CONSIDERATION
26 This is an unfortunate case because the original debt was insignificant, but the escalation of this proceeding has caused disproportionate costs to be incurred. When I was first docketed this proceeding, I considered that it would and should be resolved quickly and inexpensively. This did not occur.
27 I do not propose to adjudicate on the merits of the proceeding, although the matters raised by Lion Finance and the Trustees may have some merit. However, if there was a trial, this contention may not have been accepted upon a review of all the evidence, and a consideration of the testimony of Ms Wavish.
28 I acknowledge that recent attempts have been made to resolve the proceedings by offers made by Ms Wavish and the Trustees - I cannot determine the reasonableness of these offers, but proceed on the basis these offers were genuine and made in good faith.
29 In Re the Minister for Immigration and Ethnic Affairs of the Commonwealth of Australia; ex parte Lai Qin (1997) 186 CLR 622, McHugh J said (at 624-625):
In an appropriate case, a court will make an order for costs even where there has been no hearing on the merits and the moving party no longer wishes to proceed with the action. The court cannot try a hypothetical question between the parties. To do so would burden the parties with the costs of a litigated action which by settlement or extra-curial action they had avoided. In some cases, however, the court may be able to conclude that one of the parties has acted so unreasonably that the other party should obtain the costs of the action … Moreover, in some cases a judge may feel confident that, although both parties have acted reasonably, one party was almost certain to have succeeded if the matter had been fully tried … But such cases are likely to be rare. If it appears that both parties have acted reasonably in commencing and defending the proceedings and the conduct of the parties continued to be reasonable until the litigation was settled or its further prosecution became futile, the proper exercise of the cost discretion would usually mean that the court will make no order as to the cost of the proceedings. This approach has been adopted in a large number of cases.
(Footnotes omitted).
30 In Chapman v Luminis Pty Ltd [2003] FCAFC 162, Beaumont, Sundberg and Hely JJ said (at [7]):
The authorities establish the following propositions in relation to the making of costs orders in circumstances such as the present:
- where a proceeding terminates before there has been a hearing, the court should not resolve the issue of costs by engaging in something in the nature of a hypothetical trial: Australian Securities Commission v Aust-Home Investments Ltd (1993) 44 FCR 194 at 201;
- this does not mean that a court can never make an order for costs. Often it will be unable to do so, but in other cases an examination of the reasonableness of the conduct of the parties may provide the basis for an order, or a judge may be confident that one party was almost certain to have succeeded if a matter had been fully tried: Re Minister for Immigration & Ethnic Affairs; Ex parte Lai Qin (1997) 186 CLR 622 (McHugh J)…
31 In Jeruth Pty Ltd v Haybale Pty Ltd [2004] VSC 319, Redlich J held:
[4] If a supervening event or compromise so removes or modifies the issues in dispute that it cannot be said that one side has won, the court should not attempt to assess the merits of the case. This is particularly so where the issues are complex or questions of credit are involved. If it is clear on the undisputed facts that one party would almost certainly have succeeded if the matter had been fully tried, the court may make an order in favour of that party.
[5] Where it is not clearly discernible that a party would have won and it appears that both parties have acted reasonably in commencing and defending the proceedings until the litigation was compromised or became futile, the Court, would usually make no order as to costs. But where the Court concludes that a party has acted unreasonably prior to or during the course of the litigation the making of a costs order against it may be justified.
32 However, in One-Tel Ltd v Deputy Commissioner of Taxation (2000) 101 FCR 548, Burchett J stated (at [6]):
In my opinion, it is important to draw a distinction between cases in which one party, after litigating for some time, effectively surrenders to the other, and cases where some supervening event or settlement so removes or modifies the subject of the dispute that, although it could not be said that one side has simply won, no issue remains between the parties except that of costs. In the former type of case, there will commonly be lacking any basis for an exercise of the Court's discretion, otherwise than by an award of costs to the successful party. It is the latter type of case which more often creates problems, since there may be difficulty in discerning a clear reason why one party, rather than the other, should bear the costs.
33 Then it is important to recall that the discretion must be exercised in a manner relating to the litigation in question. As the Full Court of this Court (Kenny, Murphy and Beach JJ) stated in Summers v Repatriation Commission (No 2) [2015] FCAFC 64 at [14]:
The discretion must be exercised judicially, not arbitrarily or capriciously, and must relate to the litigation in question: Trade Practices Commission v Nicholas Enterprises Pty Ltd and Others (1979) 28 ALR 201 at 206-207 (Fisher J).
34 I take the view that Ms Wavish has effectively surrendered to the Trustees and Lion Finance. In this sense, Lion Finance is the totally successful party, and the Trustees have been successful subject to one qualification. That qualification is that there has been a reduction in the Trustees' remuneration and expenses. Whilst this was an issue not raised prior to the proceeding being commenced, it did become an important issue during the conduct of the proceeding.
35 As to the conduct of the proceeding, Ms Wavish has contributed to the litigation cost and delay. The Trustees have had to deal with a difficult situation in the course of the proceeding. I cannot conclude that the offers made by Ms Wavish were unreasonably refused by the Trustees in all circumstances.
36 The position of Ms Wavish is unfortunate, but I cannot take into account the facts extraneous to the litigation, namely the personal and financial position of Ms Wavish and her family. As harsh as this may be, in exercising the discretion of the Court to award costs, I must look at the conduct of each litigant relating to the proceeding.
37 The object of a cost order is to compensate the successful party and not to punish a litigant. I must take into account any failure to comply with the duty upon the parties in s 37N(1) and (2) of the Federal Court of Australia Act 1976 (Cth) (the 'FCA'). However, the overarching purpose of s 37M of the FCA does not include the aim of punishing a litigant in respect of his or her conduct in the proceeding: see Irwin v Irwin [2016] FCA 1565 (Charlesworth J) at [39] as applied in Widjabul Wia-Bal v Attorney General of New South Wales (NSW) (2020) 274 FCR 577 (Reeves, Jagot and Mortimer JJ) at [47].
38 The conduct of Ms Wavish does not give rise to the circumstance that would justify an indemnity costs order. Therefore, I do not consider the Trustees should be awarded indemnity costs, nor in fact the entirety of their costs. Ms Wavish's contention relating to the fees and expenses of the Trustees was successful in reducing those fees and expenses, and in my view was a significant issue. I appreciate that the Trustees themselves tried to resolve the proceedings in October 2019 and April 2020, which did include a compromise on the remuneration and expenses. However, I do not regard these offers of compromise and the refusal to accept them as establishing a basis for an indemnity costs order.
39 As I have indicated, and is apparent from the circumstances of Ms Wavish, this is very unfortunate litigation. The Court must attempt to evaluate the position of each of the parties, and arrive at a just result.
40 I have concluded that the Trustees are entitled to their costs on a party/party basis out of the estate, but with a deduction of 25% to take into account the issue of their remuneration and expenses in which Ms Wavish was successful.
41 Lion Finance (as the successful party) is entitled to its costs on a party/party basis out of the estate.
42 The orders the Court will make are:
(1) The proceeding be dismissed.
(2) The Applicant pay 75% of the costs of the First and Second Respondents, and the total costs of the Third Respondent, on a party/party basis out of the estate.
I certify that the preceding forty-two (42) numbered paragraphs are a true copy of the Reasons for Judgment of the Honourable Justice Middleton.