Smalley v Department of Health and Ageing

Introduction 1 On 31 March 2011, I dismissed the amended notice of appeal in this proceeding for want of jurisdiction, as it did not state a question of law: Smalley v Secretary, Department of Health and Ageing [2011] FCA 302. I published reasons for judgment and adjourned the hearing of submissions in relation to costs in order to permit the parties to consider the reasons. 2 On 1 April 2011, the respondent, the Secretary, Department of Health and Ageing ("Secretary"), sought that the applicant, Ms Queenie Smalley, pay the Secretary's costs of the appeal and the notice of motion to strike out the amended notice of appeal on the basis that the Secretary had been wholly successful in the litigation and, in accordance with the usual principle, costs should follow the event. Ms Koya, who appeared for the Secretary, submitted that there was no public interest issue in the appeal or any other consideration which would justify a failure to order costs against Ms Smalley and further, that the Court's discretion not to make a costs order was excluded by the reasoning in Ruddock v Vadarlis (No 2) (2001) 115 FCR 229 ("Ruddock v Vadarlis"). 3 Counsel for Ms Smalley submitted that there should be no order as to costs because: (a) The present appeal involved a public interest element sufficient to displace the usual rule, in that, although the appeal was unsuccessful, the methodology or formula used by the Secretary to determine compensation payment reductions (under s 4420 of the Aged Care Act 1997 (Cth) ("the Act") (or elements relevant to them) lacked clarity. No temporal requirement was expressly imposed by the Act or the Residential Care Subsidy Principles 1997 ("Principles"), which neither referred to nor required the formula referred to in the Determination Guidelines - Section 44-20 of the Aged Care Act 1997 - Compensation Payment Reduction ("Guidelines"), which was indisputably applied. The Act, Principles and Guidelines did not make clear how a resident's life expectancy was to be assessed or used. (b) In the context of that uncertainty, Ms Smalley's compensation payment reduction had been revised on several occasions. (c) The reasons for judgment necessarily addressed the uncertainties of the relationship between the legislation, the Principles, the Guidelines, the formula and the application of the resident's life expectancy, providing a construction of the relevant provisions which was of general application to persons in the position of Ms Smalley. (d) Further, the Court was entitled to take into account the circumstances of Ms Smalley, including her limited financial resources and the requirements of her situation. 4 Before me, Ms Koya submitted that in Ruddock v Vadarlis, the Full Court made a costs order in favour of the Commonwealth and expressed reasoning that excluded the Court's discretion to make no order as to costs in this case. By a subsequent communication to chambers, made with the applicant's consent, Ms Koya withdrew the submission on the order made in Ruddock v Vadarlis. 5 In Ruddock v Vadarlis, a solicitor and a civil liberties organisation acted pro bono on behalf of noncitizens who were rescued at sea by a foreign vessel, and claimed, successfully at first instance, that they were unlawfully detained by the Commonwealth. 6 The Full Court allowed an appeal and the High Court, in refusing special leave to appeal from that decision, made no order as to costs. The Commonwealth subsequently sought costs of the application below and of the appeal. 7 The Full Court majority (Black CJ and French J) rejected the Commonwealth's application for costs. 8 Their Honours referred to the power to award costs conferred by s 43 of the Federal Court of Australia Act 1976 (Cth), which was unfettered by any stated legislative presumption but "must be exercised judicially and not against the successful party except for some reason connected with the case" (at [9]). 9 Their Honours affirmed (at [11]) that: Within the general discretion of the courts to award costs it is accepted by decisions in both Australian and English jurisdictions that: • Ordinarily costs follow the event and a successful litigant receives costs in the absence of special circumstances justifying some other order. … 10 Observing that the ordinary rule was principally based on perceived restorative justice and was compensatory, their Honours noted that the rationale of damages for wrong by the unsuccessful party did not explain awards of costs against parties who unsuccessfully sought relief, in the context of genuine uncertainty, about the interpretation of a document or statute, and who had had conducted the litigation reasonably. The automatic award of costs against such parties could "set up a significant barrier against parties of modest means even if the contemplated claim has substantial merit" (at [13]). 11 Their Honours recognised that although such considerations did not "justify a global modification, in public interest cases, of the usual rule that costs follow the event… [they indicated] the desirability of avoiding calcification of the discretion with rigid rules governing its exercise" (at [13]). 12 In relation to the costs of an appeal, their Honours observed at [16]: The costs of an appeal, like those at first instance, are in the discretion of the appellate court. If an appeal succeeds then in the ordinary course the court will order the respondent to pay the costs of the appeal and of the action at first instance: Jamal v Department of Health (1988) 14 NSWLR 252 at 271-2. An order for payment of the costs of the successful party may, as in the case of proceedings at first instance, be refused or the costs ordered reduced. The discretion conferred on the Court enables it to respond to the wide variety of circumstances that may arise in relation to the making of costs orders. Some examples are set out in Halsbury's Laws of Australia, Vol 20, pars [325]-[530]. 13 Black CJ and French J stated: "[w]here an appeal raises a novel question of much general importance and some difficulty the appeal court may decline to order costs against the unsuccessful appellant" (at [17]). Their Honours considered a number of cases in which an award of costs to the successful party was considered inappropriate, including Perrett v Commissioner for Superannuation (1991) 29 FCR 581 ("Perrett"). 14 In Perrett, the applicant, a member of a superannuation fund, appealed from a decision of the Administrative Appeals Tribunal based on a construction of the relevant superannuation legislation which resulted in a lesser retirement benefit to the applicant. 15 The Full Court (Wilcox, Burchett and Ryan JJ) declined to depart from the previous Full Court decision which held that the legislation did not require a causal relationship between a preexisting medical condition and that causing an employee's retirement. 16 In relation to the costs of the appeal, the Full Court in Perrett stated (at 594): We propose to make no costs order in the present case. The Tribunal has no power to make orders for costs in relation to cases of this nature and it seems to us to be undesirable that persons who unsuccessfully challenge a decision of the Tribunal should automatically be visited with a costs order in this court. The court should consider the matter of costs, bearing in mind the result of the appeal but also taking into account the reasonableness of the applicant in bringing that appeal and the general importance of the clarification of the law for such an authority as the respondent. We think that this appeal was reasonably brought. 17 Their Honours further noted that the provision in question presented difficulties of interpretation and application. 18 In my opinion, nothing in the reasoning of the majority in Ruddock v Vadarlis excludes the discretion of the Court to make no order as to costs in this case. 19 The applicant was unsuccessful in the litigation, and there was nothing to suggest that the appeal was brought otherwise than for the applicant's personal or financial gain. While the appeal was not in the public interest in that sense, there was force in the applicant's submission that uncertainty attended the relationship of the statutory provisions, the relevant Principles, including Principle 21.28(1)(c), and the formula referred to in the Guidelines which was in practice used by the Secretary to determine the part of the resident's compensation to be treated as relating to the future costs of providing residential care under s 4420(5) of the Act. The lack of clarity accounted, partly at least, for the successive revisions of the amount of compensation payment reduction applicable to Ms Smalley which rendered the appeal not unreasonable. The construction of the relevant provisions and their application to the formula were not without difficulty. Those questions had not, it would appear, previously been the subject of curial consideration and the construction is of general application. Further, the Court was, in my opinion, entitled to have regard to such matters in the context of Ms Smalley's apparently limited financial resources relative to the constraints of her difficult circumstances, including her health and living requirements. 20 Therefore, in my opinion, no order as to costs should be made. I certify that the preceding twenty (20) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Dodds-Streeton.