FEDERAL COURT OF AUSTRALIA

Factory 5 Pty Ltd (In Liq) v State of Victoria (No 3) [2012] FCAFC 167

THE COURT ORDERS THAT:

1.    Order 3 made by the Court on 23 May 2011 be vacated.

2.    The appellant pay 70% of the costs incurred by the respondent of and incidental to the appeal, such costs to be taxed on the party/party basis.

Note:    Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

REASONS FOR JUDGMENT

THE COURT:

1    These Reasons for Judgment determine the question of the costs of the appeal.

2    On 26 October 2012, the Court dismissed the appeal upon the basis that there was no legally binding contract made on 23 December 2004 (Factory 5 Pty Ltd (In Liq) v State of Victoria (No 2) [2012] FCAFC 150). Before the primary judge, the appellant had succeeded in its contention that a binding contract had been made on that day.

3    However, the primary judge found for the respondent because he concluded that the contract had been abandoned by mid 2005 or, alternatively, had been repudiated by Melbourne 2006 Commonwealth Games Corporation (Melbourne 2006) by that time. Notwithstanding this latter finding, his Honour held that the appellant had failed to establish that it was entitled to damages.

4    By its Notice of Appeal, the appellant challenged the correctness of the conclusions which the primary judge reached in respect of repudiation and abandonment. It also raised the proper interpretation of the “Concessionaire-as-Manufacturer” clause. By its Notice of Contention filed on 13 January 2011, the respondent sought to support the decision of the primary judge upon the basis that, in the circumstances, his Honour should have found that the appellant had repudiated the contract which his Honour had found had been made and that Melbourne 2006 had accepted that repudiation. Although Melbourne 2006 had argued before the primary judge that no binding contract had been made on 23 December 2004, that contention was not made in its Notice of Contention.

5    The appeal was heard over three days. Overnight, between the first and second days of that hearing, the respondent circulated an Amended Notice of Contention. By that document, the respondent sought to support the primary judge’s decision upon the additional basis that no binding contract had been made on 23 December 2004 as alleged by the appellant. The Court granted leave to the respondent to amend its Notice of Contention accordingly (Factory 5 Pty Ltd (in liq) v State of Victoria [2011] FCAFC 77). The grant of that leave necessitated an adjournment of the hearing of the appeal. Additional Written Submissions and a further half day of hearing were required. For these reasons, on 23 May 2011, the Court made an order that the respondent should pay the appellant’s costs thrown away by reason of the respondent amending its Notice of Contention.

6    As mentioned at [2] above, the respondent was ultimately successful in its contention that no binding contract had been made, a contention raised for the first time on appeal on 24 May 2011 (the second day of the hearing of the appeal).

7    When judgment in the appeal was delivered, the Court made the following orders in respect of costs:

2.    If the appellant does not file and serve written submissions for some other order as to costs on or before 2 November 2012, then on 3 November 2012, order 3 below shall have effect as from today.

3.    Subject to order 2 above, the appellant pay the respondent’s costs, such costs to be set off against the costs payable by the respondent under order 3 made on 23 May 2011.

8    The appellant has filed Written Submissions in support of an order that there be no order as to the costs of the appeal or, alternatively, in support of an order that clarifies the earlier costs order made by the Court on 23 May 2011 so as to make clear that the respondent should pay all of the appellant’s costs of the appeal incurred up to and including 24 May 2011 (save for those costs incurred in preparing the Notice of Appeal).

9    The essence of the appellant’s contentions in respect of costs is:

(1)    The award of costs is in the discretion of the Court (see esp s 43(2) of the Federal Court of Australia Act 1976 (Cth)).

(2)    No rule or principle should be applied mechanically in determining the appropriate order for costs. Attention should be paid to the individual circumstances of each case.

(3)    While the usual order is that costs should follow the event, the success or failure on separate issues allows the Court to engage in a process of apportionment. The Court should consider not only the parties’ relative success on the question at issue but also the time taken and costs incurred on the issues upon which a party has failed.

(4)    In the present case, the respondent succeeded on the no contract point. That point was raised for the first time in the appeal on the second day of hearing and only addressed briefly thereafter in oral and written submissions.

(5)    Making due allowance for the respondent’s overall success in the appeal, the Court should recognise in the order for costs which it makes the circumstances that most of the preparation and hearing time for the appeal was wasted because that time was occupied in addressing issues which ultimately did not need to be decided in light of the respondent’s success on the no contract point raised very late in the process.

10    The respondent has filed Written Submissions in support of an order that the appellant pay the respondent’s costs of the appeal with such costs to be set off against the costs payable by the respondent under Order 3 made on 23 May 2011.

11    The respondent submitted that:

(1)    The usual rule is that costs should follow the event unless there is some special reason to make some different provision in respect of costs. The appellant has not identified any such reason in the present case.

(2)    The appellant did not succeed in any of the 12 grounds of appeal relied upon by it.

(3)    There was substantial argument on 23 May 2011 and on 24 May 2011 directed to the no contract point.

12    The Court undoubtedly has a discretion when determining the question of costs but it is a discretion which must be exercised judicially, that is, according to relevant considerations. The Court must take account of the context and the individual circumstances of the particular case (Kazar v Kargarian (2011) 197 FCR 113 at 115 ([4]) (per Greenwood and Rares JJ) and at 124–125 ([44]–[47]) (per Foster J)).

13    In the present case, much of the preparation for the appeal (including the Written Submissions originally filed) remained relevant and of assistance to the proper disposition of the appeal even though the decisive contention was not raised until the second day of the hearing. In particular, consideration needed to be given by the Full Court to the events which took place after 23 December 2004 in addition to the circumstances surrounding the exchange of correspondence during the period from mid to late December 2004 in order to determine whether a binding contract had been made and, if so, whether it had been repudiated or abandoned. Furthermore, we do not agree that the focus of the parties after 24 May 2011 was on the uncertainty point. That point certainly received attention from both the Court and the parties. However, the no contract point also featured prominently.

14    The appellant has invited the Court to approach the question of costs by apportioning preparation time and hearing time across issues. The fair result of taking that approach, so it is contended, is that there should be no order as to the costs of the appeal or a clarification of the “costs thrown away” order made on 23 May 2011.

15    We think that the appellant’s approach does not accord sufficient weight to the fact that the respondent was completely successful in the appeal and that much of the work done was not wasted. Nonetheless, we also think that the appellant is entitled to the benefit of some discount on the costs that it should be obliged to pay in recognition of the circumstance that the respondent only raised the point upon which it ultimately succeeded on the second day of the hearing of the appeal thus causing some waste of costs incurred up to that point. We also think that the best way to achieve a fair outcome in the present case is for the Court to vacate the order for costs which it made on 23 May 2011 and now to make an order awarding a specific proportion of the costs incurred by the respondent of and incidental to the appeal, such costs to be taxed on the party/party basis.

16    Taking into account the above considerations, we are of the view that the appropriate proportion is 70%.

17    There will be orders accordingly.

Associate:

Dated:    26 November 2012