Federal Court of Australia

Duck v Airservices Australia (No 3) [2021] FCA 304

ORDERS

THE COURT ORDERS THAT:

1.    The respondent’s application for a costs order to be made against Augusta Ventures Limited, the non-party litigation funder for the applicant, be dismissed.

2.    There be no order as to costs.

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

REASONS FOR JUDGMENT

BROMWICH J:

Introduction

1    This employment class action proceeding was commenced under Part IVA of the Federal Court of Australia Act 1976 (Cth) (FCA Act) in relation to alleged contraventions of the Fair Work Act 2009 (Cth). Following the determination of a common question which was fatal to the proceeding, the further amended originating application was dismissed: Duck v Airservices Australia (No 2) [2019] FCA 1148. The respondent, Airservices Australia, applies for an order that Augusta Ventures Limited (AVL), the litigation funder for the unsuccessful lead applicant, Ms Duck, pay the respondent’s costs of the proceeding.

2    It is common ground that the Court cannot ordinarily make a costs order under s 43 of the FCA Act against Ms Duck directly because s 43(1)(b) expressly provides that this discretionary power to award costs is subject to s 570 of the Fair Work Act, which relevantly states:

(1)    A party to proceedings (including an appeal) in a court (including a court of a State or Territory) in relation to a matter arising under this Act may be ordered by the court to pay costs incurred by another party to the proceedings only in accordance with subsection (2) or section 569 or 569A.

Note: The Commonwealth might be ordered to pay costs under section 569. A State or Territory might be ordered to pay costs under section 569A.

(2)    The party may be ordered to pay the costs only if:

(a)    the court is satisfied that the party instituted the proceedings vexatiously or without reasonable cause; or

(b)    the court is satisfied that the party’s unreasonable act or omission caused the other party to incur the costs; or

(c)    the court is satisfied of both of the following:

(i)    the party unreasonably refused to participate in a matter before the [Fair Work Commission];

(ii)    the matter arose from the same facts as the proceedings.

3    It is also common ground that none of the exceptions to the prohibition on making costs orders contained in s 570 applied in this case. Airservices Australia therefore does not have any basis for seeking costs against Ms Duck.

4    The main reason for a substantial delay in making this decision was that an appeal was pending against the decision of Turner v Tesa Mining (NSW) PL [2019] FCA 1644; 290 IR 388 to grant an application for security for costs against a non-party funder, also AVL, which involved the interpretation and application of s 570 of the Fair Work Act. The reasoning of the primary judge in Turner v Tesa Mining was relevant to the determination of this application. The appeal was allowed by the Full Court on 10 November 2020: Augusta Ventures Limited v Mt Arthur Coal Pty Ltd [2020] FCAFC 194; 384 ALR 340; 300 IR 446.

5    The Full Court’s disagreement with the primary judge in Turner v Tesa Mining was narrow, and one of characterisation of the circumstances in that case in the application of principle. The critical point was the essential characteristic of an order for security for costs, and its implicit threat of the proceedings being stayed or dismissed, in circumstances in which such an order could not ordinarily be obtained directly against the lead applicant by reason of s 570 of the Fair Work Act, extracted above.

6    The security for costs application was brought in Turner v Tesa Mining (and was therefore the subject of the appeal in Mt Arthur Coal) to secure costs that might be awarded against AVL. Yet the consequence of such an order being made and not being complied with would be to have the applicant’s proceeding stayed or dismissed. This asymmetry, which did not apply to a case without s 570 or a similar constraint, was the narrow basis upon which the appeal succeeded. The application of Mt Arthur Coal to this determination is therefore not strictly one of ratio, although aspects of the Full Court’s reasoning help with certain underlying issues, especially as to the proper understanding of the effect of s 570. I consider these two judgments in detail below.

7    AVL and Airservices Australia subsequently provided me with additional submissions relating to the decision in Mt Arthur Coal. A number of the issues in dispute in the earlier submissions have been resolved by the Full Court decision, but there remains a disagreement about aspects of what was decided on that appeal.

8    Airservices Australia primarily continues to submit, now in conformity with Mt Arthur Coal, that s 570 does not prevent the Court from making a non-party costs order, as the provision only applies to a “party to proceedings”. That is the view I had independently reached, but that I also adopt from the Full Court. Airservices Australia further argues that, as AVL funded the litigation for commercial gain and therefore had an interest in the fruits of the litigation, such an order would give effect to the usual rule that costs “follow the event”. Conversely, AVL submits that where the general rule as to costs between parties has been excluded by statute and there was no underlying cost risk for which it should be made responsible, there is no principled basis upon which the Court could make a non-party costs order against it in circumstances where it has not acted unreasonably. I would, if possible, prefer to accept the submission of AVL on this point, because it does most to maintain the coherence of the costs aspect of the legislative scheme created by s 570 of the Fair Work Act. However, in order to do that, Mt Arthur Coal has to be confined to its ratio as to security for costs.

9    I accept that s 570 does not prevent a costs order being made against AVL, but I do not accept that the litigation landscape created by s 570 is an irrelevant consideration in the sense of being forbidden. For the reasons that follow, I decline to exercise the discretion to make the costs order sought by Airservices Australia because I am not satisfied that it is in the interests of justice to do so in the particular circumstance of the conduct of these proceedings. This is especially due to the efficient determination of these proceedings by way of a separate question, itself saving substantial costs and court time.

Turner v Tesa Mining (NSW) PL and Mt Arthur Coal

10    After the respondent filed its primary submissions on costs, but prior to the filing of AVL’s submissions and the reply, Lee J delivered Turner v Tesa Mining. His Honour granted an application by one of the respondents, Mt Arthur Coal, for security for costs in two related class actions arising under the Fair Work Act. Mt Arthur Coal had submitted that a general rule had developed whereby funders are required to pay any adverse costs of funded litigation that is unsuccessful: see Turner v Tesa Mining at [36]. His Honour considered the circumstances in which a funder will be liable to pay adverse costs where litigation is unsuccessful, with the most relevant being the discretionary power to award costs where it is in the interests of justice to do so. His Honour was cautious to go that far, noting:

Care must be taken to avoid elevating specific decisions as to practice and procedure issues which may arise in one case as if they “were determinative of precepts and principles of general application”: see Regent Holdings Pty Ltd v State of Victoria [2012] VSCA 221; (2012) 36 VR 424 at 429 [19] (Nettle, Redlich and Osborn JJA). Hence one must be cautious about being definitive as [to] the circumstances in which an adverse costs order will be made (including against a non-party). This caution against over-generalisation is consistent with s 43 of the Act giving the Court a very wide discretion as to costs tempered only by the requirement to act judicially and the mandatory requirements, contained in s 37M(3) that any practice and procedure power, including the power to award costs, must be exercised or carried out, in a way that best promotes the overarching purpose and the more specific requirement, in s 37N(4), that in exercising a discretion to award costs, the Court must take into account any failure of a party or their lawyer to comply with the overarching purpose.

11    Nonetheless, Lee J noted certain common characteristics of litigation which is funded and concluded that (at [41]):

Despite the caution I express above about being too definitive as to the likely exercise of a broad and fact dependent discretion, it seems to me that when: (a) there is funded litigation which can be characterised as a common enterprise; and (b) there is a statutory fetter on making an award of costs against the funded party (or an award of costs against the funded party will be inutile); and (c) according to usual costs principles an award of costs should otherwise be made in favour of a successful party, then there is no reason in principle why an adverse costs order should not be made directly against the funder of the unsuccessful funded litigation. This reflects the characterisation of the position by the Privy Council in Dymocks that the funder is not so much facilitating access to justice by the funded party as itself gaining access to justice for its own purposes.

12    In arriving at this conclusion, Lee J (at [30]) noted that the High Court in Knight v FP Special Assets Limited [1992] HCA 28; 174 CLR 178 found there was a wide jurisdiction conferred on Courts to make non-party costs orders, and relevantly summarised that judgment as follows:

The High Court found that there are a variety of circumstances in which considerations of justice may, in accordance with general principles relating to awards of costs, support an order for costs against a non-party; the necessity being that the discretion to make such non-party costs orders was to be exercised judicially and in accordance with general legal principles pertaining to the law of costs: at 192 (Mason CJ and Deane J).

13    While Lee J did consider (at [76]-[77]) that s 570 remained as a lesser consideration when a funder was involved than for an applicant who was not so funded, rather than being wholly irrelevant, his Honour ultimately did not consider the provision to be any bar to awarding costs (at [40]):

What makes this case unusual, is that in a “no costs” jurisdiction, the statutory protection against adverse costs usually only enjoyed by a group member extends (absent identified exceptions) to the funded party to the proceeding by reason of s 570 of the FW Act. As a matter of principle, however, there does not appear to me to be any reason why these specific statutory protections are of broader application or assume decisive importance. The issue here can be summed up as being whether the co-venturer who has provided the funds for the common enterprise in the hope of securing a reward upon success, should ordinarily be required to pay adverse costs, if the common enterprise fails?

14    The Full Court in Mt Arthur Coal unanimously reversed the decision in Turner v Tesa Mining. It did so on quite a narrow, but important point, binding only in relation to a security for costs application. It is nevertheless at least influential in relation to a costs application. In the reasons of Chief Justice Allsop (Middleton and White JJ agreeing), it was accepted (at [33]) that no issue arose as to the correctness of the cases that Lee J relied upon in his Honour’s consideration of whether a general rule had emerged as to whether costs orders could be made against litigation funders. The Chief Justice said that it could be accepted that security may be ordered against a third party funder in a case in which the funded moving party could be liable to pay costs even if security would not be ordered against such an individual applicant. However, the Chief Justice did not accept that this went so far as to be in accordance with usual costs principles, instead only accepting that a court would be “prepared” to make such an order, in context, in an appropriate case. Given the seeming overlap in issues in these cases, further submissions in the present matter were provided by the parties once the Mt Arthur Coal decision was published, addressing the Full Court’s reasons. These submissions are outlined below from [55] onward.

AVL’s involvement in the proceedings

15    These representative proceedings were funded by AVL, a United Kingdom-based professional litigation funder. It is reasonably apparent that AVL played an active role in the litigation. As part of this role, AVL entered into funding agreements with Ms Duck and group members on identical terms.

16    Some of the relevant terms of the funding agreements were that AVL would: fund the “Project Costs” (which included, among other things, legal costs and disbursements associated with the proceedings); provide any security for costs that were ordered; and pay any costs order made in favour of Airservices Australia against the “representative, the claimant and and/or [AVL]” and any premium payable to an insurer under any adverse costs insurance. As consideration, each claimant agreed to pay AVL a portion of any settlement or judgment. AVL was authorised to give day-to-day instructions to the lawyers conducting the proceedings and was entitled to terminate the agreement if it perceived the claim to no longer be commercially viable.

17    Ms Duck filed an interlocutory application for a common fund order. On 19 October 2018 the Court made common fund orders in substantially the terms sought by the applicant. It has since been held by the High Court that s 33ZF of the FCA Act does not empower the Court to make such orders, although nothing presently turns on this: see BMW Australia Ltd v Brewster; Westpac Banking Corp v Lenthall [2019] HCA 45; 374 ALR 627. As a result of this order, a certain amount from any settlement or judgment sum was to be paid to AVL prior to its distribution to group members.

18    AVL relied upon undisputed affidavit evidence to the effect that Ms Duck would not have commenced proceedings had she not been able to secure funding, and that the law firm with carriage of the matter was not prepared to act on a no-win, no-fee basis. AVL also adduced evidence that its managing director, Mr Neill Brennan, considered s 570 in determining whether to fund the application and concluded that:

(1)    legal costs and disbursements could not be recovered from the respondent even if the application was successful, meaning there was a risk that any resolution sum would be insufficient to cover these expenses, the payment of compensation to the applicant and group members, and funder commission; but that

(2)    AVL would not have to pay Airservices Australia’s costs merely because the proceedings were unsuccessful.

19    Mr Brennan’s affidavit evidence further stated that had AVL known that it may have been liable to pay Airservices Australia’s costs without correspondingly having the possibility of recovering its own costs, then it would have needed to obtain after the event (ATE) insurance to cover that additional risk. It would likely not have offered funding unless the likely quantum of damages was going to be significant enough to offset this additional cost.

20    Airservices Australia challenges AVL’s evidence on this point, noting that the funding agreements show an awareness that such an order may be made directly against it, and that ATE insurance may need to be obtained. Airservices Australia therefore submits that AVL’s decision not to obtain insurance merely conveys a willingness to bear the risk of an adverse costs order, and does not bear upon the interests of justice in this case.

21    In relation to AVL’s awareness of the possibility of a costs order being made against it, the following agreed fact was handed up at the hearing on costs and admitted as an exhibit:

The agreed fact between the parties is that by no later than 19 December 2018, Augusta Ventures Limited was aware that in proceedings ACD 46 of 2018 and ACD 47 of 2018, Mount Arthur Coal Proprietary Limited was contending that an order for security for costs ought to be made against Augusta Ventures Limited on the basis that:

(a)    section 570 of the Fair Work Act applied only to parties to the proceedings, and hence did not apply to any costs order that might be made against Augusta Ventures Limited;

(b)    the ordering or costs against a non-party litigation funder is not contrary to the policy underlying section 570; and

(c)    in the event that the applicant is unsuccessful in the proceedings, a costs order against AVL ought to follow as a matter of discretion.

The proceedings referred to in the above agreed fact are those which gave rise to Turner v Tesa Mining and Mt Arthur Coal.

22    Counsel for the respondent cross-examined Mr Brennan on the alleged prejudice suffered by AVL due to the lack of prior notice of a costs application being brought against it. Mr Brennan confirmed that AVL provided day-to-day instructions on the conduct of the proceeding to the applicant’s lawyers. Mr Brennan also accepted that it was likely AVL would have been aware prior to the hearing of the proceeding that s 570 was not an impediment to a costs order being made against AVL and he accepted the contents of the agreed fact. However, when asked if awareness of the agreed fact did not cause him to re-assess whether ATE insurance ought to be taken out in respect of an adverse costs order, Mr Brennan responded:

We hadn’t received the security for costs order from – or a security application from yourselves, and we hadn’t had an indication there ought to be a security for costs required, or there would be an adverse costs order following. So no.

23    What the funder considered its own legal position to be has no bearing on my understanding of the Court’s power or discretion to award costs. However, the above evidence is relevant to determining the potential consequences of a decision to award costs against a non-party litigation funder, as well as the question of whether it is fair to award costs in circumstances where the respondent provided no notice of its intention to seek costs, discussed further below.

Airservices Australia’s submissions in chief

24    It is convenient to set out Airservices Australia’s initial submissions as a whole as they helpfully frame the debate. I will then turn to AVL’s submissions by topic, and then the submissions made by each party in respect of the Full Court decision in Mt Arthur Coal.

25    Airservices Australia submits that the restriction in s 570 of the Fair Work Act on the ability to order costs is only in relation to a party to the proceedings, and does not apply to a non-party litigation funder such as AVL, citing Ashby v Slipper (No 3) [2015] FCAFC 9; 317 ALR 621 at [80]; Bannon v Nauru Phosphate Royalties Trust (No 3) [2017] VSC 214; 51 VR 362 at [10], [42]; Veolia Transport Sydney Pty Ltd v Mifsud [2012] FCA 1472 at [37]; Yirra Pty Ltd v Summerton [2009] FCAFC 50; 176 FCR 219 at [150], [155]-[156]; and Centennial Northern Mining Services Pty Ltd v Construction, Forestry, Mining and Energy Union [2015] FCA 59 at [6]).

26    Airservices Australia further submits that because s 570 does not apply, the policy underlying the provision was irrelevant, citing Ashby v Slipper (No 3) at [82] and Bannon at [42]. Even if the policy rationale underlying s 570 was to be taken into account, Airservices Australia continued, that did not apply to AVL. This is because s 570 is designed to ensure that potential applicants with a genuine grievance are not discouraged from pursuing a remedy, often modest, due to fear of an adverse costs order: Pettit v Evolution Mining Ltd [2016] FCA 1304 at [62] citing Tsilibakis v Transfield Services (Australia) Pty Ltd (No 2) [2015] FCA 1048 at [7]; Trustee for the MTGI Trust v Johnson (No 2) [2016] FCAFC 190 at [8] and Ryan v Primesafe [2015] FCA 8; 323 ALR 107 at [64]. Litigation funders, however, take the risk of funding litigation purely for commercial gain.

27    Given this, Airservices Australia submits that the starting point in the exercise of the Court’s discretion to award costs in the present case was the “general rule” that costs follow the event. In Airservices Australia’s words, this means that the “successful party receives its costs in the absence of circumstances that would justify some other order”. Accordingly, it submits that it should receive its costs as the successful party, citing Re the Minister for Immigration and Ethnic Affairs (Cth); Ex parte Lai Qin [1997] HCA 6; 186 CLR 622 at 624 (McHugh J) and Ruddock v Vardalis [2001] FCA 1865; 115 FCR 229 at [9]-[10]. As it has been accepted that costs orders can be made against non-parties, Airservices Australia says, the only real question is whether such an order is appropriate in the interests of justice.

28    In aid of the argument that it is in the interests of justice to award costs against AVL, the respondent relies upon Wigmans v AMP Ltd (No 3) [2019] NSWSC 162; 366 ALR 594 as an analogous case in which it was held to be in the interests of justice that an award for costs be made against a non-party funder. In that case, the applicants in four related class actions, filed in this Court, applied unsuccessfully to have a related matter transferred from the New South Wales Supreme Court. The Full Court of the Federal Court subsequently granted applications for the four Federal Court proceedings to be transferred to the New South Wales Supreme Court. The respondent and Ms Wigmans, the lead plaintiff in the Supreme Court proceeding, sought the costs of the unsuccessful transfer application.

29    Stevenson J in the Supreme Court in Wigmans held that they could not receive costs directly from the applicants in the transferred Federal Court proceedings. This was because s 181 of the Civil Procedure Act 2005 (NSW) provided that the Court may not award costs against a group member, other than a representative party, save for certain exceptions that did not apply. A “representative party” was defined in s 155 of the Civil Procedure Act as “a person who commences representative proceedings”, which Stevenson J (at [25]) took to mean a proceeding to which that Act applied, but not a proceeding otherwise commenced. As each applicant in the proceedings that were instituted in the Federal Court was by then a group member of the Supreme Court proceeding, but none was a representative party of that proceeding, no such order could be made against them: [42].

30    Stevenson J concluded that it was appropriate in the circumstances to award costs against the litigation funders. His Honour (at [48]) quoted with apparent approval the following propositions put forward by Ms Wigmans (bracketed changes his Honour’s):

[9]    The general rule is that costs follow the event. A successful party ‘is prima facie entitled to a costs order’ [Re the Minister for Immigration and Ethnic Affairs; ex parte Lai Qin (1997) 186 CLR 622 at 624; 143 ALR 1 at 3 (McHugh J)].

[10]    The object of a costs order is not to penalise the unsuccessful party; rather, ‘the rationale of the order is that it is just and reasonable that the party who has caused the other party to incur the costs of litigation should reimburse that party for the liability incurred’ [Latoudis v Casey (1990) 170 CLR 534 at 567; 97 ALR 45 at 68 (McHugh J)]. Thus, an award of costs may be made against a party or a non-party even where it has conducted itself reasonably (or put differently, unreasonableness is not a necessary condition to the exercise of the power to make a costs award) [PM Works Pty Ltd v Management Services Australia Pty Ltd (t/as Peak Performance PM) [2018] NSWCA 168 at [57] (Leeming JA, McColl and Basten JJA agreeing)].

[11]    Factors relevant to the exercise of discretion in favour of making an award of costs against a non-party include:

[11.1]    whether the non-party is properly described as the “real party” to the litigation [PM Works at [29]];

[11.2]    whether the non-party is funding the litigation [Carter v Caason Investments Pty Ltd…at [13], [20]–[22], [38]…; FPM Constructions Pty Ltd v Council of the City of Blue Mountains [2005] NSWCA 340 at [210] (Beazley, Giles and Basten JJA)];

[11.3]    whether the non-party has an interest in the litigation, such as an entitlement to the fruits of the litigation if a party succeeds [Carter at [38], [54]];

[11.4]    whether the non-party is involved in the litigation ‘purely for commercial gain’ [Carter at [38]];

[11.5]    whether the non-party has played an active part in the conduct of the litigation [Carter at [38], [54]];

[11.6]    the ability of the party in whose favour a costs order is to be made to recover from a party, including the impecuniosity of any such party [Carter at [42]–[43], [54]–[55]; FPM at [210]; Knight v FP Special Assets Ltd (1992) 174 CLR 178 at 192–3; 107 ALR 585 at 594–5; 8 ACSR 1 at 10–11…at CLR 192–3, 202; ALR 594–5, 603; ACSR 10–11, 19 (Dawson J)].

[12]    Although the making of an award of costs against a non-party has been described in the authorities as ‘exceptional’, an award of costs against a non-party litigation funder is one such well-recognised ‘exception’ [PM Works at [35], [39], citing Yu v Cao (2015) 91 NSWLR 190; [2015] NSWCA 276 at [138]–[139] and fn 72, itself quoting Dymocks Franchise Systems (NSW) Pty Ltd v Todd…at [25] (per Lord Brown); David Richards LLC v Texas Keystone Inc [2017] 1 WLR 2221; [2016] EWCA Civ 1144 at [1] (Tomlinson LJ, Gloster and David Richards LJJ agreeing)].

31    Stevenson J continued in Wigmans, quoting Dymocks Franchise Systems (NSW) Pty Ltd v Todd (No 2) [2004] UKPC 39; 1 NZLR 145; 1 WLR 2807 at [25(1)], that although non-party costs orders are “exceptional”:

… exceptional in this context means no more than outside the ordinary run of cases where parties pursue or defend claims for their own benefit and at their own expense … [t]he ultimate question [being] whether in all the circumstances it is just to make the order.

32    In deciding to award costs against the non-party funder, Stevenson J noted in Wigmans (at [51]-[53]) that the transfer applications were indeed “exceptional” due to the “unprecedented” circumstances, that the funders had a substantial interest in the proceedings, and that costs could not be recovered against the group members who brought the applications. His Honour said (at [54]) that it was not necessary to demonstrate that the litigation funders had behaved unreasonably.

33    Airservices Australia submits that, consistent with the reasoning in Wigmans, the interests of justice required that AVL pay the respondent’s costs in these proceedings. This is said to be due to the following reasons:

(1)    Airservices Australia succeeded in the substantive proceeding but is unable to recover costs against the applicant due to s 570 of the Fair Work Act;

(2)    AVL, as a litigation funder, comes within one of the “well recognised exceptional circumstances” in which costs orders can be made against non-parties;

(3)    AVL had a substantial interest in the litigation that must far exceed any individual group member’s interests;

(4)    AVL was involved purely for commercial gain; and

(5)    AVL played an active part in the litigation, including by apparently giving day-to-day instructions to the lawyers for Ms Duck.

AVL’s submissions, the respondent’s reply, and further submissions on Mt Arthur Coal

Whether the “general rule” that costs follow the event applies

34    AVL submits that the position of Airservices Australia, being predicated on the idea that failure to award a costs order in its favour would be a “carve out” of the general rule that costs follow the event, is flawed for a number of reasons.

35    First, there is said to be no general rule that costs follow the event in the case of an order against non-parties. AVL quotes McHugh J in Oshlack v Richmond River Council (1998) 193 CLR 72 (at [67]) as explaining the general rule that “[a]s between the parties, fairness dictates that the unsuccessful party typically bears the liability for the costs of the unsuccessful litigation”. AVL submits that the general rule only applies to cost liabilities between parties where these are not otherwise excluded by statute, as they are in the present case by s 570. Upon this basis, AVL submits that costs orders against non-parties should only be made:

(1)    “sparingly”, citing Arundel Chiropractic Centre Pty Ltd v Deputy Commissioner of Taxation [2001] HCA 26; 179 ALR 406;

(2)    exercising “considerable caution”, citing Symphony Group Plc v Hodgson [1994] QB 179 at 191-192 as cited in Kebaro Pty Ltd v Saunders [2003] FCAFC 5 at [73]-[75]; and

(3)    where the circumstances of the case require such an order to be made in the interests of justice, citing Vestris v Cashman (1998) 72 SASR 449 at 468.

36    The authorities relied upon by Airservices Australia are said by AVL not to support the proposition that the general rule applies to a non-party in the present circumstances. Rather, it is submitted, each of the cases cited by the respondent involving matters under the Fair Work Act, being Centennial Northern Mining, Ashby v Slipper (No 3) and Bannon, involved non-parties actually participating in the general proceedings:

(1)    In Centennial Northern Mining, the Australian Chamber of Commerce had unsuccessfully applied to intervene to make submissions in the proceedings and was subject to costs orders.

(2)    In Ashby v Slipper (No 3), the Commonwealth, which had ceased being a party to proceedings following settlement with Mr Ashby, subsequently opposed an application by him to amend an interlocutory application. While the Commonwealth was found to be entitled to its costs for opposing the amendment application, AVL submits that “[n]owhere in the judgment does the [Full] Court say that the usual order as to costs applies in determining whether a costs order should be made against a non-party”.

(3)    In Bannon, the respondent employer had successfully brought an application to set aside a third party notice filed in proceedings under the Fair Work Act. The employer was found to be not precluded by s 570 from a costs order in its favour because the set aside respondent was not a party. AVL submits that the present case can be distinguished on the basis that it has not brought or been a party to any interlocutory application (apart from, of course, the present costs application).

37    Airservices Australia’s reliance on Wigmans is also criticised. AVL emphasises the unusual circumstances of that case, which were described by the judge as “exceptional”. Were it not for the unusual procedural history of Wigmans that meant the original lead applicant of each proceeding could not be subject to costs orders, then the general rule as to costs would have applied. It can therefore be distinguished from the present circumstances, AVL submits, where s 570 displaces the general inter party rule that costs follow the event.

38    In reply, Airservices Australia submits that AVL’s argument that the general rule does not apply to non-parties is mistaken. Consistent with the principle that unreasonable conduct is not required to be shown for making a costs order against a non-party (Wigmans at [48]), the respondent emphasises that the rationale for such an order is not to punish an unsuccessful party, but to reimburse a successful one, citing McHugh J in Latoudis v Casey (1990) 170 CLR 534 at 567:

[T]he rationale of making a costs order is that it is just and reasonable that the successful party should be reimbursed for the costs incurred in bringing or defending the action …

39    The conclusion I have reached after considering the competing arguments summarised above is that the effect of s 570 casts serious doubt on the utility of approaching the question of costs against a non-party litigation funder in terms of any general rule. The better approach is to consider that s 570 at least sufficiently changes the costs landscape to deny there being any starting point in favour of, or against, costs being awarded against funders in Fair Work Act class action cases. However, this must be considered through the prism of the interests of justice, and, when appropriate, protecting the legitimate interests of a successful respondent as outlined by the Chief Justice in Mt Arthur Coal at [68]:

The injustice to a successful respondent of not being able to seek proper costs against such a person, where statute does not prevent it, is within the court’s power to prevent or remedy by order, as part of its control of its own processes. The lack of reciprocity in liability for costs between funder and respondent is not a factor to shield the funder: It is aware of s 570, but nevertheless, it promotes the litigation for its own commercial benefit. Such considerations undoubtedly inform the exercise of power in s 43. The protection of the court’s procedures includes proper protection of parties brought to the court and put to the expense of successfully defending proceedings.

40    Notwithstanding the force of the Chief Justice’s observation, in my view, the terms of s 570 retain relevance in the exercise of discretion. The legislative regime set out in that section may be an important consideration in a given case, depending, for example, on the impact on the exercise of legal rights involved, as considered important in Mt Arthur Coal, and any other impact on the interests of justice. Put another way, s 570 cannot be seen to be an irrelevant consideration, but in a given case it may have little bearing on the decision to be made when due regard is had to the commercial arrangements that were entered into.

The relevance of s 570 – no underlying cost risk

41    AVL criticises the respondent’s submission that s 570 is not even relevant when awarding costs against a non-party funder. Section 570 is relevant, AVL submits, because it means there is no underlying costs liability from which AVL is shielded by not being a party. It submits that the ordinary rationale for costs being available against non-party funders is to prevent them from using courts for commercial gain while being shielded from the quid pro quo of litigation: that is, where funders stand to recoup costs against the respondent if successful, they should incur the risk of a costs order against them, citing Gore v Justice Corporation Pty Ltd [2015] FCAFC 9; 119 FCR 429 and Dymocks Franchise Systems, which in turn cites Arklow Investments Ltd v Maclean (High Court of New Zealand, Fisher J, unreported, 19 May 2000). AVL submits that this rationale is only relevant where costs follow the event, and chiefly where a funder seeks to avoid a costs liability by standing behind an impecunious plaintiff. However, in the present circumstances, the effect of s 570 is that there is no costs risk for which Ms Duck as the lead applicant would be liable.

42    Further, AVL submits that if Ms Duck had been successful in the present case then there was no possibility that it could recover its legal costs from the respondent. In these circumstances, if the respondent is able to recover its costs from AVL, the respondent would have been able to litigate with the benefit of not ever having to pay the applicant’s costs if the application succeeded. This is said to create an asymmetrical regime that would be inconsistent with the “general rule” that the respondent says applies, where “fairness dictates that the unsuccessful party typically bears the liability for the costs of the unsuccessful litigation”, citing Oshlack at [67].

43    In reply, Airservices Australia states that AVL’s emphasis on there being no cost risk from which it is shielded misstates the basis for making such an order against a non-party. It is not that there should be a quid pro quo in terms of a cost risk in return for the possibility of a costs order in the applicant’s favour, but rather, in the respondent’s words, “a person who funds litigation in the hope of gaining a commercial benefit should share in the costs of the litigation if it fails”. The respondent later quoted Dymocks Franchise Systems at [25(3)], quoted in Turner v Tesa Mining at [35], which states:

Where, however, the non-party not merely funds the proceedings but substantially also controls or at any rate is to benefit from them, justice will ordinarily require that, if the proceedings fail, he will pay the successful party’s costs. The non-party in these cases is not so much facilitating access to justice by the party funded as himself gaining access to justice for his own purposes.

44    I am troubled by this reasoning being too readily or universally applied to Fair Work Act class action proceedings, as opposed to general civil litigation in which the non-party funder is put in the same position as the funded moving party. It seems to me, with respect, to deny the reality of such proceedings.

45    The reality is that while s 570 removes the risk of an adverse costs order against an applicant so as not to deter bringing an action, it does not address the difficulty in funding an action in this area where the individual financial benefit is often small compared to the costs of bringing a case. While a non-party funder will almost certainly be acting for their own commercial purposes, to say that they are “not so much facilitating access to justice” by funding an action which otherwise would not, or likely could not, have been brought in any effective way, fails to acknowledge the real financial barriers that may be faced by applicants. The existence of s 570 is seemingly a recognition that such barriers may particularly be faced by those seeking relief under the Fair Work Act.

46    Too readily allowing costs against non-party funders may have the effect of indirectly subverting the purpose of s 570, by imposing a deterrent to bringing an action that cannot be imposed directly. This is somewhat akin to the substance of the reasoning by the Full Court in Mt Arthur Coal as to the indirect effect of imposing the consequences of a security for costs order when that cannot be imposed directly. I discuss the application of this “indirect effect” reasoning in the present case in more detail below. In any event, this Court cannot ignore the reality that even the most meritorious claims may be curtailed purely because of the financial resources available to potential applicants, including in particular from a non-party funder. While a far from perfect solution, the intervention of non-party funders does provide, at the very minimum, the access to the justice system that s 570 is designed to encourage. As a practical matter, a non-party funder may in certain circumstances be the only way in which the underlying purpose of s 570 is not rendered a hollow legal protection divorced from reality.

47    However, s 570 does not give non-party funders free reign to conduct themselves with impunity. In an appropriate case, the Court may be entitled to decline to award costs against a funder in the absence of circumstances akin to, if not necessarily identical to, those in s 570(2), so as to maintain coherence and consistency in this area of litigation. This would mean that a funder would still be exposed to the risk of a costs order if the proceeding was, for example, found to have been instituted vexatiously or without reasonable cause, or if it was found that there was an unreasonable act or omission in the conduct of proceedings that caused the respondent to incur the costs, or if there was something else about the nature of the case or the way in which it was conducted so as to warrant costs being awarded against a non-party funder. At the very least, such considerations would be highly relevant to the exercise of the costs discretion.

48    The reasoning that s 570 solely exists to remove the risk of an adverse costs order against an applicant so as not to deter them from bringing an action, tends to suggest, incorrectly, that imposing a costs risk on a litigation funder is an act which exists in isolation. Such a risk amounts to a quantifiable cost, whether by way of insurance or the taking of risk, which will in some way be passed on to those seeking to take advantage of a funding agreement. That is likely to have a substantial deterrent effect on the bringing of a Fair Work Act class action, albeit operating indirectly, that s 570 is so clearly intended to remove. This will make it harder to run cases that are not clear cut. As White J pointed out in Mt Arthur Coal at [129], the policy rationale for s 570 should not be undermined by indirect means, typified by security for costs, but not confined to that consideration. Neither the Chief Justice, nor Middleton J, went so far as to clearly endorse the extension of that reasoning beyond security for costs.

49    AVL, in reliance upon an unchallenged aspect of Mr Brennan’s evidence, and which I accept so far as it goes, submits that:

(1)    it would be unlikely to offer funding unless the likely quantum of damages was so significant as to offset the additional costs of ATE insurance;

(2)    if it were not able to pass onto group members (as amounts to be reimbursed from any resolution sum) the costs of obtaining ATE insurance cover, AVL would seek a higher commission rate as part of the pricing offered, to ensure that the funding of any claim remained commercially viable; and

(3)    if that higher commission rate were permitted, it would have the effect of imposing on an applicant a cost associated with an adverse costs risk from which the legislature intended the applicant to be immune.

The main problem with this evidence and submission is that it is about future cases, and not this case, and it is difficult to see why this reasoning was not applied in deciding to fund the action brought in Ms Duck’s name. That is, it appears that some kind of risk assessment must have been carried out, albeit perhaps underestimating the degree of risk that was present in this case.

50    In a given case, the benefit of a funder not having to pay the respondent’s costs if the funded case fails may be proportionate to the fact that even if the action was successful, the settlement amount would have to cover the lead applicant’s legal costs. The funder does not stand to make a windfall gain without any associated risk, as Airservices Australia seems to suggest, as they are still liable for the applicant’s costs if the action fails.

51    The conclusion I reach is that the absence of a costs risk for the respondent in the proceeding is a relevant consideration to take into account in deciding whether or not it is in the interests of justice for a costs order to be made against AVL. But this consideration falls well short of s 570 constituting any hard barrier to costs being awarded against AVL. It is but one factor to consider in the exercise of the costs discretion. The conduct of the litigation is always likely to be an important consideration, in the sense contemplated by s 570(2), without being confined to its terms. Beyond that, AVL has not identified a specific way in which a possible costs order in this case in fact impacted upon the decision to fund this proceeding having regard to the policy considerations underpinning s 570. In all probability, that is inherently difficult to establish at the time the decision is made, and prospectively. I am not able to be satisfied that it was a guiding consideration in this case.

The relevance of s 570 – access to justice

52    AVL submits that the Court should take into account the policy rationale of s 570 when considering the discretion to award costs against non-parties, even if the provision does not directly apply (in conformity with Mt Arthur Coal). This is in circumstances where the discretion under s 43(1) is expressly subject to s 570 and must be exercised “judicially and in accordance with the general legal principles pertaining to the law of costs” and “in the interests of justice”, citing Knight at 192. AVL submits that purpose of freeing parties from the risks of paying the costs of an opposing party still applies where a non-party funder is involved.

53    In the present case, the applicant relied upon the fact that Ms Duck would not have commenced proceedings had she not been able to secure funding, where the law firm with carriage of the matter was not prepared to act on a no-win, no-fee basis. Further, as outlined above, had AVL believed it may be liable for the respondent’s costs, it would have needed to obtain insurance to cover that additional risk. This would have had the consequence of:

(1)    making AVL less inclined to offer funding unless the quantum of potential damages was significant enough to offset this additional cost; and

(2)    either passing on the additional insurance cost to group members as amounts to be reimbursed from any resolution sum, or seeking a higher commission rate.

In these circumstances, AVL submits, the applicants in effect bear the risk of adverse costs that the legislature intended to shield them from through s 570.

54    I have already accepted that the presence and ordinary operation of s 570 is a relevant, but not determinative, consideration in deciding whether, in a given case, it is in the interests of justice that a costs order be made against a non-party funder. However, I do not consider I can have much regard to the consequences asserted in the preceding paragraph on the state of the evidence before me.

Further submissions on Mt Arthur Coal

55    Both parties provided further submissions following the publication of Mt Arthur Coal. AVL’s submissions can be summarised as follows:

(1)    the Full Court did not accept that there existed any general rule or expectation such as that set out at [41] of the primary judgment, and the Full Court had not derogated from usual principles of third party costs orders, recognising that s 570 of the Fair Work Act did not necessarily prevent a costs order being made against a litigation funder;

(2)    while the decision in Mt Arthur Coal was not in relation to an application under s 43(1) of the FCA Act, and therefore not binding, the consideration of s 570 of the Fair Work Act in the context of orders against third parties for costs and security would be of assistance in the determination of the present question;

(3)    the Full Court’s concern to avoid indirectly undermining the policy underpinning s 570 of the Fair Work Act was key to the decision, and the legislative policy of s 570 should also inform the exercise of the Court’s discretion under s 43(1) of the FCA Act in the present proceedings, citing the judgment of White J at [103] and [107] (with whom the Chief Justice (at [66]) and Middleton J (at [89]) agreed);

(4)    in that case, an order for security for costs was unacceptable because, in the circumstances, it would expose the applicants to the risk of a stay or like inhibition, which would indirectly undermine the policy objectives of s 570, and a litigant should not be able to achieve by indirect means an outcome that it could not achieve by direct means;

(5)    although Ms Duck would not be affected by a costs order against AVL, future applicants and group members seeking to take advantage of litigation funding would be likely to be burdened by potential adverse costs exposure being passed through to them, which would be contrary to the legislative intent of s 570;

(6)    the public interest nature of employment litigation under the Fair Work Act meant that if litigation funders were unable to pass through the risk of an adverse cost order, they would stop offering such a service altogether; and

(7)    the present circumstances, like the dispute in Mt Arthur Coal, was a bona fide dispute about fundamental industrial entitlements, and it would not be in the public interest of facilitating similar proceedings in the future if the Court were to make a costs order against AVL in circumstances where there has been no improper conduct.

56    Conversely, Airservices Australia’s principal stance, in suggesting that no further submissions arising from Mt Arthur Coal were necessary, was that the Full Court was concerned with a security for costs application and not a costs application per se. However, as I decided I would be assisted by further submissions, as proved to be the case, Airservices Australia now submits:

(1)    the Full Court decision did not overturn Lee J’s conclusion that there was no reason in principle why a costs orders should not be made against a commercial funder of litigation in a no costs jurisdiction;

(2)    a costs order in the circumstances of this case would not undermine the policy underlying s 570; and

(3)    the public interest aspect involved in some Fair Work Act litigation did not tell against an order that costs be paid by a funder who is involved for commercial gain.

57    In developing these arguments, Airservices Australia, clearly correctly in my view, characterised the effect of the Full Court decision as overturning Lee J on a narrow basis. The basis was that of overlooking the character of a security for costs order as a condition carrying the risk of the claim being stayed or dismissed (that being a consequence that could not be brought about directly against an individual natural person litigant). In those circumstances, the order was beyond the proper exercise of discretion. This did not involve a denial of the general principle that a non-party litigation funder should ordinarily be liable for a respondent’s costs if the funded litigation was to fail. This reasoning relies upon an analysis of the Chief Justice’s reasons in Mt Arthur Coal:

(1)    at [18], to the effect that s 570(1) did not protect the funder from a costs order;

(2)    at [19], that, based on the authorities dealing with liability for costs on the part of a non-party funder, it could be assumed that a commercial funder may be liable to pay a successful respondent’s costs;

(3)    at [27], that the conclusion that the security for costs order ought not be made said nothing about whether the third party funder might be liable for at least a proportion of costs if the proceeding failed; and

(4)    at [63]-[68], which set out grounds of appeal 3 and 4 that failed, addressing AVL’s argument to the effect that s 570 had wrought a change to the principles governing costs orders against non-party funders in Fair Work Act proceedings, and not accepting those arguments, finding that:

(a)    the liability for costs by the funder can be drawn from the limits on s 570;

(b)    the Court is able to control its processes to prevent injustice;

(c)    the funder is a real participant in the litigation, using the court system for a commercial purpose, not just a facilitator of access to justice;

(d)    the policy of s 570 protects only parties to the litigation and says nothing of others;

(e)    the characterisation of the proceedings as a common venture was an “apt focal length” of attention to whether a funder should be at risk of costs from its commercial activities, sufficiently able to be regulated by the Court’s ordinary processes.

58    The conclusion that I have reached is that Airservices Australia more accurately captures the substance of the decision in Mt Arthur Coal. As such, Mt Arthur Coal does not offer much more assistance to AVL’s case than did Turner v Tesa Mining, although the indirect effect reasoning of the Full Court has been applied above by analogy and has been useful for that purpose.

Further factors in the exercise of discretion

59    AVL submits that, even if the Court accepts that costs orders should be made against litigation funders as a matter of course in unsuccessful representative proceedings alleging contraventions of the Fair Work Act, non-party costs orders should not be made in the specific circumstances of this case. That is because the respondents did not make an application for security for costs, or otherwise provide notice that it intended to make an application for a non-party costs order, quoting Mason CJ and Deane J in Knight at 191, applied in Vestris v Cashman:

The availability of an order for security for costs at an earlier stage of the litigation will, in any situation, be a strong argument for refusing to exercise a discretion to order costs against a non-party.

60    AVL submits that the respondent’s failure to provide notice that they would be seeking orders for costs denies it procedural fairness (citing Vestris v Cashman at 458). It submits that it caused it to suffer prejudice, as it would have sought ATE insurance had it been aware of the respondent’s intention. It adduced the evidence of Mr Brennan to that effect, considered above at [18]-[23].

61    AVL submits that the fact that it acted in a way to contain costs in the proceeding, including by proposing a separate question; limiting discovery; reaching a consent position on the opt-out process; and serving limited evidence confined to the separate question, is relevant to the exercise of the Court’s discretion under s 43(1). AVL submits that the Court should not place any weight, as the respondent submits, on the fact that the funding agreement included a term requiring AVL to fund any adverse costs order against the applicant. Such a term is said to be standard in AVL’s funding agreements.

62    Airservices Australia submits that it was not under any obligation to seek security or advise AVL of their intention to seek costs. First, it was not clear until Turner v Tesa Mining was decided that there was a power to order security for costs against a third-party funder. Second, the application would have caused additional delay and expense. Third, costs expenditures were not so great as to require the respondents to seek security. Any failure of AVL to seek ATE insurance arises from its own failure to comprehend its legal position under s 570, and is not the responsibility of the respondent, the respondent submits. AVL is said to have been put on notice of the possibility of a costs order against it when Mt Arthur Coal sought this in Turner v Tesa Mining, it being the funder in that case as well. Airservices Australia further submits that it was for AVL to prove prejudice, for example, by showing that the costs of obtaining ATE insurance was worthwhile compared with the possibility of a successful outcome.

63    Finally, Airservices Australia submits that lack of notice is but one factor that needs to be balanced with other discretionary considerations, citing Lander J in Vestris v Cashman at 472, and Kebaro Pty Ltd v Saunders. The respondents also submit that there was no obligation to provide notice of an intention to seek costs in circumstances where they had read of AVL’s commitment to pay any adverse costs order in its funding agreement, citing Gore v Justice Corporation Pty Ltd at [48].

Consideration and conclusions

64    While AVL has correctly identified that I am not bound by the decision of the Full Court in Mt Arthur Coal, I accept their submission that the consideration of the application of s 570 is of assistance in the present case, but find that it is of limited and non-determinative assistance because the assertions relied upon predictions about what would happen in other cases in the future, rather than by reference to what actually occurred in this case. I would read the Full Court in Mt Arthur Coal as finding that the underlying purpose of s 570 cannot be wholly set aside in favour of more general principles and discretion relating to the award of costs. However, I consider I should accept the effect at least of Airservices Australia’s submission that because the Mt Arthur Coal decision related to an order for security for costs, the contextual importance of s 570 is lessened. The relevance of s 570 in a given Fair Work Act class action case may be great, small or non-existent, but that is a question to be answered in context and not in the abstract, in the exercise of the Court’s broad costs discretion.

65    I reluctantly conclude that had this proceeding gone to trial, and only there failed, Airservices Australia’s arguments on costs would have been more likely to prevail, notwithstanding the concerns I have with that being seen to be the most likely outcome. I consider that such an outcome bears with it practical consequences for the efficacy of s 570 in large volume, small claim, class action cases involving difficult issues where success is far from assured. In my view this is likely to have a chilling effect on the bringing of such cases, undermining the objective of s 570 at a practical level. My reasons above give some indication as to how a non-party funder might be able to bring a given case addressing the indirect impact reasoning applied by the Full Court in Mt Arthur Coal, but I am not satisfied that AVL achieved that objective in this case. The burden of assessing the risk to the extent necessary to make out the indirect impact may just be too great in a given case.

66    I am not satisfied that any denial of procedural fairness on the part of the respondents has been established. The plain words of s 570 mean that AVL should have been on notice that the provision did not in terms provide a shield from a costs order in the way that it does to an individual applicant in Fair Work Act proceedings. However, the absence of notice that a costs application might be made remains a relevant consideration in relation to the interests of justice. For completeness, I do not accept that AVL was put “on notice” that costs would be sought against it in this proceeding because security for costs were sought against it in the completely separate proceeding of Turner v Tesa Mining.

67    I attach considerable weight to the cooperative and sensible way in which the litigation was conducted, especially by way of raising the separate question that was recognised to be decisive if adversely decided to Ms Duck as the lead applicant, as indeed happened. It is very much in the interests of justice to encourage this sort of conduct, especially by the potent exercise of the costs discretion. As observed by Lee J in the passage from Turner v Tesa Mining reproduced at [10] above, s 37M(3) of the FCA Act requires “that any practice and procedure power, including the power to award costs, must be exercised or carried out, in a way that best promotes the overarching purpose …”. Specifically, s 37N(4) requires “that in exercising a discretion to award costs, the Court must take into account any failure of a party or their lawyer to comply with the overarching purpose” (emphasis added). I consider that in this case, considerable weight should be given to the converse, namely the high level of compliance with the overarching purpose.

68    Had the separate question procedure not been deployed, I consider it highly likely that the irrecoverable part of costs incurred by the respondent (if costs had been awarded to it following a trial) would have far exceeded the costs that were in fact incurred by the path agreed to by the parties. While doubtless the same argument would have been run at trial, substantial costs would still have been incurred. It is significant there has not been suggested, much less identified, any basis for concluding that the proceeding was instituted vexatiously or without reasonable cause, or that there was any conduct by Ms Duck, AVL, or the lawyers for either of them that amounted to any unreasonable act or omission.

69    In all the circumstances, I am not satisfied that it is in the interests of justice to make a costs order against AVL in favour of the respondent.

Associate:

Dated:    30 March 2021