FEDERAL COURT OF AUSTRALIA

Ann Street Mezzanine Pty Ltd v KPMG [2011] FCA 453

THE COURT ORDERS THAT:

1.    The cross-claimant be given leave pursuant to Order 22 rule 2(1)(d) of the Federal Court Rules to discontinue its cross-claim against the fourth cross-respondent.

2.    The fourth cross-respondent pay the cross-claimant’s costs of and incidental to this application.

3.    There otherwise be no order as to the costs of the cross-claim.

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

1    By notice of motion filed on 17 March 2011, the respondent/cross-claimant (‘the cross-claimant’) seeks leave to discontinue the cross-claimant’s cross-claim against the fourth cross-respondent pursuant to O 22 r 2(1)(d) of the Federal Court Rules (‘the Rules’). The motion is supported by an affidavit affirmed by Michael Thomas von Schoenberg on 18 March 2011 (‘the Schoenberg affidavit’). Mr Schoenberg is a partner of Allens Arthur Robinson, the lawyers for the cross-claimant in the proceeding. The cross-claimant is KPMG (a firm of accountants). The motion is contested, but the parties agreed that I should determine it on the papers, by reference to supporting affidavits and written submissions.

2    Order 22 of the Rules makes provision for discontinuance. In the present case, as noted, the cross-claimant seeks to discontinue with the leave of the court pursuant to O 22 r 2(1)(d). If such leave is given, there is power to order costs by virtue of s 43 of the Federal Court of Australia 1976 (Cth). The power, though discretionary, must be exercised judicially. In a case such as this, where a plaintiff wishes to discontinue because of events that have occurred after the institution of the proceeding, the courts have propounded some principles to guide the exercise of the discretion. Of course, these principles offer no more than guidance; and in each case the discretion must be exercised having regard to the circumstances of the particular case.

Background

3    The circumstances in which the application is made can be briefly stated. In this proceeding (VID 292 of 2010) a claim was made against the cross-claimant, KPMG, which was the former auditor of various companies in the Westpoint Group. Put simply, it was alleged that KPMG acted negligently and in breach of s 52 of the Trade Practices Act 1974 (Cth) in auditing them. KPMG cross-claimed against the directors of the plaintiff companies (including Mr Carey) for contribution. As against Mr Carey, KPMG alleged breach of duties to the plaintiffs. Mr Carey denied KPMG’s claims against him.

4    KPMG entered into a settlement with the plaintiffs earlier this year. The Court has since made orders:

(a)    dismissing proceeding VID 292 of 2010 commenced by the Australian Securities and Investment Commission (‘ASIC’) in the name of eight plaintiff companies (‘the Mezzanine Companies’) against KPMG (‘the main proceeding’), with no order as to costs;

(b)    dismissing four of the five cross-claims commenced by KPMG in the main proceeding, being the cross-claims against four of the five named cross-respondents (Mr Cedric Richard Palmer Beck, Mr John Norman Dixon, Mr Graeme John Rundle, and Ms Lynette Rochelle Schiftan), such orders being made with no order as to costs; and

(c)    dismissing proceeding VID 920 of 2010 commenced by the Mezzanine Companies against KPMG, with no order as to costs.

5    Further, with the exception of the claims against Palentia Pty Ltd, the Mezzanine Companies’ claims in other related proceedings have also been wholly discontinued or dismissed, with no orders as to costs (although Mr Carey’s cross-claims are still alive). These proceedings are (i) York Street Mezzanine Pty Ltd (in liq) – VID 484 of 2008; (ii) Market Street Mezzanine Pty Ltd (in liq) – VID 607 of 2008; (iii) Bayshore Mezzanine Pty Ltd (in liq) – VID 608 of 2008; (iv) Mount Street Mezzanine Pty Ltd (in liq) – VID 609 of 2008; (v) Bayview Heritage Mezzanine Pty Ltd (in liq) – VID 611 of 2008; (vi) Market Street Mezzanine No 2 Pty Ltd (in liq) – VID 613 of 2008; (vii) Cinema City Mezzanine Pty Ltd (in liq) – VID 614 of 2008; and (viii) North Sydney Finance Pty Ltd (in liq) – VID 259 of 2009. Hereafter, I refer to these proceedings collectively as the ‘Directors Actions’.

6    In relation to Palentia Pty Ltd, the court has been informed that ASIC does not intend to prosecute the claims against that company and anticipates making an application to the court for the claims against the company to be wholly discontinued.

7    As is apparent from the foregoing, the cross-claimant’s cross-claim against Mr Carey, as contained in the Third Party Statement of Claim filed on 27 November 2009, remains on foot. Mr Carey states in his submissions filed in response to the present motion that he “remains prepared to defend the claims brought against him by KPMG”. This is the only part of the cross-claimant’s claims against the relevant directors that has not been discontinued or dismissed. By the current motion, the cross-claimant seeks the court’s leave to discontinue its cross-claim against Mr Carey, with no order as to costs.

8    There is no dispute between the cross-claimant (KPMG) and Mr Carey that the cross-claim should be discontinued. There is, however, a dispute about the disposition of costs. This is clear from the email correspondence accompanying the Schoenberg affidavit and from the parties’ submissions.

9    Broadly speaking, the email correspondence shows the following. On 8 March 2011, proposed minutes of consent orders were emailed by the lawyers for the cross-claimant to lawyers for Mr Carey. The minutes provided for leave to discontinue the proceeding, with no order as to costs. Mr Carey’s consent was not forthcoming. Instead, on 17 March 2011, Mr Daniel Hirsh of Consult Solicitors responded on behalf of Mr Carey, stating that Mr Carey offered to consent to the discontinuance of the cross-claim on terms that KPMG pay his client’s costs fixed at $90,000. There was further email correspondence between the parties, as a result of which Mr Hirsh emailed Mr Schoenberg that:

In the interests of avoiding further costs in this application, Mr Carey is prepared to offer to consent to KPMG discontinuing on terms that KPMG pay his costs fixed at $85,000. This offer remains open until 4pm today.

The offer was not accepted.

10    Mr Carey insists that he is entitled to his costs of the proceeding in the event that the proceeding is discontinued. KPMG is of the contrary view.

THE PARTIES’ SUBMISSIONS

11    In submissions dated 18 March 2011, the cross-claimant argued that:

a.    The usual rule is that, where proceedings are discontinued by leave of the court and it appears that both parties have acted reasonably in commencing and defending the proceedings, the proper exercise of the court’s cost discretion is that the court will make no order as to costs.

b.    The cross-claim was premised on the existence of proceedings that have now been dismissed or discontinued and as such the cross-claim is otiose.

c.    There is no dispute that the cross-claim should now be discontinued; and all other parts of the cross-claim have already been discontinued, with no order as to costs.

d.    There is no evidence before the court that the cross-claim against Mr Carey was patently hopeless to the extent that Mr Carey is entitled to costs.

e.    As such the usual order as to costs should be made, except that Mr Carey should pay for the costs of this application because he has refused to make the consent orders.

The cross-claimant subsequently filed further submissions responsive to Mr Carey: see below.

12    By submissions dated 22 March 2011, Mr Carey sought his costs of the proceeding, arguing that:

a.    There is a distinction between those cases where one party simply abandons its claim (and thus should pay the other party’s costs) and those cases in which the proceeding is discontinued because of some supervening event (where in the usual course the court makes no order as to costs).

b.    KPMG’s application to discontinue is a simple abandonment of its claims. This is because: (a) there has been no settlement of the claims; and (b) KPMG has not obtained the relief sought.

c.    KPMG’s cross-claim against Mr Carey remains on foot despite the fact that KPMG has settled with the plaintiffs without an admission of liability. There is no reason to suggest the claim is futile. The cross-claim is not otiose other than by reason of KPMG’s election to abandon it.

d.    Order 22 r 2(1)(c) provides that “a party making a claim for relief may discontinue a proceeding” “where judgment has not been entered – with the consent of all the parties”. Order 22 r 3(2) provides that a party who discontinues under O 22 r 2(1)(c) is liable to pay the costs of the other party “unless the terms of the consent provide otherwise”. Order 62 r 26(1) provides that where, under O 22 r 2, a party discontinues a proceeding without leave, then “the discontinuing party shall, unless the Court otherwise orders, pay the costs of the party against whom the discontinued claim is made”.

e.    By making an application for leave in circumstances where Mr Carey consents to the discontinuance, KPMG seeks to avoid the consequences provided for under O 22 r 3(2) and O 62 r 26(1).

f.    KPMG’s abandonment of its claim amounts to a complete capitulation by it. KPMG has not achieved the relief KPMG sought against Mr Carey in part or at all. By any commercial measure, Mr Carey has succeeded on the claim. Mr Carey has incurred significant costs in defending the cross-claim brought against him, and has at all times denied the allegations made against him.

There was also a further supplementary submission made by Mr Carey.

13    Mr Carey relies on an affidavit sworn by him on 22 March 2011.

14    The cross-claimant objected to the admissibility of the following parts of Mr Carey’s affidavit.

-    paragraph 3, second sentence, that part commencing from the word “about” in line 2 to the end of the sentence. Alternatively, paragraph 3, second sentence, that part commencing from the word “firstly” in the third line and ending with the word “instituted” on the fourth line.

-    paragraph 4, second sentence, last two words.

15    After the receipt of these objections, Mr Carey agreed to withdraw the first sentence of paragraph 4 of his affidavit.

16    KPMG took objection to part of the second sentence in paragraph 3 (from “about”) “on the basis that the text … impermissibly discloses the subject matter of without prejudice communications between the parties”. KPMG’s alternative objection was “on the ground of relevance to the text in the second sentence”. KPMG objected to the last two words of the second sentence of paragraph 4 on the basis that “[b]y necessary inference, those words disclose the subject matter of without prejudice communications, being, again, the nature of the claims that were discussed”.

17    Mr Carey’s solicitors responded to these objections as follows:

The … portions objected to by KPMG refer only to the existence of settlement negotiations … They do not disclose the content of the communications.

In any event, section 131(2)(h) of the Evidence Act 1995 permits the adducing of evidence of what would otherwise be a without prejudice communication where it is relevant to determining liability for costs …

18    KPMG replied:

KPMG does not dispute that section 131 of the Evidence Act 1995 (Cth) (Act) applies. In brief, KPMG submits that:

●    Section 131(1)(a) of the Act provides that evidence is not to be adduced of “a communication that is made between persons in dispute … in connection with an attempt to negotiate a settlement of the dispute”. The passages in the Carey affidavit to which KPMG objects clearly fall within the broad ambit of this provision. The relevant passage in paragraph 3 of the Carey affidavit, for example, begins with the word “about” which identifies the subject matter of a communication in connection with an attempt to negotiate a settlement of the dispute.

●    Mr Carey, by his withdrawal of the first sentence of paragraph 4, apparently accepts that evidence should not be adduced of the “content” of without prejudice communications. Section 131(1)(a) of the Act is not limited to “content”. In any event, the passages KPMG has identified do go to the content of without prejudice communications and, on Mr Carey’s own submissions, KPMG’s objection should be upheld.

●    The authorities upon which Mr Carey relies each proceed on the basis that evidence of without prejudice communications may be relevant to the determination of costs after determination of the merits. Here, there has been no determination on the merits and evidence of prior without prejudice communications is not relevant. There is nothing in the passages objected to by KPMG which, if accepted into evidence, could “rationally affect … the assessment of the probability of the existence of a fact in issue in the proceeding” within the meaning of section 55 (1) of the Act. The exception in section 131(2)(h) does not apply.

19    I would overrule the objections made by KPMG. Both parties accepted that s 131(1)(a) of the Evidence Act 1995 (Cth) applied to the subject matter of the objections. This provision states that evidence is not to be adduced of “a communication that is made between persons in dispute … in connection with an attempt to negotiate a settlement of the dispute”. By virtue of s 131(2)(h), s 131(1)(a) does not apply, however, if “the communication … is relevant to determining liability for costs”.

20    Whilst each of the authorities to which Mr Carey referred concerned the disposition of costs after a trial, this fact does not diminish the significance of the principles stated in them. In Bruinsma v Menczer (1995) 40 NSWLR 716 at 719-720, Santow J held that the regime created by s 131 in circumstances such as these precludes the operation of the common law concerning without prejudice communications. Section 131(2)(h) allows for “without prejudice” communications between parties that are “relevant to determining liability for costs” to be admitted into evidence: see also Marks v GIO Australian Holdings Ltd (1996) 137 ALR 579 at 585. As Goldberg J held in Australian Competition and Consumer Commission v Australian Safeway Stores Pty Limited (No 3) [2002] FCA 1294 at [17]:

The authorities … make it clear that the policy lying behind s 131 of the Evidence Act is twofold. First, it is to lay down a statutory basis for excluding evidence of communications relating to attempts to settle disputes. Secondly, it is to provide specific exceptions to such exclusion. The exception found in s 131(2)(h) relates to the probative value or probative nature of the contents of the communication and not to the manner in which the communication came initially to be subjected to the protection from being adduced into evidence found in subs (1) of s 131.

21    The concept of “relevant” evidence is defined in s 55(1) of the Evidence Act as follows:

The evidence that is relevant in a proceeding is evidence that, if it were accepted, could rationally affect (directly or indirectly) the assessment of the probability of the existence of a fact in issue in the proceeding.

22    The following discussion shows that the reasonableness of the conduct of the parties may fall for consideration in such a case as the present. Evidence as to the parties’ endeavours to resolve litigation, whether or not successful, is relevant to the court’s consideration of this issue (in the sense that evidence as to these endeavours could rationally affect the assessment of the probability that a party acted reasonably or unreasonably) and, more generally, to the court’s deliberation concerning the presence or absence of “special circumstances” that would indicate that the “no order as to costs” rule should not apply in this case. Whether this evidence in fact affects this assessment of probability depends on the admissible evidence considered as a whole, and the entirety of the circumstances that are found to exist.

23    Further, for similar reasons, I would not regard that part of the second sentence of paragraph 3, commencing from the word “firstly” in the third line and ending with the word “instituted” on the fourth line, as inadmissible as irrelevant in the sense already mentioned. I note too that the proposed cross-claim referred to in Mr Carey’s affidavit was the subject of a grant of leave in the Directors Actions on 31 August 2010.

GENERAL PRINCIPLES

24    There is no need for a trial to determine the disposition of costs. Indeed, the authorities establish that, where a case has settled or otherwise come to an end, there should not be a trial for the sole purpose of deciding the disposition of costs: see, for example, Australian Securities & Investments Commission v Kyriackou [2008] FCA 1860 at [6]; Re the Minister for Immigration and Ethnic Affairs of the Commonwealth of Australia; ex parte Lai Qin (1997) 186 CLR 622 (‘Lai Qin’) at 624; Chapman v Luminis Pty Ltd [2003] FCAFC 162 (‘Chapman’) at [7]; and Australian Securities Commission v Aust-Home Investments Ltd (1993) 44 FCR 194 at 201, where Hill J referred to the previous cases, saying:

(1)    Where neither party desires to proceed with litigation the Court should be ready to facilitate the conclusion of the proceedings by making a cost order.

(2)    It will rarely, if ever, be appropriate, where there has been no trial on the merits, for a Court determining how the costs of the proceeding should be borne to endeavour to determine for itself the case on the merits or, as it might be put, to determine the outcome of a hypothetical trial. This will particularly be the case where a trial on the merits would involve complex factual matters where credit could be an issue.

(3)    In determining the question of costs it would be appropriate, however, for the Court to determine whether the applicant acted reasonably in commencing the proceedings and whether the respondent acted reasonably in defending them.

(4)    In a particular case it might be appropriate for the Court in its discretion to consider the conduct of a respondent prior to the commencement of the proceedings where such conduct may have precipitated the litigation.

(5)    Where the proceedings terminate after interlocutory relief has been granted the Court may take into account the fact that interlocutory relief has been granted. [Citations omitted.]

25    Subsequently, after quoting this passage, Finkelstein J said in Gribbles Pathology Pty Ltd v Health Insurance Commission (1997) 80 FCR 284 at 287:

[I]n the absence of a hearing on the merits it is difficult to see how any order, other than an order that each party bear its own costs, can be made except in special circumstances. To do otherwise would require some prediction of the outcome of the case. It seems to me that the third proposition stated by Hill J was intended to cover the situation where the Court was in fact able to form a clear view about the merits of a case without a trial. So, if a claim is patently hopeless that would be a good reason to make an order for costs against a claimant. Likewise if a defence was bound to fail that would be a good reason for awarding costs in favour of the claimant. But I venture to suggest that there will be very few cases where the issues will be sufficiently clear, in the absence of a hearing, for an order for costs to be made in favour of a party.

26    In Champagne View Pty Ltd v Shearwater Resort Management Pty Ltd [2000] VSC 214 at [47], Gillard J said that, whilst he would not go as far as Finkelstein J “in stating that any other order other than each party bear its own costs can only be made “in special circumstances”, “[a]s a general proposition if there is no other material before the court other than the pleadings then it would be extremely difficult to make any order other than each party bear its own costs”. His Honour went on to observe (at [49]) that whilst “evidence may be adduced which establishes with some degree of certainty the likely outcome of the trial”, such “evidence must be confined and not venture into areas of disputed fact”. In Australian Securities & Investments Commission v Kyriackou [2008] FCA 1860, Finkelstein J in fact agreed with this last-mentioned proposition, adding (at [10]):

It is a very sensible rule that where an action has been settled or is to be discontinued that costs should be determined without a trial. Not only is the trial hypothetical, in the sense that there is no longer a controversy about the substantive issues raised in the litigation, it would be extraordinary wasteful, both of the court’s time and the parties’ resources, to require a trial solely confined to costs.

27    In Lai Qin 625, McHugh J said that, in a case involving no hearing on the merits, “[i]f it appears that both parties have acted reasonably in commencing and defending the proceedings and the conduct of the parties continued to be reasonable until the litigation was settled or its further prosecution became futile, the proper exercise of the cost discretion will usually mean that the court will make no order as to the cost of the proceedings”.

28    In Chapman at [7], Beaumont, Sundberg and Hely JJ said:

The authorities establish the following propositions in relation to the making of costs orders in circumstances such as the present:

-    where a proceeding terminates before there has been a hearing, the Court should not resolve the issue of costs by engaging in something in the nature of a hypothetical trial: Australian Securities Commission v Aust-Home Investments Ltd (1993) 44 FCR 194 at 201;

-    this does not mean that a Court can never make an order for costs. Often it will be unable to do so, but in other cases an examination of the reasonableness of the conduct of the parties may provide the basis for an order, or a judge may be confident that one party was almost certain to have succeeded if a matter had been fully tried: Re Minister for Immigration & Ethnic Affairs; Ex parte Lai Qin (1997) 186 CLR 622 at 625 (McHugh J);

-    a distinction is to be drawn between cases in which one party, after litigating for some time, effectively surrenders to the other, and cases where some supervening event or settlement so removes or modifies the subject of the dispute that, although it could not be said that one side has simply won, no issue remains between the parties except that of costs. In the former type of case, there will commonly be lacking any basis for an exercise of the Court’s discretion otherwise than by an award of costs to the successful party. It is the latter type of case which more often creates problems, since there may be difficulty in discerning a clear reason why one party, rather than the other, should be bear the costs: ONE.TEL Ltd v Deputy Commissioner of Taxation (2000) 171 ALR 227 at 231-232 (Burchett J).

29    Recently, in Australian Securities and Investments Commission v Kyriackou (2010) 76 ACSR 428, [2010] FCA 9, Goldberg J applied the principles discussed in these authorities, observing that the issues involved in Kyriackou were complex and controversial. His Honour went on to say (at [68]-[69]):

Having regard to the authorities … it is not necessary, appropriate nor desirable to resolve all these contentious issues which can only be resolved at a full trial of the proceeding when the merits of ASIC’s case and the defendants’ case can be investigated in detail. These contentious issues are such that at this stage, on the material and submissions before me, I am unable to say that ASIC’s case was almost certain to fail or that the defendants’ case was almost certain to succeed. Nor am I able to form a clear view about the merits of ASIC’s case without a full trial.

There was little dispute between the parties as to the relevant principles applicable in this area, namely where there has been discontinuance or an agreement to discontinue with the question of the costs of the proceeding being left for the court. The significant difference between the parties was whether in the particular circumstances of this case an exception to the usual rule that there be no order as to costs had arisen.

Goldberg J concluded (at [75]) that this was “not one of those rare cases … where the court should determine how the costs should be borne without a trial of the contested issues” and that there were “no special circumstances … which warrant me in making any order other than that there be no order as to costs of the proceeding, so that the parties each bear their own costs of and incidental to the proceeding”.

30    The fourth cross-respondent, Mr Carey, seeks to avoid this line of authorities, first, by reference to provisions of the Rules other than O 22 r 2(1)(d) and, second, by characterising KPMG’s conduct as a simple abandonment of its claims against it. I reject the analysis that Mr Carey would have me make.

31    The cross-claimant has specifically applied for leave to discontinue the claim against Mr Carey pursuant to O 22 r 2(1)(d) of the Rules. It was open to the cross-claimant to do so. Order 22 r 2(1)(d) provides that a party making a claim for relief may discontinue “at any time – with the leave of the Court”. The capacity of a party to apply under O 22 r 2(1)(d) is not dependent on the position that the other party takes with respect to discontinuance and costs. A party desiring to discontinue is not obliged under the Rules to proceed under O 22 r 2(1)(c) in preference to O 22 r 2(1)(d). Discontinuance under either provision raises a question of costs. If discontinuance occurs under O 22 r 2(1)(c), then, as Mr Carey notes, O 22 r 3(2) applies. Order 62 r 26 applies only when there has been a discontinuance without leave, as under O 22 r 2(1)(a), (b) or (c). It is unsurprising that there is no specific provision for the disposition of costs when O 22 r 2(1)(d) is activated, because, in such a case, the disposition of costs is in the court’s discretion. I accept the cross-claimant’s submission that the Rules do not compel a litigant to discontinue without leave where, as here, there is agreement between the parties with respect to discontinuance, save as to the issue of costs.

32    Furthermore, I reject Mr Carey’s submission that KPMG’s conduct should be characterised as a simple abandonment of the claims against him and “complete capitulation” as opposed to discontinuance on account of some supervening circumstance. It is important to recall that the claim against Mr Carey is for contribution. Contribution was sought because of the plaintiffs’ claims against KPMG. The Third Party Statement of Claim filed on 27 November 2009 shows that the claim was for contribution from each of the named cross-respondents – the directors of the Mezzanine Companies – for breaches of duties owed to the Mezzanine Companies in the event that KPMG was found liable to those Mezzanine Companies. In these circumstances, there is nothing to indicate that, in instituting this cross-claim, KPMG acted other than reasonably in seeking contribution. In this context, I note that, in the Directors Actions, the Mezzanine Companies also commenced separate proceedings against the same five directors (and named cross-respondents in the main proceeding). As the cross-claimant observed, the allegations made against Mr Carey in its cross-claim are consonant with the allegations made against him in the Directors Actions. I hasten to add, however, that this is not a case in which the court could take any view about the merits of any claim. Since the plaintiffs’ claims are no longer pursued against KPMG, there remains little or no point in pursuing the claim for contribution. In the circumstances set forth above, I accept that the cross-claim against Mr Carey is otiose, as the cross-claimant submits.

33    Following settlement and dismissal of the proceedings against the cross-claimant and the other cross-claims brought by the cross-claimant, with no order as to costs, and the discontinuance or dismissal of the Directors Actions with no order as to costs, I accept that the cross-claimant has acted expeditiously and reasonably to seek to discontinue its cross-claim against Mr Carey.

34    In the circumstances of this case, including that Mr Carey accepts that discontinuance is appropriate, it is no longer material that Mr Carey remains prepared to defend the claims brought against him by KPMG. By analogy with Australian Securities and Investment Commission v Kyriackou (2010) 76 ACSR 428, as the cross-claimant submits, the only genuinely live issue is the disposition of costs. Indeed, this was in truth accepted by Mr Carey’s lawyers in the email correspondence to which I have previously referred.

35    The legal principles as to the disposition of costs in the present circumstances are set out in the previously mentioned authorities. In circumstances where there will be no trial on the merits, the usual rule is that the court makes no order as to costs. In this case, there are no special circumstances that warrant the court in making any different order. As noted already, there is no evidence of demonstrably unreasonable conduct on the cross-claimant’s part. There are no non-complex facts that demonstrate the likelihood of a particular party’s success or failure had the matter come to trial. On the contrary, as the pleadings amply demonstrated, the issues in dispute in the now discontinued or dismissed proceedings and in KPMG’s cross-claim against Mr Carey were complex. The court could not now take any view of the likely outcome of a hypothetical trial. I thus accept the cross-claimant’s submission that, in the circumstances of this case, it cannot be said that the cross-claimant’s claim against Mr Carey was “patently hopeless to the extent that [Mr Carey] is entitled to his costs”.

36    In his principal submissions, Mr Carey relied particularly on Foundation for Aboriginal and Torres Strait Islander Research Action Aboriginal Group v Minister for Aboriginal & Torres Strait Islander Affairs [2002] FCA 9 (‘the Foundation Case’) in which Copper J said (at [7]-[8]) that:

Where an applicant abandons its proceedings there is an underlying policy in the Rules that the discontinuing party should be liable for the other party’s costs unless the Court orders otherwise …

In the present case it falls upon the applicant to persuade me that there are circumstances which would justify departure from the underlying principle. [Citations omitted.]

37    The occasion for the desired discontinuance in the Foundation Case was the delivery of judgment in Pilbara Aboriginal Land Council v Minister for Aboriginal and Torres Strait Islander Affairs (2000) 103 FCR 539 (‘Pilbara Case’) by Merkel J, which made it clear that the applicant in the Foundation Case was unlikely to succeed. The applicant thus determined that it wished to discontinue. This was indeed a case of abandonment of claims. The circumstances set out above make it plain enough that the present case is different, in that the rationale for the cross-claim disappeared with the resolution of the other related proceedings. It is not a case of simple abandonment as Mr Carey would have it. In any event, as the cross-claimant notes, the Foundation Case only dealt with costs arising from the date upon which the applicant advised the respondent of the decision in the Pilbara Case, whereas Mr Carey is claiming costs incurred since the date the cross-claim was instituted against him. Furthermore, an important basis for Cooper J’s costs order in favour of the respondent from the date the respondent was advised of the Pilbara Case lay in Cooper J’s finding that the applicant had acted unreasonably within the relevant period: see Pilbara Case at [16]. As I have said, there is no evidence that the cross-claimant has acted unreasonably or tardily after the settlement of the main proceeding to end the cross-claim.

38    Mr Carey’s principal submissions also relied on the comments of Burchett J in One.Tel Ltd v Deputy Commissioner of Taxation (2000) 101 FCR 548 (‘One-Tel Ltd’) at 553 [6], to support the proposition that the abandonment of a case would result in costs being awarded to the non-discontinuing party. Goldberg J in Kyriackou 76 ACSR 428 considered much the same argument (at [50] et seq), noting especially that Burchett J drew a distinction between cases in which one party, after litigating for some time, effectively surrenders to the other, and cases where some supervening event so removes or modifies the subject of the dispute that, although it could not be said that one party has simply won, no issue remains between the parties except as to costs. Goldberg J applied this distinction, finding that there was no evidence showing that ASIC had surrendered its case. Instead, there was shown a long procedural history and a matter, which if it had come to trial, would have involved complex factual issues. Against this background, his Honour found (at [61]) that the parties had agreed to settle, with the result that the only remaining issue was the disposition of costs, to which the ‘no order as to costs’ rule applied.

39    As I have already indicated, I do not consider that the cross-claimant’s application for leave to discontinue constitutes abandonment or surrendering of its claim, within the meaning of the authorities; and, in the absence of a trial, one cannot properly say that it was likely that one or other party would have been successful. Instead, in the circumstances as outlined, the only remaining issue between the parties is as to costs. This case is relevantly indistinguishable from Kyriackou 76 ACSR 428.

40    Save for one matter, there are disclosed no special circumstances that would justify the court in making any other order than that there be no order as to costs. Save for this one matter, this, then, is the order that I would propose to make.

41    The cross-claimant has sought that Mr Carey pay the costs of and incidental to this application. In support, the cross-claimant has referred the court to the emailed correspondence to which reference has already been made. This makes it plain that Mr Carey might have consented to the making of the orders sought by the motion, without the need to file and serve the motion with which the court is presently concerned. So far as the motion is concerned, the cross-claimant is entitled to its costs.

42    For the reasons stated, I would order that:

1.    The cross-claimant be given leave pursuant to Order 22 rule 2(1)(d) of the Federal Court Rules to discontinue its cross-claim against the fourth cross-respondent.

2.    The fourth cross-respondent pay the cross-claimant’s costs of and incidental to this application.

3.    There otherwise be no order as to the costs of the cross-claim.

Associate:

Dated:    6 May 2011

SCHEDULE OF PARTIES