FEDERAL COURT OF AUSTRALIA

Courtney v Medtel Pty Limited (No 3) [2004] FCA 347

COSTS - application for costs of interlocutory hearing to be taxed and paid forthwith - Federal Court Rules, O 62 r 3 - general rule not to tax unless demands of justice require it - when discretion should be exercised - final determination of proceeding some distance away - discrete interlocutory matter - separating applicant's costs from the represented group - application for costs not to be reduced notwithstanding awarded judgment less than $100,000 - Federal Court Rules, O 62 r 36A(1)

Trade Practices Act 1974 (Cth), ss 74B and 74D

Federal Court Rules, O 62 rr 3 and 36A

Courtney v Medtel Pty Ltd (2003) 126 FCR 219 referred to

Courtney v Medtel Pty Limited (No 2) [2003] FCA 129 referred to

Medtel Pty Limited v Courtney [2003] FCAFC 151 referred to

Stack v Brisbane City Council (1996) 71 FCR 523 cited

Vasyli v AOL International Pty Ltd [1996] FCA 804 cited

Brasington v Overton Investments Pty Ltd [2001] FCA 571 cited

Bailey v Beagle Management Pty Ltd (2001) 105 FCR 136 cited

Thunderdome Racetiming and Scoring Pty Ltd v Dorian Industries Pty Ltd (1992) 36 FCR 297 distinguished

Allstate Life Insurance Co v Australia & New Zealand Banking Group Ltd (No 14) [1995] FCA 660 cited

Life Airbag Company of Australia Pty Ltd v Life Airbag Company (New Zealand) Ltd [1998] FCA 545 cited

McKellar v Container Terminal Management Services Ltd [1999] FCA 1639 cited

Australian Flight Test Services v Minister for Industry, Science and Technology [1996] FCA 288 applied

Allstate Life Insurance Co v Australia and New Zealand Banking Group Ltd (No 13) [1995] FCA 626 applied

KEVIN GLYNN COURTNEY in a representative capacity on behalf of the persons referred to in par 1 of the Eighth Amended Statement of Claim v MEDTEL PTY LIMITED & ANOR

N 661 of 2000

SACKVILLE J

SYDNEY

30 MARCH 2004

THE COURT ORDERS THAT:

1.                  The first respondent pay the applicant’s costs of the proceedings to the date of Judgment, including the costs of his individual and representative claims, except for those costs that are already subject to a costs order.

2.                  The applicant be entitled, pursuant to FCR, O 62 r 3(3), to have his bill of costs taxed notwithstanding that the principal proceedings have not concluded.

3.                  Pursuant to FCR, O 62 r 36A(1), the applicant’s costs are not to be reduced notwithstanding that the applicant has been awarded judgment for a sum less than $100,000.

4.                  The above orders be without prejudice to the applicant’s entitlement to seek an order for payment of his costs on an indemnity basis.

Note:    Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.

REASONS FOR JUDGMENT

BACKGROUND

1                     These are representative proceedings arising out of a “Hazard Alert” issued on 5 June 2000 by the Therapeutic Goods Administration.  The Hazard Alert related to a particular run of pacemakers which were at increased risk of early battery depletion and a resulting “no output condition”.

2                     In a judgment delivered on 5 February 2003 (“the Judgment”), I addressed certain questions that had been identified by the parties for separate determination.  In the Judgment, I also found that the applicant, whose pacemaker had been explanted on medical advice, was entitled to succeed in his own claims for compensation against the first respondent (“Medtel”) under ss 74B and 74D of the Trade Practices Act 1974 (Cth) (“TP Act”).  This was so notwithstanding that the pacemaker explanted from the applicant was ultimately found not to be defective: Courtney v Medtel Pty Ltd (2003) 126 FCR 219.

3                     On 3 March 2003, I made orders giving effect to the judgment: Courtney v Medtel Pty Limited (No 2) [2003] FCA 129.  Among the orders I made was a direction that judgment be entered for the applicant against Medtel in respect of his causes of action under ss 74B and 74D of the TP Act in the sum of $9,988.20 plus interest in the sum of $1,304.19.  It should be noted that no relief was sought against the second respondent in the hearing which led to the Judgment.

4                     An appeal to the Full Court was dismissed (Medtel Pty Limited v Courtney [2003] FCAFC 151) and an application for special leave to appeal to the High Court was refused on 2 December 2003.  The matter has now been re-listed before me in order to resolve the question of costs.

the applicant’s contentions

5                     The applicant seeks orders that:

1.                  Medtel pay the applicant’s costs to the date of the Judgment, in respect of his individual and representative claims (save for those costs that are already subject to a costs order), on a party and party basis;

2.                  the applicant be entitled to have his bill of costs taxed forthwith; and

3.                  Federal Court Rules (“FCR”), O 62 r 36A(1) not apply.

6                     In order to avoid the costs of a taxation at this stage, the applicant also invites me to order Medtel to pay a lump sum amount of $500,000, plus GST, on account of Order 1.  Mr Bannon SC, who appeared with Dr Cashman for the applicant, submits that this amount would almost certainly be less than the applicant’s entitlement to costs on a party and party basis, even allowing for the sum of $441,000 already voluntarily paid by Medtel on account of the applicant’s costs.

7                     The applicant seeks Order 2 because FCR, O 62 r 3(3) provides that an order for costs of an interlocutory proceeding shall not, unless the Court otherwise orders, entitle a party to have a bill of costs taxed until the principal proceeding in which the interlocutory order was made is concluded or until further order.  Since the orders made on 3 March 2003 were interlocutory in character (despite finally resolving the applicant’s personal claim), the applicant will not be entitled to have his bill of costs taxed unless an order is made pursuant to FCR, O 62 r 3(3).

8                     The applicant seeks Order 3 because FCR, O 62 r 36A(1), provides that when a party is awarded judgment for less than $100,000 on a claim for a money sum or damages, any costs ordered to be paid, including disbursements, will be reduced by one-third of the amount otherwise allowable, unless the Court or a Judge otherwise orders.  In the present case, the applicant recovered a total of approximately $11,300 by way of compensation under ss 74B and 74D of the TP Act.  The applicant seeks an order under FCR, O 62 r 36A(1), in order to avoid the reduction of costs that would otherwise flow from an award of less than $100,000.

9                     The applicant wishes to reserve his entitlement to apply for a costs order on an indemnity basis.  He accepts, however, that any such application should be deferred until the balance of the proceedings is resolved.  The reason for agreeing to defer such an application is that it would require me to see without prejudice communications between the parties.  If I were to see such communications, I might be unable to deal with the remaining issues in the proceedings.

10                  As I have noted, the applicant recognises that the Judgment was interlocutory in character.  Nonetheless, Mr Bannon points out that the issues addressed in these proceedings were agreed to by both parties and were designed to provide guidance for the remaining issues in the case.  While the applicant’s claim was the only individual claim finally heard and determined, the resolution of that claim makes it virtually inevitable that most, if not all, members of the represented group, in particular those whose pacemakers were explanted, will succeed in claiming compensation from Medtel.

11                  Moreover, the applicant submits that the answer given to Question (b) of the question identified for separate determination has had the practical effect of resolving an important issue in the representative proceedings.  The effect of that answer is that those pacemakers subject to the Hazard Alert that were manufactured using yellow spool solder (as that term is used in the Judgment at 240, at [89]), were not reasonably fit for their purpose within the meaning of s 74B of the TP Act, and were also not of merchantable quality within the meaning of s 74D of the TP Act. While further evidence may be required to ascertain precisely which pacemakers were manufactured with yellow spool solder, the applicant says that the Judgment has resolved a critical issue in the proceedings in favour of the members of the represented group.

MEDTEL’S CONTENTIONS

12                  Medtel submits that determination of the appropriate costs order should be deferred until the conclusion of the proceedings.  If, however, the Court considers that it is appropriate to make a costs order, Medtel contends that any order in favour of the applicant should cover only the costs relating to his individual claim for compensation and should not include other costs incurred in the representative proceedings.  Medtel argues that it is likely that the applicant’s solicitors would have incurred costs referable to the representative proceedings and not to the applicant’s own claim.  Medtel puts this as a reason for not making an order in the terms sought by the applicant, but says that it is an additional reason for deferring dealing with the applicant’s motion for a costs order.  Mr Loveday, who appeared with Mr Clark for Medtel, submits that it would be extremely difficult for a taxing officer to distinguish between costs incurred in connection with the applicant’s personal claim and costs incurred in the representative proceedings.  It is therefore better, so he contends, for all questions of costs to await the final determination of the proceedings.

13                  Medtel says that even if a costs order is made in favour of the applicant, no order should be made entitling the applicant to have a bill of costs taxed before the conclusion of the principal proceedings.  Mr Loveday argues that the purpose of FCR, O 62 r 3(3) is to prevent the enforcement of a costs order made during proceedings until the action is finally concluded. 

the evidence

14                  The applicant adduced evidence, which was not contested, that his solicitor and client costs in the proceedings to date total $1,561,148.  This amount comprises $668,304 for disbursements, and $892,844 for fees.  These figures are inclusive of GST.  However, the sum of $668,304 for disbursements includes $220,521 by way of “interest and premium on disbursements”, while the professional fees include $181,006 by way of “interest on professional fees”.  The argument on costs proceeded on the basis that a taxation of costs on a party and party basis is not likely to result in Medtel being required to pay sums in respect of “interest and premium on disbursements” or “interest on professional fees”.  (This is not to say, of course, that the applicant’s solicitors are not entitled to interest and a premium as between themselves and their clients.)

15                  The applicant’s solicitor and client costs, excluding interest and premium, total $1,159,621.  This is made up of $447,783 in disbursements and $711,838 in fees.  As already noted, Medtel has paid $441,000 on account of costs.  If this amount is deducted from the applicant’s solicitor and client costs, excluding interest and premium, the balance is $718,621.

reasoning

16                  The first issue is whether an order for costs should be made now, or whether the question of costs should be deferred.  I see no reason to defer making an order for costs.  A contested hearing has been held.  Judgment has been delivered and the appellate process exhausted.  While the proceedings are interlocutory in character, on any view, they have resolved important issues in the proceedings and have done so in favour of the applicant and the represented group.  The applicant is in my view entitled to have his application for costs heard and to have appropriate orders made.

17                  The second issue is what costs order should be made.  In my view, it is appropriate that Medtel be ordered to pay the applicant’s costs to the date of the Judgment.  I do not think that a distinction should be drawn between costs referable to the applicant’s own claim for damages and costs referable to the representative proceedings.

18                  It must be remembered that both parties agreed to holding a hearing that would resolve the applicant’s claim and address questions that would assist in resolving the claims of the represented group.  On any view, the proceedings were not confined to hearing and determining the applicant’s own claim for compensation.  As the applicant submits, even on Medtel’s foreshadowed case in relation to the use of yellow spool solder, the answer given by me to Question (b) effectively establishes that Medtel is liable to compensate most of the 289 members of the represented group whose pacemakers have been explanted.  It follows that the costs properly incurred by the applicant in relation to the hearing were not confined to preparing the applicant’s own claim for compensation.  On the contrary, they included the costs of preparing a case that potentially affected all members of the represented group.

19                  It is true that the applicant may have incurred some relatively modest costs in relation to causes of action that were not addressed at the hearing, in particular in gathering evidence relevant to the pleaded cause of action based on breach of duty.  However, one purpose of limiting the hearing to the causes of action under ss 74B and 74D of the TP Act was to avoid the time and expense in litigating issues that, in the event, have apparently proved unnecessary to resolve.  In view of this, the applicant should not be deprived of the portion of his costs attributable to causes of action other than those arising under the TP Act.

20                  The third issue is whether an order should be made under FCR, O 62 r 3(3) entitling the applicant to have his bill of costs taxed before conclusion of the principal proceedings.  The starting point is to identifying the policy reasons underlying FCR, O 62 r 3(3).  These include discouraging interlocutory applications (Stack v Brisbane City Council (1996) 71 FCR 523, at 534, per Drummond J); avoiding the inconvenience and possible oppression involved in a series of taxations where there are successive interlocutory applications (Vasyli v AOL International Pty Ltd [1996] FCA 804, per Lehane J); and the fact that it is usually inappropriate to require the unsuccessful party to interlocutory proceedings to pay costs immediately, since that party might ultimately succeed in the substantive proceeding (Brasington v Overton Investments Pty Ltd [2001] FCA 571, at [13], per Emmett J; Bailey v Beagle Management Pty Ltd (2001) 105 FCR 136, at 145, per curiam).

21                  FCR, O 62 r 3(3) has generally been interpreted as conferring a discretion which should be exercised in favour of a party who establishes that the demands of justice require a departure from the general practice envisaged by the sub-rule, namely that an order for costs of an interlocutory proceeding should not entitle a party to have a bill of costs taxed until the principal proceedings are concluded: Thunderdome Racetiming and Scoring Pty Ltd v Dorian Industries Pty Ltd (1992) 36 FCR 297, at 312, per Olney J; Stack, at 535, per Drummond J.  It appears to be broadly accepted that some reason must be shown to depart from what Lehane J in Vasyli described as the “clear practice of the Court”.  Lehane J thought that a departure would be countenanced only in “rare cases”.  Other judgments have suggested that the power might be somewhat under utilised: Allstate Life Insurance Co v Australia & New Zealand Banking Group Ltd (No 14) [1995] FCA 660, per Lindgren J; Life Airbag Company of Australia Pty Ltd v Life Airbag Company (New Zealand) Ltd [1998] FCA 545, per Branson J; McKellar v Container Terminal Management Services Ltd [1999] FCA 1639, at [41], per Weinberg J.

22                  A variety of circumstances have been regarded as justifying a departure from the general rule.  The general rule has been departed from, for example, where an interlocutory proceeding involving a discrete issue has been resolved (Australian Flight Test Services v Minister for Industry, Science and Technology [1996] FCA 288, per O’Loughlin J) and where the principal proceedings are not likely to be resolved for some time, so that in the absence of an order the successful party will not enjoy the fruits of the interlocutory order for a long period (Life Airbag; Allstate Life Insurance Co v Australia and New Zealand Banking Group Ltd (No 13) [1995] FCA 626, Full Court).

23                  In my opinion, the circumstances of the present case clearly warrant a departure from the usual practice of the Court.  The parties have chosen, perfectly sensibly, to litigate in a separate hearing the applicant’s claim for compensation together with issues of considerable importance to the representative proceedings.  Although the proceedings have not yet concluded, the Judgment can fairly be regarded as dealing with largely discrete issues.  The applicant has incurred very substantial costs in conducting the proceedings.  It appears that the proceedings as a whole will not be concluded for some considerable time, in part because Medtel wishes to adduce further evidence on the yellow spool solder issue.  In my view, it would be unfair to deny the appellant the opportunity to tax his costs without delay.

24                  I should add that if the respondents succeed in future stages of the litigation, in the ordinary course they can expect to obtain the benefit of a costs order.  In my view, the possibility that the respondents may succeed on some aspects of the litigation in the future does not warrant either deferring the making of a costs order or declining to make an order under FCR, O 62 r 3(3).  There has been no suggestion that if the applicant is entitled to tax his costs at this stage, the respondents will be at risk of obtaining unenforceable costs orders in the future.

25                  The fourth issue is whether an order should be made that FCR, O 62 r 36A(1) not apply.  In my opinion such an order should be made, largely for the reasons I have already given.  This is not a case which should not have been brought in this Court or which can be said to involve only a modest claim.  It is a representative proceeding and there has been no challenge to its constitution as such.  The orders made, when read with the Judgment, are significant for all members of the represented group.  Indeed this is what the parties intended when they identified separate questions for determination.

26                  On the other hand, I do not think it appropriate to accede to the applicant’s invitation to order Medtel to pay a lump sum on an interim basis.  The orders I have foreshadowed to make provision for the applicant to tax his costs notwithstanding that the principal proceedings have not concluded.  Moreover, the evidence is insufficient to enable me to make a sufficiently precise estimate of the quantum of party and party costs that are payable by Medtel at this stage of the litigation.

27                  I am, however, conscious that the parties might wish to avoid the expense of a taxation of costs, at least at this stage of the proceedings.  I indicated at the costs hearing that I would be minded to record in this judgment a figure which, on the incomplete material before me, would seem to be a reasonable figure for Medtel to pay on account of liability to pay costs on a party and party basis, after allowing for the amount already paid by it.  However, this figure is merely a guide which the parties are free to accept or reject.  The figure I have in mind is $350,000, inclusive of GST.

28                  The orders I propose to make are as follows:

1. Medtel pay the applicant’s costs of the proceedings to the date of Judgment, including the costs of his individual and representative claims, except for those costs that are already subject to a costs order.
2. The applicant be entitled, pursuant to FCR, O 62 r 3(3), to have his bill of costs taxed notwithstanding that the principal proceedings have not concluded.
3. Pursuant to FCR, O 62 r 36A(1), the applicant’s costs are not to be reduced notwithstanding that the applicant has been awarded judgment for a sum less than $100,000.
4. The above orders be without prejudice to the applicant’s entitlement to seek an order for payment of his costs on an indemnity basis.

Associate:

Dated:              30 March 2004