Federal Court of Australia

Davidson v Suncorp-Metway Limited (No 5) [2021] FCA 256

ORDERS

THE COURT ORDERS THAT:

1.    The prospective applicants must jointly and severally pay the prospective respondent's costs of and incidental to the preliminary discovery application incurred up to and including 21 February 2020, on an indemnity basis.

2.    The first prospective applicant must pay the prospective respondent's costs of and incidental to the preliminary discovery application incurred after 21 February 2020, on an indemnity basis.

3.    The first prospective applicant must pay the prospective respondent's costs of and incidental to paragraph 4 of the interlocutory application filed 11 June 2020, on a party-party basis.

4.    Kelly Legal may file any outline of written submissions on the subject of its costs of this matter, not more than three pages in length, on or before 8 April 2021.

5.    The prospective respondent may file any submissions not more than three pages in length, on or before 22 April 2021.

6.    Kelly Legal may file brief submissions in reply, not more than three pages in length, on or before 29 April 2021.

7.    Any issues raised by the submissions mentioned in the preceding orders will be determined on the papers.

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

REASONS FOR JUDGMENT

JACKSON J:

1    I have delivered two judgments disposing, respectively, of the prospective applicants' application for preliminary discovery, and the application of the first prospective applicant, Mr Davidson, for a declaration that a mortgage was unenforceable: Davidson v Suncorp-Metway Limited (No 3) [2020] FCA 1593 (the Discovery Decision) and Davidson v Suncorp-Metway Limited (No 4) [2021] FCA 25 (the Mortgage Decision). These reasons relate to the costs of the matter.

2    The issues about costs are:

(1)    whether Kelly Legal, the solicitors who represented the prospective applicants at the time they commenced the proceeding, should bear any liability for the costs of the preliminary discovery application;

(2)    whether Mr Davidson, should be liable on an indemnity basis to pay the costs of the successful prospective respondent bank, Suncorp-Metway Limited, in relation to the preliminary discovery application;

(3)    whether the second prospective applicant, Risa Nagatsuma, should bear any part of the costs of the preliminary discovery application, whether on an indemnity basis or at all; and

(4)    the costs of the application for a declaration concerning the mortgage.

3    For the reasons below I determine those issues as follows:

(1)    there is insufficient evidence to require any order that Kelly Legal is liable for some or all of the costs of the preliminary discovery application;

(2)    Mr Davidson will be ordered to pay the costs of the preliminary discovery application on an indemnity basis;

(3)    Ms Nagatsuma will only be liable for the bank's costs of the preliminary discovery application, up until 21 February 2020, on an indemnity basis; and

(4)    Mr Davidson must pay the costs of the application for a declaration concerning the mortgage, on a party-party basis.

The position of Kelly Legal

4    Sean Kelly of Kelly Legal commenced the preliminary discovery application in his capacity as legal representative of Mr Davidson and Ms Nagatsuma on 21 January 2020. The application was supported by an affidavit of Mr Davidson and an affidavit of Mr Kelly both dated 21 January 2020. No affidavit of Ms Nagatsuma has ever been filed in the proceeding.

5    Mr Kelly filed a notice of ceasing to act on 19 February 2020. A different lawyer represented Mr Davidson for a brief time after that, but for most of the proceeding he was self-represented, and Ms Nagatsuma had no legal representation at all after 19 February 2020. Except for the commencement of the proceeding in her name, she took no part at all in the proceeding.

6    In the Discovery Decision at [32]-[34] I said:

The bank adduced evidence to the effect that it had no contractual relationship with Ms Nagatsuma. It never provided any facilities to her and she has provided no guarantee or security for Mr Davidson's or FNQ's liabilities to the bank. That evidence was not contested.

No possible claim by Ms Nagatsuma against the bank was articulated in submissions. It appears that she was a party to the proceedings before Ryan J in the Supreme Court of Queensland because she was occupying the Heidke Road property at the time those proceedings were commenced. It also appears from the evidence that at the time of the hearing of this application, she was no longer at that property, having separated from Mr Davidson.

No basis has been put on which Ms Nagatsuma could have a claim against the bank in this court. Nor is there any evidence at all as to whether Ms Nagatsuma has a reasonable belief that she may have a claim. I am satisfied that no orders for preliminary discovery should be made in her favour.

7    After noting that the bank sought indemnity costs in relation to the unsuccessful preliminary discovery application, I observed at [116]-[117] that it was not apparent why Ms Nagatsuma was a party to the application, that she took no part in it, and that she did not give the minimal evidence one would expect any prospective applicant to give, namely that she had a belief that she may have a claim against the bank and she wanted discovery to decide whether to make the claim. I listed the matter for a case management hearing, at which Kelly Legal were to be represented, to hear from them as to how Ms Nagatsuma came to be a party and to be exposed to substantial liability for costs.

8    At the case management hearing on 13 November 2020 Kelly Legal were represented by counsel. At the hearing, I indicated that it was unclear why it could be said to be appropriate for Ms Nagatsuma to have been made a prospective applicant to the application, and the concern was that if it was not appropriate, then Kelly Legal may bear the responsibility for that, so that it might be appropriate to make a costs order against Kelly Legal directly.

9    Directions were made for Kelly Legal to file written submissions and any affidavit evidence in order to show cause why it should not be liable in respect of part or all of Ms Nagatsuma's costs, whether on a party-party or indemnity basis. It was indicated that the submissions should address, along with anything else Kelly Legal considered relevant:

(1)    the extent to which Ms Nagatsuma gave instructions to commence the proceeding in her name (acknowledging that Kelly Legal's ongoing duty of confidentiality to Ms Nagatsuma may have been an impediment to evidence on that subject); and

(2)    why, though Ms Nagatsuma was a prospective applicant, there was no evidence from her stating that she believed she may have a claim and needed discovery in order to decide whether to make it.

10    The bank indicated that its primary position was that it sought indemnity costs from Ms Nagatsuma. But it also sought costs against Kelly Legal in the alternative if, by reason of the firm's conduct, a costs order in its favour against Ms Nagatsuma was not made. It was directed to file submissions after Kelly Legal.

11    While Ms Nagatsuma had notice of the costs issue involving Kelly Legal, she continued to take no part in the matter and filed no evidence in relation to the issue. She did not waive Kelly Legal’s ongoing duty of confidentiality to her as a former client.

12    Kelly Legal filed an affidavit of Mr Kelly sworn 23 December 2020 which deposed that in early 2019, he was made aware that Mr Davidson and Ms Nagatsuma were involved in a dispute with the bank. On 8 April 2019 the firm received a written authority signed by Mr Davidson and Ms Nagatsuma to act in relation to that dispute on instructions from Geoffrey Shannon (who is mentioned in the Discovery Decision at [43] and elsewhere). Shortly after that the authority was withdrawn, but it was renewed in a written retainer agreement signed by Mr Davidson and Ms Nagatsuma on 17 September 2019. The scope of work in that agreement included making an application for preliminary discovery to this court if necessary. Kelly Legal prepared and filed the originating application in the proceeding pursuant to that retainer agreement. Mr Kelly's affidavit says:

Whilst only the affidavit prepared by Mr Davidson was prepared and filed, I was always aware that it may become necessary for further information to be filed in this matter, including by Ms Nagatsuma or to address any matters raised by the Respondent. In my experience it is quite normal for there to be a number of further affidavits filed in any court application including, for example, to address issues in reply to material filed by the other side or to otherwise provide more evidence that may be considered necessary in any matter.

13    Mr Kelly says that on 17 February 2020 the retainer was terminated and Kelly Legal had no more involvement in the proceeding until the court raised the present issue. How and why the termination of the retainer came about is not disclosed in the evidence.

14    Mr Kelly's affidavit also drew attention to comments that Mr Davidson made in a hearing in this proceeding before Derrington J to the effect that Kelly Legal had no instructions from Ms Nagatsuma, and said that was inconsistent with the written authority and retainer agreement. While it was proper of Mr Kelly to draw attention to Mr Davidson's comments made from the bar table, I treat them as evidence only of the existence of Mr Davidson's views, not the truth of those views.

15    Kelly Legal's submissions said that the order made for the firm to show cause why it should not be liable in respect of part or all of Ms Nagatsuma's costs presumed or implied a presumption that it was so liable, so as to reverse the onus of proof, 'which would ordinarily be borne by the party seeking the order, namely the Respondent'. That is not so. It is not uncommon for courts to define issues in that way where there is no party who may do so on an adversarial basis, for example when the court is considering of its own motion whether to punish a person for contempt. The onus of proof does not 'shift' nor is it 'reversed' in those circumstances: see e.g. Registrar v Unnamed Respondent (1994) 234 FLR 248 at [9]; Goritsas v Barakat [2012] NSWSC 36 at [42]. The Full Court made an order in similar form concerning the issue of whether a law firm who acted in a matter should not be ordered to pay the successful party's costs in Dyczynski v Gibson [2020] FCAFC 120; (2020) 381 ALR 1. Contrary to Kelly Legal's submissions, the fact that multiple complaints about the lawyers' conduct were made in the Full Court's reasons does not relevantly distinguish Dyczynski from this case, and it does not indicate that the onus of proof was reversed.

16    Kelly Legal also submitted that the 'application' was misconceived. But Kelly Legal did not point to any relevant misconception, rather, this seems to have been an emphatic way of expressing disagreement with the proposition that the firm should be liable for costs. The firm relied on principles stated by Basten JA in FPM Constructions Pty Ltd v Council of the City of Blue Mountains [2005] NSWCA 340 at [210] adopted by Gilmour J in WA Property Holdings Pty Ltd v Hampton Transport Services [2017] FCA 1310 at [10]. However those principles were stated in the context of whether directors of corporate parties, who were not themselves parties, should be personally liable for costs. That depends on other matters such as whether the corporate party was able to meet its costs liabilities.

17    The question here is different. It concerns potential costs liability on the part of solicitors who commenced legal proceedings on behalf of parties. It involves the potential exercise of the discretion conferred on the court by s 43(3)(f) of the Federal Court of Australia Act 1976 (Cth) to 'order a party's lawyer to bear costs personally'. Kelly Legal made no submission that the discretion to exercise this power had not arisen or that it could not be exercised on the court's own motion. That being so, there are specific principles that guide the exercise of the discretion. They were conveniently summarised by Wigney J in Mitry Lawyers v Barnden [2014] FCA 918 at [42]:

1.    Instituting or maintaining a proceeding on behalf of a client which has no, or substantially no, prospect of success will not, without more, invoke the jurisdiction to make a costs order against a lawyer.

2.    Something which involves 'unreasonable conduct' is required.

3.    What constitutes unreasonable conduct will depend on the circumstances of the particular case.

4.    The element of acting unreasonably involves some deliberate or conscious decision taken by reference to circumstances unrelated to the prospects of success, with either a recognition that there is no chance of success, or an intention to use the proceeding for an ulterior purpose, or to abuse the processes of the court, or with a disregard of any proper consideration of the prospects of success.

5.    The circumstances must involve or result in a serious dereliction of duty owed to the court, or serious misconduct in promoting the course of, and the proper administration of, justice.

6.    An ulterior purpose or an abuse of process cannot be assumed simply because the case is hopeless.

7.    The reason that the mere pursuit of an unmeritorious case is not so sufficient to invoke the jurisdiction to make a costs order against a lawyer is that a party is entitled to have a practitioner act for him or her in an unmeritorious case. The court is concerned to avoid the risks of a practice developing whereby lawyers endeavour to browbeat their opponents into abandoning clients, or particular issues or arguments, for fear of personal costs orders being made against them.

As his Honour said at [39], the power to order costs against a lawyer must be exercised with care and discretion and only in clear cases. While these comments were made in connection with a rule of the Federal Circuit Court, they are also relevant to the discretion under s 43(3)(f); see e.g. Young v Hughes Trueman Pty Ltd (No 4) [2017] FCA 456 at [27]; Barkhazen v Conair Australia Pty Ltd (No 2) [2018] FCA 992 at [16]-[17].

18    The court's concern in the present case was that, the preliminary discovery proceeding having been commenced without even the minimum evidence necessary from Ms Nagatsuma to justify her being a party to it, and with no apparent reason why she was a party, the proceeding may have been commenced on her behalf without any proper consideration of her prospects of success. Kelly Legal's substantive response to that concern can be summarised as follows:

(1)    Kelly Legal had written instructions to commence the proceeding signed by both the prospective applicants.

(2)    It was instructed that the bank held an 'investigative report' into the frauds alleged to have been committed (see Discovery Decision at [29(1)]) which would have been relevant to losses suffered by both Mr Davidson and Ms Nagatsuma.

(3)    Ms Nagatsuma could have been a party to any proceeding commenced in relation to that fraud, for example for misleading or deceptive conduct or unconscionable conduct.

(4)    There was in Mr Davidson's affidavit sworn 21 January 2020 evidence that Ms Nagatsuma had suffered anxiety, depression and stress as a consequence of the bank's alleged conduct.

(5)    Mr Davidson referred to the accounts at the bank as 'our accounts', supporting an inference that Ms Nagatsuma had an interest in them, so that the alleged fraudulent withdrawal of funds from those accounts caused her to suffer loss and damage.

(6)    It was always envisaged that additional evidence would be required.

(7)    Since Kelly Legal's retainer was terminated some three weeks after the commencement of the proceedings, it had no opportunity to influence the course of the proceedings after that time, including by advising the prospective applicants and by preparing and filing affidavits and other documents.

19    These submissions do not provide a satisfactory explanation for the failure to file any affidavit on behalf of Ms Nagatsuma when commencing the application. Rule 7.23 of the Federal Court Rules 2011 (Cth), under which the preliminary discovery application was brought, required Ms Nagatsuma as a prospective applicant to establish, among other things, that she reasonably believed that she may have the right to obtain relief in this court from the bank, and that she reasonably believed that the bank had or was likely to have documents relevant to a claim by her. Those matters could only ever be established by way of an affidavit from her. Rule 7.24(2)(a) required Ms Nagatsuma's application to be accompanied by an affidavit stating the facts on which she relied. So an affidavit from her was required at the time of filing the application, not later. The fact that none was filed is capable of supporting an inference that no thought was given to Ms Nagatsuma's position when the proceeding was commenced in her name.

20    Nevertheless, having regard to three matters, I do not consider that this is an appropriate case to make a costs order against Kelly Legal as the law firm that commenced the proceeding. Firstly, that would be a serious step which should only be taken in clear cases. The court should be careful not to stultify the enforcement of rights by being too ready to expose solicitors acting for parties to liability for costs. The second matter is that the court needs to be positively satisfied that facts which justify the exercise of the power are established on the evidence. It may not be correct to speak in terms of an onus of proof in a case where the court is considering the exercise of the power in s 43(3)(f) of its own motion, but it can at least be said that Kelly Legal had no onus to disprove the necessary facts. The third matter is that Ms Nagatsuma has continued to take no part in the matter and therefore has not waived Kelly Legal's obligations of confidentiality to her, either expressly or by implication. This means that, despite the lack of a satisfactory explanation for the absence of any affidavit from her, the court's ability to make an inference adverse to Kelly Legal based on that absence is limited. There may be reasons for the omission emerging from confidential lawyer-client communications which the firm is not able to disclose.

21    Kelly Legal have now at least articulated a basis on which Ms Nagatsuma may have had a right to obtain relief in this court from the bank, albeit one found in affidavit evidence of Mr Davidson, not Ms Nagatsuma. The deficiency in Ms Nagatsuma's application arising from the lack of any evidence from her was potentially a procedural one which could have been remedied by an affidavit from her subsequently. The withdrawal of Kelly Legal's instructions soon after the proceeding was commenced meant it had no opportunity to remedy that defect and Ms Nagatsuma had no legal representation thereafter. Having regard to the matters in the preceding paragraph, I am persuaded that this is not a case which is sufficiently clear to make a costs order against the firm. To say that is to give Kelly Legal the benefit of the doubt, but that is what is required in cases such as this.

Mr Davidson's costs

22    The bank seeks indemnity costs against Mr Davidson for the preliminary discovery application.

23    It does so on two bases: because he (and Ms Nagatsuma) unreasonably refused an offer of compromise in a letter from the bank's solicitors to Kelly Legal dated 28 January 2020; and because the application was hopeless and, properly advised, Mr Davidson (and Ms Nagatsuma) should have known that it had no prospects of success.

24    It is relevant to note that as well as preliminary discovery, the originating application sought an injunction against the bank to prevent it from enforcing its mortgage over certain properties. Derrington J dismissed the injunction application on 2 March 2020: Davidson v Suncorp-Metway Limited [2020] FCA 795. His Honour awarded the costs of that application on an indemnity basis against Mr Davidson and Ms Nagatsuma. His Honour relied, in part, on the letter of 28 January 2020, saying at [36] that it 'made a reasonable offer in relation to proceedings which were, for the reasons I have given, untenable. Therefore, the order for costs ought to be made on an indemnity basis'. However since that conclusion was based also on his Honour's view that the injunction application was untenable, I do not consider that he necessarily relied on the usual principles developed in relation to Calderbank letters. That is confirmed by the fact that the indemnity costs order was not confined to costs incurred after the date of the letter. In my view, I can and should consider the issue afresh.

25    The letter of 28 January 2020 was sent to Mr Kelly by email from the bank's solicitors, Gadens. It set out the background to the matter in some detail, including that Mr Davidson had entered into a comprehensive deed of settlement with the bank in 2014, and another settlement document titled 'heads of agreement' in 2015 and had pursued various proceedings in the Supreme Court of Queensland after that, without success (see Discovery Decision at [14]-[23] for an account of some of this history). It pointed out that those proceedings included an action which Mr Davidson commenced in 2017 which demonstrated that he already had sufficient information to proceed against the bank on the basis of the same allegations as formed the basis for the preliminary discovery application, and that discovery in those 2017 proceedings would give him access to any relevant documents the bank held. It also pointed out that the allegations had in any event been resolved in the bank's favour on a full and final basis in other proceedings in the Supreme Court. The letter concluded by saying:

For all of the reasons set out above, the Current Application is untenable.

In the interests of avoiding the incurring of further unnecessary costs, we are instructed to invite Mr Davidson and Ms Nagatsuma to withdraw the Current Application within 3 business days from the date of this letter.

We are instructed that if the Current Application is not withdrawn within that timeframe, the Bank intends to oppose the Current Application and seek an order for security for costs pursuant to Rule 7.29 of the Rules. Further, the Bank will rely upon this letter in relation to the question of costs of the Current Application and intends to seek costs against Mr Davidson and Ms Nagatsuma on an indemnity basis.

26    I do not consider that this letter, alone, justifies making an order for indemnity costs against Mr Davidson (or Ms Nagatsuma). A Calderbank offer will not justify an award of indemnity costs unless its rejection was unreasonable, and all of the relevant facts and circumstances must be considered in determining whether it was: Ford Motor Co of Australia Ltd v Lo Presti [2009] WASCA 115; (2009) 41 WAR 1 at [16]-[17] (Buss JA, Wheeler JA agreeing). Two matters which are often relevant in making that assessment are the time allowed to the offeree to consider the offer, and the extent of the compromise offered: see Hazeldene's Chicken Farm Pty Ltd v Victorian WorkCover Authority (No 2) [2005] VSCA 298; (2005) 13 VR 435 at [25].

27    In the present case, the letter only gave the prospective applicants three business days to accept the 'offer'. That is a fairly short time, given the complexity of the background outlined in the letter which, according to the letter, had been presented 'given that your firm has not represented Mr Davidson throughout the entirety of this long-standing matter'. The bank seeks to justify this by saying that the application for preliminary discovery had been listed for hearing before a registrar on 21 February 2020. That is so; the matter had initially been referred to a registrar to determine but at that hearing the registrar adjourned and determined, in part because of the injunctive relief sought, that it should be referred back to a judge. Nevertheless more time, even a week permitting consideration and advice over the weekend, could still have been given while allowing ample time for preparation for that hearing if the 'offer' was not accepted.

28    I put the word 'offer' in inverted commas here because, on analysis, the letter made no clear offer at all. It was, in terms, an invitation to withdraw the proceeding, coupled with a threat to seek security for costs, and a further threat that the bank would rely on the letter and seek indemnity costs if the application was not withdrawn. But no compromise was proffered explicitly, not even the prospect that the bank would waive the costs it would otherwise be entitled to under r 26.12(7) of the Federal Court Rules if the matter was discontinued by the prospective applicants. To the extent that the final paragraph quoted may imply an offer not to pursue indemnity costs, that 'offer' is unclear. The lack of clarity in itself supports the conclusion that it was not unreasonable to decline the offer: BHPB Freight Pty Ltd v Cosco Oceania Chartering Pty Ltd (No 4) [2009] FCA 1448; (2009) 263 ALR 63 at [13]. I do not consider that this letter, by itself, justifies any award of indemnity costs.

29    I do, however, accept the bank's submission that the court should award indemnity costs against Mr Davidson because the application was hopeless and properly advised, he should have known that it had no prospects of success (The bank made the same submission against Ms Nagatsuma, but I deal with her liability for costs below). The principles to be applied when costs are sought on that basis are summarised in the following excerpt from Civil Properties Pty Ltd v Miluc Pty Ltd [2011] WASCA 195; (2011) 184 LGERA 150 at [82]-[83] (Newnes JA, Murphy JA and Hall J agreeing) (some citations removed):

It is well-established that a court has a wide discretion as to costs (albeit, a discretion to be exercised judicially) … Whether or not an order for indemnity costs is appropriate must depend upon the facts of the particular case. There are not, and cannot be, any hard and fast rules. But an indemnity costs order is a departure from the usual order that costs are awarded on a party and party basis. Ordinarily an indemnity costs order is appropriate only where the unsuccessful party has been involved in some unreasonable conduct in relation to the proceedings, such as where the institution or continuation of the proceeding was plainly unreasonable or the proceeding was issued or maintained for an ulterior or collateral purpose. An order for indemnity costs reflects the court's disapproval of the conduct of the unsuccessful party.

If a party brings a case which is hopeless it can normally be inferred that the proceeding was commenced or continued 'for some ulterior motive or because of some wilful disregard of the known facts or the clearly established law': Fountain Selected Meats (Sales) Pty Ltd v International Produce Merchants Pty Ltd (1988) 81 ALR 397 at 401. But it is not necessary that such an inference be drawn; it is sufficient that the court's resources and the successful party's costs have been wasted on entirely frivolous litigation.

30    The reasons I gave for rejecting Mr Davidson's preliminary discovery application in relation to each one of what I identified as 13 proposed claims were many and various, and for the most part there is no point in repeating or summarising them again here. The reader is referred in particular to the Discovery Decision at [38], [53], [56], [69], [73]-[75], [80]-[83], [90]-[94], [96]-[98], [102], [108]-[110]. It is, however, worth repeating what was said at [80], as it illustrates why, in my view, Mr Davidson's conduct in commencing and maintaining the preliminary discovery application was not reasonable:

Mr Davidson signed a comprehensive release in 2014. He was represented by solicitors and counsel (and Mr Shannon). He signed another release in 2015. The Supreme Court of Queensland found him to have no real prospects of setting the releases aside. A reasonable person would recognise the finality imposed by that accumulation of events, on any prospect of making a claim against the bank concerning anything that happened before, at the earliest, 28 May 2014, when the Deed of Settlement was signed.

31    It is true that these comments do not apply directly to some six claims which are said to have arisen out of events which post-dated those releases. But they reflect Mr Davidson's flat refusal to accept that his claims against the bank cannot be pursued, despite two releases signed by him and multiple Supreme Court of Queensland proceedings decided adversely to him. The phrase from Fountain Selected Meats (Sales) Pty Ltd v International Produce Merchants Pty Ltd (1988) 81 ALR 397, 'wilful disregard of the known facts or the clearly established law' aptly describes Mr Davidson's approach.

32    In relation to the claims that were not barred by the releases and the outcome of Supreme Court proceedings, I have had regard to the fact that the key standard which Mr Davidson had to meet in the preliminary discovery application was an undemanding one. He only needed to establish a reasonable belief that he may have a claim: see Discovery Decision at [36]. Viewed in that light, there are two claims post-dating the releases where it could be argued that they were not so misconceived that it was unreasonable to pursue a preliminary discovery application. I have in mind the claim in relation to the enforcement of the mortgages (see Discovery Decision at [91]-[93]) and the claim that certain properties were sold at an undervalue (see Discovery Decision at [99]-[110]). But even for those claims, the application failed for multiple reasons. Also, there was no lengthy separate argument about those points, and it is not apparent that the costs of arguing them can be readily separated from the costs of the rest. In my view, the court should assess the question in the impressionistic way it often adopts when dealing with claims to the costs of certain issues in an overall claim: see e.g. Strzelecki Holdings Pty Ltd v Jorgensen [2019] WASCA 96; (2019) 54 WAR 388 at [52]. I therefore consider it is not appropriate, and potentially productive of further costs and inconvenience, to craft orders to reflect the fact that limited aspects of the application are arguably not unreasonable.

33    For completeness, I note that the bank also relied on a further Calderbank style letter which Gadens sent to Mr Davidson's then lawyer on 8 June 2020. This set out a similarly long and involved account of relevant events and again only gave three business days for a response. It did, however, at least make something which could be construed as an offer of compromise, as it indicated the bank would consent to the dismissal of the discovery application on the basis that Mr Davidson pay the bank's costs 'on the standard basis'. This proposal was not accepted. Given the conclusion I have reached above, it is not necessary to consider whether that alone would justify an award of indemnity costs.

34    Mr Davidson must pay the costs of the preliminary discovery application on an indemnity basis.

Ms Nagatsuma's liability for costs

35    Where does that leave Ms Nagatsuma? As the bank submitted, in general, where a court orders that costs be paid by two or more parties, whether applicants or respondents, the liability is joint and several: Bitzer Australia Pty Ltd v Japp [2014] FCA 1040 at [45]. In stating that general principle in Bitzer, Katzmann J approved an explanation for it given in GE Dal Pont, Law of Costs (2nd ed, LexisNexis Butterworths, 2009) at [11.2], that the basic indemnity rule behind awards of costs is that the successful litigant should not lose out if one of the unsuccessful parties cannot meet its share of the costs burden.

36    But as Katzmann J acknowledged in Bitzer at [46], this is not an invariable rule. The costs discretion of the court under s 43 of the Federal Court Act is unconfined and broad, albeit one that must be exercised judicially: Probiotec Ltd v The University of Melbourne [2008] FCAFC 5; (2008) 166 FCR 30 at [46]-[48] (Rares J, Finn and Besanko JJ agreeing), [91] (Besanko J, Finn J agreeing). It is a discretionary exercise which depends on the facts of each case: Probiotec at [60].

37    In Probiotec, the Full Court considered the costs liability of the Probiotec parties, who comprised one of two sets of respondents to a patent claim. The Full Court held that, while all the respondents had been unsuccessful, the Probiotec parties should not be liable with the other respondents for the entire costs of the claim. The Probiotec parties had played little part in the matter, which involved a 10 day trial that was agitated substantially by the other set of respondents. Rares J held at [48]:

There is no absolute rule that, in the absence of disentitling conduct, a successful party is to be compensated by the unsuccessful party with respect to the exercise of a power conferred by a provision such as s 43: [Oshlack v Richmond River Council (1998) 193 CLR 72] at 88 [40] per Gaudron and Gummow JJ. And, there is no absolute rule that the sole purpose of a costs order is to compensate one party at the expense of another under the Judicature Act system, such as is provided by s 43 of the Act: Oshlack 193 CLR at 89 [43]. The general power conferred by a provision like s 43 is not to be narrowly construed.

38    The court held that in the circumstances before it the Probiotec parties, while they had filed a defence denying the validity of the patent which was in dispute at the trial and denying infringement, should only be liable for 10% of the costs of the trial.

39    Here, the bank submitted that the position as to joint applicants is materially different to the position of joint respondents as considered in Probiotec, because when a single respondent is served with an application purporting to seek joint relief on behalf of multiple applicants, none of whom thereafter take steps to discontinue it, the respondent must assume that it is actively pressed by all of the applicants and must respond accordingly. The concept of a passive applicant, the bank submitted, is a contradiction in terms because merely by staying on the record as an applicant they are actively pressing for the relief sought in their name.

40    I do not accept that submission. The broad principles quoted above from Probiotec (and derived from Oshlack v Richmond River Council (1998) 193 CLR 72) are not stated in terms that are only applicable to unsuccessful respondents. Nor are the facts of Probiotec relevantly distinguishable. It is true that, at the first opportunity, the Probiotec parties effectively submitted to the outcome of the patent dispute: [39]. But they had nevertheless filed defences which formally put in issue the validity of certain patents, when that issue was only actively agitated by the other respondents: [15], [39]. These defences denied the validity and infringement of the relevant patents. While the Probiotec parties indicated they would take no part in the trial, they took no step to withdraw the defence. It could be said that in that case, the successful applicant was also required to assume that the Probiotec respondents pressed their defences, albeit that they were content for the issues raised to be agitated at trial by the other respondents who took an active part. But the Full Court held that the Probiotec parties should nevertheless only be liable for a small proportion of the overall costs. Rares J compared the costs which had been incurred in the full trial to the lesser costs which would have been incurred if the defences which had put validity and infringement in issue had not been supported by evidence adduced at trial: at [54] and [73]. His Honour held that the Probiotec parties should not be liable for the costs that were actually incurred over and above that scenario, because they did not play any substantive role in the proceedings or contribute substantially to those extra costs, meaning it would be unjust to subject them to an order for costs for the whole of the proceeding: at [71]-[72].

41    The same may be said of Ms Nagatsuma's role in this litigation. The bank's submission relies on the abstract configuration of the proceeding, but the reality is that it was Mr Davidson who actively pursued it in his own interests, and put the bank to the majority of the expense, and Ms Nagatsuma took no active part in it at all. In Jack Brabham Engines Ltd v Beare [2010] FCA 1096 at [17] and [19], Jagot J appeared to consider it relevant to the exercise of the discretion that it was not a case where any of the unsuccessful applicants had been inactive. Her Honour ordered that Sir Jack Brabham should be liable along with the others because, even though he lacked substantial involvement in the relevant events, he claimed final orders, and swore three affidavits in support of his own claim and those of others. Here, Ms Nagatsuma has not even had that level of involvement.

42    The ultimate question is whether in all the circumstances it is just to make the order: see Probiotec at [76]. In my view Ms Nagatsuma should be jointly liable with Mr Davidson for the costs occasioned by the commencement of the proceeding. It was commenced by solicitors acting in her name and with her authority and her subsequent inactivity does not exempt her from the consequences of that. But I do not consider that it follows that she should be liable for the entire cost of the proceeding. After a certain point, it was clear that it was Mr Davidson and Mr Davidson alone who was pursuing the application. Ms Nagatsuma did not put the bank to any expense above and beyond that occasioned by the commencement of the proceeding. The manner in which it was conducted and the arguments and evidence the bank had to meet, were all the responsibility of Mr Davidson alone.

43    Where to set the point at which, for the purposes of costs liability, the application became Mr Davidson's alone is a discretionary judgment for the court to make having regard to all the circumstances and the substantial justice of the case. As in other areas of the costs jurisdiction, attempts at illusory mathematical precision must be eschewed. In my view, the appropriate cut off point in the present case is the hearing before a registrar of the court which took place on 21 February 2020. That hearing had been listed for substantive determination of the application. But two days before, Kelly Legal went off the record. Only Mr Davidson showed up to the hearing and the matter was referred to the judge. Ms Nagatsuma had no representation from that time and it was clear she was taking no part in the proceeding. That was confirmed by her lack of participation in the injunction hearing on 2 March 2020 and the fact that on 7 May 2020 Mr Davidson, but not Ms Nagatsuma, was briefly represented by a solicitor again. After 21 February, at least, the case was advanced solely by Mr Davidson and for his benefit. Ms Nagatsuma was not represented. She took no part. No issues were raised that went to her interests. She caused no additional costs for the bank. The court cannot know or assume that she was able to make a decision about what to do in the circumstances to extricate herself from an action in which she seemed to have no interest, in any sense of the word (whatever the position was before Kelly Legal got off the record).

44    In the particular circumstances of this case, Ms Nagatsuma will be liable for the bank's costs incurred up to and including 21 February 2020, they being costs occasioned by the commencement of the proceeding by solicitors in her name. She is already liable for the costs of the injunction application determined on 2 March 2020, pursuant to the costs order that Derrington J made on that day. But she should not be liable for Mr Davidson's solo pursuit of the preliminary discovery application after 21 February.

45    As to whether the costs against Ms Nagatsuma should be on a party-party or indemnity basis, there is no reason to distinguish in that regard between her position and that of Mr Davidson. She commenced a proceeding which, properly advised, she should have known had no merit. I will order Ms Nagatsuma to pay the bank's costs of the preliminary discovery application on an indemnity basis up to and including 21 February 2020.

46    The fact that the bank will not receive its costs from Ms Nagatsuma for the period after that date is not the result of any conduct of Kelly Legal; to the contrary, it depends to a substantial degree on the fact that Kelly Legal no longer represented Ms Nagatsuma so that there is no meaningful way in which she can be considered to have taken part in the proceeding. As a result, the bank's submission that Kelly Legal should be liable in costs to it in the alternative (see [10] above) is not engaged.

47    Kelly Legal have proposed that the parties should be at liberty to make submissions about the costs of the issue concerning its costs liability. I will make directions for that matter to be determined on the papers.

The costs of the application for a declaration that the mortgage was invalid

48    Mr Davidson was unsuccessful in the aspect of the proceeding which resulted in the Mortgage Decision. The bank seeks its costs of that aspect, and did not submit that they should be indemnity costs. The bank made no suggestion that Ms Nagatsuma should be liable for those costs, which were occasioned by an interlocutory application which Mr Davidson alone filed on 11 June 2020. The bank is entitled to its costs of the application made at paragraph 4 of that interlocutory application on the usual party-party basis, payable by Mr Davidson alone.

Associate:

Dated:    23 March 2021