Plaintiff v Defendant

Supreme Court of Victoria|2012-04-27|Before: CROFT J

ARBITRATION - Appeal against award - Commercial Arbitration Act 1984 - s 38(4)(b) - Application for leave to discontinue appeal.

CONSTITUTIONAL LAW - Whether jurisdiction of Supreme Court with respect to costs affected - Port Bellarine Tourist Resort (Repeal) Act 2012, s 10 - Constitution Act 1975, s 85.

1 This proceeding commenced by an originating motion between parties which was filed on 7 December 2011 seeking, by way of principal relief, the setting aside of an arbitral award made by the Hon Stephen Charles QC dated 10 November 2011 ("the Award") pursuant to s 38 of the Commercial Arbitration Act 1984.

2 The dispute the subject of this award arose between Grawin Pty Ltd ("Grawin") and the State of Victoria ("the State") which were parties to an Agreement made on 24 April 1981, the Agreement being the First Schedule ("the Agreement") to the Port Bellarine Tourist Resort Act 1981 ("the Act"). The dispute was referred to arbitration under clause 6(6) of the Agreement. Grawin appointed the Hon E.W. Gillard QC, and the State appointed Mr Jacob I. Fajgenbaum QC to act as arbitrators to hear and determine the dispute ("the Arbitrators"). This arbitral tribunal of two members heard evidence and argument on 29 and 30 June and 1 and 2 July 2010 and reserved its decision. Having done so, the tribunal members found themselves unable to agree upon certain issues. As a result of this disagreement, the Hon Stephen Charles QC was, by letter dated 4 August 2010, appointed umpire to determine the issues unresolved by the arbitrators ("the Umpire"). The Umpire heard further submissions and argument from the parties and delivered the award.

3 On 14 December 2011, a summons on originating motion was filed by the State seeking leave, pursuant to s 38(4)(b) of the Commercial Arbitration Act 1984, to bring the appeal against the Award. A further summons, filed 12 January 2012, was returned before Emerton J, as a result of which her Honour made orders, including that the State's summons, dated 14 December 2011, be referred to the Arbitration List for directions. The matter came before me in the Arbitration List on 16 March 2012, at which time I made directions for the filing of evidence and submissions in support of the leave application, which was listed for hearing on 20 April 2012. At that directions hearing, the State sought directions with respect to evidence and submissions with a view to fixing the hearing of the leave application not before 20 August 2012. Grawin, on the other hand, sought a more expeditious hearing, proposing 26 March 2012 as the date. The reason for the State seeking a much later date for the hearing of the leave application is summarised in "Other Matters" of its minute of proposed orders (which was provided on 16 March 2012):

"On 13 March 2012, the Port Bellarine Tourist Resort (Repeal) Bill [2012] was introduced into the Legislative Assembly of the Victorian Parliament. The second reading speech for that Bill was read the next day. Debate on the Bill has been adjourned until 28 March. If the Bill becomes an Act, this proceeding would be rendered nugatory, and these orders are designed to avoid the parties incurring unnecessary costs".

4 The Port Bellarine Tourist Resort (Repeal) Bill 2012 ("the Bill") was subsequently passed by both Houses of the Victorian Parliament and received the Royal Assent on 3 April 2012.[1]

5 By summons filed on 16 April 2012, the State sought leave to discontinue the proceeding pursuant to rule 25.03 of the Supreme Court (General Civil Procedure) Rules 2005 ("the Rules"). This application for leave to discontinue was heard on 20 April 2012.

6 Three issues arose in relation to the present application -

(2) Does the Court have jurisdiction to order the State to pay Grawin's costs of the proceeding?

(3) If the Court does have jurisdiction, should the State be ordered to pay those costs on a party-party or on an indemnity basis?

7 In this proceeding, the State sought leave, pursuant to s 38(4)(b) of the Commercial Arbitration Act 1984 to appeal the Award.

8 The questions of law raised in the Proposed Notice of Appeal[2] concerned the Act and the Agreement for the purpose of establishing the Port Bellarine Tourist Resort. The questions of law raised in the Proposed Notice of Appeal are whether:

(1) clause 5(1)(b) of the Agreement had been impliedly repealed; and

(2) on a proper construction of clause 5(1)(b) of the Agreement it only imposed an obligation on the State to rezone the land by reason of the Act, that being an obligation to be met once, on the enactment of the Act.

If clause 5(1)(b) of the Agreement were construed to impose a further obligation on the State to maintain the zoning of the land for the duration of the Agreement, further questions would arise.

9 Following the enactment of the Port Bellarine Tourist Resort (Repeal) Act 2012 ("the Repeal Act"), the State submitted that the questions of law the subject of the Proposed Notice of Appeal no longer needed to be answered and, consequently, the present proceeding has become moot.

10 Accordingly, the State now seeks leave to discontinue the present proceeding. Grawin did not oppose this course. The controversy between the parties arises with respect to the question of costs and the basis upon which any costs might be awarded.

11 The general jurisdiction of the Court to award costs is conferred by s 24(1) of the Supreme Court Act 1986 which provides as follows:

"Unless otherwise expressly provided by this or any other Act or by the Rules, the costs of and incidental to all matters in the Court ... is in the discretion of the Court and the Court has full power to determine by whom and to what extent the costs are to be paid" (emphasis added)

12 In the context of an application to discontinue a proceeding, the Rules do expressly provide to the contrary. Rule 25.05 relevantly provides that, where a proceeding is discontinued, liability for costs shall be determined in accordance with rule 63.15. In this respect, rule 63.15 provides:

"Unless the Court otherwise orders, a party who discontinues ... a proceeding ... shall pay the costs of the party to whom the discontinuance ... relates to the time of the discontinuance... ."

13 The initial submission on behalf of the State was that rule 63.15 must yield to any inconsistent statutory provisions and that s 10 of the Repeal Act contains a provision of that kind:

"10 No amount payable by the Crown

(1) No amount is payable by the Crown (as compensation, damages or otherwise) to any person for any loss or damage arising out of or in connection with the enactment of this Act.

(2) Without limiting subsection (1), the Crown is not liable to any person for any claim arising out of or in connection with the termination of the Agreement or the Crown lease."

14 The argument with respect to the operation of s 10 and rule 63.15 was that the jurisdiction of the Court under sub-s 24(1) of the Supreme Court Act 1986 was circumscribed by the provisions of s 10 of the Repeal Act and that circumscription of the basis of jurisdiction has corresponding flow-on effects to the subsidiary provisions contained in the Rules.

15 On the basis of the provisions of s 10 of the Repeal Act, the State argued that Grawin's claim for costs was precluded because, in terms of sub-s 10(2), the claim arises out of or in connection with "the termination of the Agreement (however that termination was effected)". More particularly, the State argued that the termination of the Agreement necessitated the application to discontinue the proceedings and that application immediately generated the claim for costs. There is, then, it was said, an immediate and direct causal connection between the termination of the Agreement and Grawin's claim for costs. Consequently, the State submitted that the claim arises "out of or in connection with" the termination of the Agreement.

16 Grawin argued that the causal connection between the claim for costs and the termination of the Agreement was not such a "one-step" process and that there was an additional factor intervening, namely the decision of the State to commence the present proceedings.

17 In my opinion, Grawin is correct in its submissions that the causal link is not direct, as submitted by the State, and that there was an intervening factor, namely the decision of the State to commence the present proceedings. Unless that step had been taken, there would have been no costs incurred, the subject of the present claim by Grawin, and no issue would have arisen in relation to the operation of s 10 of the Repeal Act with respect to costs. Without some direct causal link with the termination of the Agreement, it is difficult to see how the language of sub-s 10(2) of the Repeal Act could accommodate a claim for costs. Furthermore, it is clear that, in general terms, a claim for costs is not regarded as a claim in itself. Rather, it is part of the relief that may be sought in pursuit of a civil claim by litigation. Moreover, however important the recovery of costs might be in any particular circumstance, it does, nevertheless, remain something in the nature of ancillary relief, ancillary to the substantive claim, on the basis it is just and reasonable that a party who caused the other party to incur the costs of litigation should (at least) reimburse that party for the loss incurred.[3]

18 A further issue arose in the course of argument which militates in favour of a narrow construction of s 10 of the Repeal Act with respect to a claim for costs. Grawin drew attention to the provisions of s 85 of the Constitution Act 1975 that provides for the powers and jurisdiction of the Court. In particular, reference was made to sub-s 85(5) which provides as follows:

"(5) A provision of an Act, other than a provision which directly repeals or directly amends any part of this section, is not to be taken to repeal, alter or vary this section unless-

(a) the Act expressly refers to this section in, or in relation to, that provision and expressly, and not merely by implication, states an intention to repeal, alter or vary this section; and

(b) the member of the Parliament who introduces the Bill for the Act or, if the provision is inserted in the Act by another Act, the Bill for that other Act, or a person acting on his or her behalf, makes a statement to the Council or the Assembly, as the case requires, of the reasons for repealing, altering or varying this section; and

(c) the statement is so made-

(i) during the member's second reading speech; or

(ii) after not less than 24 hours' notice is given of the intention to make the statement but before the third reading of the Bill; or

(iii) with the leave of the Council or the Assembly, as the case requires, at any time before the third reading of the Bill."

19 Grawin submitted that, to the extent that s 10 of the Repeal Act purports to extinguish any possibility of an award of costs to Grawin it constitutes an implied modification of s 85 of the Constitution Act by removing jurisdiction in the Supreme Court to award costs where these provisions of the Repeal Act apply. The effect of the provision of s 85 is that any amendment of its provisions must, to be effective, satisfy certain manner and form requirements. Thus, a bill to amend s 85 must, by reason of these provisions and other provisions[4] of the Constitution Act, receive the support of an absolute majority of both Houses of Parliament; be the subject of a statement during the second reading speech of the member introducing the bill or after not less than 24 hours notice is given of the intention to make the statement but before the third reading of the bill (or with the leave of the Legislative Council of the Legislative Assembly, as the case requires, at any time before the third reading of the bill); and the bill itself must contain an express statement of an intention to amend s 85 of the Constitution Act.[5]

20 In this context, it is noted that the Repeal Act contains no express statement of intention to amend s 85 of the Constitution Act and neither does it purport to do so. The Hansard report of the Parliamentary debates on the Bill indicates that no statement of reasons was made during the second reading speech or before the third reading of the Bill. Whether or not the Bill achieved an absolute majority in either House is not the subject of evidence before the Court. Even if this were the case, it does not address the other requirements of s 85 of the Constitution Act.

21 For these reasons it would, in my view, follow that if the provisions of s 10 of the Repeal Act did, properly construed, extend to circumscribe the powers and jurisdiction of the Court to award costs, those provisions would be ineffective because the manner and form provisions of s 85 of the Constitution Act were not invoked to amend its provisions to accommodate such a circumscription of the Court's powers and jurisdiction.

22 There was no suggestion, however, that the fact that the manner and form provisions of s 85 of the Constitution Act were not invoked was anything but a conscious decision on the part of the Victorian Government to seek enactment of the Bill in the form in which it was introduced into Parliament. That being the case, it follows, in my view, that an inference can be drawn that the Parliamentary intention was not to circumscribe the powers and jurisdiction of the Court with respect to costs by the provisions of s 10 of the Repeal Act. Consequently, it must follow that the provisions of s 10 were not intended to apply to a claim for costs. In any event, courts should, in the interpretation of statutory provisions, favour an interpretation that produces an operation that is constitutional, rather than one which is not.[6]

23 At the conclusion of oral submissions, following a discussion of the operation of s 10 of the Repeal Act and s 85 of the Constitution Act, the State said that it did not wish to rely on s 10 of the Repeal Act in the present application and, accordingly, the remaining and only issue to be determined was whether or not costs should be awarded on the usual, party-party basis or on an indemnity basis (the State conceding costs liability on the usual basis). In spite of the final position adopted by the State, it remained necessary to consider both the proper construction of s 10 of the Repeal Act and the operation of s 85 of the Constitution Act for the purpose of forming a view on whether the Court does have the necessary powers and jurisdiction with respect to costs in the present circumstances - as jurisdiction cannot be conferred on the Court by consent of the parties.[7] Having found, for the preceding reasons, that the Court does have the requisite powers and jurisdiction, I turn now to consider the basis upon which costs should be awarded.

24 It is well settled that the usual award of costs is on a party and party basis and that this usual position will only be departed from in "special circumstances". Although the categories of "special circumstances" are not closed, they include:

"(i) The making of an allegation, known to be false, that the opposite party is guilty of fraud ...

(ii) The making of an irrelevant allegation of fraud ...

(iii) Conduct which causes loss of time to the Court and to other parties ...

(iv) The commencement or continuation of proceeding for an ulterior motive ...

(v) Conduct which amounts to a contempt of Court ...

(vi) The commencement or continuation of proceedings in wilful disregard of known facts or clearly established law ...

(vii) The failure until after the commencement of the trial, and without explanation, to discover documents the timely discovery of which would have considerably shortened, and very possibly avoided, the trial ..."[8]

25 Grawin's claim for indemnity costs relied, as "special circumstances", on facts which it said indicated that the proceedings were brought for the purpose of obtaining some collateral advantage or for a purpose ancillary to the proceeding and were thus an abuse of process. The authorities indicate that a proceeding brought for an ulterior and improper purpose should be struck out.[9] Similarly, for a plaintiff to commence or continue litigation which he or she has no intention of bringing to a conclusion can amount to an abuse of process.[10]

26 In this context, Grawin noted in its submissions that the Umpire handed down his final award on 10 November 2011 and the State of Victoria filed its application for leave to appeal on 7 December 2011. The matter came before Emerton J on 24 February 2012 and the Bill was first introduced into Parliament in the Legislative Assembly on 13 March 2012. It submitted that at no time prior to 16 March 2012, when the matter came before me, did the State or its legal advisers advise Grawin or its legal advisers that it did not propose to continue with its application to the Court or that the State was not prepared to abide by its legal obligations as determined by the arbitrator, or to allow them to be determined by the Court.

27 Grawin submitted that it is unlikely that the decision to pass legislation to protect the position of the State was made and implemented between 24 February and 13 March 2012, and unlikely that the decision to prepare legislation in the general form as ultimately introduced was made later than 7 December 2011. Grawin submitted if in fact the decision was made at a later date, it was open to the State to give evidence to this effect. In the course of submissions, issues were raised in relation to whether Grawin's request for information from the State on these issues was properly refused as being subject to legal professional privilege. It is not necessary to canvass those issues now, save to note that Mr Pizer, Counsel for the State, did say in response that his instructions were that Parliamentary Counsel was instructed to commence drafting the Bill on 3 February 2012. Disclosure of this information was, in my view, helpful and proper in the circumstances of this case and entirely consistent with the position of the State as a model litigant.

28 In any event, Grawin submitted that in the absence of evidence that the decision to prepare legislation was made after 7 December 2011, it is entitled to costs on an indemnity basis.[11] If the decision to prepare legislation was made between 7 December 2011 and 13 March 2011, Grawin submitted that it was entitled to costs on an indemnity basis from the time that the decision was made.

29 These matters which were raised by Grawin in the course of the hearing of this application are, in substance, an elaboration of the two matters in support of its claim for indemnity costs which are set out in the affidavit material in support of its position, namely that:

(1) "the State only commenced the proceeding as a delay tactic", and the proceeding "was an abuse of the Court's process, as the State planned to introduce the Port Bellarine Tourist Resort (Repeal) Bill ... before commencing the proceeding";[12] and

(2) that the application was frivolous, as there was no manifest error of law on the face of the Umpire's award.[13]

30 In relation to these matters, the State submitted that there is no evidence to support the claim that this proceeding was commenced as a delaying tactic. The proceedings commenced on 7 December 2011 and was, it submitted, a legitimate exercise of the State's legal rights. The Bill was not introduced into Parliament until 13 March 2012, more than three months later. It submitted that there is no reason to infer that the State planned, in early December 2011, to introduce the Bill into Parliament. It said that the more compelling inference is that no decision had been made to seek to repeal the Act until well after this proceeding had commenced. In relation to the Umpire's award, it was submitted that there was and is a cogent argument that there was a manifest error of law on the face of the award, in the sense of the error being on the face of the Umpire's reasons and being "apparent to the understanding of the reader".[14]

31 Further, in relation to the manifest error point, the State submitted that the proper construction of clause 5(1)(b) of the Agreement is a question of law and one which is, self-evidently, a question that is open to competing arguments. This was, it said, clear from reading the award of Mr Fajgenbaum QC, which endorsed the State's position, and the award of the Hon EW Gillard QC and that of the Umpire, which endorsed Grawin's position. It was submitted that had the leave application been heard, the State would have contended that Mr Fajgenbaum was correct and that the Umpire had erred. If the Court had accepted that contention, it was said that the error was one that is "apparent to the understanding of the reader", and therefore a "manifest error" for the purposes of the Commercial Arbitration Act 1984. Further, it was submitted that no argument could be sustained that the State had unsuccessfully sought to resist enforcement of the Award, or failed to obtain leave to appeal.[15] In the present circumstances, the State has not failed to obtain leave, rather it seeks to discontinue the proceeding. Neither can it be said, in my view, that the State has resisted enforcement of the Award in any relevant sense as a result of its procuring enactment of the Repeal Act.

32 In terms of delay and costs consequences, it should also be borne in mind that, at the 16 March 2012 directions hearing, it was Grawin which pressed for an early hearing of the leave application, not the State. If the date for the hearing of this application as proposed by the State had been accepted by Grawin, it is possible that very little prejudice would have been caused to it as a result of having to prepare for the leave application. This is, however, not a criticism of Grawin. It was entitled to press for urgent resolution of issues in relation to the enforcement of the Award and to have the benefit of that determination. Nevertheless, in so doing, it had to take into account all relevant factors which must, in the present circumstances, include consideration of the degree of probability of the Bill being enacted and the effect of its provisions as likely to be enacted. Having made its decision, which was within its province, it is another matter for Grawin to seek to pass on the risks of its decisions to the other party, the State, in the event that the results were not as it would have anticipated or hoped for. There is, in my opinion, no basis for doing so, for the reasons indicated.

33 In my opinion, the State is correct in its submission that no "special circumstances" exist which would justify the award of costs other than on a party-party basis. I accept the State's submissions in relation to the commencement of these proceedings. The dispute raised complex construction issues in relation to the terms of the Agreement, particularly clause 5(1)(b), questions upon which the minds of very skilled and experienced lawyers, including two former judges and a very senior member of the Victorian Bar, clearly differed. It is not necessary to speculate as to the possible outcome of the leave application, much less seek to replicate it in the course of the present application. Having regard to the contents of the various awards which are exhibited in these proceedings, the arguments of the State in support of its leave application were clearly open. Whether they would have been successful is another matter, but that is no longer relevant and does not need to be determined for the purposes of this application.

34 The argument by Grawin that the State commenced these proceedings as a delaying tactic and, or alternatively, never intended to pursue them to completion raises some important issues in relation to the boundary between Legislative and Executive power. In my view, there is no basis for questioning the right and power of the Executive to consider its position following the delivery of the Umpire's reasons for decision and then to decide to institute the present proceedings which, for the reasons indicated, I regard as having at least a reasonable and arguable basis. If, in the course of considering its position, the Executive decided to introduce legislation to affect the rights of the parties to the dispute between them, then it is constitutionally within its power to do so. The argument advanced by Grawin appears to me to be based upon the premise that the Executive's decision to introduce legislation was as good as or, in practical terms, equivalent to the legislation actually being passed. In my view, this is to confuse Executive action with the actions and discretions of the Legislature, which is at odds with numerous authorities which reject the notion that it is open to the Executive to fetter the Legislature in the exercise of its powers and discretions, by contract or otherwise.[16]

35 Accordingly, I will grant leave to the State to discontinue the proceeding and order that it pay the costs of Grawin on a party and party basis.

[1] Proclaimed in Victoria Government Gazette, No. S115, Tuesday 3 April 2012 (as Act No. 16 of 2012). The Proclamation notes that this Act came into operation on the day after the day on which it received the Royal Assent.

[2] Exhibit JGM-9 to the Affidavit of Joseph Gerard Mulcahy (14 December 2011).

[5] The Broken Hill Proprietary Company Ltd v Dagi [1996] VicRp 62; [1996] 2 VR 117 (CA) at 184-187 (Phillips JA); and as to the requirements of these provisions, see also Taylor, The Constitution of Victoria (The Federation Press, 2006), 496-509.

[6] See, for example, FCT v Munro; British Imperial Oil Co Ltd v FCT [1926] HCA 58; (1926) 38 CLR 153 and Attorney-General (Vic) v Commonwealth [1945] HCA 30; (1945) 71 CLR 237.

[7] See, for example, Mason v Ryan [1884] VicLawRp 115; (1884) 10 VLR(L) 335 and Thompson Australian Holdings Pty Ltd v TPC (1981) 146 CLR 150.

[8] Ugly Tribe Co Pty Ltd v Sikola [2001] VSC 189 at [7] (Harper J); and see Manderson M & F Consulting v Incitec Pivot Ltd (No 3) [2011] VSC 441, at [8]-[12] (Croft J).

[9] See Williams v Spautz [1992] HCA 34; (1992) 174 CLR 509.

[10] Grovit v Doctor [1997] 2 All ER 417; 1 WLR 640.

[11] Referring to the reasoning in Armory v Delamirie (Chimney Sweeper's Case) (1722) 3 Stra 505; [1722] EWHC KB J94; 93 ER 664.

[12] Exhibit GM-6 to the affidavit of Geoff Musgrove dated 18 April 2012.

[14] Westport Insurance Corporation v Gordian Runoff Ltd [2011] HCA 37; (2011) 281 ALR 593 at [42] (French CJ, Gummow, Crennan and Bell JJ), and at [163] (Kiefel J). The error does not have to have a particular quality or character. It need not be "facile" or egregious", and it may be an error of construction of a complex law or an error in relation to a difficult question of law that had been open to competing arguments: Westport Insurance at [45]-[46].

[15] Cf IMC Aviation Solutions Pty Ltd v Altair Khuder LLC [2011] VSCA 248.

[16] See, for example, Ansett Transport Industries (Operations) Pty Ltd v The Commonwealth [1977] HCA 71; (1997) 139 CLR 54 at 70-71 (Mason J); and see Seddon, Government Contracts (4th ed, Federation Press, 2009), 252-254, [5.14].

Arbitration Act 1984