FEDERAL COURT OF AUSTRALIA

Morad v El-Ashey (No 2) [2017] FCA 1612

ORDERS

THE COURT ORDERS THAT:

1.    The applicant pay the respondent’s costs of and incidental to the proceeding, including the respondent’s costs of her interlocutory application dated 14 June 2017, to be taxed on a party/party basis in default of agreement.

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

REASONS FOR JUDGMENT

KENNY J:

1    These reasons concern a claim by Ms Malak El-Ashey for an award of costs on an indemnity basis against Mr Terry Morad. Mr Morad has conceded that he should pay Ms El-Ashey’s costs on a party/party basis but he had contended that the circumstances do not justify payment on an indemnity basis as sought by Ms El-Ashley.

2    The question of the appropriate costs order arises following the orders of the Court, on 22 September 2017, that summary judgment be entered for Ms El-Ashey against Mr Morad, and that the originating application filed by Mr Morad on 18 May 2017 be dismissed under s 31A(2) of the Federal Court of Australia Act 1976 (Cth) (FCA Act) and rule 26.01(1)(a) of the Federal Court Rules 2011 (Cth) (the Rules).

3    The proceedings related to a claim for relief by Mr Morad for alleged breaches of the Telecommunications (Interception and Access) Act 1979 (Cth) (TIA Act) by Ms El-Ashey. Mr Morad claimed that, in around December 2015, Ms El-Ashey accessed, without his authority or knowledge, a Bigpond email account that was used solely by him for his private use, and obtained emails, documents and other information. Mr Morad alleged breaches of ss 7(1) and 63 of the TIA Act in relation to the “interception” of a communication, and ss 108 and 133 of the TIA Act in relation to “stored communications”. The Court held that Mr Morad had no reasonable prospect of successfully prosecuting the proceeding and ordered that summary judgment be entered for Ms El-Ashey. Ms El-Ashey’s interlocutory application for summary judgment, including this question of costs, has been determined on the papers pursuant to orders made, by consent, on 16 June 2017.

4    As indicated, Ms El-Ashey sought an order that Mr Morad pay her costs of and incidental to the proceeding on an indemnity basis. In support of this contention, Ms El-Ashey filed an affidavit sworn on 28 September 2017 by Ms Helen Chetcuti, solicitor for Ms El-Ashey. There were four items of correspondence annexed to Ms Chetcuti’s affidavit, which have some bearing on Ms El-Ashey’s claim. Ms El-Ashey also relied on written submissions dated 7 July 2017 and 2 October 2017. (I note that leave to file her written submissions of 7 July 2017 was granted on 22 September 2017: see Morad v El-Ashey [2017] FCA 1136.)

5    Mr Morad relied on written submissions dated 13 October 2017.

Principles

6    Under s 43(2) of the FCA Act, the disposition of costs is at the discretion of the Court, although it is well-established that this discretion must be exercised judicially: see, for example, Ruddock v Vadarlis (No 2) [2001] FCA 1865; 115 FCR 229 (Ruddock v Vadarlis (No 2)) at [9]. The Court may order that costs awarded against a party are to be assessed on an indemnity basis: see s 43(3)(g).

7    In exercising the discretion to award costs, the Court must take account of any failure by a party to comply with its obligation to conduct the proceeding in a way that is consistent with the overarching purpose of the civil practice and procedure provisions, namely, to facilitate the just resolution of disputes according to law as quickly, inexpensively and efficiently as possible: see FCA Act, ss 37N(4) and 37M(1).

8    In the ordinary course costs will follow the event and, if a party to an application succeeds, then the Court will order the respondent to pay the costs of that application, assessed on a party and party basis, unless there are special circumstances justifying some other order: Ruddock v Vadarlis (No 2) at [11]-[16] (Black CJ and French J). Ms El-Ashey contends that such circumstances exist here and that they justify an order for costs on an indemnity basis.

9    The principles relevant to an award of indemnity costs are well-established. In broad terms costs will be payable on a party and party basis, unless the circumstances of the case justify a departure from the normal course: see Colgate-Palmolive Company v Cussons Pty Limited (1993) 46 FCR 225 (Colgate-Palmolive) at 233 (Sheppard J). The question is always whether the facts and circumstances of a particular case justify the making of an order for the payment of costs other than on a party and party basis.

10    Plainly enough, the categories in which indemnity costs may be ordered are not closed. Reference to some of the circumstances in which costs on an indemnity basis have been ordered is illustrative, however, of the occasions that have been thought capable of attracting such an award of costs. It has been held, for example, that indemnity costs may be awarded where “the applicant, properly advised, should have known that he had no chance of success” (Fountain Selected Meats (Sales) Pty Ltd v International Produce Merchants Pty Ltd (1988) 81 ALR 397 (Fountain Selected Meats) at 401; where an application is wholly untenable and misconceived (Henke v Carter [2002] FCA 492 at [22] (Goldberg J)); and where there is “evidence of particular misconduct on the part of a party that causes loss of time to the Court and to other parties” (Tetijo Holdings Pty Ltd v Keeprite Australia Pty Ltd [1991] FCA 225 at [22] (French J)).

11    The purpose of indemnity costs was explained in Hamod v State of New South Wales [2002] FCAFC 97; 188 ALR 659 (Hamod) at [20] by Gray J (with whom Carr and Goldberg JJ agreed) as follows:

Indemnity costs are not designed to punish a party for persisting with a case that turns out to fail. They are not awarded as a means of deterring litigants from putting forward arguments that might be attended by uncertainty. Rather, they serve the purpose of compensating a party fully for costs incurred, as a normal costs order could not be expected to do, when the court takes the view that it was unreasonable for the party against whom the order is made to have subjected the innocent party to the expenditure of costs.

the submissions made by ms el-ashey

12    Recognising that a claim need not be “hopeless” or “bound to fail” for it to have no reasonable prospects of success, Ms El-Ashey nonetheless contended that “from the outset” Mr Morad’s claims had “no prospects of success” and that an award of indemnity costs was justified on this and the two other bases, discussed below.

13    Ms El-Ashey relied principally on the circumstance that, in her submission, properly advised, Mr Morad should have known from the start that his case had no prospect of success and that it was unreasonable for him to subject her to “the expenditure of costs in relation to this proceeding”. Referring to Fountain Selected Meats, Colgate-Palmolive and J-Corp Pty Ltd v Australian Builders Labourers Federated Union of Workers (WA Branch) (No 2) [1993] FCA 70; 46 IR 301 at 303, Ms El-Ashey submitted that “[i]n such situations it must be presumed that the proceeding has been started or continued for an ulterior purpose or because of wilful disregard of the facts or, relevantly here, the law”. She submitted that an award of indemnity costs was “appropriate in order to compensate [her] fully for costs which she has incurred as a result of [Mr Morad’s] unreasonable conduct in starting and continuing the proceeding”: referring in this connection to Hamod at [20] (see above).

14    Ms El-Ashey submitted that “[a]n additional circumstance weighing in favour of an award of indemnity costs ... is that [Mr Morad] was invited, after filing his originating application and statement of claim, to withdraw the claim and for the parties to bear their own costs”. This invitation was made in a letter dated 1 June 2017 sent by email from Ms El-Ashey’s solicitor to Mr Morad’s solicitor, which was annexure HC3 to Ms Chetcuti’s affidavit (set out below). Ms El-Ashey submitted that the letter was relevant because it drew Mr Morad’s attention to the basis for her contention that his claim lacked merit and gave him “a reasonable opportunity to consider his position” and put him “on notice that an application for summary judgment would follow in the event that the application were not withdrawn and that indemnity costs would be sought”. Ms El-Ashey submitted that in circumstances where Mr Morad did not accept or respond to the offer, and where summary judgment was entered for her on the same grounds as those identified in the letter, Mr Morad “ought to be considered to have acted unreasonably in failing to withdraw his application”.

15    Ms El-Ashey also submitted that Mr Morad did not act “consistently in this case with the overarching purpose ... prescribed in ss 37M and 37N of the FCA Act” by: (1) advancing untenable legal propositions in support of his claim; (2) instituting the proceeding without taking genuine steps to resolve the issues in dispute; (3) failing to respond to her “without prejudice” letter of 1 June 2017; and (4) failing to file his submissions on time in compliance with the orders made on 16 June 2017.

16    Ms El-Ashey further submitted that it was open to the court to infer that the proceeding was started for a collateral purpose, having regard to the content of the emails and other documents obtained by her in accessing the email account and the implications of those emails in a related Family Court proceeding in which Ms El-Ashey and Mr Morad were involved.

The submissions made by Mr Morad

17    Mr Morad submitted that he commenced the proceedings in this Court “based on a genuine concern that [Ms El-Ashey] had been accessing sensitive and confidential communications addressed to [him] through [his email]”. He further submitted that his claim failed “as a result of [his] mistaken view” about the operation of the TIA Act.

18    Mr Morad’s submissions include a submission about s 247G of the Crimes Act 1958 (Vic), which, as his submissions state, are “not specifically relevant to this proceeding”, as well as some related allegations.

19    In relation to Ms El-Ashey’s letter to the applicant dated 1 June 2017 inviting him to withdraw his claim, Mr Morad noted that (as was conceded by Ms El-Ashey) the letter does not satisfy the requirements of being a “compromise” pursuant to the Calderbank principles.

20    Mr Morad submitted that he had not breached ss 37M and 37N of the FCA Act. As regards the proceeding, he said:

The Applicant found himself in a position where the Respondent had purposely and blatantly accessed private and confidential communications addressed to the Applicant. There can be no dispute about the sensitive and confidential nature of such communications some of which attached legal professional privilege. The Respondent, assuming having been properly advised, proceeded to tender those communications in a number of affidavits in the family law proceedings. No prior consent was sought not special leave from the Court obtained to do so.

21    Mr Morad submitted that he had sought and received an extension of time to file submissions in this proceeding out of time and that Ms El-Ashey was “appropriately protected” by an order for costs thrown away.

22    Finally, Mr Morad submitted that he had incurred significant debts and faced financial hardship, and that an order for indemnity costs would impose further financial hardship on him.

consideration

23    It may be accepted that the court may award costs on an indemnity basis where the circumstances justify so doing. Costs were awarded on this basis in Australian Guarantee Corp Ltd v De Jager [1984] VR 483, where Tadgell J held (at 502) that the pursuit of the action had been “a high-handed presumption”. In Fountain Selected Meats at 401, Woodward J said:

No doubt the expression “high-handed presumption” was appropriate in the case Tadgell J had to decide, and he needed to go no further; but in order to establish a convenient principle in such cases it is necessary to be a little more prosaic. I believe that it is appropriate to consider awarding “solicitor and client” or “indemnity” costs, whenever it appears that an action has been commenced or continued in circumstances where the applicant, properly advised, should have known that he had no chance of success. In such cases the action must be presumed to have been commenced or continued for some ulterior motive, or because of some wilful disregard of the known facts or the clearly established law. Such cases are, fortunately, rare. But when they occur, the court will need to consider how it should exercise its unfettered discretion.

24    In Gaffney v RSM Bird Cameron Partners (A Firm) (No 2) [2013] FCA 945, Gilmour J held (at [15]-[19]) that the claims in that case were made and continued “in circumstances where the applicant, properly advised, should have known that there was no chance of success”, and that “[t]hese circumstances would of themselves justify an indemnity costs order”. In that case, however, there were also additional factors that led to an indemnity costs award: see Gaffney at [20]-[23].

25    There is a relevant difference between having a sufficient case reasonably to institute and pursue proceedings and having no case at all to do so. I concluded, after consideration of the parties’ respective submissions, that Mr Morad had no reasonable prospect of successfully prosecuting the proceeding and that an order for summary judgment should therefore be made under s 31A of the FCA Act: Morad v El-Ashey [2017] FCA 1136 at [41] and [47]. It does not, however, follow from this that Mr Morad had no sufficient basis reasonably to institute and pursue the proceeding until Ms El-Ashey’s summary judgment application was heard and determined. Having regard to the uncontested circumstances that gave rise to the proceeding and the relevant provisions of the TIA Act on which Mr Morad relied, I would not so conclude. Examination of my reasons for judgment in Morad v El-Ashey [2017] FCA 1136 shows that the application of the relevant provisions of the TIA Act is not straightforward and that the application of ss 108 and 133 required particular attention. In this circumstance an award of indemnity costs is not justified on the basis that Ms El-Ashey proposes. It should also be borne in mind that Ms El-Ashey’s summary judgment application was properly made at the earliest appropriate stage in the proceeding, and that, broadly speaking, both parties co-operated in addressing that application efficiently and in a cost-effective manner.

26    The second matter on which Ms El-Ashey relied was the letter sent by Ms El-Ashey’s solicitors to Mr Morad’s solicitors (annexure HC3 to Ms Chetcuti’s affidavit). This was dated 1 June 2017 and headed “without prejudice save as to indemnity costs”. It otherwise relevantly read as follows:

Our client seeks-:

1.    That your client forthwith withdraw his application before the Court;

2.    Each party bear their own costs to date.

Your client’s application is without merit given the following-:

a.    s 7(1) and 63 of the Telecommunications Interception Act (TIA Act) refers to communication passing over a telecommunication system. This is not what has occurred in this matter. Your client’s claim is also in contradiction with s 5H of the Act.

b.    Our client has not accessed stored communication as provided in s 108 of the Act.

c.    In our view your client has breached s 121 of the Family Law Act and Rule 15.06 and 13.07A of the Family Law Rules by using material filed in the Family Court jurisdiction in another proceeding.

d.    Our client did not receive the correspondence dated the 9th of May, 2017 that you allege was forwarded to her by email. She no longer uses this email and in fact your client has been corresponding with her on the new email so he was aware of this.

In the event that your client does not withdraw his Application our client will be making the necessary Application for summary dismissal. Should this be necessary this correspondence will be produced to the Court on the question of costs.

The offer of compromise contained in this letter is:-

a.    made without prejudice;

b.    made to avoid further costs, disbursements and expenses associated with litigation;

c.    made pursuant to the principles in Calderbank v Calderbank [1976] FAM 93; [1975] 3 All ER 333 and Cutts v Head [1984] 1 All ER 597, and Hazeldene’s Chicken Farm Ltd v VWA (No 2) (2005) 13 VR 435;

d.    may be produced to a Court in the future and relied upon in support of any costs application which will be sought on a Solicitor/Client indemnity basis; and

e.    open for acceptance by your client within the next fourteen (14) days from the date of this letter.

27    A Calderbank offer is a “well recognised means of making offers of settlement in circumstances where the party making the offer ultimately seeks a costs advantage if the offer is not accepted”: see Jones v Bradley (No 2) [2003] NSWCA 258 at [5], quoted with approval by Finkelstein J in Brookfield Multiplex Limited v International Litigation Funding Partners Pte Ltd (No 4) [2009] FCA 803 at [9]. An offer to terminate proceedings with no order as to costs is not a Calderbank offer: see Australian Competition and Consumer Commission v Universal Music Australia Pty Ltd (No 2) [2002] FCA 192; 201 ALR 618 at [60]; Fyna Foods Australia Pty Ltd v Cobannah Holdings Pty Ltd (No 2) [2004] FCA 1212 at [10]; and Vasram v AMP Life Ltd [2002] FCA 1286 at [12].

28    As noted in Mr Morad’s submissions, Ms El-Ashey effectively accepted that the offer made in the terms of the 1 June 2017 letter was not a Calderbank offer, and that the principles applicable to such offers would not apply. She submitted, however, that “the fact of the letter sent to [Mr Morad’s] solicitor is a relevant circumstance to be taken into account in deciding whether to award indemnity costs”. She also drew attention to the fact that her solicitor sent two other letters to Mr Morad’s solicitor (annexures HC1 and HC4 to Ms Chetcuti’s affidavit), which also invited Mr Morad to withdraw on the basis that his case had no merit.

29    It may be accepted that the letter sent by Ms El-Ashey’s solicitors to Mr Morad’s solicitors, containing the supposed “Calderbank” offer, made clear the basis of Ms El-Ashey’s contention that Mr Morad’s claim had no merit. It may also be accepted that, as Ms El-Ashey submitted, Mr Morad and his legal advisers, had another opportunity to assess the merits of his case once Ms El-Ashey had filed her defence, her summary judgment application and her supporting affidavit material, which made it clear that the dispute was limited to questions of law. It may be seen from this that the conduct of Ms El-Ashey’s case by her solicitors conformed to the obligation imposed in substance by s 37N of the FCA Act, to act so as to facilitate the just resolution of disputes according to law as quickly, inexpensively and efficiently as possible. The circumstance that the successful party has acted in the conduct of proceedings as required by the law does not of itself justify an award of indemnity costs in favour of that successful party against the unsuccessful party. There was, in the circumstances of this case, nothing inherently unreasonable in Mr Morad’s failure to withdraw on the proposed terms, having regard to the fact that he and his lawyers were proceeding on a mistaken understanding of the law.

30    Finally, I am not persuaded that Mr Morad’s lawyers acted so inconsistently with their obligation under s 37N of the FCA Act as to justify an award of indemnity costs against Mr Morad as Ms El-Ashey sought (nor, if it matters, against them personally). As already indicated, the legal propositions that he advanced in support of his claim, although erroneous, were not so egregiously in error as to justify an award of indemnity costs. Further, as indicated, having regard to Mr Morad’s mistaken understanding of the relevant provisions of the TIA Act, it was not, so it seems to me, unreasonable for him not to accede to the invitation to withdraw on the basis the parties bear their own costs. Further, Mr Morad did, as he submitted, seek and obtain leave to file submissions beyond the time contemplated in Order 1 of the orders of 16 June 2017, on the basis that he paid Ms El-Ashey the costs thrown away. It is not suggested that his failure to file his submissions on time was part of a course of any persistent conduct in these proceedings to fail to comply with court orders. There is no evidence before me to indicate that there were any steps that Mr Morad might have taken, and did not take, to resolve the issues in dispute.

31    It is unnecessary to address Mr Morad’s submissions about s 247G of the Crimes Act 1958 (Vic) and some related matters, because, as his own submissions stated, they were “not specifically relevant to this proceeding”.

disposition

32    For the reasons stated, I would decline to make an order for the payment of costs on an indemnity basis. Mr Morad accepted, however, that, having regard to the outcome of Ms El-Ashey’s summary judgment application, he would bear the costs of and incidental to the proceeding, including the costs of that application.

Associate:

Dated:    21 December 2017