FEDERAL COURT OF AUSTRALIA

Armstrong v Australian Community Pharmacy Authority [2012] FCA 577

THE COURT ORDERS THAT:

1.    The applicant pay the second respondent’s costs of the proceedings.

2.    The applicant pay the costs of the Court appointed expert.

3.    The applicant pay 40% of the third respondents’ costs.

4.    The applicant pay the first respondent’s costs of 14 and 15 December 2011.

THE COURT NOTES THAT:

5.    After 15 December 2011, the first respondent submitted to any order that the Court might make save as to costs.

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

REASONS FOR JUDGMENT

(REVISED FROM THE TRANSCRIPT)

1    These proceedings were commenced urgently on 13 December 2011. Following his filing of a notice of discontinuance on 24 April 2012, the applicant, Daniel Armstrong, seeks to be partly relieved of the obligation imposed by r 26.12(7) of the Federal Court Rules 2011 (Cth) to pay the costs of the second respondent, the Secretary of the Department of Health, and the third respondents, Gary McGraw, Matthew James Newman and Cameron Foote.

Background

2    Mr Armstrong and the third respondents each applied for approval under s 90 of the National Health Act 1953 (Cth) for the purpose of supplying pharmaceutical benefits in premises at Scone. New rules had been introduced for the purposes of dealing with such applications and came into force at midnight on 17-18 October 2011. Mr Armstrong submitted applications by email to Medicare Australia that his solicitors recorded as having been transmitted at 12 midnight. A number of other persons, including the third respondents, also submitted applications by email that had a similar time of transmission recorded. The applications were received and processed by officers of Medicare on the morning of 18 October 2011. The usual procedure was that after those officers had processed applications for approval under s 90(1) of the Act, the Secretary provided the applications in the order in which they had been received by Medicare to the first respondent, the Australian Community Pharmacy Authority. The Authority then granted approval to the first application.

3    The originating application, when filed on 13 December 2011, sought relief restraining the Authority from determining to make, or making, any recommendation in relation to an application for the grant of an approval under s 90 for approval of a pharmacist at Scone until further order or 28 days after the Authority or the Secretary gave a statement of reasons that had been requested on 8 and 12 December 2012 by Mr Armstrong’s solicitor as to why his application was registered third in time by Medicare.

4    When the first matter came before me in the duty list on 14 December 2011 I directed that the persons who had been identified as having submitted their application for approval first be joined. That was because they had an interest in the proceedings, which sought to enjoin the Authority from making a recommendation on 16 December 2011 to the Secretary for approval of a pharmacist at Scone. That resulted in the joinder of the third respondents. They appeared by their solicitor’s Sydney agent and have continued to do so throughout these proceedings.

5    Mr Armstrong chose not to seek injunctive relief. Instead he, in effect, conducted an application for preliminary discovery against the Secretary by examining the records of Medicare for the purposes of determining whether or not his application, arguably, was received before the third respondents’ was. That involved an initial exchange of information between the parties and led to substantive affidavits being filed by the relevant officers of Medicare who had processed the applications on the morning of 18 October 2011 when they attended work at around 8.00 a.m. Subsequently, Mr Armstrong applied for an expert, Nigel Carson, nominated originally by him to inspect the computers at Medicare for the purposes of ascertaining whether any data or metadata existed to throw light on the order of receipt of applications for approval of a pharmacist at Scone at midnight on 17-18 October 2011. After some debate on an interlocutory application, on 13 March 2012, I appointed Mr Carson as a Court expert to report and made orders in relation to maintaining confidentiality of material on the Medicare computer system which he might be able to access.

6    The evidence of the Medicare officers indicated that they followed, albeit not necessarily completely strictly, their ordinary procedures when they recorded the third respondents’ email application as having arrived first at 12.00 on 18 October 2011, and Mr Armstrong’s as having arrived third, albeit at the same stated time. Mr Carson’s examination was not able to uncover any evidence that the third respondents’ application did not arrive first. Thus, the outcome of what was, in substance, the preliminary discovery phase of the proceedings resulted in the substantial likelihood that any claim by Mr Armstrong that his application should have been recorded as having been received first was foredoomed to fail. That became apparent when Mr Carson’s report was provided to the parties at the directions hearing on 13 April 2012.

7    At that time I indicated that the proceedings appeared to be ones that were ripe for summary dismissal under s 31A of the Federal Court of Australia Act 1976 (Cth). I directed that Mr Armstrong put on any evidence on which he sought to rely and written submissions as to why the proceedings should not be dismissed under that provision when the matter came back before me on 20 April 2012. Mr Armstrong did that, but sought that he be allowed to discontinue, and also that the Secretary pay his costs of the interlocutory application for, and the costs of, the Court-appointed expert. He also sought an order that he be liable only for costs of the third respondents and the Secretary for 14 and 15 December 2011, but otherwise the parties pay their own costs. In support of his application Mr Armstrong relied on the decision of Stone J in Primary Health Care Limited v Australian General Practice Network Ltd [2012] FCA 174.

8    On 20 April 2012 I granted Mr Armstrong leave to file a notice of discontinuance under r 26.12(2)(c) of the Federal Court Rules 2011 (Cth). He exercised that leave on 24 April 2012. I reserved the question of costs to today. Relevantly, r 26.12 provides:

“26.12    Discontinuance

(1)    A party claiming relief may discontinue a proceeding in whole or in part by filing a notice of discontinuance, in accordance with Form 48.

(2)    The party may file the notice of discontinuance:

(a)    without the leave of the Court or the other party’s consent:

(i)    at any time before the return date fixed in the originating application; or

(ii)    if the proceeding is continuing on pleadings — at any time before the pleadings have closed; or

(b)    with the opposing party’s consent — before judgment has been entered in the proceeding;

(c)    with the leave of the Court — at any time.

Note 1    For when pleadings close, see rule 16.12.

Note 2    The Court may give leave subject to conditions including costs — see rule 1.33.

...

(7)    Unless the terms of a consent or an order of the Court provide otherwise, a party who files a notice of discontinuance under subrule (2) is liable to pay the costs of each other party to the proceeding in relation to the claim, or part of the claim, that is discontinued.”

9    Significantly, the new rules now provide in r 26.12(7) a default or usual position where a notice of discontinuance is filed in any of the three circumstances contemplated by r 26.12(2). This is different to the scheme of O 22 r 2(1) of the Federal Court Rules 1979 (Cth) which provided in O 22 r 2(1)(d) that where a discontinuance was by leave of the Court, no particular costs consequence was prescribed: see my reasons in Wotton v Queensland (2009) 109 ALD 534 at 545-546 [44] and 547-548 [55]. Prior to the introduction of the current rules, the position as to costs where a discontinuance was effected with leave of the Court, left the award of costs entirely within the discretion that the Court has under s 43(2) of the Federal Court Act: see, eg. Smith v Airservices Australia (2005) 146 FCR 37 per Stone J.

10    Mr Armstrong argued I should follow the approach of Stone J in Primary Health Care [2012] FCA 174 at [5]-[7]. Her Honour observed that the power to award costs was a discretionary power to be exercised judicially, and that subject to that requirement, it was unfettered. She said ([2012] FCA 174 at [5]):

“Rule 26.12(7) provides a default position in relation to costs where the notice of discontinuance is filed under subrule (2) thus, by implication, recognising that the Court’s discretion to award costs is unfettered. This approach is consistent with s 43(2) of the Federal Court of Australia Act 1976 (Cth) which provides that the award of costs is in the discretion of the Court “except as provided by any other Act”.”

11    Her Honour referred to the variety of reasons that might impel a party to seek leave to discontinue, and to her decision in Smith 146 FCR at 47-51 [36]-[49]. There her Honour had expressed the view that there was no settled rule as to the allocation of costs in those circumstances. Her Honour then observed ([2012] FCA 174 at [7]):

“Considerations relevant to the exercise of the Court’s discretion generally, and in this case, are: whether the proceedings were reasonably commenced; whether, in all the circumstances, the parties’ conduct in maintaining and defending the proceedings was reasonable; and the nature of the applicants’ reasons for seeking to discontinue the proceedings.”

Consideration

12    I do not accept Mr Armstrong’s argument that Stone J’s approach to the construction of r 26.12(7) entailed that, in general, the Court’s discretion as to costs is unfettered in every case of a discontinuance with leave under r 26.12(2)(c). In Primary Health Care [2012] FCA 174 her Honour was considering whether an applicant should be granted leave to discontinue and on what terms. The discretion exercised by Stone J was unfettered because, there, the Court need not have granted leave to discontinue at all, and if it decided that leave be granted it could impose conditions including as to costs. Here, Mr Armstrong decided to exercise a grant of leave to discontinue rather than deal with an application that his proceedings be dismissed summarily under s 31A of the Federal Court Act and, as a result, potentially different considerations arise.

13    I am of opinion that the Rules now reflect that the ordinary practice and procedure of the Court in any instance where a party discontinues under r 26.12(2), whether with leave of the Court or otherwise, is that the party is liable pursuant to r 26.12(7) to pay the costs of the other party or parties in relation to the claim or part of the claim that is discontinued “unless the terms of a consent or an order of the Court provide otherwise”. The rule-making power under s 59 of the Federal Court Act enables the Court to make provision for the practice and procedure to be followed in the Court. This includes the very broad discretion in r 1.34 to dispense with compliance with any of the Rules.

14    A party seeking an order that the Court “provide otherwise” under r 26.12(7) must persuade the Court that the circumstances justify the displacement of the operation of the default position provided for in the Rule. Depending on the circumstances that onus may be displaced more or less easily so as to enliven, once it is displaced, the unfettered discretion to award costs in a way that departs from that ordinary rule or default position in r 26.12(7). The considerations referred to by Stone J in Primary Health Care [2012] FCA 174 at [7] are relevant to the question whether the Court should order otherwise. But, the operation of r 26.12(7) must be taken to have been intended to enable the parties to avoid making an application in respect of costs where a discontinuance was effected by leave of the Court, thus saving expense and having regard to the overarching purpose of the civil practice and procedure provisions provided for in Part VB of the Federal Court Act. Where a party applies for leave of the Court and an order displacing the ordinary operation of r 26.12(7), the Court has a discretion to consider how costs should be borne but that discretion fails to be exercised having regard to the default provision now applicable under r 26.12(7).

15    However, in this matter, it is not necessary for me to come to a concluded view as to the correct approach to the construction of r 26.12(7) because I am satisfied that in all the circumstances the default position in that subrule should apply, subject to a particular modification in the case of the third respondents to which I will come.

16    In effect, this application has, from the start, been an application for preliminary discovery to ascertain whether Mr Armstrong could establish that his application for approval was received by Medicare before any other application. The proceedings have required a considerable number of attendances by the parties, and involved substantial expense during the iterative process in which inquiries were made and evidence assembled about the order of Medicare’s receipt of the applications at midnight on 17-18 October 2011.

17    I granted leave to Mr Armstrong to discontinue the proceedings in the circumstances that I have described; namely, that the Court expert’s report made it clear that there was no forensic evidence currently likely to be available to show that he could demonstrate from the material on Medicare’s computers that his application was received first. Further, in my opinion, he had no real prospect of showing that the Medicare officers, who were performing their ordinary functions in processing applications on the morning of 18 October when they attended work, were likely to have got the order of receipt of his application wrong. In that sense, Mr Armstrong’s case, if it were to proceed thereafter, would have been speculative.

18    One reason why Mr Carson was appointed to prepare an expert’s report was because Medicare did not appear to have a procedure requiring a snapshot of the computer screen that recorded the order of receipt of applications for approval under s 90 of the National Health Act, so as to preserve a clear record of what had been received. It would have been desirable for Medicare to have kept an objective record of the order of receipt given the value that is attached to these applications and the apparently accepted practice that, provided it has been validly made, the first valid application received will be the first put forward by the Secretary for the Authority’s approval. Had this been done, it would have avoided a debate such as the present. Initially, the Secretary opposed providing access to Medicare’s computer based on, among other things, some expert evidence and the fact that the officers who processed the applications had acted in the ordinary course of business and were likely to have done so in a way that could not be shown to have been inaccurate.

19    Ordinarily, where a case has not been heard on its merits and is either resolved or an applicant seeks to discontinue or terminate the proceedings, the Court is not in a good position to predict the outcome of the litigation. The relevant considerations in such a situation were discussed by McHugh J in Re Minister for Immigration and Ethnic Affairs; Ex Parte Lai Qin (1997) 186 CLR 622 at 624-626. His Honour pointed out that in an appropriate case a Court may make an order for costs even when there has been no hearing on the merits and the moving party no longer wishes to proceed with the action. He observed that the Court could not try a hypothetical action between the parties because that would burden them with the costs of a litigated action that they had avoided by settling or using an extra-curial method to resolve it. He also observed that the Court may be able to conclude that one of the parties has acted so unreasonably that the other party should obtain an order for the costs of the action and that in other cases a judge may feel confident that, although both parties had acted reasonably, one party is almost certain to have succeeded if the matter had been fully tried.

20    In my opinion, the latter is the situation here, having regard to the evidence and the fact that, as Mr Armstrong has accepted, the proceedings were really brought for preliminary discovery. Thus, they were proceedings to enable him to ascertain whether there was sufficient evidence to make it worth his while to litigate so as to contest a likely recommendation to the Authority of the third respondents for approval to provide pharmaceutical benefits at Scone, on the basis that his application had been received before theirs. That was in substance the only issue in the proceedings following the abandonment of Mr Armstrong’s claim for injunctive relief on 15 December 2011. In those circumstances, having concluded that it was not a matter that he wished further to pursue by seeking leave to discontinue, it was clear that Mr Armstrong would not be able to get relief of any kind in these proceedings in respect of his application for approval to supply pharmaceutical benefits at Scone. The relief Mr Armstrong sought originally was reasonable and he has reasonably pursued his application for, in effect, preliminary discovery. However, the Secretary has consistently maintained a position that Mr Armstrong would not be able to obtain evidence in that pursuit sufficient to displace the ordinary inference that the processing officers on 18 October 2011 did nothing more nor less than their ordinary job in the ordinary way and allocated correctly the numbering of receipt of applications for the Scone approval.

21    While Mr Armstrong had commercial reasons, and a perhaps justified sense that the Medicare record-keeping system for receipt of applications could have been maintained more effectively, having regard to the value of the rights that were involved, I see no reason why his search for evidence in this way should be paid for by anyone other than himself. The result of his inquiries has demonstrated that there is a high probability that any proceedings that he might seek to maintain or institute challenging the recording of the order of receipt of applications for the Scone approval would be foredoomed to fail. In those circumstances the fairness of the default position, under r 26.12(7) is manifest. Accordingly, I am of opinion that I should order Mr Armstrong to pay the Secretary’s costs of the proceedings and the costs of the Court appointed expert.

The third respondents’ position

22    The position with respect to the third respondents is slightly different. They attended, through their solicitor’s agent, on almost all of the occasions that the matter was before the Court, although they were conscious that on most of those occasions, Mr Armstrong was seeking effectively preliminary discovery against the Secretary and Medicare. The third respondents did not make any substantive arguments in support or opposition of any party’s position, but maintained, as they were entitled to do, that they wanted these proceedings decided or brought to finality as quickly as possible.

23    Having regard to the overarching purpose of the Rules, I am not satisfied that all the attendances of the third respondents were justified. In the circumstances, reporting to them of the further procedural steps that had been ordered in respect of the search for further evidence which Mr Armstrong was conducting would have been sufficient to alert them as to whether there was any need to attend to make submissions or the like.

24    The question whether Mr Armstrong would be able to make any effective application, either in these or other proceedings, challenging the order of receipt of applications for the Scone approval depended on the outcome of his investigations of Medicare’s records aided by the Court expert. There did not seem to me to be any necessity for the third respondents to incur the costs of being represented on all occasions that they were. Clearly, the third respondents incurred, and were entitled to incur, costs at the commencement of the proceedings, and in order to assess their position in the proceedings from time to time. It is difficult to make an overall assessment of the extent to which a costs order should be given in their favour. But, I am not satisfied that their exposure to the potential discovery of evidence by Mr Armstrong to support his case justified the incurring of the expense of the third respondents’ representation at each of the directions hearings. For these reasons I think it will be sufficient to order that Mr Armstrong pay 40% of the third respondents’ costs.

Associate:

Dated:    4 June 2012