Notesco Pty Ltd v Australian Financial Complaints Authority Ltd

Notesco's submissions

1. Notesco submitted that, as a general rule, costs should follow the event and a successful party should obtain all of the costs of the action even though it failed to establish some of the alternative heads of its claim: Ritter v Godfrey [1918-19] All ER Rep 714; [1920] 2 KB 47; Uniform Civil Procedure Rules 2005 (NSW), rules 42.1, 42.2. The "event" is conventionally identified as the practical result of a particular claim: Sze Tu v Lowe (No 2) [2015] NSWCA 91 at [39]. As Notesco was successful in obtaining an order setting aside AFCA's Determination, the relevant starting point was that AFCA ought to pay Notesco's costs of the proceedings. While it was within the Court's discretion to depart from the usual order and apportion costs where there is a "mixed outcome" in the proceedings, the discretion to adopt such an approach was said to be typically exercised where awarding costs of the whole proceeding without regard to the outcome of separate issues may cause hardship, making it appropriate for the costs order to reflect the degree of success on distinct issues: Kanjian Holdings No 1 Pty Ltd v Kanjian (No 4) [2021] NSWSC 1390 at [53] (per Henry J). Further, the exercise of discretion to depart from the general rule and apportion costs on an issues-basis must be exercised only in the most exceptional circumstances, such as where the bulk of the time of the hearing has been spent on an issue on which the unsuccessful party has succeeded or where the successful party has unfairly, improperly or unnecessarily increased the costs of the proceedings: Tonna v Mendonca (No 2) [2020] NSWSC 306 at [169]-[174] (per Ward CJ in Eq).
2. Here, it was said that the circumstances of this case were not exceptional as to warrant departure from the general costs order. While Notesco did not succeed on its jurisdictional contention, the ground was not plainly without merit, nor was it agitated in such a fashion so as to generate an unjustified costs burden on AFCA: cf. Tonna at [174]. The jurisdictional challenge was a question of construction, with respect to which argument was confined, on which AFCA led no evidence and with respect to which limited affidavit and documentary evidence from Notesco was required to understand the core factual issue, being the nature of Notesco's services. There can accordingly be little injustice in the conventional costs outcome when half of the costs incurred in these proceedings could not be said to be properly attributable to litigating that issue: cf. Hughes v Western Australian Cricket Association (1986) ATPR 40-748 at 48,136.
3. Further, this is not a case where the circumstances underlying each of Notesco's grounds of challenge were so distinct and severable to be treated as "clearly separable": cf Tonna at [173]; Short v Crawley (No 40) [2008] NSWSC 1302 at [27]-[28]. Both the unreasonableness and procedural fairness grounds relied on the same factual substratum, being the complaints handling process which preceded the Determination and the contents of the Determination. It was difficult to see how either of these issues could have been litigated without traversing substantially the same territory. Finally, dividing the proceedings into two issues - the jurisdictional contention and the procedural fairness contention - did not properly account for other issues which occupied the proceedings, such as Notesco's unreasonableness contention, which it was not ultimately necessary to decide given Notesco's success on its procedural fairness challenge. AFCA pressed arguments of waiver and estoppel, on which it was wholly unsuccessful. Apportioning costs in the manner proposed was said to give insufficient weight to the multi-faceted nature of the jurisdictional challenge, with several of those facets being advanced unsuccessfully by AFCA. It also would operate to penalise Notesco for its success in its procedural fairness challenge, which rendered unnecessary the determination of the unreasonableness ground. Such an approach does not yield a fairer outcome and should not be adopted: Bowen Investments Pty Ltd v Tabcorp Holdings Ltd (No 2) [2008] FCAFC 107 at [5].

AFCA's submissions

1. AFCA submitted that the Court may depart from usual costs order where the losing party has succeeded on an issue or group of issues which is separable or discrete and has occupied a significant part of the hearing, making it unfair in the circumstances for that party to have to bear those costs: Oikos Constructions Pty Ltd t/as Lars Fischer Construction v Ostin & Anor (No 2) [2021] NSWCA 98 at [11]-[14] (per White JA, Basten and Macfarlan JJA agreeing). In deciding how the discretion as to costs should be exercised to achieve fairness in these circumstances, the perspective of both parties should be considered: Oikos Constructions at [28].
2. Here, Notesco was unsuccessful in relation to the jurisdiction issue. The Court did not decide the unreasonableness issue nor the procedural fairness issue albeit that Notesco would have been unsuccessful on the latter. Of the issues which were determined (or a view expressed as to the likely outcome), AFCA was largely successful (and wholly successful on Notesco's primary argument that AFCA had no jurisdiction). AFCA substantially denied Notesco the prize that it had fought to win: Roache v News Group Newspapers Ltd [1998] EMLR 161 at 168-169; Tonna at [169] to [176] and [179] (per Ward CJ in Eq) and upheld on appeal in Mendonca v Tonna [2020] NSWCA 196. The 'prize' was said to be the issue of jurisdiction. Nevertheless, AFCA accepted that Notesco achieved limited success. In such circumstances, it would be unfair in all of the circumstances that it be required to pay 50% of Notesco's costs and that, in place of that order, it should only be required to pay 25% (or, alternatively, 33%) of Notesco's costs on a party and party basis.

Conclusion

1. The principles are not in dispute and are fairly summarised in the parties' submissions. I note the comments of Allsop P (as his Honour then was) in Baulderstone Hornibrook Engineering Pty Ltd v Gordian Runoff Ltd (No 2) [2009] NSWCA 12 at [5]: Three things need be borne in mind in a judgment such as this on costs: the desirability of avoiding unnecessary recitation of cases (abounding as they are in this area); the desirability of not restating, in different terms, approaches to the broad discretion that have been well settled; and the desirability of dealing with the arguments without over-elaboration, if this is possible.
2. Notesco challenged the Determination on three grounds: lack of jurisdiction, lack of procedural fairness and unreasonableness. In addition to these areas of contest, AFCA raised defences of waiver and estoppel, albeit briefly and quickly dispensed with: Notesco v AFCA at [117]-[126]. As the parties ultimately presented their cases, there was no cross-examination of witnesses; the hearing focussed on the unchallenged affidavit evidence of Notesco's witness and a substantial body of documents. The hearing occupied two days.
3. Notesco's jurisdictional challenge involved two components, one of which was abandoned before the hearing and the other of which failed: at [127]-[143]. The jurisdictional challenge involved construction of the AFCA Rules and consideration of Notesco's evidence as to what it did, being both the evidence of its witness and its Product Disclosure Statement and Terms and Conditions. This occupied a significant portion of the hearing.
4. Notesco's challenge on the ground of lack of procedural fairness also involved two components. First, whether AFCA had failed to comply with its obligations of impartiality, independence and fairness. It is fair to say that this issue was faintly raised in Notesco's pleading and found its source in the agreed issues for determination and some references in Notesco's submissions. It was on this issue that Notesco ultimately succeeded: at [144]-[157].
5. Second, Notesco contended that the Ombudsman had relied on various matters in his Determination of which Notesco had no notice and on which its submissions should have been sought. A considerable amount of time was spent on this issue in submissions, including by 'tracking through' the unfolding process from the initial complaint to obtaining submissions, making a preliminary assessment, obtaining further submissions and reaching the Determination. Given my conclusion in respect of impartiality, it was not necessary for me to consider the second aspect of Notesco's challenge as to the lack of procedural fairness but I indicated that, if I was wrong as to impartiality, then the second challenge failed: at [160]-[161].
6. It was not necessary nor appropriate for me to consider whether Notesco's third ground - unreasonableness - was well-founded, where the matter was remitted to AFCA to be determined by an AFCA Decision Maker who was not involved in the preliminary assessment or the Determination: at [159].
7. This is not a case where either party unfairly, improperly or unnecessarily increased the costs of the proceedings by spending time on an issue on which they failed. This is, however, a case in which the plaintiff succeeded on an issue which was barely pleaded and occupied a relatively small portion of the two days of hearing. This is not to say that the issues on which Notesco failed were without merit but simply to say that those issues occupied the bulk of the hearing. In those circumstances, I consider that it would be unfair for AFCA to bear the costs of the proceedings in toto.
8. If I were to simply look at the issue on which Notesco succeeded as opposed to the issues on which Notesco failed, then it might be appropriate to adopt the somewhat parsimonious percentages proffered by Notesco. That, however, would be to ignore issues advanced by AFCA - waiver and estoppel - which were effectively abandoned but nonetheless required Notesco to expend time and effort (and therefore legal costs) to address.
9. Overall, I consider it is necessary to make a costs order which reflects Notesco's degree of success in order to avoid hardship and, notwithstanding the submissions advanced by both sides, remain of the view that an appropriate costs order is that AFCA pay 50% of Notesco's costs on a party and party basis. As I noted in my primary judgment in another context, "First impressions may be hard to shift": at [156]. For these reasons I make the following orders: 1. NOTE the application by the plaintiff and first defendant to seek a variation of Order 3 made on 17 March 2022. 2. Confirm Order 3, that is, "Order the first defendant to pay 50% of the plaintiff's costs on a party and party basis."

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