Richards v Han

1. Judgment for the applicant in the sum of $338,500 plus interest in the sum of $60,747.85.
2. The respondents are to pay 50% of the applicant's costs of the proceedings, as agreed or taxed. Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

HALLEY J: introduction 1 On 19 December 2022, I made orders for the parties in these proceedings and in ACD 89 of 2019 (Shareholder proceedings) to provide draft orders, including as to costs, to give effect to the reasons for judgment that I published on that date: see Richards v Han [2022] FCA 1539. I also made orders on that date that in the absence of an agreed position, the matter would be determined on the papers, unless a party requested an oral hearing. 2 The parties agreed that in these proceedings judgment should be entered for the applicant against the respondents in the sum of $338,500 plus pre-judgment interest in the sum of $60,747.85 but the parties could not reach agreement on costs. The parties filed competing submissions on costs and affidavits in support of their respective positions. The applicant relied on an affidavit from his solicitor, Mr Ian Meagher, and the respondents relied on an affidavit from their solicitor, Mr John Hill. Both affidavits were sworn on 23 December 2022. 3 I also made orders on 23 December 2022 for the parties to file and serve any additional evidence and written submissions on costs by 13 January 2023. 4 The parties have now filed reply submissions on costs and the applicant has also filed a further affidavit from Mr Meagher sworn on 13 January 2023. 5 The applicant seeks an order that the respondents pay his costs of the proceedings, as agreed or taxed, on a party and party basis. 6 The respondents seek orders that subject to existing costs orders, the applicant pay the respondents' costs: (a) up to 11 am on 13 October 2021 on a party and party basis; and (b) in the period after 11 am on 13 October 2021 on an indemnity basis; and in the alternative, (c) up to 11 am on 25 June 2022 on a party and party basis; and (d) in the period after 11 am on 25 June 2022 on an indemnity basis. 7 I have concluded for the following reasons that no orders should be made for indemnity costs and the respondents should pay 50% of the applicant's costs of the proceedings. Relevant principles 8 The Court has a broad discretionary power to award costs pursuant to s 43(2) of the Federal Court of Australia Act 1976 (Cth). The discretion must be exercised judicially, not arbitrarily or capriciously, having regard to the relevant principles and the justice of the case in all the circumstances and cannot be exercised on grounds unconnected with the litigation: Summers v Repatriation Commission (No 2) [2015] FCAFC 64 at [14] (Kenny, Murphy and Beach JJ) citing Trade Practices Commission v Nicholas Enterprises Pty Ltd and Others (No 3) (1979) 42 FLR 213; [1979] FCA 143 at 219 (Fisher J); see also InterPharma Pty Ltd v Hospira, Inc (No 4) [2018] FCA 45 at [8] (Kenny J). 9 In the ordinary course, in the absence of special circumstances justifying some other order, the general rule is that costs will be awarded to the successful party, that is, costs will follow the event: Summers at [14] citing Ritter v Godfrey [1920] 2 KB 47 at 52-53 (Lord Sterndale MR) and 54 (Atkin LJ); Gladstone Park Shopping Centre Pty Ltd v Ross Wills and Others (1984) 6 FCR 496 at 505 (Davies J); Ruddock and Others v Vadarlis and Others (No 2) (2001) 115 FCR 229; [2001] FCA 1865 at [11] (Black CJ and French J). 10 In order to justify the making of a special costs order it is necessary to establish that there has been conduct worthy of criticism and it has resulted in greater expense to the innocent party: Clifton v Kerry J Investment Pty Ltd (t/as Clenergy) (No 2) (2020) 277 FCR 382; [2020] FCAFC 112 at [31] (Besanko, Markovic and Banks-Smith JJ). 11 Rule 25.14(1) of the Federal Court Rules 2011 (Cth) provides: If an offer for compromise is made by a respondent and not accepted by an applicant, and the applicant obtains a judgment that is less favourable than the terms of the offer: (a) the applicant is not entitled to any costs after 11.00 am on the second business day after the offer was served; and (b) the respondent is entitled to an order that the applicant pay the respondent's costs after that time on an indemnity basis. 12 In Australian Skills Quality Authority v Western Institute of Technology Pty Ltd [2017] FCAFC 183, the Full Court (Tracey, Griffiths and Charlesworth JJ) stated at [22]: In dealing with the former O 23 r 11 of the Federal Court Rules 1979 (Cth), which was the forerunner of the present r 25.14, the Full Court (Stone, Edmonds and Jagot JJ) in IFTC Broking Services Ltd v Cmr of Taxation (2010) 268 ALR 1; [2010] FCAFC 31 considered O 23 r 11(6) which provided for offers made by a respondent and not accepted by an applicant. This rule was in substantially the same terms as r 25.14(3) save that the latter deals with offers by an applicant. Their Honour's summarised the relevant case law at 4-5 [9]: It may be accepted that the prima facie position established by O 23 r 11(6) can be departed from. So much is clear from the statement of exception in the rule which the appellants seek to invoke (unless the court otherwise orders). The cases say more than this, however. The cases establish that: (1) If O 23 r 11(6) is engaged it is for the applicant to satisfy the Court that the prima facie position established by that rule should be departed from: Futuretronics at [12]. (2) Unlike a case in which a Calderbank offer (named after the decision in Calderbank v Calderbank [1975] 3 All ER 333; [1976] Fam 93) is made, the fact that an unsuccessful litigant acted reasonably in rejecting an offer of compromise "is not of itself a sufficient reason to displace the operation of the rule": Futuretronics at [11]. (3) It is true that doubts have been expressed about a need to show "compelling and exceptional circumstances" to justify otherwise ordering: see Port Kembla Coal Terminal at [17]. Nevertheless, properly understood, the rule creates a presumption in favour of indemnity costs which the unsuccessful party must rebut. A court may depart from the presumptive position but only "for proper reasons which, in general, only arise in an exceptional case": Port Kembla Coal Terminal at [17] cited with approval in Futuretronics at [10]. (4) The requirement for "proper reasons" for any departure from the prima facie position of indemnity costs reflects the purpose of the rule. As explained by Mason P in Morgan v Johnson (1998) 44 NSWLR 578 at 581F-582E (Morgan) the rule is intended to encourage the compromise of litigation (such compromise being in both the private and the public interest) and to oblige parties "to give serious thought to the risk involved in non-acceptance" on the basis that "litigation is inescapably chancy": Maitland Hospital v Fisher (No 2) (1992) 27 NSWLR 721 at 725. For these reasons "the ordinary provision is expected to apply in the ordinary case" (referring to New South Wales Insurance Ministerial Corporation v Reeve (1993) 42 NSWLR 100 at 102-3. 13 The operation of r 25.14 of the Rules is not subject to any "unless the Court otherwise orders" qualification but the Court retains a residual discretion if special circumstances can be established to make an order that is inconsistent with the Rules pursuant to r 1.35: Lodestar Anstalt v Campari America LLC (No 2) [2016] FCAFC 118 at [23], [27] (Allsop CJ, Greenwood, Besanko, Nicholas and Katzmann JJ); Australian Skills Quality Authority at [23] (Tracey, Griffiths and Charlesworth JJ).