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[2021] FCA 1449
Federal Court of Australia
2021-11-19
Kerry J, Colvin J
Original judgment source is linked above.
The application of the principles to the present case
The application for injunctive relief 36 As has been explained, these proceedings were commenced when MCL appointed administrators to The Agency. The commencement of those proceedings was preceded by an extensive exchange over many months in which MCL sought to recover fees under the terms of the Offer and the claims made were disputed on grounds explained by The Agency. Rather than pursue the claim in the courts, MCL took steps to appoint the administrators. It may be accepted that the Corporations Act 2001 (Cth) allowed for such an appointment to be made based upon a security interest irrespective of any assessment by MCL as to the solvency of The Agency. However, any such appointment could only be made subject to the power conferred by s 447A of the Corporations Act which allows for the Court to order that an administration is at an end if the Court is satisfied, relevantly for present purposes, that the company is solvent or because the provisions of the legislation concerning the appointment of administrators are being abused: see s 435C(3). Further, the express object of the part of the Corporations Act allowing for administration of a company is to provide for administration in a way that maximises the chances of the company continuing or results in a better return for creditors: s 435A. 37 There have been instances in which it has been held that the appointment of an administrator has been an abuse of process: see, for example, Spacorp Australia Pty Ltd v Fitzgerald [2001] VSC 61 at [27] (Beach J); and Re Sales Express Pty Ltd (Administrators Appointed) [2014] NSWSC 460 at [19] (Brereton J). 38 In the present case, it must have been apparent to MCL that the claim to the fees were genuinely disputed. Further, by well before January 2021, The Agency had refinanced. There has been no real attempt by MCL at any stage to justify its actions on the basis of genuine concerns as to the solvency of The Agency at the time of appointment of the administrators (even though Mr Atkins may be taken to have detailed knowledge of its affairs as both a former director and prospective lender). The appointment of administrators occurred with no warning. Yet, even once challenged and provided with the protection of a payment into court, MCL maintained that the administration should continue. 39 The fact that ultimately after a final hearing MCL has been successful as to a small part of its claim does not detract from the unreasonableness of the stance taken by MCL. It would not have been reasonable for MCL to have appointed administrators in the way in which it did over a claim to an amount of $10,000. No doubt if MCL had altered its position so that it claimed only that amount then it would have been paid. That was, in effect, the position adopted by The Agency through its solicitors. 40 The present case is analogous to instances where a party issues a statutory demand for an amount that is substantially overstated by reason that most of the amount is genuinely in dispute. In such instances it has been concluded that there is an abuse of process in using the statutory demand procedure as a lever to obtain the payment of a debt which is bona fide disputed (being that part which is substantially overstated): Re Wollongong Coal Ltd [2015] NSWSC 1680 at [82] (Black J). A statutory demand should not be issued in respect of a debt that is genuinely disputed in an attempt to apply commercial pressure on the party resisting payment: Createc Pty Ltd v Design Signs Pty Ltd [2009] WASCA 85 at [2]; and Grocon Constructors (Qld) Pty Ltd v Dexus Funds Management Limited as Trustee for the Dexus 480Q Trust (No 2) [2019] FCA 1117 at [14]-[16]. Likewise, the winding up procedure should not be used to for the purpose of compelling a solvent company to pay a disputed debt: Meehan v Glazier Holdings Pty Ltd [2005] NSWCA 24 at [47]. 41 The attempts by MCL to justify its position in appointing administrators by reference to its patently minor success should be rejected. Plainly, at the time of the appointment of the administrators there was a bona fide dispute as to the amount claimed save perhaps for the minor amount of the Due Diligence Fee. Further, the position of the directors of The Agency in relation to the appointment of the administrators has been vindicated and the reserved costs should be awarded in their favour. They have indicated that those costs have been met by The Agency. It is The Agency that seeks an order recovering those costs. MCL makes no submission against that course. Therefore, there should be an order that MCL pay the reserved costs of the application for injunctive relief. 42 As to the amount of those costs, the claim made by The Agency is for 75% of its solicitor's costs (being $17,162), its counsel costs of $9,000 and disbursements of $2,104. Having regard to the level of costs that MCL indicated that it would claim in respect of the injunction proceedings I am satisfied that those amounts are reasonable and I would assess the costs that may be recovered pursuant to the order reserving those costs on a lump sum basis as $28,266. 43 MCL objected to that part of those costs that related to conferring with expert accountants for the purpose of obtaining a solvency report as to The Agency. It is to be noted that the claim was for legal costs of conferral. There was no claim made for the disbursement incurred for the amount paid to the accountants. MCL submitted that no issue was raised as to insolvency and there was no order for expert evidence. These submissions fail to allow for the urgent nature of the application. I am satisfied that it was reasonable for such steps to be taken given the basis for the application for the injunction which relied upon the grounds specified in s 447A(2) of the Corporations Act which included an instance where the Court was satisfied that the administration should end because the company is solvent. 44 In addition, The Agency claims the amount that it has paid to the administrators for their legal costs and the remuneration of the administrators being a combined amount of $39,498. It makes the claim on the basis that the amount paid represents a disbursement. 45 MCL objects to these claims on the basis that they do not represent a disbursement and are not legal costs incurred by The Agency in the conduct of its claim to injunctive relief. Even accepting that to be the case, it does not lead to the consequence that an order should not be made requiring the amount of $39,498 to be paid by MCL. It comprises both legal costs and remuneration that were ordered to be paid out of the assets of The Agency. The order reserving the question of costs allows for an order to now be made requiring MCL to bear those legal costs. In effect, to that extent an order requiring payment by MCL will operate as a Bullock order by which The Agency can recover the legal costs it has been required to pay to the administrators from The Agency as the unsuccessful respondent party. 46 As to the administrators' remuneration, I am satisfied that I have power on the application for injunctive relief to make provision by way of order for who should ultimately bear the costs of the administration. Orders have been made that the administrators' remuneration should be paid out of the assets of The Agency. On the evidence, that has occurred and it has resulted in a liability to The Agency. Under s 447A(1), I have power to make orders as to how the relevant provisions of the Corporations Act concerned with administrations apply. In the present circumstances I am satisfied that they should apply on the basis that MCL should have to bear all of the costs associated with the administration which, for reasons I have given, should never have occurred. 47 For those reasons, I will include a further order that MCL pay to The Agency the amount of $39,498 in respect of the legal costs and remuneration of the administrators.
The costs of the cross-claim proceedings 48 As to the costs of the cross-claim, I do not accept the submission for MCL to the effect that the cross-claim was properly characterised as a dispute about whether MCL had a secured interest. By the time the cross-claim was pursued, the administration had been brought to an end. There was no claim being asserted by MCL that depended upon its security interest. Rather, the only issue on its cross-claim was whether it was entitled to payment of the amounts that it claimed. It was The Agency that raised the issue concerning the PPS Register and it did so by way of a further cross-claim. 49 Therefore, I do not accept the submission for MCL that the reasons in the cross-claim determined the existence of its right to a security interest. That issue arose only on the further cross-claim by The Agency. It was barely the subject of any submission in the proceedings because both parties accepted that upon payment of any amount found to be due (or a determination that no amount was due) the relevant statements would need to be lodged by MCL. 50 The cross-claim brought by MCL was solely a claim to an amount of money said to be due under the Offer. It was a contractual claim to liquidated sums said to be due under express contractual terms. In substance, the claim succeeded to a very limited extent. The amount of $10,000 would never have justified the cross-claim which required a three day hearing. 51 Accordingly, there is no basis for the submission to the effect that the subject matter of the cross-claim was whether MCL had a security interest. 52 In those circumstances, the following passage from Motium Pty Ltd v Arrow Electronics Australia Pty Ltd [2011] WASCA 65 (S) at [10] applies equally to the present case (noting that it was a case where damages were claimed and nominal damages only awarded and the present case is one in which liquidated sums were claimed and only a small part of the claim succeeded at considerable expense to both parties): In such a case, the party has obtained something of no real use to them and something which, if they had known it was all that was available, they would not have brought proceedings to recover. It would be contrary to modern notions of the efficient and cost-effective use of judicial resources to enable a party to recover its costs for a pyrrhic victory, having substantively failed in the action. 53 Further, this a case where, despite the success of MCL, all three of the categories identified in Takeover Panels pertain. MCL has been only barely successful. It failed in almost the entirety of its claim. MCL also failed on principal factual and legal grounds upon which it sought relief. It only conceded late in the proceedings that it did not have the required funds to perform the Offer as at 1 May 2020. It only accepted late in the proceedings that the critical inquiry concerned what had occurred on May 2020 because, on any view, that was when the Offer came to an end. MCL made a substantial issue of its ability to provide the finance, only to ultimately concede that it did not have access to the required funds at the relevant time. It burdened the proceedings with a considerable amount of affidavit material that was ultimately of little relevance. 54 In consequence, it would be most unjust for The Agency to have to bear the costs of the proceedings. Allowing for the minor respect in which MCL succeeded which required the consideration of a narrow point of construction of the terms of the offer, it is The Agency who has been substantively successful on all other issues. It would be unjust in those circumstances to award costs in favour of MCL. Instead, this is a case where the order should reflect the extent of the relative success of the parties. Given that The Agency has been almost wholly successful and the amount recovered by MCL is, in the scheme and scale of the proceedings, barely more than nominal, I would order MCL to pay 95% of the costs of The Agency incurred after 1 February 2021. I am reinforced in that view by the fact that, as I have explained, it was apparent from the outset that The Agency was willing to pay the amount of $10,000 for the Due Diligence Fee. It was only the insistence on the part of MCL that it was entitled to more that resulted in the proceedings and the substantial amount of costs incurred. 55 By reference to the amounts provided in closing submissions (being $147,900) I would assess that amount as $140,505. I have no hesitation in accepting the reasonableness of the amount claimed by The Agency given that the amount that MCL sought to claim far exceeded that amount. 56 The remaining question is whether any costs should be awarded to The Agency on an indemnity basis by reason of the circumstances in relation to settlement offers and the other aspects of the way in which MCL conducted the proceedings. 57 MCL makes various submissions as to whether the offers complied with the requirements of Rule 25.14 of the Federal Court Rules 2011 (Cth) and whether certain of the offers made allowed sufficient time for acceptance or required the acceptance of other terms. I do not accept that any difficulty arose in relation to the time given for consideration of the offers made. The parties were represented by experienced lawyers. They had been engaged in a dispute for a considerable period. The issues had been well ventilated. The offers were made at a time when the hearing of the matter had been listed to accommodate the request of both parties that the matter be resolved urgently. In order to minimise costs to be incurred in preparation it was appropriate for a shorter period to be specified. 58 However, there is some validity in other criticisms raised by MCL. The offers were neither made in the form of a genuine offer of compromise that sought to provide an explanation as to why it was reasonable nor in a form that complied with the Part 25 of the Federal Court Rules. In certain respects, the offers sought to resolve matters beyond the proceedings. In those circumstances, I am not prepared to conclude that there was unreasonableness of the requisite character in MCL proceeding without accepting those offers. As that is the main foundation for the claim to indemnity costs, I do not accept the claim. The other matters relied upon would not be sufficient to rise to the required level to justify indemnity costs. 59 Therefore, instead of the course proposed by The Agency which would see no order as to costs for part of the period and indemnity costs for much of the period of the proceedings, for the reasons I have given the appropriate order as to the costs of the cross-claim is for MCL to be required to pay 95% of those costs of those proceedings fixed in the amount of $140,505. 60 As The Agency has substantially succeeded on the issues in dispute as to costs, there should be further provision for its costs associated with those issues. I would assess those costs, which involved the preparation of the affidavit and two sets of submissions in the amount of $4,000. I note that this is less than the amount of $5,000 that was sought by MCL as to such costs. 61 Finally, I note that the objections to the second sentence of paragraph 5 and to paragraph 13 of the affidavit of Ms Spencer sworn 4 November 2021 are upheld on the basis that they seek to give evidence of what was said in the course of mediation between the parties: Pinot Nominees Pty Ltd v Commissioner of Taxation [2009] FCA 1508; (2009) 181 FCR 392 as applied in Forsyth v Sinclair (No 2) [2010] VSCA 195; (2010) 28 VR 635 at [13]-[15]. I certify that the preceding sixty-one (61) numbered paragraphs are a true copy of the Reasons for Judgment of the Honourable Justice Colvin.
Niardone
Clubb
] NSWSC 460 Re Wollongong Coal Ltd [2015] NSWSC 1680 Snedden v Republic of Croatia (No 2) [2009] FCAFC 132 Spacorp Australia Pty Ltd v Fitzgerald [2001] VSC 61 Stewart v Atco Controls Pty Ltd (in liq) (No 2) [2014] HCA 31; (2014) 252 CLR 331 Trustee for The MTGI Trust v Johnston (No 2) [2016] FCAFC 190
COLVIN J: 1 In early 2020, MCL 105 Pty Ltd (MCL) entered into an agreement to provide finance to The Agency Group Australia Limited (The Agency). The concluded agreement was recorded in a document described by the parties, somewhat awkwardly, as the Letter of Offer (Offer). In the result, finance was not provided by MCL to The Agency. A dispute arose as to whether The Agency was bound to pay certain fees to MCL under the terms of the Offer and, if so, the extent of those fees. MCL alleged that The Agency was obliged to pay fees in an amount of about $400,000 plus interest. 2 The Agency is a public company. At the time of entry into the Offer with MCL it was seeking to refinance its borrowings in circumstances where its major debt financier had indicated that it was not willing to renew its provision of finance to the company. When the terms of the Offer were agreed, Mr Mitchell Atkins was a director of The Agency and had been for some time. He and his wife were the parties behind MCL which company formed part of what was described as the Magnolia Capital Group. Therefore, Mr Atkins (and therefore MCL) had a detailed knowledge of the financial circumstances of The Agency. Mr Atkins ceased being a director in May 2020. Later in 2021, The Agency secured new financing arrangements assisted by parties other than MCL and Mr Atkins. 3 Between May 2020 and January 2021, correspondence ensued between the solicitors for the parties. Very early on in that extended exchange of correspondence, solicitors acting for The Agency wrote to solicitors acting for MCL maintaining that the only fee payable was the fee described in the Offer as the Due Diligence Fee (being an amount of $10,000) and that The Agency would not pay that fee until MCL confirmed that no other fees were payable. The solicitors for The Agency also pressed for the registration of relevant statements on the register maintained under the Personal Properties Securities Act 2009 (Cth) (PPS Register) to ensure that the security interest claimed by MCL under the terms of the Offer was brought to an end. 4 By 17 November 2020, the position of The Agency was expressed in the following terms: In the circumstances, MCL is not entitled to maintain the Registrations given that no amount is payable by any of the grantors to MCL and therefore no 'security interest' exists. Further, our clients consider that MCL had no reasonable grounds to believe that it held a security interest at the time each of the Registrations was lodged. It was also unreasonable and excessive to lodge 'all present and after-acquired property' registrations against 27 different entities to secure (at most) $10,000. Alternatively, given the content of this letter, MCL can no longer have reasonable grounds to believe that it holds a security interest. MCL is required, pursuant to s151(3) of the Act, to lodge a financing change statement within 5 business days after the day on which there stopped being reasonable grounds. 5 The reference to the figure of $10,000 was to the amount of the Due Diligence Fee. It can be seen that the position of The Agency by that point was that no fees were due but that 'at most' the Due Diligence Fee of $10,000 was payable. 6 Solicitors for MCL thereafter rejected the demand to correct the PPS Register on the basis that the position of The Agency amounted to concessions that the Offer gave rise to a valid and enforceable security interest and that there was an indebtedness 'for an amount which at a minimum includes the Due Diligence Fee'. It was then noted that MCL maintained that the debt owed by The Agency for fees was much higher and demanded the amount set out in an invoice dated 25 November 2020 which was for $354,471.99. 7 By letter dated 18 January 2021, solicitors for MCL noted that payment had not been made of the amount claimed in the invoice and demanded payment of $379,030.24 (which amount reflected the amounts in the invoice dated 25 November 2020 and additional legal costs and interest) by 5.00 pm that day. The letter then stated: A failure to make payment of the amount set out above by 5:00pm AEST today will cause our client to deem its security interest enforceable and may leave our client with no option but to immediately commence such enforcement against your client including seeking payment of the full amount owed to our client, including damages, without further notice. 8 Later that same day, MCL appointed administrators to The Agency. Notice to that effect was given to The Agency on 19 January 2021. The directors of The Agency sought urgent relief in this Court restraining the administrators from continuing to act. Relief was sought on the basis that the directors had a strong case to the effect that no fees were payable to MCL. The directors deposed to the ability of the company to meet its debts as and when they fell due and a willingness on their part to pay the disputed amount into court pending resolution of the claim by The Agency that the administrators should not have been appointed. 9 On 20 January 2021, orders restraining the administration were made by consent on terms that The Agency pay the sum of $400,000 into Court. However, the making of an order ending the administration was opposed by MCL. In the result, orders were made ending the administration (after an opportunity was given for any other creditors to make submissions): see Niardone v Clubb [2021] FCA 14. No other creditors sought to support the continuation of the administration. 10 In my reasons for making an order that the administration will end, I said at [39]-[45]: Here the reason advanced for making the order that the administration will end is different to that considered by Beech J in Flynn v Theobald. It is to the effect that the appointment of administrators was made on the basis of a security interest which, by reason of the orders made, is now accepted to be a disputed matter. Further, an amount that exceeds the extent of the claimed security interest is to be paid into Court and the dispute is to be resolved expeditiously. In those circumstances, it is difficult to see how the continuation of the administration (albeit the subject of the restraint imposed by the consent orders) will advance the purpose of Part 5.3A. On all the evidence, the issue that has led to the administration is the disputed security interest. The evidence as to the circumstances surrounding that dispute do not indicate any concern as to solvency on the part of The Agency. Whatever difficulties may have been faced by The Agency in securing a refinancing those difficulties no longer pertain because, on the evidence, refinancing has been secured. The claim made by MCL has been long in its gestation and follows a considerable period in which the parties have been engaged in a dispute as to whether any upfront fees are payable. The conduct of MCL to date is consistent with the existence of a genuine dispute as to whether the upfront fees are payable rather than a concern about the solvency of The Agency. Until very recently, an associate of MCL has itself sought to obtain control of The Agency by way of takeover, a course that suggests that it considers The Agency to be in control of a business with value. The present case may be distinguished from an instance where the appointment has been based upon a view about insolvency or ongoing factual matters that indicate a concern about insolvency. When the urgent application was advanced, MCL made no claim that The Agency was insolvent despite The Agency relying upon its alleged ability to pay its debts as and when they fell due as a matter bearing upon the balance of convenience as to whether the urgent relief should be granted. Therefore, in this case the basis upon which the purported appointment of the administrators was made falls away if the $400,000 is paid into Court pursuant to the consent orders. As the dispute as to the security interest is the only evident basis for the appointment, the making of the orders by consent in the particular circumstances are a reason for making the orders as to the end of the administration. 11 At the time of making the orders concerning the administration, the costs of the application brought by the directors for injunctive relief were reserved. As to the costs of the administrators, it may be noted that the orders made to bring the administration to an end preserved the entitlement of the administrators to seek remuneration. Orders were made on 29 January 2021 to the effect that the remuneration of the administrators and legal costs incurred by the administrators be paid from the assets of The Agency. 12 MCL brought a cross-claim in the proceedings that had been commenced by the directors. By the cross-claim it sought judgment against The Agency in the sum of $393,124.43 and interest under the terms of the Offer or pursuant to s 51A of the Federal Court of Australia Act 1976 (Cth). It also sought payment out of the amount of $400,000 to meet that claim and costs on an indemnity basis. 13 For the purposes of the hearing of the cross-claim, each of the parties were directed to include in their closing submissions the amount of costs that they would claim if successful. MCL submitted that as to the cross-claim it should be awarded $215,690.78 (subject to submissions to be made based on settlement offers). The amount was said to represent 50% of solicitor's costs, all of counsel's costs and disbursements incurred of $10,655.70. The Agency submitted that as to the cross-claim it should be awarded $147,900. The amount was said to represent 75% of solicitor's costs, all of counsel's costs and disbursements of $2,900. 14 The parties also provided amounts for costs claims in respect of the earlier injunction proceedings. As to the costs of the injunction, the submissions made in closing sought the following amounts for legal costs; $27,300 by The Agency (as the party seeking injunctive relief) and $20,668 by MCL (as the party opposing). However, The Agency also sought the administrator's costs which it had been required to bear which were then said to be $43,400. The Agency also sought other disbursements of $2,300. The disbursements sought by MCL were $335.36. 15 Thereafter, the cross-claim was determined and The Agency was found to be liable for the amount of the Due Diligence Fee only, being $10,000. The parties were given an opportunity to make submissions concerning the terms of final orders.
Position of the parties as to final orders 16 The parties were agreed that judgment should be entered for MCL on the cross-claim in the amount of $11,000 (which would allow for GST) and for interest fixed in the amount of $1,500. 17 It was also agreed that upon payment of those amounts by The Agency, MCL should be required to lodge relevant statements removing the registrations on the PPS Register. They could not agree upon how promptly that should be done. I will order that it be done within two business days of payment. 18 As to costs, MCL contends that there should be an order that The Agency pay the costs of the injunction proceedings and the cross-claim fixed in the amount of $241,694.18. The Agency contends that MCL should be ordered to pay the costs of the proceedings fixed in the sum of $224,225. 19 The position of MCL is based upon the following contentions: (1) there was a provision in the Offer to the effect that The Agency would be liable for all recovery costs on an indemnity basis; (2) the amount claimed was less than full-indemnity and reflected the amount indicated in its written closing submissions plus an additional provision of $5,000 for counsel's costs associated with submissions to deal with final orders; (3) even if the costs provision in the Offer did not apply, MCL had been successful because it had been determined that it had a relevant security interest which vindicated its conduct in appointing the administrators; (4) it was not appropriate to look to the commercial issues which might lie behind the proceedings and the issue in the proceedings had been the validity of MCL's security interest being the issue determined by the cross-claim; (5) despite The Agency accepting that it had a liability to pay the Due Diligence Fee, the fee had not been paid and that vindicated the position taken by MCL; (6) there had been no unreasonableness or inappropriate conduct by MCL in the matters of construction and allegations of fact and law that it advanced on the cross-claim; and (7) alternatively, if there was to be an allocation based upon the issues on which MCL had been successful then the allocation should not result in a reduction below 50% of the amount claimed. 20 Particular reliance was placed by MCL upon the reasoning of Goldberg J in Dr Martens Australia Pty Ltd v Figgins Holdings Pty Ltd (No 2) [2000] FCA 602 at [52]-[55]. 21 The position of The Agency is based upon the following contentions: (1) MCL had appointed administrators in circumstances where it appeared to have no genuine reason to doubt the solvency of The Agency and where it did not seek to justify the continuation of the administration on the basis of alleged insolvency; (2) the minimal liability which had been found to exist did not justify the action taken by MCL in appointing the administrators in circumstances where the debt the subject of its claimed security was plainly disputed; (3) MCL's conduct that resulted in the injunction proceedings was unreasonable and unjustified and it should have the costs, alternatively there should be no order as to the costs of the injunction application because it was substantially resolved by consent; (4) MCL had made offers prior to the final hearing of the cross-claim to resolve the proceedings and these were for amounts that substantially exceeded the amount on which MCL had succeeded; (5) MCL had been unreasonable in the conduct of the proceedings in resisting orders for discovery on the basis that it had the capacity to provide the finance it had agreed to provide, seeking suppression orders as to that issue and ultimately accepting late in the proceedings that it did not have the available capital to provide the finance it had agreed to provide; (6) MCL had been unreasonable in the conduct of the proceedings in filing voluminous evidence on issues where MCL failed or that were irrelevant, issuing subpoenas that were set aside and issuing a notice to produce that the Court ordered did not need to be complied with; (7) MCL had secured a pyrrhic victory obtaining a judgment for less than 3% of the amount it claimed despite rejecting offers far in excess of that amount; and (8) in any event, MCL lost on some issues which should be reflected in any costs order. 22 The Agency proposes that it be awarded the costs of the injunction application. It proposes that there be no order as to the costs of the proceedings up until 24 February 2021 when it says that it made a formal offer to settle the proceedings on terms much more favourable to MCL than the outcome. It then proposes an award of costs on an indemnity basis thereafter. It says that such an approach will result in an award of costs in its favour in respect of the proceedings as a whole fixed in the sum of $224,255. 23 By way of reply, MCL takes issue with the claim that there has been unreasonable conduct by MCL in relation to offers to compromise made by The Agency and otherwise. 24 As to the amount paid into Court, the parties agree that there should be an order allowing for payment out. However, MCL claims that it should first be able to resort to the amount in order to satisfy an order for costs in its favour. 25 Therefore, the contentious issues concern whether the provision in the Offer concerning costs applies and if so what amount of costs are payable and, otherwise, according to general principle who should pay costs and in what amount (particularly whether there should be indemnity costs ordered).
The relevant principles as to costs 29 The relevant principles to be applied in determining appropriate cost orders are well established. 30 The award of costs is discretionary: s 43 of the Federal Court Act. The discretion is unconfined, but must be exercised judicially, that is according to relevant considerations and taking account of the contextual features and facts of the litigation: Kazar (Liquidator) v Kargarian; In the matter of Frontier Architects Pty Ltd (In Liq) [2011] FCAFC 136; (2011) 197 FCR 113 at [4]. Settled principle guides the exercise of the discretion which is to be exercised judicially: Norbis v Norbis (1986) 161 CLR 513 at 519; and Oshlack v Richmond River Council (1998) 193 CLR 72 at [65] (McHugh J, Brennan CJ agreeing), [134] (Kirby J). Generally, the discretion is exercised in favour of the successful party: Foots v Southern Cross Mine Management Pty Ltd [2007] HCA 56; (2007) 234 CLR 52 at [25]; and Firebird Global Master Fund II Ltd v Republic of Nauru (No 2) [2015] HCA 53 at [6]. The exercise of the discretion involves the making of a broad evaluative judgment and factors other than success may have a significant claim on the exercise of the discretion: Gray v Richards (No 2) [2014] HCA 47 at [2]. 31 Success is to be adjudged by reference to what was in issue in the proceedings not some view as to the commercial significance that may be attributed to the outcome by one or other of the parties. Court proceedings seek to vindicate legal rights. In some instances, a measure of vindication will not be adjudged to be success for the purposes of determining the appropriate order as to costs. As was noted recently by Abraham J in Nassif v Seven Network (Operations) Ltd (No 2) [2021] FCA 1390 at [10]: If the primary purpose of bringing proceedings is to recover substantial damages (as opposed to, for example, vindicating a legal right), an award of nominal damages will ordinarily not entitle an applicant to the costs of the proceedings: Motium Pty Ltd v Arrow Electronics Australia Pty Limited [2011] WASCA 65 at [10]; Rockcote Enterprises Pty Ltd v FS Architects Pty Ltd; Carelli v FS Architects Pty Ltd [2008] NSWCA 39 at [100]; Thiess Contractors Pty Ltd v Placer (Granny Smith) Pty Ltd [2001] WASCA 166 at [9]. 32 For present purposes it may be observed that there are at least three distinct categories of case where the successful party might be deprived of an order for costs or may be ordered to pay the costs of the other party. They were described in the following way in Queensland North Australia Pty Ltd v Takeovers Panel (No 2) [2015] FCAFC 128; (2015) 236 FCR 370 at [11]: One such category is where the applicant has been only partially successful in that it has not obtained all of the relief sought. The second category is where a party has succeeded in obtaining the relief sought, but has not succeeded on all bases (factual or legal) upon which it sought such relief. Of course, it is possible that a particular outcome will fall into both categories. A third category involves consideration of the successful party's conduct of the case. 33 If one or more of those categories applies to the successful party then a different costs order may be made but it is not done to punish the party: Les Laboratoires Servier v Apotex Pty Ltd [2016] FCAFC 27; (2016) 247 FCR 61 at [303]-[305]; and Snedden v Republic of Croatia (No 2) [2009] FCAFC 132 at [3]-[4]. 34 Generally speaking, Courts are circumspect about allocating costs on the basis of issues. The authorities were referred to by White J in Hockey v Fairfax Media Publications Pty Limited (No 2) [2015] FCA 750; (2015) 237 FCR 127 at [84]-[91]. Such allocations are more likely where there are discrete issues and they correspond with aspects of the dispute where it might be said that one party has had a measure of overall success. 35 The principles to be applied in deciding whether to order costs on an indemnity basis because a formal offer has not been accepted are also well known: Stewart v Atco Controls Pty Ltd (in liq) (No 2) [2014] HCA 31; (2014) 252 CLR 331 at [4]; Trustee for The MTGI Trust v Johnston (No 2) [2016] FCAFC 190 at [21]-[22]; and Anchorage Capital Partners Pty Limited v ACPA Pty Ltd (No 2) [2018] FCAFC 112 at [7]. As was emphasised in Clifton (Liquidator) v Kerry J Investment Pty Ltd t/as Clenergy (No 2) [2020] FCAFC 112; (2020) 277 FCR 382 at [30]-[31], the making of a special costs order is reserved for those instances where the party liable for costs has engaged in conduct in the proceedings that is deserving of criticism and that conduct has resulted in greater expense for the innocent party. Those circumstances may include the unreasonable rejection of an offer to compromise the proceedings.
[2009] WASCA 85
[2010] VSCA 195
[2011] WASCA 65
[2001] VSC 61
[2001] WASCA 166
(2020) 277 FCR 382
(2007) 234 CLR 52
(2010) 28 VR 635
(2015) 237 FCR 127
(2011) 197 FCR 113
(2016) 247 FCR 61
(1986) 161 CLR 513
(1998) 193 CLR 72
(2009) 181 FCR 392
(2015) 236 FCR 370
(2014) 252 CLR 331