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Fairfield Services Pty Ltd (in liquidation) v Leggett

 
Unreported Citation: [2020] QSC 183
EDITOR'S NOTE

In this significant case, Bond J was faced with the question of how to award costs in proceedings which had been discontinued three weeks before the trial. His Honour helpfully set down the relevant principles to the exercise of the discretion as to costs in such cases before determining that the plaintiffs should pay the defendants’ costs on the standard basiss.

Bond J

18 June 2020

About three weeks before this matter was set down for a ten-day trial, the plaintiffs brought an application for leave to discontinue the proceedings. [2]. The defendants did not oppose the application for leave to discontinue, but contended the plaintiffs should pay their costs on the indemnity basis. [4], [6]. Leave to discontinue was granted and the trial dates vacated. [5]. The questions before Bond J became whether, in such circumstances, the plaintiffs should pay the defendants’ costs, and on what basis.

Under r 307(2) Uniform Civil Procedure Rules 1999 (“UCPR”), where a party discontinues proceedings with leave of the Court, “the court may make the order for costs it considers appropriate”. [9]. The plaintiffs submitted that this discretion was the same as that in r 685, which refers to costs if further proceedings become unnecessary. [10]. To that end, they relied on Re Minister for Immigration and Ethnic Affairs; Ex parte Lai Qin (1997) 186 CLR 622 in submitting that if both parties have acted reasonably until the point of discontinuance, no order as to costs should be made. [11].

However, relying on ONE.TEL Ltd v Deputy Commissioner of Taxation (2000) 101 FCR 548, Bond J distinguished between cases where a party “effectively surrenders to the other” and 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”. [12]–[14]. His Honour further noted that this distinction had been held as the correct interpretation of Lai Qin at the intermediate appellate level, although his Honour also noted that the proper exercise of the discretion will turn on the facts of each case, and that the reasonableness of the parties’ conduct may be a consideration. [15].

Bond J proceeded to set down six principles governing the exercise of the discretion in r 307(2) UCPR: [18]–[24]:

1. The assessment is truly discretionary – there are no absolute rules;

2. The general rule is that costs should follow the event (see r 681);

3. The general rule “cannot be applied in terms” “where the proceedings are discontinued prior to any hearing on the merits”. It will usually be “impracticable” and inappropriate for the Court to assess the eventual prospects of success in the action;

4. It may still be appropriate for costs to be borne by one side. In making this assessment, it may be relevant to consider:

a. the defendant’s conduct prior to the commencement of the proceeding;

b. whether the parties have acted reasonably in commencing, prosecuting or defending (as the case may be) the proceeding; and

c. the reasons for the discontinuance;

5. It is important to distinguish between where a party “effectively surrenders to the other” and where there is an intervening event which means no one side has simply won. In the former case, the surrender “will usually provide a strong reason to award costs against the party who has surrendered”, but in the latter, it may be hard to determine which party should bear the costs, which itself weighs against costs being awarded to any one party; and

6. While the UCPR is silent as to onus, it will generally be for the discontinuing party to show why “a particular exercise of the costs discretion” is appropriate.

Turning to the substance of the plaintiffs’ case, the plaintiffs asserted that the first defendant was a de facto director of the first plaintiff, and that the defendants owed fiduciary and statutory duties to the first defendant. [32]–[33]. The plaintiffs’ claim “involved complex issues of fact and law”, including their “advancing serious allegations of wrongdoing” against the first defendant. [38].

After canvassing the procedural history of the litigation, Bond J noted that the evidence put on by each side in the costs application was primarily aimed at establishing that the parties acted reasonably or unreasonably. [74]. However, his Honour was unwilling to form such a view, particularly given the factual and legal complexity of the parties’ cases at trial. [74]. This meant his Honour did not consider an award of indemnity costs to be appropriate. [74]. It was also unnecessary to determine whether the cost-benefit analysis undertaken by the plaintiffs in deciding to litigate and continue litigating “was competently performed”. [79].

In Bond J’s view, this was a case where the plaintiffs had “surrendered or capitulated to the defendants”. [80]. While this might have been informed by a “prudent assessment from the plaintiffs’ subjective perspective”, that was of little relevance to the question of costs. [80]. Particularly given the defendants had incurred significant costs in preparing for trial and were willing to proceed to trial, this provided a “strong reason to award costs against the discontinuing plaintiffs”. [81]. On the evidence before the Court, the plaintiffs were unable to displace this reason. [81]. His Honour was also unpersuaded that the COVID-19 pandemic was a “supervening event which so altered the proceedings as to justify the order the plaintiffs sought as to costs”. [82].

In the event, Bond J ordered that the plaintiffs pay the defendants’ costs on the standard basis. [83].

M Paterson