Consideration
26 Melrose Cranes submitted that the purpose of an order for costs is to compensate the person in whose favour it is made, not to punish the person against whom the order is made. That is so: see Oshlack v Richmond River Council (1998) 193 CLR 72 (Oshlack) at [44] per Gaudron and Gummow JJ and at [67] per McHugh J. Melrose Cranes submitted that it was reasonable for it not to accept the Liquidators' offers due to the way in which they chose to run the proceeding and that, relying on Oshlack, the Liquidators' conduct ought to be sufficient to disentitle them from costs in their favour.
27 Two issues arise for consideration. First, how should the Court exercise its discretion pursuant to s 43 of the Federal Court Act; and secondly, if the discretion is exercised in favour of the Liquidators, has Melrose Cranes satisfied the Court that it should make an order for payment of costs other than as provided by r 25.14(3) of the Rules.
28 In relation to the first issue, Melrose Cranes submitted that:
(1) the fact that the proceeding took two years to get to hearing was due to the way in which the Liquidators approached the proceeding. It contended that so much was clear from a review of the orders made in the proceeding. By way of example, Melrose Cranes referred to nine orders made in the course of case management of the proceeding. Of those orders, four were orders to extend the time by which the Liquidators had to take a step in the proceeding;
(2) it was not until June 2016, after the proceeding had been listed for hearing, that the Liquidators determined that there were flaws in their evidence and that it took the Liquidators a further two months to share that fact with Melrose Cranes which ultimately resulted in the hearing dates being vacated;
(3) the Liquidators failed to readily hand over their documents necessary for it to prepare its case. Melrose Cranes said that they should have willingly provided information to it and not forced it to issue a notice to produce for material such as CPS' MYOB records. Melrose Cranes contended that, even when the documents were produced, the Liquidators had locked the data files giving rise to a further need for submissions to be made by it on 10 September 2015; that costs were reserved in relation to that appearance; and that those costs should be its costs as the Liquidators' "obstructive approach caused further delay and unnecessary costs to be incurred"; and
(4) the hearing dates were vacated on two occasions as a result of the Liquidators' actions.
29 Melrose Cranes submitted that the conduct described above and, I infer, to the extent it is relevant, the conduct referred to at [32]-[34] below, was sufficient to disentitle the Liquidators to an order for costs in their favour and that it was the Liquidators' conduct that drove the costs in the proceeding, such that the burden of payment of the costs should not be borne by it.
30 To the extent that Melrose Cranes relies on Oshlack in support of its submissions I assume, as it is not specified, that it relies on the observations of McHugh J at [67] and, in particular, at [69] where his Honour said:
67 The expression the "usual order as to costs" embodies the important principle that, subject to certain limited exceptions, a successful party in litigation is entitled to an award of costs in its favour. The principle is grounded in reasons of fairness and policy and operates whether the successful party is the plaintiff or the defendant. Costs are not awarded to punish an unsuccessful party. The primary purpose of an award of costs is to indemnify the successful party. If the litigation had not been brought, or defended, by the unsuccessful party the successful party would not have incurred the expense which it did. As between the parties, fairness dictates that the unsuccessful party typically bears the liability for the costs of the unsuccessful litigation.
…
69 The traditional exceptions to the usual order as to costs focus on the conduct of the successful party which disentitles it to the beneficial exercise of the discretion. In. Anglo-Cyprian Trade Agencies Ltd v Paphos Wine Industries Ltd, Devlin J formulated the relevant principle as follows:
No doubt, the ordinary rule is that, where a plaintiff has been successful, he ought not to be deprived of his costs, or, at any rate, made to pay the costs of the other side, unless he has been guilty of some sort of misconduct.
"Misconduct" in this context means misconduct relating to the litigation, or the circumstances leading up to the litigation. Thus, the court may properly depart from the usual order as to costs when the successful party by its lax conduct effectively invites the litigation; unnecessarily protracts the proceedings; succeeds on a point not argued before a lower court; prosecutes the matter solely for the purpose of increasing the costs recoverable; or obtains relief which the unsuccessful party had already offered in settlement of the dispute.
(footnotes omitted)
31 Recognising that s 43 of the Federal Court Act confers a broad power on the Court and that the award of costs is discretionary, I am satisfied that I should exercise that discretion in favour of an order that Melrose Cranes pay the Liquidators' costs of the proceeding. The Liquidators succeeded substantially in the proceeding and, contrary to the submission made by Melrose Cranes, their conduct in the proceeding was not such that it would disentitle them to an order for costs in their favour.
32 Melrose Cranes has provided some examples of when the Liquidators did not comply with Court orders and when the Liquidators sought extensions of time to complete steps necessary to prepare the matter for hearing. However, Melrose Cranes fails to provide any context for the making of those orders, nor explain what occurred during the periods between the making of those orders. It is not possible to conclude, based on the submissions made and the material before me, that the Liquidators' conduct unnecessarily protracted the proceeding such that it would disentitle them to an order for costs in their favour.
33 There was a large volume of material filed in the proceeding. I accept the Liquidators' submission that the volume was necessitated by the fact that CPS' financial position and insolvency were intertwined with other companies in the corporate group but more relevantly, that the breadth of material filed was a consequence of Melrose Cranes' own conduct in putting the Liquidators to strict proof of every aspect of their claim, including matters that should not have been controversial. As I observed in Stone (No 2) at [4] the parties seemed unwilling to agree to any matter which might have narrowed the issues in dispute but, tellingly, it was not until the first day of the hearing when Melrose Cranes sought leave to file its further amended defence that it was prepared to withdraw its denial that the payments in issue had in fact been made. That was a matter which would have been evident to Melrose Cranes from its own material.
34 Hearing dates were vacated on two occasions. It is not plain that the reason for vacation of the first dates lies at the feet of the Liquidators. On the second occasion the hearing dates were vacated because the Liquidators sought and were granted leave to rely on additional evidence. On 2 September 2016 an order was made that the Liquidators pay Melrose Cranes' costs thrown away by reason of the grant of leave to the Liquidators to rely on the additional evidence and by reason of the vacation of the hearing date on an indemnity basis (September Order). In other words, Melrose Cranes was compensated at the time for the additional costs it would incur because of the late reliance on the additional evidence, in circumstances where it had prepared its defence based on the evidence which had been filed at that time, and because of the adjournment of the hearing. That event should not be revisited now such that the conduct would disentitle the Liquidators from an order in their favour for costs of the proceeding.
35 Nor will I, as the Liquidators invite me to do, set aside the operation of the September Order. The Liquidators referred to a number of authorities in support of their submission that there is "no doubt" about the Court's jurisdiction to do so. The Liquidators also submitted that Melrose Cranes' conduct in the proceeding was in contravention of s 37N of the Federal Court Act and that consequently under s 37N(4), in exercising the Court's discretion to award costs, I must take into account that contravention.
36 First, I am not satisfied, based on the authorities referred to by the Liquidators, that there is "no doubt" that the Court has jurisdiction to set aside the September Order. The authorities relied on by the Liquidators to support their submission that the Court has jurisdiction to set aside the operation of the September Order, all of which are decisions of the Supreme Court of Victoria, were determined in the context of that court's inherent jurisdiction to vary, modify or extend its own rules and its relevant slip rule.
37 Second, even I was satisfied of this Court's jurisdiction to set aside the September Order and that the principle I was referred to applied to this Court, the circumstances in this case can be distinguished from the circumstances in those cases which justified the variation or modification of orders.
38 The authorities referred to by the Liquidators rely, for the most part, on the principle enunciated in Re Bruce (1886) 12 VLR 696 at 709 where the Victorian Court of Appeal held that relevantly the Court of Insolvency, like every other court, has the power to set aside the order of another judge or its own order in circumstances where that order has been made improvidently or where facts have been withheld from the court that should have been, but were not, disclosed. That is, the court or a judge has the power to set aside any act of its or his or her own shown to have been done under circumstances which operated to deprive its or his or her mind of the power of exercising a fair judgment at the time. Such circumstances are simply not evident here. It has not been shown to be and is not the case that the September Order was made improvidently or that facts, which should have been disclosed, were withheld from the Court at the time the September Order was made.
39 The authorities relied on by the Liquidators also consider the application of the relevant slip rule in a court modifying its own orders. Those cases do not assist the Liquidators.
40 When I made the September Order I exercised my discretion based upon the matters and circumstances before the Court at the time. They included first, that the Liquidators accepted that, in circumstances where leave was granted to rely on the additional evidence and the hearing date was vacated, Melrose Cranes was entitled to its costs thrown away by reason of that leave and the vacation of the hearing date on an indemnity basis; and secondly, that the late filing of the additional evidence was caused by an "admitted oversight or omission on the Liquidators' part": see Stone v Melrose Cranes & Rigging Pty Ltd, in the matter of Cardinal Project Services Pty Ltd (in liq) [2016] FCA 1113 at [51] and [53].
41 In the circumstances, it is not appropriate that I, in effect, re-exercise the discretion as I am invited to do by the Liquidators because they now allege that Melrose Cranes failed to comply with s 37N in the conduct of the whole proceeding. If any issue arose about Melrose Cranes' non-compliance with s 37N of the Federal Court Act when the Court made the September Order, that was a matter for submission and consideration at that time. No such submission was made.
42 I am also not persuaded that it is in the interests of justice to stay the September Order. The Liquidators have not demonstrated why the interests of justice would be served by a stay.
43 In my opinion, the Liquidators are entitled to an order that Melrose Cranes pay its costs of the proceeding. I do not propose to take up Melrose Cranes' invitation to make an order that the Liquidators pay the reserved costs of the case management hearing on 10 September 2015. There is nothing before me that would justify the making of such an order. Those costs will form part of the costs of the proceeding.
44 I turn then to the second issue, the effect of the offers of compromise made by the Liquidators and the operation of r 25.14(3).
45 The Liquidators made five offers of compromise in accordance with r 25 of the Rules, none of which were accepted by Melrose Cranes. It is not in dispute that the Liquidators have obtained judgment more favourable than the terms of each of those offers. Pursuant to r 25.14(3) of the Rules the Liquidators are entitled to an order for indemnity costs from 11.00 am on the second business day after the First Offer was served. It is for Melrose Cranes to persuade me that an alternative order should be made, namely, that costs be ordered on the ordinary basis.
46 Melrose Cranes submitted that it was reasonable for it not to accept the Liquidators' offers given the following circumstances:
(1) the Liquidators did not file an expert report on the issue of insolvency as they said they would in their statement of claim. Melrose Cranes contended that had the Liquidators done so, their position as to the insolvency of CPS would have been clear and it would have had the benefit of a structured expert opinion to which it could respond. In the absence of an expert report Melrose Cranes said that it was left to "sift through the thousands of documents exhibited to affidavits by the [Liquidators], a large number of which were duplicated, flawed and some incomplete";
(2) it could not be said that the Liquidators had a reasonable expectation of success from the commencement of the proceeding. Melrose Cranes contended that the material filed by them was "deficient, excessive and largely unintelligible"; the Liquidators realised the deficiency in the material filed in support of their claim and sought to adduce further evidence after the proceeding had been listed for hearing; and the structure and form of the additional material filed with the Court's leave did not aid in making the Liquidators' case cohesive or easy to understand;
(3) the Liquidators' position in relation to the question of solvency was left to be drawn from their submissions and an aide memoir and, despite an indication that the Liquidators would outline with precision what was sought to be proved by the documents exhibited to the affidavits, they did not do so until the final hearing;
(4) the Liquidators' expansion of the material filed and the form of that material contributed to the hearing time; and
(5) given the state of the Liquidators' evidence, the offers Melrose Cranes made and its non-acceptance of the Liquidators' offers ought not be considered unreasonable.
47 Rule 25.14(3) does not require, in its terms, that a respondent's refusal of an offer made in accordance with Pt 25 be unreasonable. It operates upon the non-acceptance of an offer by a respondent where the applicant then obtains a judgment more favourable than the terms of the offer. But, as set out at [23] and [25] above, the Court may, pursuant to r 1.35 of the Rules, make an order inconsistent with the terms of r 25.14(3). It is for Melrose Cranes to satisfy me that I should make an order inconsistent with the terms of r 25.14(3).
48 Having regard to the circumstances of this case and the submissions made by Melrose Cranes, I am not satisfied that costs should be awarded other than in accordance with r 25.14(3) of the Rules. The offers were made in conformity with Pt 25 of the Rules. Melrose Cranes' complaint, among other things, seems to be that, because of the way the Liquidators ran their case, they were not able to understand how they would seek to establish insolvency. That was not apparent from the way in which Melrose Cranes ran its defence. It denied that CPS was insolvent and sought to undermine the evidence given by the Liquidators in cross-examination. In any event, after the Liquidators gave evidence, any complaint that Melrose Cranes did not understand how the case was put could no longer be sustained yet, at that point, it still chose not to accept the offers made in December and February when the hearing was adjourned part heard.
49 Melrose Cranes should pay the Liquidators' costs of the proceeding in accordance with r 25.14(3). That is, they should pay the Liquidator's costs on a party and party basis up to 11.00 am on 4 June 2015, being the second business day after service of the first offer made in accordance with Pt 25 of the Rules, and thereafter on an indemnity basis.
50 I am not satisfied that the Liquidators are entitled to an order for indemnity costs from the date of commencement of the proceeding. The basis on which they seek such an order seems to be because they contend that Melrose Cranes unnecessarily prolonged the time and costs involved in the proceeding contrary to s 37N of the Federal Court Act by denying allegations for which there was no basis, which they say should have been obvious to a party properly advised, and by imprudently failing to accept offers made to settle the proceeding. The effect of the non-acceptance of the offers made by the Liquidators is addressed by cost consequences that follow from the application of r 25.14(3). The additional period for which an order for costs on an indemnity basis is sought is approximately six months and covers the early part of the proceeding when few steps were taken and when no offers were made to settle the proceeding by the Liquidators. An order for costs on an indemnity basis is not justified to cover that period.