Plaintiff v First Defendant

2 On 2 October 2013, I handed down my judgment on that application determining that the application should be dismissed.

3 Towercom applied for its costs of successfully opposing the application. Fahoh submitted that the costs should be costs in the proceeding so that the costs should follow the costs order made at the conclusion of the trial.

(a) the order that costs be costs in the proceeding was the practice adopted in respect of summary judgment applications;

(b) The rationale underpinning the practice is that whichever party is successful in the litigation will get the costs of the application: Harry Smith Car Sales Pty Ltd v Claycom Vegetable Supply Co Pty Ltd;[1]

(c) The practice was adopted by Zammit AsJ in an application by a defendant for summary judgment in Webb v Ryan.[2] In that case her Honour was particularly critical of the defendants for making the application and yet still did not penalise them with a costs order, instead following the practice of ordering costs in the cause;

(d) in Cullia v Gook [2011] VSC 412, Hargrave J dismissed an application for summary judgment by a defendant and followed the practice of ordering costs in the cause (see [28]);

(e) It is evident from the available case law that the practice is departed from if the application is lacking in merit or brought as "a mere experiment": See Civil Procedure Victoria, para [22.06.70] at page 3380.1. Although these cases deal with applications by plaintiffs, it was submitted that the principles are the same in respect of applications by defendants;

(f) Fahoh's application was clearly not a "mere experiment", nor was it unreasonable - so as to depart from the practice - for the following reasons:

(i) There is no criticism of Fahoh in the reasons for dismissing the application;

(ii) the judgment in the present case was under consideration since 9 April 2013 and occupied 31 pages; it is clear there were aspects of Fahoh's application which required serious consideration;

(iii) the plaintiff's statement of claim is in its eighth iteration and the plaintiff's case (in earlier iterations) has attracted criticism from two Associate Judges of this Honourable Court;

(iv) Mr Pryles deposes that a reason why summary judgment ought not to be granted is that the plaintiff intends to take (yet further) interlocutory steps including further discovery and interrogation. This excuse is offered in a piece of litigation which was commenced in May 2011, 2 years prior to the summons;

(v) Ayse Ilhan did not swear an affidavit in support of the allegations she makes in the FASOC in opposition to the application; and

(vi) one of the reasons given for not ordering summary judgment was that Fahoh did not plead to (and is taken to admit) certain allegations in the plaintiff's statement of claim (para [88]). This criticism appears to have overlooked Fahoh's submissions that it was not even in existence as at the dates contained in paragraphs 4 and it is not required to plead to particulars.

(a) By reason of Fahoh making the application, Towercom incurred the costs of successfully opposing it. Those costs would not have been incurred but for the making of the application;

(b) Fahoh knew the relevant principles to be applied in the application, which was not disposed of as a matter of discretion;

(c) Costs should ordinarily follow the event - the "event" here being the question of whether the plaintiff had a real prospect of success in the proceeding at trial;

(d) There is no established practice adopted in this Court on summary judgment/dismissal applications of ordering costs in the cause;

(e) Harry Smith Car Sales Pty Ltd[3] is clearly distinguishable (as are all the cases cited in Williams, Civil Procedure ('Williams') at [I 22.06.70], referred to by Fahoh in its submissions): a careful reading of that case shows it related to a summary judgment application made before any defence was filed or known to exist. (This was also the procedure in Victoria until 1986, where an application for summary judgment had to be made within 14 days after appearance - see the commentary in Williams at [I 22.01.1]).[4]

(f) The principle agitated for by Fahoh might have had application more readily in such a case (and also for the reasons cited in Dawson v Watson,[5] where the Court observed that a defendant might make a fraudulent affidavit, but still get its costs), but has no such application here, where the application was made with full access to all the information, which was relied upon by Towercom in successfully resisting Fahoh's application, being essentially documents discovered by Fahoh and exhibited to the affidavit of Mr Pryles (and there could be no suggestion of a "fraudulent affidavit" here);

(g) The decision in Webb v Ryan,[6] in which Zammit AsJ referred to "the practice of ordering costs in the cause", identifies no authority for that practice, nor does it contain any analysis of the basis for such a practice;

(h) In circumstances where summary judgment and dismissal applications are made after pleadings have closed (and even after discovery has occurred) there should not be any such practice;

(i) The third case referred to by Fahoh is Cullia v Gook,[7] where Hargrave J did not identify either the existence of a practice as to costs, nor his reasons for making an order, in the case of that application, that costs be costs in the cause; and

(j) none of the matters identified by Fahoh justify a departure from an order that costs follow the event.

6 The parties to this application rightly assume that under s 24 of the Supreme Court Act 1986 the power to award costs is in the discretion of the Court. Whilst the discretion is absolute and unfettered, it has to be exercised judicially, that is, not by reference to irrelevant or extraneous considerations, but upon facts connected with or leading up to the litigation: see for example Latoudis v Casey.[8] In the exercise of the discretion, practices or guidelines have developed: Oshlack v Richmond River Council.[9] These practices or guidelines are not legal rules that confine the exercise of the discretion: Norbis v Norbis;[10] Oshlack v Richmond River Council.[11]

7 Although costs are in the discretion of the Court, there is a settled practice (sometimes called a general rule) that in the absence of good reason to the contrary a successful litigant should receive his or her costs: Ritter v Godfrey;[12] Milne v Attorney-General for the State of Tasmania.[13] It is not, however, a legal rule devised to control the exercise of the discretion: Oshlack v Richmond River Council.[14]

8 The purpose of an order for costs is to indemnify or compensate the person in whose favour it is made, and not to punish the unsuccessful party. That purpose is a guide to the exercise of the discretion: Latoudis v Casey;[15] Ohn v Walton.[16]

9 In the notes to Williams,[17] it is said, in relation to an application for a summary judgment by a plaintiff against a defendant, that where the defendant is given leave to defend the Court may order either that the costs of the application be paid by the plaintiff or that the costs be costs in the proceeding. An order of the latter kind is made on the principle that should the defendant ultimately fail he will probably be ordered to pay the plaintiff's costs of the proceeding, which will include the costs of the application for summary judgment, and that there will be a corresponding result if it is the plaintiff who ultimately fails: Harry Smith Car Sales Pty Ltd v Claycom Vegetable Supply Co.[18]

10 The notes go on to say that there is no rule that the Court should order that the costs be in the proceeding and that some cases suggest that if the application fails the ordinary costs consequences should follow, namely, that the plaintiff be ordered to pay the costs of the application in any event: Cooney v Dopel;[19] Allen v Birbeck.[20]

There seems to be an impression that when a summons of this kind is dismissed, costs should be costs in the cause, and by consent such orders are often made, but there is no rule to that effect and speaking for myself I can see no foundation for such a practice. The summary procedure under order 14 is a very special one, and if a plaintiff, having taken out his summons for final judgment, fails on that summons, I see no reason why the usual consequences as to costs should not follow. [21]

12 In Allen v Birbeck, Irvine CJ followed Cooney v Dopel and said:

Where the case does not turn upon facts, but turns upon some arguable question of law, this summary procedure ought not to be adopted. In this case there are at least two arguable points on the facts stated by the plaintiff in his own affidavit. These are both points that are undoubtedly susceptible of legal argument. I therefore have no option but to follow the usual rule of costs following the event. [22]

13 The notes in Williams then state that unless it appears that the plaintiff should have known that there was no reasonable chance of his getting judgment, the usual order is that the costs be in the proceeding: International Harvester Co v Mullavey;[23] Dawson v Watson.[24] Where, however, it is concluded that the application ought never to have been made, the plaintiff will be ordered to pay the defendant's costs.

14 In Dawson v Watson[25] MacFarlan J said:

I do not regard Cooney v Doepel as laying down a general rule that plaintiff who fails on a summons for final judgment should always bear the costs of the summons. If it did so I should decline to follow it as inconsistent with many unreported decisions and at least one reported decision. Each case must depend on its own facts. If from the matter before the Court it appears that the plaintiff should have known that there was no reasonable chance of his getting final judgment he may, and probably would, not be entitled to have the costs made costs in the cause, but, as I have pointed out during the argument, if a defendant simply comes and denies the facts which the plaintiff sets up, and succeeds in defeating the plaintiff's summons in that way only, then if nothing more appears the costs should prima facie be made costs in the cause. To hold otherwise would mean that all a defendant has to do in order to obtain his costs of the summons against the plaintiff would be to make a false or untrue or incorrect affidavit. Even though it subsequently appeared at the trial that he had defeated the plaintiff's summons for final judgment by swearing falsely or untruly or inaccurately, the suggestion is that he should be entitled to his costs against the plaintiff. In my opinion that would be a monstrous injustice. The position is adequately met by reserving the costs for the judge at the trial or by making them costs in the cause. I think the defendant's interests are abundantly conserved in that way. If he makes out the truth of the allegations by which he succeeded in defeating the plaintiff's summons for final judgment, he will get his costs of the summons by virtue of the order making the costs costs in the cause or by the order made at the trial. In certain cases the costs may be made the defendant's costs in the cause. I think each case must depend on its own merits.

15 It is true that the decision of Zammit AsJ in Webb v Ryan[26] and of Hargrave J in Cullia v Gook[27] did not identify the reasoning for any practice of ordering costs in the cause in cases of applications for summary judgment. To the extent that it can be said to be a settled practice, the reasoning is exposed in the decision of McFarlan J in Dawson v Watson (above) and by Blackburn CJ in the Harry Smith Car Sales case. In the latter case, Blackburn CJ said:

In a case where the application fails because the defendant shows a genuine possibility of defence to the claim, the costs are normally ordered to be costs in the cause, the principle being that should the defendant ultimately fail he will probably be ordered to pay the plaintiff's costs of the action which will then include the costs of the application; a corresponding result will occur if the plaintiff ultimately fails. In the exceptional case, however, where the application fails because it should not have been made, the defendant should have his taxed costs of the application.[28]

16 The notes to Williams and the cases reveal a tension between the existence of a practice of making a 'usual order' that costs be in the cause and there being no such practice. The principles referred to above at paragraphs 6, 7 and 8 confirm that there is no 'rule' of that kind and that, at best, the statements in Dawson v Watson and Harry Smith Car Sales are practices or guidelines. Those decisions put the decision as turning on whether the applicant for summary judgment should have known there was no reasonable chance of success. If that is the case, it is clearly right that costs should not be made in the cause but should follow the event.

17 It must, however, be steadily borne in mind that the discretion is not confined by any practice and where the circumstances do not neatly fit either 'pole position' exemplified in Dawson v Watson, on the one hand, and Harry Smith Car Sales, on the other, the appropriate starting point is to approach the exercise of the discretion in accordance with the settled practice of costs following the event.

18 For example, in some cases it may not have been so clear to the applicant that there was no real chance of success (although it might ultimately be clear after argument), in which case an order that the costs be in the proceeding (and follow the event at trial) may be appropriate. In other cases, there may be circumstances that point against making an order that leaves the costs to follow the event at trial. Whichever is appropriate turns on all the circumstances. There cannot be any better guide than that.

19 This is not a case were it is appropriate to make an order for the costs to be costs in the proceeding, for the following reasons:

(a) The cases relied upon by Fahoh in support of its application that the costs should be costs in the proceeding are all decisions made in applications by the plaintiff for summary judgment and, in addition, were made under the old rules. In many cases of summary judgment applications by plaintiffs where the defendant was given leave to defend it was impossible to conclude, one way or the other, whether the defence would ultimately succeed. In many cases the defence was merely arguable. In those circumstances, the discretion as to costs was rightly exercised by making an order that the costs of the application (that is each party's costs of the application) should be costs in the proceeding. This had the effect of preserving each parties' position so that it followed the ultimate event: the outcome of the plaintiff's claim;

(b) Where an attack is made upon the claim made by a plaintiff against a defendant, and the attack is based upon an alleged defence of the defendant on the merits of the claim, as was the case here, the position is different from that facing the plaintiff seeking to prosecute a claim against a defendant. And that is so particularly where discovery, albeit incomplete discovery, has been obtained by a plaintiff, and given (at least in part) by the relevant defendant, so as to expose material of the kind to which I had referred in my reasons for judgment which disclose an arguable basis for the claim as pleaded by the plaintiff;

(c) In this case, the summons by Fahoh (in original unamended form) was filed on 13 March 2013 and first came on for hearing before the Court on 26 March 2013, at which time orders were made for the summons to be amended and adjourned to 9 April 2013. The affidavit of Mr Peter Pryles was sworn and filed with its extensive exhibits on 22 March 2013. Between that date and the hearing of the application on 9 April 2013, Fahoh had ample opportunity to consider whether or not it was likely to succeed and to withdraw its application. It nevertheless proceeded to press his application that there was no viable claim against it;

(d) Although it is true that there was no express criticism made of Fahoh in the reasons dismissing the application, read carefully, the decision discloses reference to a variety of matters arising both from the affidavit in support of the application and from material obtained in the discovery process that points strongly to the conclusion that the claim must go to trial, and against there being a defence on the merits sufficient to warrant the claim against Fahoh being dismissed summarily either under r 23.03 or under s 62 of the Civil Procedure Act 2010;

(e) The length of time that the decision was reserved and the length of the reasons are not reasons relevant to the question of costs. All applications of this kind require serious consideration;

(f) The application is made to dismiss a claim based upon the second limb in Barnes v Addy.[29] Claims in this area of the law are notoriously difficult;

(g) The fact that the plaintiff's statement of claim is in its eighth iteration is immaterial to whether or not costs should follow the event in this case. The current FASOC introduced the claim against Fahoh for the first time;

(h) The fact that the plaintiff intends to take yet further interlocutory steps (for further discovery and interrogation) is also irrelevant. It was a reason advanced by Towercom against the application, but was not a factor identified as a foundation for dismissing the application;

(i) The fact that Ms Ayes Ilhan did not herself swear an affidavit in opposition to the application makes no difference to the disposition of the costs because there are sufficient materials introduced into evidence (without any affidavit from her) to show that it was not an appropriate case to give judgment for Fahoh;

(j) The fact that Fahoh was not in existence as at the times referred to in paragraphs 4 and 5 of the FASOC does not mean that Fahoh is not required to plead to those paragraphs. They plead circumstances giving rise to the fiduciary duties allegedly owed by Fahour. The fact that the claim of knowing assistance turns on the existence and breach by Fahour of those duties and the evidence that Fahoh was incorporated on 18 September 2009 (the date of the first simple contract) with Fahour as a shareholder (the date of the breach), means that they are relevant to the claim made against Fahoh and must be answered in its defence;

(k) Costs should ordinarily follow the event - the "event" here being the question of whether the plaintiff had a real prospect of success in the proceeding at trial; and

(l) By reason of Fahoh making the application, Towercom incurred the costs of successfully opposing it. Those costs would not have been incurred but for the making of the application.

20 For these reasons the costs of the application will follow the event and Fahoh will be ordered to pay Towercom's costs.

[1] (1978) 29 ACTR 21 at 22-23.

[2] [2011] VSC 461 (at [49]); Her Honour states "I would be inclined to follow the practice of ordering costs in the cause, but am willing to hear the parties on costs". It is confirmed by Whelan J in Webb & Ors v Ryan & Anor (No 2) [2012] VSC 431 at [17] that Her Honour made such an order after hearing submissions.

[3] (1978) 29 ACTR 21.

[4] Much the same was true for a summary dismissal application until 1986 - see the commentary in Williams at [I 23.03.1]. The commentary on rule 23.03, which Fahoh relied on in its summary dismissal application, does not contain any commentary on costs.

[5] [1929] VicLawRp 49; [1929] VLR 263.

[6] [2011] VSC 461.

[7] [2011] VSC 412.

[8] [1990] HCA 59; (1990) 170 CLR 534, 537; cited with approval in Oshlack v Richmond River Council [1993] HCA 11; (1998) 193 CLR 72 at 86 at [34].

[9] [1993] HCA 11; (1998) 193 CLR 72 at 86 at [35].

[10] [1986] HCA 17; (1986) 161 CLR 513 at 537.

[11] [1993] HCA 11; (1998) 193 CLR 72 at 86 at [35].

[12] [1920] 2 KB 47 at 52; Donald Campbell and Co Ltd v Pollak [1927] AC 732 at 809.

[13] ((1956) [1956] HCA 48; 95 CLR 460 at 477.

[14] [1993] HCA 11; (1998) 193 CLR 72 at 86 at [35].

[15] [1990] HCA 59; (1990) 170 CLR 534 at 563 per Toohey J, Mason CJ agreeing; McHugh J at 567.

[16] (1995) 36 NSWLR 77 at 79.

[17] Williams, Civil Procedure Victoria at [22.06.70].

[18] (1978) 29 ACTR 21 at 23.

[19] [1928] VicLawRp 8; [1928] VLR 54.

[20] [1931] VicLawRp 23; [1931] VLR 140.

[21] [1928] VicLawRp 8; [1928] VLR 54 at 54.

[22] [1931] VicLawRp 23; [1931] VLR 140 at 140-1.

[23] [1906] VicLawRp 109; [1906] VLR 659.

[24] [1929] VicLawRp 49; [1929] VLR 263.

[28] (1978) 29 ACTR 21 at 23.

[29] (1874) LR 9 Ch App 244.