is disentitling conduct. Instead the power retains its discretionary nature and the factors affecting the exercise of the discretion are only limited by the "subject matter and the scope and purpose" of the legislation. The analysis of the legislative structure governing appeals in different types of proceedings within class 1 of the L&E Act undertaken by Spigelman CJ in Thaina Town is an example of how the "subject matter and the scope and purpose" of the legislation informs the approach to be undertaken to the exercise of the power to award costs.
62This analysis leads to the conclusion that, in the case of an appeal from a disqualification imposed by the Stewards as a consequence of finding of a breach of the Rules, the power conferred by reg 19 should be exercised on the basis that "it is just and reasonable that the successful party should be reimbursed for costs incurred, in the absence of grounds connected with the charge or the conduct of the proceedings which make it unjust or unreasonable that there should be such reimbursement" (Ohn at 79) (see [51]). In such cases a successful party does not have an entitlement or right to a costs order, but they do have a reasonable expectation that they will not be deprived of their costs without proper cause (Latoudis at 568 per McHugh J). Generally the reasonableness of the other party in bringing, defending or conducting the proceedings will not of itself suffice to defeat that expectation (Latoudis id; Ohn).
63In rejecting Mr McCarthy's submission that ordinarily costs should follow the event, the Tribunal referred to the inquisitorial nature of a Stewards' inquiry and speculated that their procedures "are probably unique in disciplinary bodies". It is not necessary to review the universe of disciplinary regimes to determine whether the Tribunal's suspicions were correct. These proceedings do not concern the costs of Stewards' inquiries but the costs of proceedings before the Tribunal. The Tribunal's role is primarily adjudicative. There is nothing particularly unique about its function. It undertakes a similar role to that undertaken by the Medical Tribunal in Ohn.
64Another concern expressed by the Tribunal in relation to the awarding of costs by reference to the outcome of an appeal was the potential effect of such an approach on unsuccessful appellants in circumstances where they were seeking to appeal against penalties that could affect the livelihood of participants in the harness racing industry including the "livelihood of people in many cases with very little means". The Tribunal expanded upon this concern stating:
"There is a further and telling factor, and that is the impact upon industry participants if the rule was to be applied against them. That is, the disincentive to appeal which would arise for many licensed persons if they faced the prospect that they would nearly always have to pay the costs of the regulator if their appeal was lost and the regulator was otherwise not disentitled by conduct to its costs. It could not be the intention of Parliament, in putting in place the present regime for this industry sporting body, that that could be a consequence without consideration of other factors such as those set out in Roots."
65This is an understandable concern, but the policy issue it raises are addressed by reg 19 and the statutory regime that it forms part of. In particular two points should be noted. First, the passage from the judgment of Gleeson CJ in Ohn set out above (at [50]) deals with the presumed legislative or executive intention (or understanding) in enacting a provision that confers a wide discretion to award costs. Second, the above passage from the Tribunal's reasons fails to distinguish between the type of decisions that can be reviewed by the Tribunal. As previously explained, in large part reg 9 confines the Tribunal to reviewing decisions of a disciplinary nature in which case Ohn is particularly apposite. However some of the decisions that can be reviewed are not of that character, such as decisions to refuse registration. In those cases the observations of Spigelman CJ in Thaina Town at [76] warrant the adoption of a different approach.
66I have set out above at [37] to [38] the critical findings of the Tribunal as to the approach it stated it would adopt. For the reasons stated, the Tribunal was correct to find at [42] of its reasons that it would not determine the costs application "on the basis that costs will follow the event unless the Tribunal is able to find disentitling conduct on behalf of the applicant" (see [37] above). None of the judgments in Ohn identified the appropriate principle in the form of a strict rule. In any event Oshlack confirms that there is no such rule.
67However the Tribunal erred in stating that the appropriate principles to be applied were those that it identified from its own decision in Roots set out above at [38]. Those principles and the manner of their application by the Tribunal in this case reveal that the Tribunal applied reg 19 by adopting a presumptive rule that each party would pay their own costs unless there was something in the conduct of the party against whom a costs order was sought, ie HRNSW, that warranted a departure from that approach.
68While proposition (v) stated by the Tribunal (see [38]) referred correctly to costs being "compensatory and not punitive", the balance of the principles and their manner of application reveal that the Tribunal failed to appreciate the significance of that statement. Instead of addressing whether Mr McCarthy should be compensated in consequence of his success on the appeal, the Tribunal instead applied principles (ix) to (xi) and exclusively focussed on whether some aspect of HRNSW's conduct of the appeal was unreasonable such that a costs order should be made against it (see [42] to [43] above). Consistent with the conclusion in [62], the correct position was that Mr McCarthy had a reasonable expectation that he would recover costs and that expectation was not properly defeated by only finding that the HRNSW had not acted unreasonably in its defence and conduct of the appeal.
69It is unnecessary to determine whether the Tribunal's misconstruction and misapplication of reg 19 was a jurisdictional error. At the very least there was an error of law on the face of the costs judgment.
70Accordingly, subject to considering Mr Dawson's submissions as to materiality, I would uphold ground 1 of the summons.
Materiality
71As noted, Mr Dawson submitted that any error on the part of the Tribunal in construing reg 19 was irrelevant. He contended that, as there was no determination of the appeal on the merits, any rule predicated on such a determination had no application. Instead he contended that the relevant principle(s) guiding the Tribunal's determination was the following passage from the judgment of McHugh J in Lai Qin (at 624 to 625):
"In most jurisdictions today, the power to order costs is a discretionary power. Ordinarily, the power is exercised after a hearing on the merits and as a general rule the successful party is entitled to his or her costs. Success in the action or on particular issues is the fact that usually controls the exercise of the discretion. A successful party is prima facie entitled to a costs order. When there has been no hearing on the merits, however, a court is necessarily deprived of the factor that usually determines whether or how it will make a costs order.
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."
72Mr Dawson also referred to the statement by Preston CJ of LEC in Ralph Lauren 57 Pty Ltd v Byron Shire Council [2014] NSWCA 107 ("Ralph Lauren") (with whom Beazley P and Ward JA agreed) at [33]:
"If there is no unreasonableness in the conduct of the defendant then, notwithstanding that the discontinuing plaintiff might have achieved some practical success by settlement or extra curial means, the proper exercise of the costs discretion will usually be to make no order as to costs."
73As is already apparent, the Tribunal made extensive findings concerning the reasonableness of HRNSW's conduct in defending the appeal. Thus Mr Dawson submitted that, even if the Tribunal did not intend it to be so, its findings were in conformity with these principles and any error in the construction of reg 19 was immaterial.
74I do not accept this submission. Although it referred to them, clearly the Tribunal was not purporting to apply the principles stated in Lai Qin. Its findings concerning HRNSW's conduct were directed towards the test it posed for itself based on its own decision in Roots.
75Further, the submission erroneously asserts that there was no "event" which could found the exercise of a power to award costs which was governed or at least informed by that factor. In Lai Qin the party seeking costs had discontinued after the respondent Minister had advised her that he proposed to issue her visa by the exercise of a different power to that which was the subject of challenge in the proceedings (at 623). Similarly the quote from Ralph Lauren noted above refers to a "discontinuing plaintiff" seeking costs. Thus, in both cases the party seeking costs had discontinued.
76However, in this case the "plaintiff", Mr McCarthy, obtained orders representing success in the proceedings. In jurisdictions where costs usually follow the event, the guiding principle in such cases was stated by Burchett J in One.Tel Ltd v Commissioner of Taxation [2000] FCA 270; 101 FCR 548 at [6]:
"In my opinion, it is important to draw a distinction between cases in which one party, after litigating for some time, effectively surrenders to the other, and cases where some supervening event or settlement so removes or modifies the subject of the dispute that, although it could not be said that one side has simply won, no issue remains between the parties except that of costs. In the former type of case, there will commonly be lacking any basis for an exercise of the Court's discretion otherwise than by an award of costs to the successful party. It is the latter type of case which more often creates problems, since there may be difficulty in discerning a clear reason why one party, rather than the other, should bear the costs." (emphasis added)
77Subsequently in One.Tel at [7] Burchett J applied this approach:
"By contrast with the decisions I have been discussing [which included Lai Qin], the present matter involves a clear winner. The applicants, by their proceeding, sought to challenge the validity of certain notices, and to have them set aside. The respondent, after initially defending those notices, encountered at least an evidentiary difficulty, and acknowledged that they were to be set aside. That means that the applicants have succeeded ..."
78These observations are also applicable to this case. To employ the words of Burchett J in One.Tel at [6], the orders made by the Tribunal reveal that Mr McCarthy was the "successful party".
79It follows that the findings of the Tribunal did not address the application of the principles that apply in costs jurisdictions where costs follow the event as contended by Mr Dawson. It further follows from that conclusion and the finding at [68] that I uphold ground 1 of the summons.
80I will grant relief setting aside the Tribunal's decision and ordering the Tribunal to reconsider Mr McCarthy's application for costs according to law. It is, however, necessary to address the remaining two grounds that were argued on behalf of Mr McCarthy.