FEDERAL COURT OF AUSTRALIA

Gray v Sirtex Medical Limited [2011] FCAFC 40

THE COURT ORDERS THAT:

1.    The appeal be allowed in part.

2.    By 4:00pm on 1 April 2011, the parties bring in a minute of orders to give effect to the reasons of the Court.

Note:    Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules. The text of entered orders can be located using Federal Law Search on the Court’s website.

REASONS FOR JUDGMENT

THE COURT:

1    In 2004 the University of Western Australia (UWA) instituted proceedings against Dr Bruce Gray and Sirtex Medical Limited (Sirtex) who are respectively the appellant and respondent in this appeal as well as against Cancer Research Institute Incorporated (CRI). UWA sued Dr Gray, a former employee, in relation to certain patent applications, patents and inventions. UWA alleged that the inventions which were the subject of intellectual property rights had been developed by him whilst he was employed by UWA. It alleged Dr Gray had breached contractual and fiduciary obligations in dealing with those rights and that Sirtex was knowingly involved in Dr Gray’s breaches of fiduciary duty. As against Sirtex, UWA claimed certain declarations that all the rights, title and interest in certain patent applications, patents and inventions were held on trust by Sirtex for UWA.

2    Somewhat unusually, it might be thought, Sirtex commenced a cross-claim against Dr Gray for damages, relevantly for alleged contravention of s 10 of the Fair Trading Act 1987 (WA) (the FTA) by Dr Gray’s non-disclosure of certain correspondence which indicated that UWA claimed to be entitled to some or all of the patents then being exploited by Sirtex. It also claimed damages for breach of ss 180 and 181 of the Corporations Law (Cth). The allegations by UWA as against Sirtex led to substantial litigation. Sirtex claimed it had, as a result of that misleading and deceptive conduct, lost the opportunity to resolve the claims made against it by the UWA in advance of that litigation. Sirtex also commenced a cross-claim against CRI.

3    The trial of the UWA proceedings before French J (as his Honour then was) was very lengthy. UWA’s claims against Dr Gray and Sirtex were dismissed with costs. UWA’s claim against CRI had been settled prior to trial. Much of the cross-claim against Dr Gray and the whole of the cross-claim against CRI failed because they depended upon the success of UWA’s claim. However, part of Sirtex’s cross-claim against Dr Gray was upheld and the assessment of damages was stood over for a later hearing. Dr Gray was ordered to pay the costs of Sirtex of its cross-claim against him. The parties in respect of whom costs orders had been made, which included Sirtex, were granted liberty to file and serve written submissions on or before 8 May 2008 seeking a variation of the costs order. It was open by that means for Sirtex to have applied for indemnity costs on its cross-claim against Dr Gray. It did not do so: University of Western Australia v Gray (No 20) (2008) 246 ALR 603.

4    French J at [1612] summarised his conclusions on the Sirtex cross-claim against Dr Gray in this way:

In my opinion Sirtex is entitled to relief in respect of Dr Gray’s breaches of his duties as a director and for misleading or deceptive conduct in contravention of s 10 of the Fair Trading Act 1987 (WA). Had it been aware of the correspondence it would, in all probability, have been advised to make further inquiries of UWA. It would either have been notified of a potential claim or would have negotiated a release for some consideration, perhaps by way of a share issue. It lost the opportunity to so resolve the matter with UWA and has been exposed to this litigation. The fact that the litigation was unsuccessful does not affect the Sirtex causes of action against Dr Gray in respect of his duties as a director and in respect of the claim for misleading or deceptive conduct. Sirtex is entitled to compensation or damages for the loss which it has suffered as a result of opportunity to avoid the instigation of these proceedings and to resolve matters in advance with UWA. The measure and assessment of damages will be a matter for a separate hearing if the quantum cannot otherwise be agreed between Sirtex and Dr Gray. Counsel for Sirtex indicated in argument that the recovery it would seek from Dr Gray would be related to the costs of the proceedings. If that is so, having regard to the outcome of the proceedings, the compensation or damages should be able to be agreed.

5    The assessment of damages was heard and determined by the primary judge from whose orders this appeal has been brought: University of Western Australia v Gray (No 28) (2010) 185 FCR 335. As the primary judge described it, his judgment concerned the assessment of damages for the loss of a commercial opportunity as had been described by French J at [1612] of his reasons.

6    The primary judge set out the claims of Sirtex at [3] – [5] as follows:

[3]    Sirtex measures its lost opportunity to resolve the matter with UWA by reference to the costs it has been forced to expend in responding, in various ways, to UWA’s claim against it. On this basis, Sirtex claims as damages the costs incurred, which are principally legal costs and disbursements, under the following categories:

(1)    Sirtex’s legal costs and disbursements incurred in defending the claim by UWA in these proceedings (on a full indemnity basis), less the costs recovered from UWA.

(2)    Sirtex’s legal costs and disbursements incurred in the conduct of the cross-claim against Dr Gray (on a full indemnity basis), less the costs recovered from Dr Gray pursuant to the current orders.

(3)    Sirtex’s legal costs and disbursements incurred in the conduct of the cross-claim against CRI (on a full indemnity basis).

(4)    Sirtex’s legal costs and disbursements incurred in connection with the CRI/UWA settlement.

(5)    Legal costs and disbursements paid to Phillips Fox prior to 29 August 2006:

(a)    In respect of their investigation into the issues raised by the letter from Martin Bennett to Dr Gray, dated 31 December 2004.

(b)    In respect of their recommendations.

(c)    In respect of any overseeing of Freehills by Phillips Fox.

(d)    In respect of any work done to assist in the conduct of the proceedings (either the defence of the claim by UWA or the cross-claim against Dr Gray) which does not fall within any of the above categories.

(6)    Costs and disbursements incurred in respect of company resolutions and meetings arising from or related to these proceedings. However, the cost of management involvement in those meetings is no longer pressed.

(7)    Legal costs and disbursements incurred by Sirtex in obtaining intellectual property advice from patent attorneys concerning the impact of these proceedings (including the judgment of French J) on Sirtex’s rights and obligations, not including any costs falling within the above categories (but not costs incurred in relation to the provision of general intellectual property advice that was obtained by Sirtex as a result of the claim made by UWA).

(8)    Interest on these sums.

[4]    While Sirtex initially also claimed:

•    Any costs Sirtex is liable to pay UWA in respect of order 6 of the order of French J, made 17 April 2008 (cost of Sirtex’s cross-claim against UWA);

•    Expenses and certain time incurred by directors and officers of Sirtex in the course of the conduct of company meeting and the hearing of these proceedings not otherwise recoverable from UWA or under one of the other categories referred to above,

these claims were not pressed at the assessment hearing.

[5]    The loss finally claimed by Sirtex is set out in a document produced and revised during the hearing (in general consultation with Dr Gray’s solicitors and counsel) and finally marked “Further revised Annexure A dated 10 November 2009”, as follows:

7    The primary judge allowed the following principal heads of damage by reference to the various items claimed as follows:

SPECIFIC CATEGORIES OF LOSS CLAIMED BY SIRTEX

…

[148]    Item 1: in this item the category of loss is legal costs and disbursements paid to Phillips Fox prior to 30 June 2006 – which Sirtex calls the “investigation costs”.

[149]    Phillips Fox commenced acting for Sirtex on the Court file on 29 August 2006. The costs paid prior to that date are stated in the amount of $109,448.71. They were incurred by Sirtex in respect of their investigation into issues raised by the letter from Martin Bennett of Bennett and Co to the solicitor for Dr Gray dated 31 December 2004; in respect of Phillips Fox’s recommendations; in respect of overseeing of Freehills by Phillips Fox for work done and in respect of work done to assist in the conduct of the proceedings (either the defence of the claim by UWA or the cross-claim against Dr Gray) which does not fall under the other claims in respect of defending the UWA claim or maintaining the cross-claim.

[150]    In earlier correspondence, Dr Gray, through his former solicitors resisted this category of costs on the basis that Freehills should never have been retained, so that any duplication of costs was unnecessary and inappropriate. Sirtex denies duplication and says that Dr Gray himself retained Freehills on behalf of Sirtex without making any disclosure to Sirtex or Freehills about the matters the subject of Sirtex’s ultimately successful cross-claim against him.

[151]    In my view, these expenses were incurred as a direct consequence of Dr Gray’s breach of duty as found by French J. The costs claimed are appropriate. There is no proper basis to the duplication claim.

[152]    I would allow this item.

[153]    I note that the amount claimed in item 1 is in fact included in the figure under item 2.

[154]    Item 2: Under this item, legal costs and disbursements incurred in the proceedings (on a full indemnity basis) less the costs recovered from UWA are the subject of claim. They total $2,121,814.55 (although some other items are also including (sic) in this figure, such as item 1). This sum is calculated on the basis of the total costs of $5,633,996 (including GST) multiplied by 10/11 giving $5,121,814.55 (excluding GST) less $3 million to be recovered from UWA following settlement of the costs order in the primary proceeding.

[155]    In my view, these costs were directly caused [by] Dr Gray’s breaches found by French J.

[156]    I would allow this item of damage.

[157]    Item 3: This category is described as legal costs and disbursements incurred in the conduct of the cross-claim against Dr Gray (on a full indemnity basis) less the costs recovered from UWA. This sum has also been included in item 2, namely the $2,121,814.55. The issue here is whether Sirtex is entitled by way of damage to be fully indemnified in respect of the costs incurred on maintaining the cross-claim. In my view, there is no doubt, on the view I have taken concerning the costs-as-damages issue that Sirtex is entitled to be fully indemnified by way of damages for having to vindicate its rights against Dr Gray in proceedings by way of cross-claim. An assessment of the damages in respect of the cross-claim costs on the basis of party and party or some other basis less than the full indemnity costs is not warranted in such circumstances.

[158]    I would allow this item.

[159]    Item 4: The category of loss claimed here is legal costs incurred in the conduct of the cross-claim against CRI (on a full indemnity basis). The amount claimed is also within the sum of $2,121,814.55, set out in item 2.

[160]    These costs are not the subject of challenge and I consider they are directly caused by Dr Gray’s breaches found by French J.

[161]    I would allow this item.

8    Ultimately, employing the approach in loss of opportunity cases as explained, for example, by the High Court in Sellars v Adelaide Petroleum NL (1994) 179 CLR 332 the primary judge awarded Sirtex 86% of the costs and disbursements under the items which he had allowed and made orders that Dr Gray pay Sirtex $1,762,224.33 as damages in respect of its cross-claim against Dr Gray and interest on that amount in the sum of $812,961.50.

9    It can be seen that the damages award was comprised of various categories of legal costs and disbursements incurred by Sirtex in connection with the proceedings, including Sirtex’s legal costs of defending UWA’s application after deducting the party-party costs payable by UWA; and Sirtex’s legal costs of its cross-claim against Dr Gray and CRI, being the very cross-claim in which those damages were sought.

10    It is from those orders that Dr Gray appeals.

Notice of appeal

11    The grounds of appeal are as follows:

First, the trial Judge erred in holding that legal costs incurred by Sirtex Medical Limited (Sirtex) in the proceedings may be recovered as damages in the proceedings.

Secondly, the trial Judge erred in holding that legal costs incurred by Sirtex in the proceedings constituted “loss or damage” for the purpose of sections 77 and 79 of the Fair Trading Act 1987 (WA), in circumstances where those legal costs were incurred in the same proceeding in which claims for “loss or damage” were made.

Thirdly, the trial Judge erred in holding that section 43 of the Federal Court of Australia Act (Cth) and Order 62 Rule 6 of the Federal Court Rules did not preclude Sirtex from recovering legal costs it had incurred in these proceedings as damages in the proceedings.

Fourthly, the trial Judge erred in failing to hold that the orders as to costs made by the Court in these proceedings on 17 April 2008 and 16 July 2008 precluded Sirtex from recovering legal costs it had incurred in these proceedings as damages.

12    As the primary judge explained it at [10], the parties were agreed that the key issue before him was whether costs incurred by Sirtex in relation to the primary proceedings determined by French J were recoverable as damages. We take the expression ‘primary proceedings’ to refer to the proceeding brought by UWA against Sirtex and others. Another significant issue before the primary judge and in the appeal concerns whether the difference between the costs awarded by French J on the Sirtex cross-claim against Dr Gray and indemnity for costs incurred by prosecution of that cross-claim may be recovered as damages in that very cross-claim.

The law

13    This Court’s power to award costs derives from s 43 of the Federal Court of Australia Act 1976 (Cth) (the FCA). It confers jurisdiction “to award costs in all proceedings before the Court”; and provides that “the award of costs is in the discretion of the Court,” except as provided by any other Act.

14    In addition, O 62 of the Federal Court Rules 1979 (Cth) (the FCR) deals with the award and quantification of costs. It applies to “costs payable or to be taxed under any order of the Court.” Of particular importance is O 62 r 6 (Rule 6), which relevantly provides that “a party to a proceeding in the Court shall not be entitled to recover any costs of and incidental to the proceeding from any other party to the proceeding except under an order of the Court.”

15    A distinction has long been drawn between damages and legal costs, such that a successful plaintiff cannot recover its costs of the proceedings from the defendant as damages, even though the defendant’s wrongful act caused the plaintiff to incur those costs: Cockburn v Edwards (1881) 18 Ch D 449 per Jessel MR at 459, per Brett LJ at 462 and per Cotton LJ at 463; Ross v Caunters [1980] 1 Ch 297 at 324E-G: Hobartville Stud Pty Ltd v Union Insurance Co Ltd (1991) 25 NSWLR 358 at 365F-366B; Seavision Investments S.A. v Evennett & Clarkson Puckle Ltd (The “Tiburon”) [1992] 2 Lloyd’s Rep 26 at 34; Queanbeyan Leagues Club Ltd v Poldune Pty Ltd [2000] NSWSC 1100 at [45] and [46]; McGregor on Damages, 18th ed (Sweet & Maxwell, London, 2009) at [17-003]. A plaintiff’s ability to recover its costs of the proceedings from a defendant depends instead upon the exercise of a judicial discretion; and the amount (if any) that the plaintiff recovers is not assessed in the same way as damages, but “taxed” according to the applicable rules of Court. As Jessel MR put it in Cockburn at 459.8:

... it is not according to law to give to a party by way of damages the costs as between solicitor and client of the litigation in which the damages are recovered. The law gives a successful litigant his costs as between party and party, and he cannot be said to sustain damage by not getting them as between solicitor and client.

16    Neither may a successful plaintiff or defendant recover the difference between the legal costs awarded in its favour, or withheld, as the case may be, in one civil proceeding and the legal costs it actually incurred in that proceeding, as damages in a subsequent civil action against the same opponent: Anderson v Bowles (1951) 84 CLR 310 at 323.4-8 and 324.2; Quartz Hill Consolidated Gold Mining Co v Eyre (1883) 11 QBD 674 at 690.4-5; Barnett v Corporation of Eccles [1900] 2 QB 423 at 427.8, 428.5; Ritchie v British Insulated Callender’s Cables (Aust) Pty Ltd (1960) 77 WN(NSW) 299 at 300.4-10 (RHC); Berry v British Transport Commission [1962] 1 QB 306 at 317.1, 319.2-4, 320.9-321.4, 322.1, 329.6, 329.7-330.1, 336.4, 336.7-9; Lonrho Plc v Fayed (No. 5) [1993] 1 WLR 1489 at 1497G-H, 1505G-H, 1510D-F; Penn v Bristol & West Building Society [1997] 1 WLR 1356 at 1364H; Avenhouse v Hornsby Shire Council (1998) 44 NSWLR l at 36G-37C; Queanbeyan Leagues Club at [45] and [46]; Grainger v Williams [2009] WASCA 60 at [104] and [203]. Whether and to what extent a party is entitled to recover its costs from the opponent is regarded as having been finally determined in the first proceeding. Otherwise, most successful plaintiffs could bring a second action against the defendant to recover the costs they failed to obtain upon taxation as damages flowing from the original wrong: Berry at 323.5-6 and 328.2.

17    As Scott LJ stated in Seavision Investments S.A. v Norman Thomas Evennett and Clarkson Puckle Ltd (The “Tiburon”) [1992] 2 Lloyd’s Rep 26 at 34.24-52 (RHC):

It is often the case that the costs of litigation would, if ordinary principles governing the recoverability of damages were applicable, represent recoverable damages. This is so not only in contract cases but also in tort cases. If A sues B on a negligence claim, whether in contract or in tort, the incurring by A of the costs of and incidental to the action will often, perhaps usually, be a foreseeable consequence of the negligent act. But it is, I believe, well settled that the recovery by A from B must be by way of an order for costs made in exercise of the s 51(1) discretionary power.

The recovery by A of the costs of an action in which A sues B and C in the alternative is, in my judgment, no different.

... to notice that items of cost fall within the boundaries set by the rules relating to remoteness of damage does not change the nature of those items or remove them from the clutch of the discretionary power conferred by [the UK equivalent of Section 43]. The items are costs of the proceedings and, if they are to be recovered from [one of two defendants], must be the subject of an order for costs (see [the UK equivalent of Rule 6]).

18    The reasons of Parker LJ at 33.9 were to the same effect.

19    Before turning to the primary judge’s reasoning, it is necessary to consider a number of other authorities which have addressed the question of recovery of costs. In Queanbeyan Leagues Club, Hamilton J noted at [33], [42] and [46] that the United Kingdom equivalent of Rule 6 was identical to Pt 52A r 8 of the New South Wales Supreme Court Rules and concluded at [45(3)] and [46] that the same result should apply to the cross-claims in the proceedings, “so that a defendant cannot as cross-claimant recover as damages against a cross-defendant any part of any costs of the proceedings.”

20    Penn v Bristol & West Building Society was an appeal from an indemnity costs order. In that case, Waller LJ at 1364H (with whom Waite and Staughton LJ agreed) referred with approval to a passage in Halsbury’s Laws of England, which relevantly read: “A party to court proceedings may not recover his costs of those proceedings from any other party to them except by an award of costs by the court” (our emphasis added). Waller LJ also said, in effect, at 1365F-G that the UK equivalent of Rule 6 had the result that “a defendant cannot claim as part of his damages against a third party [i.e., a cross-defendant] the costs of fighting the plaintiff …”. In our opinion this observation is not universally applicable and is not so in this case for reasons we will explain later.

21    Templeman J cited Queanbeyan Leagues Club and Penn v Bristol & West Building Society in McCourt v Cranston [2009] WASC 56(S) at [15] – [26] in support of the proposition that a successful defendant could not obtain as damages against a cross-defendant so much of her legal costs as she would not recover from the plaintiff on a party and party taxation. Again, that is a proposition which requires to be considered in the circumstances of this appeal.

22    The primary judge at [30] accepted as “undoubted” the “general principle” that “costs of a civil proceeding are not recoverable as damages in that proceeding or in a related or subsequent proceeding.”

23    The primary judge relied on the decision of the English Court of Appeal in Berry v British Transport Commission [1962] 1 QB 306 as support for the proposition that the general principle relied upon by Dr Gray is subject to a number of clear exceptions in relation to certain tort and contract claims.

24    The primary judge referred to the following passages from the judgment of Devlin LJ at 321, where his Lordship observed that:

It follows that if as the result of a breach of contract … or a tort … a person brings unsuccessfully an action against a third party or loses an action brought by a third party, he may recover against the wrongdoer who has broken his contract or committed the tort the costs of the suit; and he will get all the costs he has reasonably expended. The wrongdoer may not argue that the plaintiff is entitled only to party and party costs, notwithstanding that that is all he could or would have got from the third party if he had been successful.

and then at 322-323 where Devlin LJ formulated his postulated exception to the general principle in this way:

I find it difficult to see why the law should not now recognise one standard of costs as between litigants and another when those costs form a legitimate item of damage in a separate cause of action flowing from a different and additional wrong. … The stringent standards that prevail in a taxation of party and party costs can be justified on the same sort of ground … It helps to keep down extravagance in litigation and that is a benefit to all those who have to resort to the law. But the last person who ought to be able to share in that benefit is the man who ex hypothesi is abusing the legal process for his own malicious ends. In cases of malicious process Mansfield C.J.’s rule … has not always been applied. (Emphasis added.)

25    Dr Gray submits that, in this respect, the primary judge erred as those passages were not intended to be an accurate statement of the law nor formed the basis upon which Ms Berry’s appeal was upheld.

26    However, earlier statements in the judgment of Devlin LJ at p 321 (see [24] above) are in our opinion, a correct statement of the law.

27    Support for this proposition set out by Devlin LJ in Berry can be found in both ancient and recent authority: Hammond v Bussey (1888) 20 QBD 79; Lonrho at 1510G per Evans LJ.

28    In Lonrho Evans LJ set out the general principle, as he described it, that no claim lies, as between the parties to a civil action for the recovery of any balance of the costs actually incurred in defending the action which are not awarded to the successful defendant by the costs order made in the action. Stuart-Smith LJ at 1505 and Dillon LJ at 1497 each expressed themselves to the same effect.

29    However Evans LJ went on to state that:

There is authority, however, that no such bar exists to a claim for unrecovered costs against a third party, that is, against a person who was not a party to the original action. Such claims are commonplace as damages for breach of contract, and they have been admitted also in tort: per Devlin LJ in Berry v British Transport Commission [1962] 1 QB 306, 321, citing The Solway Prince (1914) 31 TLR 56. The measure of such damages under the old costs rules was the difference between the plaintiff's costs of the action taxed as between solicitor and client and as between party and party: McGregor on Damages, p 459, para 713.

30    That a defendant’s costs of an action may be recovered as damages against a third party in separate proceedings, a proposition supported by the authority to which we have just referred, is acknowledged as correct in law by Dr Gray. The rationale for this proposition, again acknowledged by Dr Gray, is that the third party was not a participant in the prior litigation and the Court had no opportunity to adjudicate on the issue of costs as between the third party and the now plaintiff.

31    However Dr Gray says that principle does not apply in this case because Sirtex’s cross-claim against him is in the same proceeding as the case brought by UWA against Sirtex.

32    In our opinion, as a matter of principle, it is not different. It is evident that Sirtex might have waited until the disposition of the proceedings brought by the UWA against it to be resolved before commencing fresh proceedings under the FTA and Corporations Law for damages against Dr Gray. Employing the language of Devlin LJ in Berry this would involve an action against a wrongdoer, not a party to the original action, to recover the costs of the earlier suit or as described by Evans LJ in Lonrho and apt to this case, “… unrecovered costs against a third party, that is, against a person who was not a party to the original action.” Should the position be any different where the cross-claim is brought in the same proceedings as the original action?

33    As Dr Gray would have it, because the cross-claim against him by Sirtex was brought in the same “proceeding” as the claim by UWA against Sirtex, then the general principle that that “costs of a civil proceeding are not recoverable as damages in that proceeding or in a related or subsequent proceeding” applies.

34    However, when regard is had to the rationale for the principle it is plain enough that although Dr Gray, was a co-defendant and thereby he was a participant in the proceeding brought against Sirtex by UWA, it was unnecessary for French J to adjudicate in the proceeding between Sirtex and UWA on the issue of costs claimed as damages as between Sirtex and Dr Gray in the cross-claim.

35    Importantly, a cross-claim is a separate proceeding: O 5 r 11(1)-(3) of the FCR; Grundy v Lewis (1995) 62 FCR 567. It follows that a costs order made in the same proceeding commenced by UWA against Sirtex is not a costs order made in the proceeding commenced by Sirtex by cross-claim against Dr Gray. So far as reliance is placed by Dr Gray upon O 62 r 6, Sirtex did not claim against him as another party to the proceeding brought against it by UWA. Rather it sought damages, admittedly comprising costs not ordered and therefore not recoverable as against UWA but damages nonetheless in a separate proceeding namely its cross-claim against Dr Gray.

36    Sirtex, by motion, sought indemnity costs against UWA but without success: University of Western Australia v Gray (No 21) (2008) 249 ALR 360. This was a reasonable attempt by Sirtex to mitigate its loss and damage caused by Dr Gray’s misleading and deceptive conduct. The costs order made by French J as between UWA and Sirtex did not resolve the question of the damages claimed by Sirtex against Dr Gray on the cross-claim. Viewed in this way no violence is done to the general principle found in Cockburn and other cases.

37    This case is but an example of the related but different principle that a defendant’s (unrecoverable) costs of an action may be recovered as damages against a third party in a separate proceeding: Hammond, Berry, and Lonrho to which we have referred and which principle, as we mentioned, is acknowledged by Dr Gray. To the extent that Penn v Bristol & West Building Society and McCourt state to the contrary we would not follow them.

38    Although, in his submissions, Senior Counsel for Dr Gray consistently referred to the “proceedings” in the Federal Court, this plural description was submerged in submissions to the effect that the action by UWA against Sirtex, Gray and CRI was in the same proceeding as the cross-claim brought by Sirtex against Dr Gray. In the main such a distinction is of no importance and the general description of “proceeding” or “proceedings” is well enough understood. However, in circumstances such as this case, the distinction is critical to the correct application to the facts of the relevant principles.

39    Section 43 of the FCA was not nor could be involved directly in determining Sirtex’s claim for damages against Dr Gray, although plainly enough it was the source of jurisdiction and power for French J both to award costs in favour of Sirtex against UWA and, as well, to deny Sirtex a costs order against UWA on an indemnity basis. That Sirtex was denied costs on an indemnity basis against UWA is no reason to deny Sirtex damages referrable to the difference between the amount of indemnity costs and the costs actually ordered in its favour against UWA: cf McCourt at [24].

40    The damages awarded by the primary judge under Item 1 are in the same category. So too, as far as we can discern, are those in Items 4, 7 and probably 8. The other Items were either not pressed below or refused or admitted by the primary judge without challenge.

41    The position in summary is as follows. Under the general principle Sirtex could not sue UWA for the difference between party and party costs and indemnity costs. Nonetheless those additional costs were occasioned by Dr Gray’s misleading and deceptive conduct. All that Sirtex did was to sue Dr Gray to recover these, in effect, as a third party. They are not, so far as concerns Dr Gray, costs awarded against him under the s 43 discretion. They are properly characterised as damages in the proceedings brought against him under the FTA or the Corporations Law. They might well and perhaps more conveniently ought to have been brought as a separate action against him by Sirtex. They are not costs pursued against Dr Gray following an action brought against Dr Gray. They are the costs not recovered in the action brought by UWA against Sirtex.

42    However the gap between the costs ordered by French J against Dr Gray in favour of Sirtex occasioned by the cross-claim are in a different category. The claim for these by Sirtex does offend the general principle. If Sirtex wants indemnity costs then it needs to confront the order already made by French J for party and party costs.

43    In our opinion, the unrecovered costs beyond those ordered by French J on 17 April 2008 in favour of Sirtex against Dr Gray on its cross-claim cannot be recovered against Dr Gray as damages in that very cross-claim. These comprise Item 3 of the heads of claim considered by the primary judge. To that extent, in our opinion, the primary judge erred. It would of course have been open to Sirtex to have sought an extension of time of the order by French J, which had granted the parties to the Sirtex cross-claim until 8 May 2008 to file and serve written submissions seeking a variation of the costs order. It is, it seems, still open to Sirtex to do so. After the conclusion of the hearing of the appeal, Sirtex filed an application for leave to appeal by way of cross-appeal the orders made by French J on 17 April 2008. Sirtex seeks an extension of time in which to file that appeal. We would dismiss that application on the grounds that the proposed cross-appeal is misconceived. On 17 April 2008, French J (as he was) ordered costs against Dr Gray on the cross-claim (Order 10). His Honour also gave the parties leave to apply to vary that order (Order 14). The fact is that, whatever its reasons, Sirtex made no such application. As a result, there was no judgment by French J refusing an application for indemnity costs because no such application was made. There is, therefore, no basis for any appeal. Any application now for leave to apply to vary the costs order made by French J should be made to a single judge and not to this Court.

44    The costs of the cross-claim it seems to us fall, as between Sirtex and Dr Gray, who are the parties to it, to be determined by the Court in that proceeding as costs, pursuant to the statutory discretion invoked by s 43 of the FCA and not as damages within the cross-claim.

45    Sirtex contends that those unrecoverable costs are recoverable under the FTA as damages caused by the misleading and deceptive conduct. Arguments were put concerning the application of s 10 of the FTA and s 43 of the FCA and the respective questions of public policy which inform their content. We do not think it is helpful to approach the matter in that way. Rather the question may be resolved by a consideration of whether the unrecovered costs in the Sirtex cross-claim against Dr Gray comprise damage caused by the relevant conduct.

46    We do not think that they are. They are not costs occasioned by the conduct of Dr Gray as described by French J at [1612] of his reasons in University of Western Australia v Gray (No 20). Rather, they are the product of Sirtex’s choice to vindicate its claims under the FTA by instituting and proceeding with the cross-claim against Dr Gray. That choice, in our opinion, carried with it a necessary submission to the costs regime resident in s 43 of the FCA and O 62 r 6 of the FCR. Presently, Sirtex is the beneficiary of a double adjudication as to its costs on the cross-claim. It has the benefit of the order by French J that Dr Gray pay its costs on the cross-claim. It also has the benefit of the primary judge’s order, in effect, that Dr Gray, as part of the award of damages, pay 86% of the entire costs of Sirtex which includes its costs of the cross-claim. That, in another way, highlights the error of the primary judge in relation to that aspect of his conclusions.

47    We respectfully disagree with the primary judge’s reasons that Sirtex was entitled to be fully indemnified by way of damages, in the cross-claim, for having to “vindicate its rights” against Dr Gray in proceedings by way of cross-claim. Such a rationale, were it correct, would warrant claims for damages for unrecoverable costs in every proceeding taken to vindicate rights.

48    It follows that the appeal ought be allowed in part as to the award of costs for the unrecovered or unrecoverable costs of the Sirtex cross-claim against Dr Gray, but not otherwise. We do not know what the precise figure is because the costs of the Sirtex cross-claim awarded by the primary judge were included in the costs of the claim brought against Sirtex by UWA.

49    It is appropriate then for the parties, who know what the relevant figures are, to bring in a minute of orders to reflect these reasons within 14 days. We would reserve the question of costs to a separate hearing failing agreement on that question between the parties.

Associate:

Dated:    18 March 2011