FEDERAL COURT OF AUSTRALIA

 Porter v Australian Prudential Regulations Authority [2009] FCA 1148  

ROSS DAVID PORTER and FIONA CAMPBELL SHAND v AUSTRALIAN PRUDENTIAL REGULATION AUTHORITY and WARREN SCOTT

NSD 810 of 2009

PERRAM J

9 OCTOBER 2009

SYDNEY

THE COURT ORDERS THAT:

1.                  The First Respondent is to pay the costs of these proceedings on an indemnity basis.

2.                  The First Respondent is to pay the costs of the Notice of Motion of 5 August 2009 in proceedings NSD 592/2009 on an indemnity basis.

3.                  Direct the Registrar to provide a copy of these reasons to the chairperson of the Australian Prudential Regulation Authority.

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                     At 9.50am on Wednesday 5 August 2009 two officers of the Australian Prudential Regulation Authority (“APRA”) served upon a solicitor, a Ms Shand, a notice which required her, on pain of the commission of a criminal offence, to produce to APRA a hard drive stored in a safe in her office.  The hard drive was a copy of another hard drive belonging to one of her clients, Mr Porter.  Production was required by 4.00pm that afternoon at APRA’s offices in Sydney. 

2                     Shortly before 4.00pm, Ms Shand applied to this Court for urgent relief which was, for reasons given below, declined.  On Friday 7 August 2009 she and her client Mr Porter commenced substantive proceedings relating to the notice and on that day I made orders restraining APRA from taking any steps in reliance on it.  Ten days later, on Monday 17 August 2009, a delegate of APRA purported to revoke the notice.  On Thursday 3 September 2009, APRA consented to orders setting the notice aside with effect from the day of its issue.  That left the question of costs unresolved.  Ms Shand now asks that the costs of this proceeding and of the urgent application on the afternoon of 5 August 2009 (which was made in a related proceeding) should be paid on an indemnity basis.

Facts

3                     It is necessary first to say a little more of the facts.  The notice was issued by a delegate of APRA on Monday 3 August 2009.  On its issue, therefore, it required compliance within a period of two days.  There was no evidence before me of any of the circumstances surrounding the delegate’s decision to issue the notice nor of why it was thought two days might be an appropriate time for compliance.  There is, however, evidence from Ms Shand, which I accept, that at 9.50am on Wednesday, two officers from APRA served the notice upon her at her offices in Pitt Street in Sydney.  One of these officers was Mr Matthew Whylie who is the manager of the enforcement division.  There was no evidence from APRA explaining the decision to serve the notice at 9.50am on the same day that the notice called for production.  It was common ground that compliance was required within six hours and 10 minutes of service.

4                     For reasons which follow, it is necessary to assess the reasonableness of this conduct.   In the absence of any evidence surrounding the circumstances of the notice’s issue it would be open to me to infer that the two days contemplated by the notice was an unreasonably short period.  The failure by APRA to lead any evidence from the delegate of those circumstances or of his reasons for issuing the notice with that time limit permits more readily that inference to be drawn: Jones v Dunkel (1959) 101 CLR 298 at 308, 312 and 320-321.  Indeed, this is one of those cases where the failure by the decision maker to give any reasons for the decision permits the inference to be drawn that he had no good reason for it: Public Service Board (NSW) v Osmond (1986) 159 CLR 656 at 663-664, 675, 676 and 678.  I conclude, therefore, that the decision by the delegate to issue the notice so that it required production within two days issue was objectively unreasonable. 

5                     The person who made the decision to serve the notice six hours and ten minutes before the time for compliance was not identified.  APRA offered no explanation of why its officers delayed two working days before serving the notice.  As with the delegate’s decision to issue the notice, so too I infer that whoever made that decision had no good reason for it.  Accordingly, that decision is to be characterised as unreasonable.  

6                     However in the case of the decision to serve the notice the objective unreasonableness is of a much higher degree than in the case of the decision to issue it.  In my opinion, the decision to serve the notice two days after it was issued and just over six hours before it was due to be complied with is appropriately described as reprehensible.

Indemnity Costs

7                     Indemnity costs may properly be awarded where there is some special or unusual feature in the case justifying the Court in exercising the costs discretion in that way: Re Wilcox; ex parte Venture Industries Pty Ltd (No. 2) (1996) 72 FCR 151 at 152-153 per Black CJ.  However, conduct which antedates the commencement of litigation is generally thought to be irrelevant to the question of indemnity costs: Hypec Electronics Pty Ltd (in liq) v Mead (2004) 61 NSWLR 169 at 181 [46] per Campbell J; NMFM Property Pty Limited v Citibank Limited (No. 11) (2001) 109 FCR 77 at 92 per Lindgren J.  This is because, as Sheppard J explained in Colgate-Palmolive Co v Cussons Pty Limited (1993) 46 FCR 225 at 223, the conduct which leads to an indemnity costs order is usually related to the way in which the litigation is conducted rather than the conduct of the party giving rise to the litigation in the first place.

8                     Where, however, the substantive aggressor is the defendant and the plaintiff has been forced to commence proceedings to protect herself, the law of procedure often treats a defendant as the moving party.  Thus, for example, security for costs will not be ordered against an out of the jurisdiction plaintiff who has been forced to sue to defend itself: Willey v Synan (1935) 54 CLR 175 at 180 per Latham CJ, 184-185 per Dixon J (with whom Rich J agreed) and 187 per McTiernan J.  In that case, the plaintiff had been compelled to commence proceedings in response to the issue of a notice by customs officers pursuant to s 207 of the Customs Act 1901 (Cth).  In declining to order security for costs, Latham CJ (at 180) put the matter this way:

In this case the Collector really initiated legal process by giving a notice under s 207, which would result in the exclusion of any right of the plaintiff unless the plaintiff himself took legal proceedings. 

9                     The principle has been widely applied in a variety of circumstances which include statutory demands: Classic Ceramic Importers Pty Ltd v Ceramica Antiga SA (1994) 13 ACSR 263. 

10                  The same principle should be applied here.  If APRA had sought security for costs against Ms Shand or Mr Porter (assuming it otherwise to have been entitled) it would have been quite open to refuse that application on the basis of the principle in Willey v Synan.  If then APRA is to be treated as the moving party for the purposes of the law surrounding security for costs, I can see no principled basis for not treating it as the aggressor for the law surrounding indemnity costs. 

11                  I conclude, therefore, that the proceedings were, as a matter of substance, initiated by APRA and that Ms Shand and Mr Porter were compelled to protect themselves from the issue and service of a notice which I have found, respectively, to be unreasonable and reprehensible.  

12                  Thus, whilst it is generally true that circumstances which antedate the commencement of proceedings are not relevant to the question of indemnity costs, this is not so where the defendant is the substantive aggressor and where the actions which compel the defensive suit are sufficiently unreasonable.  The situation is analogous to a proceeding which is commenced in wilful disregard to known facts or law: cf. Colgate-Palmolive Co v Cussons (1993) 118 ALR 248 at 257 per Sheppard J.  Here, the notice was issued and served within time frames for which no justification has been offered. 

13                  Mr Lenehan, who in his careful argument put everything which could legitimately be said on APRA’s behalf, submitted that indemnity costs should not be awarded because the proceedings had been disposed of by consent.  He relied upon Re Minister for Immigration and Ethnic Affairs; ex parte Lai Qin (1997) 186 CLR 622 in which McHugh J discussed the principles governing the award of costs in proceedings in which there has been no hearing on the merits.  Mr Lenehan placed particular reliance on a passage at [624]-[625]:

In some cases, however, the court may be able to conclude that one of the parties has acted so unreasonably that the other party should obtain the costs of the action.  In administrative law matters, for example, it may appear that the defendant has acted unreasonably in exercising or refusing to exercise a power and that the plaintiff had no reasonable alternative but to commence a litigation. 

14                  Thus, so the argument runs, even assuming APRA’s conduct was unreasonable, this only had the consequence that APRA should be ordered to pay costs on a party/party basis. 

15                  Ordinarily, the principles in Qin, which are concerned with conduct antecedent to the commencement of the litigation, would not intersect with the issues which arise on an indemnity costs application, for the latter are usually concerned with the manner in which litigation has been conducted.  Cases such as the present which involve parties who are forced to commence proceedings defensively involve some intermingling of those principles as, I think, the last sentence in the above quote from Qin shows.  In such cases, questions of degree are involved.  I would not read Qin as prohibiting an indemnity costs order when a plaintiff was forced to commence proceedings to defend against particularly outrageous conduct on the part of a defendant. 

16                  The circumstances surrounding the service of the notice were reprehensible and, in my opinion, sufficiently so to justify – even in the face of Qin – the imposition of an indemnity costs order.

17                  Mr Lenehan submitted that the correspondence which passed between the parties showed that APRA had attempted to compromise the claim promptly, particularly by revoking the notice on its own motion.  I reject this submission.  Failure to comply with the notice carried with it the risk of imprisonment for three months: s 56(1) Insurance Act 1973 (Cth).  That offence took place at the moment of non-compliance, which was at 4.00pm on Wednesday 5 August 2009 when Ms Shand’s counsel were before me unsuccessfully, and with some understandable anxiety, seeking interlocutory relief.  Although s 33(1) of the Acts Interpretation Act 1901 (Cth) (which permits a statutory power to be exercised from time to time) has been held to permit the revocation of the exercise of a statutory power (Minister for Immigration, Local Government and Ethnic Affairs v Kurtovic (1990) 21 FCR 193 at 218-219 per Gummow J) that principle is subject to the existence of any contrary intention apparent from the Act in question.   It would be surprising if APRA could revoke a notice where the notice had already generated rights, or as here, criminal liability. 

18                  The decision by APRA to revoke the notice exhibited a failure, on its part, to understand the seriousness of the position in which it had placed Ms Shand, particularly as a solicitor with professional obligations of disclosure in relation to criminal matters to the Law Society.  The only certain way that problem could be addressed was by the setting aside of the notice by curial order which Ms Shand from the outset sought.  That finally occurred by consent on Thursday 3 September 2009.  Even then, however, APRA’s consent to that ineluctable outcome was secured only at the heel of the hunt on the previous day.  Up until then APRA’s position was that it neither consented nor opposed the setting aside of the notice.  Far from showing the reasonableness of APRA’s conduct, this lamentable posture is indicative of an ethical obtuseness which augments rather than quells the need for an indemnity costs order. 

19                  Ms Shand and Mr Porter also seek the costs of their urgent application made to me as duty judge at 3.55pm on Wednesday 5 August 2009.  That application was made by motion in proceedings in which a judicial manager had been appointed to an insurer of which Mr Porter was a director.  I declined relief on the basis that the notice having been issued there was no apparent power to prevent s 56(1) taking its course.  In particular, although the decision to issue the notice might be stayed on an interim basis, that would still leave the notice itself in existence with the statutory consequences which would inevitably follow.  Although I rejected the application, it was an entirely reasonable one to make in the circumstances.  It is appropriate, therefore, that the costs of that motion should also be paid by APRA on an indemnity basis.

20                  There is one final matter which should be noted.  During the course of these proceedings the solicitor acting for APRA has persistently engaged in a practice of ex parte communications with my chambers.  On each occasion my Associate indicated that this was not appropriate.  In my opinion, it is important to record that communications with a judge’s chambers which the other parties do not know of, or have not approved of, are improper and should not occur.  Other than making that remark, however, it would be inappropriate to take the matter further.     

21                  APRA is to pay the costs of these proceedings and the notice of motion of 5 August 2009 in proceedings No 962/2009 on an indemnity basis. 

22                  I direct the Registrar to provide a copy of these reasons to the chairperson of APRA.

Associate:

Dated:         9 October 2009