FEDERAL COURT OF AUSTRALIA

Citrus Queensland Pty Ltd v Sunstate Orchards Pty Ltd (No 11) [2009] FCA 590

COSTS – notice of motion seeking non-party costs against wife of second applicant to substantive proceedings – first and second respondents unsuccessful on primary issue raised in notice of motion – first and second respondents successful on minor issue – whether wife of second applicant entitled to costs on an indemnity basis – reserved costs from interlocutory hearings

Held: no circumstances justifying award of costs against first and second respondents on an indemnity basis – wife of second applicant entitled to reserved costs of interlocutory hearings and 85% of her costs on the notice of motion on a party and party basis

Federal Court of Australia Act 1976 (Cth) s 43

Australian Competition and Consumer Commission v Prouds Jewellers Pty Ltd [2008] FCAFC 199 cited

Australian Trade Commission v Disktravel [2000] FCA 62 cited

Bowen Investments Pty Ltd v Tabcorp Holdings Ltd (No 2) [2008] FCAFC 107 cited

Caboolture Park Shopping Centre Pty Ltd (in liquidation) v White Industries (Qld) Pty Ltd (1993) 45 FCR 224 cited

Citrus Queensland Pty Ltd v Sunstate Orchards Pty Ltd (No 8) [2008] FCA 1556 related

Citrus Queensland Pty Ltd v Sunstate Orchards Pty Ltd (No 10) [2009] FCA 498 related

Colgate-Palmolive v Cussons (1993) 46 FCR 225 cited

Emirates v Australian Competition and Consumer Commission (No 2) [2009] FCA 492 cited

Hughes v Western Australian Cricket Association (Inc) (1986) ATPR 40-748 cited

InterTAN Inc v DSE (Holdings) Pty Ltd [2005] FCAFC 54 cited

CITRUS QUEENSLAND PTY LTD (ACN 110 855 359), PETER MICHAEL TRACY and SUNSTATE CITRUS PTY LTD (ACN 112 847 560) [SUBJECT TO DEED OF COMPANY ARRANGEMENT] v SUNSTATE ORCHARDS PTY LTD (ACN 095 659 733), ANDREW COLIN STRAHLEY and DAVID BREED

QUD 400 of 2005

COLLIER J

3 JUNE 2009

BRISBANE

THE COURT ORDERS THAT:

The first and second respondents being the applicants on the notice of motion pay 85% of Mrs Tracy’s costs of the notice of motion, including all reserved costs, on a party and party basis.

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 eSearch on the Court’s website.

REASONS FOR JUDGMENT

1                     In Citrus Queensland Pty Ltd v Sunstate Orchards Pty Ltd (No 10) [2009] FCA 498 I dismissed a notice of motion filed by the first and second respondents to the substantive proceedings in which they sought an order for non-party costs against Mrs Adrienne Tracy, the wife of the second applicant to the substantive proceedings. At the time of delivery of judgment I made directions permitting the parties to make written submissions as to costs in respect of the notice of motion, to be filed by 4.00 pm on 29 May 2009, and which submissions I indicated I would take into consideration in making my decision as to costs. I made it clear at that time that final submissions (if any) were to be made by the parties in accordance with the directions. The parties understood that directions were made on that basis. The first and second respondents complied with those directions, and filed submissions on 29 May 2009. Mrs Tracy filed submissions last Monday, one business day late, however I do not consider that any prejudice is occasioned to the first and second respondents as a result of this late filing.

2                     Of course, the usual rule is that costs follow the event in the absence of special circumstances justifying some other order (Hughes v Western Australian Cricket Association (Inc) (1986) ATPR 40-748, Bowen Investments Pty Ltd v Tabcorp Holdings Ltd (No 2) [2008] FCAFC 107). The first and second respondents were unsuccessful in respect of their notice of motion. However, for very different reasons, the parties have submitted that the usual rule as to costs should not be perfunctorily applied in relation to this notice of motion. In summary:

·                    The first and second respondents have submitted that:

o              the parties’ costs of the hearings on 8 December 2008 and 20 February 2009 be costs of the notice of motion; and

o              because, of three clear issues identified in the notice of motion, Mrs Tracy was successful in relation to two, the first and second respondents should pay one-third of Mrs Tracy’s costs on a party and party basis.

·                    Mrs Tracy has submitted that:

o              there is no question that Mrs Tracy was wholly successful in the proceedings;

o              in the circumstances, the costs ordered in favour of Mrs Tracy should be on an indemnity basis because:

▪              Mrs Tracy had to instruct solicitors and counsel and thereby incur legal fees and disbursements, and if only party and party costs are awarded to Mrs Tracy she will be penalised by the difference between the party and party costs awarded  and the amount of her own solicitor and client costs incurred in defending the proceedings;

▪              the first and second respondents engaged in inflammatory correspondence to the Court wrongfully claiming that the filing by Mrs Tracy of her written submissions on 9 February 2009 was not contemplated when they knew that those submissions were both contemplated, and ordered by the Court. The result of that conduct was that the Court convened a directions hearing, at which hearing it emerged that the objections made by the first and second respondents were groundless;

▪              the notice of motion was commenced or continued in disregard of known facts, including that the first and second respondents had evidence that Mrs Tracy had not provided any financial support for the principal action;

▪              the notice of motion was commenced or continued for an ulterior motive, presumably for the purpose of applying pressure to Mrs Tracy or her husband the second applicant as some form of intimidation or punishment. Mrs Tracy arranged time off work in order to comply with the requirement for cross-examination as notified by the first and second respondents, which the first and second respondents subsequently advised was not necessary;

▪              the notice of motion was commenced or maintained in disregard of clearly established law, including that the first and second respondents pressed for indemnity costs against Mrs Tracy notwithstanding that the applicants in the substantive proceedings had been the subject of an order for standard costs;

▪              the proceedings have been unduly prolonged by the making of groundless contentions by the first and second respondents; and

▪              the first and second respondents persistently breached the directions made by the Court in the proceedings and thereby caused Mrs Tracy to incur greater costs than she would have incurred had they complied with the directions of the Court.

Consideration

3                     The starting point is, of course, s 43 of the Federal Court of Australia Act 1976 (Cth) which provides:

(1) Subject to subsection (1A), the Court or a Judge has jurisdiction to award costs in all proceedings before the Court (including proceedings dismissed for want of jurisdiction) other than proceedings in respect of which any other Act provides that costs shall not be awarded. ...

(2) Except as provided by any other Act, the award of costs is in the discretion of the Court or Judge.

4                     As has been made clear in many cases (recently, for example, in Australian Competition and Consumer Commission v Prouds Jewellers Pty Ltd [2008] FCAFC 199 at [69]), the only limitation on the exercise of the Court’s discretion as to costs is that the discretion be exercised judicially.

Hearings of 8 December 2008 and 20 February 2009

5                     In my view, Mrs Tracy in her submissions correctly summarises the position of the parties with respect to the filing of additional submissions, the hearings of 8 December 2008 and 20 February 2009, and the resultant costs incurred, particularly in respect of the hearing of 20 February 2009. As I indicated on 20 February 2009, Mrs Tracy was entitled to file written submissions by 6 February 2009 in relation to notice of motion as a whole. The history of why I had originally made orders simply anticipating an exchange of submissions on 6 February 2009 is set out in the transcript of the hearing of 20 February 2009 and I do not propose to repeat that history. While it is true that Mrs Tracy was late in filing the written submissions due by 6 February 2009 – indeed the submissions were not filed until 10 February 2009 – as I indicated on 20 February 2009 Mrs Tracy had not done anything wrong in filing those detailed written submissions. The confusion of the first and second respondents arose because Mrs Tracy’s principal written submissions were filed late, and from what appeared to be the belief of the first and second respondents that the direction concerning the filing of any supplementary written submissions concerning a jurisdictional issue by 9 February 2009 limited the written submissions which the parties were entitled to file by 6 February 2009. I agree with Mrs Tracy that that was never the case.

6                     I do not accept the submission of the first and second respondents that costs connected with the hearings of 8 December 2008 and 20 February 2009 be costs on the motion. In my view the costs of those hearings should follow the event, and should be awarded to Mrs Tracy.

Is Mrs Tracy entitled to indemnity costs?

7                     In Citrus Queensland Pty Ltd v Sunstate Orchards Pty Ltd (No 8) [2008] FCA 1556 I discussed in some detail principles relevant to the award of indemnity costs by the Court in appropriate circumstances. A number of those key principles are:

·                    the purpose of an order for costs is to indemnify or compensate the person in whose favour it is made, not to punish the person against whom it is made;

·                    the usual rule is that costs should be on a party-party basis, but that the Court has a wide and unfettered discretion to award costs on an indemnity basis in appropriate cases in particular circumstances;

·                    each case depends upon its own particular facts;

·                    indemnity costs can be awarded where it appears that a proceeding is commenced or continued in circumstances where the applicant properly advised should have known there was no chance of success.

8                     As I also observed in Citrus (No 8) [2008] FCA 1556, a long – and non-exhaustive – list of relevant issues for the Court in considering whether to award indemnity costs can be found in such cases as Colgate-Palmolive v Cussons (1993) 46 FCR 225 and InterTAN Inc v DSE (Holdings) Pty Ltd [2005] FCAFC 54.

9                     While I am satisfied in respect of this notice of motion that Mrs Tracy is entitled to the majority of her costs as against the first and second respondents (I will return to the issue of apportionment later in these reasons), I am not satisfied that she is entitled to be awarded those costs on an indemnity basis. I form this view for the following reasons:

·                    While it is true that Mrs Tracy was required to instruct solicitors and counsel and thereby incur legal fees and disbursements in connection with the notice of motion, I do not consider that this is a satisfactory basis upon which indemnity costs should be awarded. The purpose of an order for costs is not to punish the person against whom it is made – similarly I do not accept that it is appropriate to characterise the award of “only” party and party costs in these circumstances as penalising Mrs Tracy.

·                    Second, I am not satisfied that this is a case where the proceedings against Mrs Tracy for non-party costs ought never to have been commenced because the first and second respondents had no chance of success. While I found against the first and second respondents on their notice of motion, nonetheless:

o              The fact that I considered that no satisfactory reasons had been provided by the first and second respondents to distinguish Mrs Tracy’s circumstances from those of the applicants (against whom party and party costs had been awarded) did not mean that the claim of the first and second respondents for indemnity costs against Mrs Tracy was doomed to failure from the outset as a matter of legal principle. Caboolture Park Shopping Centre Pty Ltd (in liquidation) v White Industries (Qld) Pty Ltd (1993) 45 FCR 224 is an example of a case where costs on a party and party basis were awarded against an unsuccessful litigant but indemnity costs were subsequently awarded against a non-party by way of supplemental orders.

o              I do not consider that the conduct and contentions of the first and second respondents which resulted in the hearing of 20 February 2009 should be characterised as misconduct. In my view the obvious and more rational explanation for the events which culminated in the hearing of 20 February 2009 and the directions following that hearing is that the first and second respondents had become confused as to the submissions which the parties were entitled to file, and the dates by which they were entitled to file them. As a matter of justice, and in order to allow the parties to properly ventilate their respective cases, I permitted further written submissions to be filed by the first and second respondents as well as by Mrs Tracy. However as I have already indicated, in my view Mrs Tracy is adequately compensated in respect of the additional directions hearing as well as in respect of any further submissions by a costs order in her favour.

o              While regrettable, I do not consider that any inconvenience occasioned to Mrs Tracy in order for her to comply with the requirement for cross-examination at the hearing of the notice of motion is an adequate basis for an award of indemnity costs against the first and second respondents in these proceedings.

o              Contrary to Mrs Tracy’s submissions, I note that in Citrus (No 10) [2009] FCA 498 I actually found that Mrs Tracy had provided some financial support for the applicants’ claims in the substantive proceedings, for example in relation to her assistance in providing the security for costs which the applicants were ordered to pay. However I then went on to find that any financial benefit Mrs Tracy would receive had the applicants been successful would not, without more, justify an award of non-party costs. Considering the claims of the first and second respondents in respect of the notice of motion, I note that learned and feasible arguments were advanced. The fact that the first and second respondents were unsuccessful in respect of the notice of motion did not, in my view, mean that they had improperly commenced proceedings against Mrs Tracy such that an award of costs on an indemnity basis is now appropriate.

o              Further, and also contrary to Mrs Tracy’s submissions, I do not consider that collateral motives can be imputed to the first and second respondents either in respect of their claim against Mrs Tracy for non-party costs, or in respect of their conduct in relation to the notice of motion. There is no evidence of such motives, and I am not prepared on the basis of the material before me to draw such an inference.

10                  Finally, I note that the submissions of the first and second respondents were not unsuccessful in respect of all issues. As I will now discuss in more detail, I found for the first and second respondents in respect of the so-called “jurisdictional” issue.

Is an apportionment of costs justified?

11                  The first and second respondents have submitted that an apportionment of costs is appropriate in light of the measure of success enjoyed both by the first and second respondents, and by Mrs Tracy. In particular, I note that the first and second respondents were successful in respect of the “jurisdictional” issue raised by Counsel for Mrs Tracy at the hearing of the notice of motion, namely whether the Court’s jurisdiction to make an order as to non-party costs had been exhausted by a previous order that the applicants be liable for the costs of the first and second respondents.

12                  The first and second respondents have submitted that Mrs Tracy ought to pay their costs in respect of the jurisdictional issue. As recently observed, in the past the Full Court has cautioned against too ready a resort to apportionment according to issue based outcomes (Emirates v Australian Competition and Consumer Commission (No 2) [2009] FCA 492 at [8], Australian Trade Commission v Disktravel [2000] FCA 62 at [3]). Looking at the proceedings as a whole, the jurisdictional issue was a relatively minor aspect of the case, as was the question whether Mrs Tracy should be liable on an indemnity basis for costs of the first and second respondents. In my view, it is clear that the principal aspect of these proceedings concerned the question whether Mrs Tracy was in fact liable for non-party costs. Mrs Tracy was successful in respect of this principal issue and should, in my view, be entitled to a significant proportion of her costs. However, the facts that:

·                    Counsel for Mrs Tracy raised the jurisdictional issue at the hearing of the notice of motion without notice;

·                    which in turn necessitated further oral and written submissions by Counsel; and

·                    in the final analysis the first and second respondents were successful in respect of this issue;

in my view justifies some apportionment of costs in favour of the first and second respondent. However I am not persuaded by the submission of the first and second respondents that Mrs Tracy should be entitled only to one third of her costs on the notice of motion. In light of the fact that Mrs Tracy was successful overall in these proceedings and taking into consideration the minor significance of the jurisdictional issue in the proceedings, I consider that the appropriate order is that Mrs Tracy’s costs be discounted by 15%.

Associate:

Dated:         3 June 2009