Secretary, Department of Social Services & Commonwealth of Australia v Francesco Cassaniti and Maria Cassaniti

Jurisdiction

1. The parties rightly do not contest that the Court has jurisdiction to make a costs order in favour of or against the applicants to the motion, despite the fact that the applicants were not parties to the proceedings. But the applicants are parties to the motion and Civil Procedure Act, s 98(1)(a) and (b) provide respectively: that "costs are in the discretion of the court"; and that the "court has full power to determine by whom, to whom and to what extent costs are to be paid"; see also, Knight v FP Special Assets Ltd (1992) 174 CLR 178.

Whether costs should follow the event

1. The applicants failed on their motion. The Cassanitis rely upon the general rule that costs follow the event. They submit that the applicants should pay the Cassanitis' costs of the motion "unless it appears to the court that some other order should be made as to the whole or any part of the costs": UCPR, r 42.1. That rule should ordinarily apply unless it is displaced where the successful party has been guilty of some sort of misconduct "relating to the litigation, or in the circumstances leading up to the litigation": Oshlack v Richmond River Council [1998] HCA 11; 193 CLR 72 at [69] per McHugh J.
2. The unsuccessful applicants point to what they claim is relevant misconduct on the part of the Cassanitis. The applicants rely upon the Cassanitis' 13 April 2015 letter in which, as noted in the principal judgment at [59], the solicitors for the Cassanitis characterised the effect on the AAT proceedings of the declarations in the Final Orders of the Supreme Court proceedings as being a matter for "evidence, legal submission and argument". That characterisation of the use to which the Final Orders could be put in the AAT was apt to mislead the applicants. As the principal judgment noted at [72], until 14 May 2015 the Cassanitis were thereby inferring an unsustainable position about the effect of the Final Orders. This conduct on the part of the Cassanitis caused the applicants, in my view, perhaps ex abundanti cautela, to file the motion in order to clarify the position. That step really should not have been necessary and indeed may have been misguided. But in my view the Cassanitis somewhat overstating the position that they would take in the AAT proceedings about the declarations induced the applicants to file the motion and so helped bring about the current unnecessary litigious skirmish.
3. The Cassanitis' 14 May 2015 letter expressly stated that the Cassanitis would not contend that the applicants in the AAT proceedings were bound by the declarations in the Supreme Court proceedings. It was only that letter which ended the effect of the Cassanitis' inducement on the applicants: see paragraph [58] of the principal judgment. Had something like that letter been sent in the first place the applicants would not have even considered their motion.
4. In reality the Final Orders, to which the applicants were not parties, could have no effect upon the AAT proceedings.
5. The Cassanitis' 13 April 2015 letter is sufficient in my view to warrant the Court exercising its discretion against applying the ordinary rule for costs. But the departure from the rule is only justified up until a point in time shortly after when the Cassanitis clearly altered their position and accurately foreshadowed how they would actually use the declarations in the Final Orders. As the Cassaniti's 13 April 2015 letter was calculated to occasion unnecessary litigation and expense, and induced the applicants to bring the motion, it falls under the second category in which a Court may exercise its discretion not to order costs for a successful party described by Atkin LJ in Ritter v Godfrey [1920] 2 KB 47 at 60, to which Basten and Bell JJA referred in their judgment in McIlraith v Ilkin [2008] NSWCA 11 at [13] - [15] as follows: "[13] … the basis upon which orders for costs are made […] is that they are to compensate the party in whose favour the order is made (generally the successful party) for the costs incurred in the conduct of the proceedings: Gundry v Sainsbury [1910] 1 KB 645; Ohn v Walton (1995) 36 NSWLR 77. [14] It is of course true that an award of costs is discretionary and an order for costs need not be made in favour of the successful party. The principle invoked by the applicant appears to depend upon the statement by Atkin LJ in Ritter v Godfrey [1920] 2 KB 47 at 60 in the following terms: "In the case of a wholly successful defendant, in my opinion the judge must give the defendant his costs unless there is evidence that the defendant (1) brought about the litigation, or (2) has done something connected with the institution or the conduct of the suit calculated to occasion unnecessary litigation and expense, or (3) has done some wrongful act in the course of the transaction of which the plaintiff complains." [15] In expanding on those principles, Atkin LJ held that (1) required that the defendant "has so conducted himself as to lead the plaintiff reasonably to believe that he had a good cause of action against the defendant, and so induce him to bring the action". […] In relation to (3), Atkin LJ explained that the reference to a "wrongful act" extends to cases where the facts complained of "though they do not give the plaintiff a cause of action, disclose a wrong to the public … by which I understand some criminal or quasi criminal misconduct": p 61. This test is not necessarily the same as that relevant to the exercise of the Court's supervisory jurisdiction over solicitors […] ."
6. It was not until the Cassanitis' 14 May 2015 letter that they expressly stated that they would not contend that the applicants in the AAT proceedings were bound by the declarations in the Supreme Court proceedings. It was only that subsequent letter which brought to an end the effect of the 13 April 2015 letter on the applicants: see paragraph [58] of the principal judgment. In my view the 13 April 2015 letter was the doing of something connected with the institution or the conduct of the suit, which was calculated to occasion unnecessary litigation and expense. But the effect of the 13 April 2015 letter was spent fairly quickly and should not be regarded as depriving the Cassanitis of their costs for more than a short reaction time after the Cassanitis' letter of clarification of 14 May 2015. In all the circumstances in my view it is reasonable to deprive the Cassanitis of their costs only for a further 7 days after 14 May 2015.
7. So the orders here will depart from the general rule that the unsuccessful applicants should pay the respondents' costs of the motion. The applicants will be ordered only to pay the Cassanitis costs of the motion incurred from one week after 14 May 2015, when the Cassanitis' cured the effect of their conduct that brought about the applicants filing the motion. But the Court will not order the Cassanitis to pay the applicant's costs before 21 May 2015. Depriving the Cassanitis of their costs for this period is a sufficient mark of the Court's judgment that they had to an extent induced some legal expenses associated with the motion. But persisting in the unsuccessful motion remains the responsibility of the applicants. The Cassanitis are not responsible beyond 21 May 2015 for the costs of what ultimately was an overreaction on the applicant's part.

Whether the applicants should pay the Cassanitis' costs on an indemnity basis

1. The Cassanitis also contend that they should have their costs assessed and paid on the indemnity basis. This is contrary to the general rule that costs payable to a person under an order of the Court or under the UCPR are to be assessed on the ordinary basis: UCPR, r 42.2. The Cassanitis seek indemnity costs firstly on the basis that the motion was an abuse of process, and secondly on the basis that the applicants unreasonably refused to accept a Calderbank offer.

Abuse of process

1. The Cassanitis submit that the applicants' motion constituted an abuse of process, a well-recognised circumstance in which an award of indemnity costs may be justified: Lo v Iverarch [2009] NSWCA 92 at [40]. They contend that this is one of those cases apt for an award of indemnity costs to which Woodward J alluded in Fountain Selected Meats (Sales) Pty Ltd v International Produce Merchants Pty Ltd (1988) 81 ALR 397 at 401 [21]: "I believe that it is appropriate to consider awarding 'solicitor and client' or 'indemnity' costs, whenever it appears that an action has been commenced or continued in circumstances where the applicant, properly advised, should have known that he had no chance of success. In such cases the action must be presumed to have been commenced or continued for some ulterior motive, or because of some wilful disregard of the known facts or the clearly established law. Such cases are, fortunately, rare. But when they occur, the court will need to consider how it should exercise its unfettered discretion."
2. The Cassanitis' reasons for submitting that the applicants' motion was an abuse of process include that allegedly the applicants: (1) unjustifiably brought proceedings in a second forum (the Supreme Court) duplicating those in a first forum (the AAT), causing oppression or injustice to the Cassanitis (Voth v Manildra Flower Mills Pty Ltd (1990) 171 CLR 538 at 552-566); (2) brought proceedings that were foredoomed to fail or brought without reasonable grounds (Walton v Gardiner (1993) 177 CLR 378 ("Walton") at 393; Batistatos v Roads and Traffic Authority of New South Wales (2006) 226 CLR 256 at [10]; (3) brought the proceedings in an inappropriate forum (Gardiner at 393); and (4) have used the court's procedures in a way that is unjustifiably oppressive to the Cassanitis (Rogers v R (1994) 181 CLR 251 at 286).
3. The thrust of the Cassanitis' submission is that it is difficult to envisage a case more likely to fail than this one: where a non-party to proceedings that have been finalized seeks a declaration on a matter not in issue in a court that has no jurisdiction to make the orders sought.
4. The Cassanitis' also submit that the applicants, as emanations of the Commonwealth have duties to act as model litigants under a policy document issued by the Commonwealth Attorney General, the Legal Service Directions 2005.
5. It is useful to examine the last of these submissions first.

The Commonwealth's Model Litigant Obligations and costs

1. Under Judiciary Act 1903 (Cth), s 55ZF, the Commonwealth Attorney General may issue directions that are to apply generally to Commonwealth legal work. Pursuant to that section, the Attorney General has promulgated the Legal Services Directions 2005 (Cth) ("Directions"), paragraph 4.2 of which requires litigation to be conducted in accordance with the Directions set out at Appendix B, titled "The Commonwealth's Obligation to Act as a Model Litigant". The general obligation in Appendix B, set out in clause 4.2, is that "the Commonwealth and Commonwealth agencies are to behave as model litigants in the conduct of litigation". Of particular relevance here, the Cassanitis contend, is the nature of the obligation which requires the Commonwealth to "act honestly and fairly in handling claims and litigation", including (at clause 2(d)) by: "endeavouring to avoid, prevent and limit the scope of legal proceedings wherever possible, including by giving consideration in all cases to alternative dispute resolution before initiating legal proceedings and by participating in alternative dispute resolution processes where appropriate."
2. The Cassanitis contend that the conduct of the applicants in this case merits the applicants paying the Cassanitis' costs on an indemnity basis because by that conduct the applicants failed to discharge their obligation to behave as model litigants under the Directions.
3. But Judiciary Act 1903, s 55ZG(2) and (3) stand somewhat against this argument. Those subsections provide: "(2) Compliance with a Legal Services Direction is not enforceable except by, or upon the application of, the Attorney‑General. (3) The issue of non‑compliance with a Legal Services Direction may not be raised in any proceeding (whether in a court, tribunal or other body) except by, or on behalf of, the Commonwealth."
4. Subsection (2) does not preclude the Cassanitis now raising the point as they do. By raising the issue of compliance with the model litigant obligation as a factor relevant to the Court's assessment of the applicants' conduct for the purposes of deciding whether to order costs on the indemnity basis, the Cassanitis are not seeking to "enforce" compliance with the Legal Services Direction.
5. But subsection (3) is a more direct obstacle to the Cassanitis' argument. The Cassanitis have sought to raise the issue of alleged non-compliance with the Appendix B of the Directions, the model litigant obligation. But Judiciary Act, s 55ZG(3) prevents just that course of action. The policy reasoning behind that subsection, according to the Explanatory Memorandum to the Bill introducing ss 55ZF and 55ZG that was subsequently enacted as the Judiciary Amendment Act 1999 (Cth), is that: "the question of compliance with the Directions should be a matter primarily between the Attorney-General as First Law Officer and the relevant Department or agency. Any other approach could give rise to technical arguments and result in additional costs and delay in litigation involving the Commonwealth."
6. Gray J in ACCC v Leahy Petroleum Pty Ltd (2007) ATPR 42-200; [2007] FCA 1844 noted a further policy reason for not introducing costs orders as a sanction for breaches of the Directions, at [25]: "There were some suggestions in argument that orders for indemnity costs against the ACCC might be appropriate because it had failed in some respects to act in accordance with the model litigant policy of the Commonwealth of Australia. In my view, considerations as to whether there has been compliance with that policy are irrelevant to questions of indemnity costs. The model litigant policy has been adopted by the Australian Government as a guide to the manner in which it and its agencies should conduct themselves in litigation, so as not to take advantage of the superiority of resources for litigation, which the Commonwealth often has when compared with those against whom it is litigating. The policy is of significant value to parties against whom the Commonwealth is involved in litigation, and to the courts in which that litigation is conducted. To use lapses in compliance with the policy as a ground for awarding indemnity costs against Commonwealth agencies might have the result that the Commonwealth abandoned the policy. This would be detrimental to the public good."
7. The model litigant obligations found in the Legal Service Directions are a policy that the Commonwealth has imposed upon itself. It is for the Commonwealth Attorney-General to review compliance with those obligations as expressed in the Directions and to censure those responsible for non-compliance. It is for that reason that Justice GT Pagone, speaking extrajudicially in a speech titled "The Model Litigant And Law Clarification" on 17 September 2008 at the ATP Leadership Workshop, said that the term "model litigant" represents "an ethical, rather than a legal, standard". The policy of the section makes that clear enough. In any case Judiciary Act, s 55ZG(3) precludes non-Commonwealth parties to litigation raising non-compliance with the Directions as an issue in proceedings before a court.
8. But s 55ZG(3) does not prevent a court from considering whether the Commonwealth has complied with the courts' expectation at general law that the Commonwealth will act as a model litigant. The Full Federal Court explained in Scott v Handley [1999] FCA 404 at [43]; 58 ALD 373 at 383 (per Spender, Finn and Weinberg JJ) that an Officer of the Commonwealth: "is to be expected to adhere to those standards of fair dealing in the conduct of litigation that courts in this country have come to expect - and where there has been a lapse therefrom, to exact - from the Commonwealth and from its officers and agencies. The spirit of this "model litigant" responsibility, now long enshrined in a policy document of the Commonwealth, is perhaps best captured in the observations of Griffith CJ in Melbourne Steamship Co Ltd v Moorehead (1912) 15 CLR 333 at 342: 'I am sometimes inclined to think that in some parts -- not all -- of the Commonwealth, the old-fashioned traditional, and almost instinctive, standard of fair play to be observed by the Crown in dealing with subjects, which I learned a very long time ago to regard as elementary, is either not known or thought out of date. I should be glad to think that I am mistaken.'"
9. The Cassanitis did not submit that the Court should measure the applicants' conduct against this general law standard rather than against the standard the Legal Service Direction establishes. But s 55ZG(3) means that the Commonwealth's general law responsibility is the only available basis for the Cassanitis to submit that the applicants' conduct should be judged at a higher 'model litigant' standard.
10. Commonwealth entities have in the past failed to meet courts' expectations of conduct becoming of a model litigant, and this has been a factor relevant to costs orders made against them: see, for example, Director-General, Department of Ageing, Disability and Home Care v Lambert [2009] NSWCA 102; 74 NSWLR 523 at [96]; Nelipa v Robertson [2009] ACTSC 16 at [97] per Refshauge J and Deputy Commissioner of Taxation v Clear Blue Developments Pty Ltd (No. 2) [2010] FCA 1224 at [48] per Logan J.
11. But the applicants did not fail to meet the Court's expectation to act as a model litigant here. Nor did they act in a way that occasioned some particular prejudice to the Cassanitis. The applicants' motion sought either (a) a declaration that as non-parties they were not bound by the declarations in the Final Orders of the Supreme Court proceedings in the AAT proceedings, or (b) joinder to the Supreme Court proceedings followed by such a declaration. That application was novel but not hopeless. It was not unreasonable for the applicants to bring the motion and seek to be joined as parties to the proceedings. Consistently with that conclusion, it cannot be said that the applicant's motion was 'preposterous' or 'tenuous': c.f. Deputy Commissioner of Taxation v Denlay [2010] QCA 217; 80 ATR 109 at [50] and Solak v Registrar of Titles [2011] VSCA 279; 33 VR 40 at [86]. The application was precipitated as a not unreasonable but misguided response to the Cassanitis' claim in their 13 April 2015 letter to the Secretary that the effect of the relevant declarations would be a matter for "evidence, legal submission and argument" in the AAT proceedings.
12. The expectation to act as a model litigant should not discourage the Commonwealth from exploring novel or inventive lines of legal argument that would assist it, so long as they are at least arguable. As Whitlam J noted in Brandon v Commonwealth [2005] FCA 109 at [11]: "While the Commonwealth is no doubt a behemoth of sorts, it is not obliged to fight with one hand behind its back in proceedings. It has the same rights as any other litigant notwithstanding it assumes for itself, quite properly, the role of a model litigant."
13. In any case, I do not regard the conduct of the applicants as failing the Court's expectations of a litigant, either judged against the standard of an ordinary litigant or a 'model' litigant, if indeed, in litigation governed according to the overriding purpose set out in Civil Procedure Act 2005, s 56, there remain two different standards: Priest v New South Wales [2007] NSWSC 41 at [34] per Johnson J. The legal basis for the applicants' motion was flawed. But the applicants did not abuse the Court's process merely by bringing a flawed motion.
14. Bringing the motion in the Supreme Court did not cause injustice or oppression to the applicants. The motion sought to clarify the applicants' rights in the AAT proceedings in the face of the Cassanitis expressing an unsustainable position regarding the effect of the declarations made in this Court. The Court should not infer some improper purpose in the bringing of the motion in those circumstances. The bringing of the motion was wrong in law, as it turned out but not an abuse of process.

Calderbank offer

1. The motion was filed on 11 May 2015, and its return date was first listed before me on 15 May 2015. In a letter of 14 May 2015, one day prior to the listing, the Cassanitis invited the applicants to consent to the Court dismissing the motion on 15 May with no order as to costs, failing which the Cassanitis would seek indemnity costs.
2. The letter was not marked as being sent "without prejudice", but it did set out the reasons why the applicants' motion would fail, and should be considered under the principles in Calderbank v Calderbank [1975] 3 All ER 333 and the cases following it.
3. Considerations relevant to the determination of whether a refusal of an offer to settle proceedings is unreasonable are identified in Miwa Pty Ltd v Siantan Properties Pte Ltd (No 2) [2011] NSWCA 344 at [12], based on Hazeldene's Chicken Farm Pty Ltd v Victorian WorkCover Authority (No 2) [2005] VSCA 298; 13 VR 435 ("Hazeldene's") at [25]. The Victorian Court of Appeal (Warren CJ, Maxwell P and Harper AJA) identified the factors relevant to determining whether the rejection of an offer was unreasonable as including the following: "(a) the stage of the proceeding at which the offer was received; (b) the time allowed to the offeree to consider the offer; (c) the extent of the compromise offered; (d) the offeree's prospects of success, assessed as at the date of the offer; (e) the clarity with which the terms of the offer were expressed; (f) whether the offer foreshadowed an application for indemnity costs in the event of the offeree's rejecting it."
4. In my opinion the time the Cassanitis allowed to the applicants to agree to their letter was insufficient. The 14 May letter required a response within only 24 hours. It required the applicants to respond to it before the listed hearing the next day. That was not a reasonable time within which the applicants could be expected to consider the substance of the letter, to decide their course of action and to respond to the letter.
5. The Cassanitis submit that the short period of time allowed to respond to the letter was necessitated by the rapidly approaching return date of the motion. But it was open to the Cassanitis to include a longer period of time to respond to their offer, for example one week. In order to facilitate the consideration of that offer the Cassanitis could have suggested that the parties jointly request an adjournment of the return date listing, until a time after the full period for consideration had expired. Because the Cassanitis failed to allow the applicants a reasonable time to accept the offer in their Calderbank letter it was not unreasonable for the applicants not to accept that offer. The Court will not order indemnity costs against the applicants for failing to accept that offer.

Conclusion

1. The Court will therefore order that: 1. the applicants pay the Cassanitis' costs of the applicants' motion of 11 May 2015 on the ordinary basis from 21 May 2015; and 2. otherwise each party shall pay their own costs of the costs hearing.

Amendments 01 December 2015 - Catchwords "on abuse" changed to "an abuse" [12] "that they" before expressly. DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 01 December 2015