Federal Court of Australia

Watson v Kriticos (Costs Payable Forthwith) [2022] FCA 4

ORDERS

THE COURT ORDERS THAT:

1.    The Applicant pay the First Respondent’s costs thrown away by reason of the amendment of the pleadings undertaken pursuant to the orders of 10 September 2021.

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

REASONS FOR JUDGMENT

PERRAM J:

Introduction

1    On 10 September 2021, I made orders striking out the Applicant’s Third Further Amended Statement of Claim (‘3FASOC’) and granting him leave to file a Fourth Further Amended Statement of Claim (‘4FASOC’) on the proviso that the 4FASOC was to address certain matters identified in the orders. The 4FASOC was filed on 2 November 2021.

2    The First Respondent now seeks his costs thrown away by reason of the amendments. He further seeks:

(a)    an order that the requirements of r 40.13 of the Federal Court Rules 2011 (Cth) (‘FCR’) be dispensed with such that the costs be taxed immediately; and

(b)    an order that the costs be payable forthwith.

3    The Applicant concedes that he must pay the First Respondent’s costs thrown away but contends that neither of the orders at (a) and (b) of the preceding paragraph should be made.

Should Rule 40.13 Be Dispensed With?

Applicable principles

4    Rule 40.13 of the FCR is in these terms:

40.13  Taxation of costs awarded on an interlocutory application

If an order for costs is made on an interlocutory application, the party in whose favour the order is made must not tax those costs until the proceeding in which the order is made is finished.

Note: The Court may order that costs of an interlocutory application be taxed immediately.

5    The notation refers to a discretion in the Court’s hands to dispense with r 40.13. Probably, that discretion is sourced not in the notation itself but rather in the provisions of r 1.34 or r 1.35 but there is no doubt that the discretion exists: Federal Treasury Enterprise (FKP) Sojuzplodoimport v Spirits International B.V. (No 5) [2018] FCA 19 (‘FKP v Spirits’) at [6].

6    The principles governing the exercise of the discretion are similarly well-established. As a general proposition, the discretion should be exercised in favour of a party who establishes that the demands of justice require a departure from the ordinary rule embodied in r 40.13: FKP v Spirits at [7]; Thunderdome Racetiming and Scoring Pty Ltd v Dorian Industries Pty Ltd (1992) 36 FCR 297 at 312 per Olney J. Always to be borne in mind, however, are the twin policy considerations underpinning r 40.13: first, that it is generally undesirable that the parties should be exposed to multiple taxation processes during the life of one proceeding; and second and relatedly, that during the balance of the litigation, costs orders may be made in the opposite direction which will normally be capable of being set-off against earlier costs orders.

7     The exercise of the discretion may be justified in a number of circumstances, including where (FKP v Spirits at [9]):

(a)    the final determination of the proceeding is far away: Allstate Life Insurance Co v Australia and New Zealand Banking Group Ltd (No 13) [1995] FCA 1459 at [5];

(b)    a party has been required to incur significant costs over and above those which it would have incurred had the opposing party acted in handling the proceeding with competence and diligence: Life Airbag Company of Australia Pty Ltd v Life Airbag Company (New Zealand) Ltd [1998] FCA 545;

(c)    following a successful amendment application, a case is essentially a new proceeding: McKellar v Container Terminal Management Services Ltd [1999] FCA 1639 at [19] and [40];

(d)    a discrete issue has been resolved: Australian Flight Test Services v Minister for Industry, Science and Technology [1996] FCA 1425 at [7]; or

(e)    there is some reason to think that interlocutory disputation is draining the ability of one side to conduct the litigation: Clipsal Australia Pty Ltd v Clipso Electrical Pty Ltd [2016] FCA 37 at [12].

8    I previously made an order that r 40.13 be dispensed with in connection with the Applicant’s costs of the First Respondent’s unsuccessful application for summary judgment and strike out, and also an order that those costs be payable forthwith: Watson v Kriticos (Costs of Summary Judgment Application) [2021] FCA 917. The Applicant has applied for taxation of his costs pursuant to those orders and, at the time the present application was made, that taxation was pending before a Registrar of the Court. As indicated at [27] of my reasons, the ‘predominating factor’ which led me to make those orders was the ‘profound waste and delay’ occasioned by the First Respondent’s application and ‘the depth of the misconception upon which it rested’. It is worth noting at this juncture that the Applicant’s conduct in seeking leave further to amend his statement of claim cannot properly be described in the same terms.

First Respondent’s submissions (‘RS’)

9    The First Respondent advances three submissions in support of the orders he seeks.

10    First, he says that significant costs have been thrown away by the amendments. This is principally because the 4FASOC is ‘an entirely new document’ in the sense that it does not mark-up amendments to the 3FASOC but instead re-pleads the Applicant’s case from scratch: RS §2. The First Respondent summarised the changes as follows (RS §4):

(a)    the Applicant has replaced the case on misleading or deceptive conduct by pleading new and different representations said to have been made by the First Respondent;

(b)    the Applicant has withdrawn all allegations relating to four inventions that were previously in issue; and

(c)    the Applicant has otherwise substantially re-cast and expanded his allegations relating to the inventions which are still in issue.

11    In respect of (a) and (b), the First Respondent argues that the costs of the withdrawn allegations are not costs which are related to any matter that remains in issue and therefore are not costs that can reasonably be expected to be carried by the First Respondent to the conclusion of the proceeding: RS §9.

12    In respect of (c), the First Respondent says that costs of these issues will be thrown away because, the 4FASOC having been redrafted from scratch, it will be necessary to redraft the defence from scratch, even though a number of allegations have been carried over from the 3FASOC without substantive modification: RS §5, §10.

13    The First Respondent buttresses this first submission by reliance on the decision of Kiefel J in Batten v CTMS Ltd [1999] FCA 1576. In that case, her Honour made an order that costs be taxed and payable forthwith because ‘whilst the statement of claim was not wholly deficient, it has taken almost a year and three attempts to constitute the action’: at [63]. Although RS §11 did not identify this, the true evil in Batten v CTMS Ltd seems to have resided in the fact that earlier iterations of the statement of claim did not contain any allegation of loss and damage and therefore the amendment with which her Honour was concerned would mark the first occasion on which the pleading ‘could be regarded as complete’: [63]. The Applicant’s 3FASOC cannot be said to have been incomplete in that sense, however, I accept the First Respondent’s basic point that serious deficiencies in a pleading and the extent of amendment required to overcome them may be relevant matters when deciding whether to exercise the discretion to dispense with FCR r 40.13. I return to the merits of this first submission below.

14    Secondly, the First Respondent argues that the extent of the changes embodied in the 4FASOC have most likely delayed the resolution of the proceeding and extended the length of any trial: §17. The First Respondent proffers by way of example the inclusion in the 4FASOC of new claims concerning the Second Respondent’s own products which the Applicant now alleges were developed using the inventions in which he claims to have an interest. This is said to be a novel topic requiring expert evidence and additional time at the trial which would not have been needed on the case as pleaded in the 3FASOC: §§18-19. I return also to the merits of this submission below.

15    Thirdly, and somewhat intriguingly, the First Respondent seeks to leverage the costs orders of 5 August 2021 to which I referred at [8] above and which were adverse to him. He says that the assessment of those costs on a lump sum basis is reserved before the Registrar and that the costs he now seeks will be capable of being set-off against them: §22, §24. The import of this submission is somewhat unclear. It may be directed to the first of the ‘twin policy considerations’ underpinning r 40.13 – i.e., that having already violated the default rule that interlocutory costs orders should not proceed to taxation during the pendency of the litigation I ought to be less troubled by taking that course again. Alternatively, it may simply be that if the First Respondent must shortly pay the costs taxed in accordance with the orders of 5 August 2021, it is only right that he be entitled to set-off the costs he now seeks.

16    But this does not matter, for neither proposition is persuasive. Assuming the first was intended, applications to the Court for an exercise of the discretion under r 40.13 are to be assessed on their merits. The existence of an earlier grant of leave to a party to have their costs taxed immediately, whether that taxation is concluded or still pending, has no bearing on the merits of any future application for such leave. Assuming the second proposition was intended, this is at best a neutral consideration, for it can just as easily be put against the First Respondent’s present application that there may be future costs orders in the Applicant’s favour which are capable of being set-off against the costs which the First Respondent now seeks. I reject the third submission.

17    For completeness, it is worth noting that the First Respondent made a somewhat undeveloped submission that the Applicant is attended by a credit risk: RS §23. If true, this would be a consideration militating in favour of the exercise of discretion: Courtney v Medtel Pty Limited (No 3) [2004] FCA 347 at [24]. In support of this submission, the First Respondent pointed to §20(a) of the affidavit of Chris Chang, the Applicant’s solicitor, sworn 21 June 2021. That affidavit was filed in connection with the taxation process before the Registrar. Paragraph §20(a) discloses that the Applicant was, as at 21 June 2021, late in paying his solicitors for professional fees and disbursements incurred in connection with the First Respondent’s application for strike out and summary judgment. Even if this affidavit had been before me on the present application, I would not have regarded this evidence as sufficient to draw a general conclusion that the Applicant is unlikely to be able to meet adverse costs orders in the proceeding. But even if it had been sufficient for that purpose, the existence of a credit risk is only one factor which bears upon the exercise of the discretion and it is unlikely to be a determinative one.

Applicant’s submissions (‘AS’)

18    The Applicant advances the following reasons why the discretion ought not to be exercised.

19    First, he says that the 4FASOC is not a ‘completely new pleading’ and that it alleges the same basic claims, premised on the same contractual and equitable duties, as were alleged in the 3FASOC: AS §69. Secondly, to the extent that there are new allegations in the 4FASOC, that fact has not resulted in costs being ‘thrown away’: §70. Thirdly, there are good reasons, owing to the recent production of documents by the First Respondent, why his pleaded contentions have been modified: §71.

20    Fourthly, although the Applicant concedes that certain allegations have been withdrawn, he says that these were ancillary and that the core allegations remain intact: §72. Fifthly, because the pleading has undergone change in response to interlocutory applications by the Respondents, the Applicant asserts that a special costs order would create a perverse incentive for the Respondents to make similar allegations in future: §73. Sixthly, he points to an absence of evidence by the First Respondent of any costs actually thrown away: §74. Seventhly, the Applicant avows an eagerness on his part for the proceeding to be resolved as quickly as possible and says that the principal obstacle to this has been the Respondents’ interlocutory applications: §75. Lastly, the Applicant relies upon the ‘twin policy considerations’ to which I have referred above.

Consideration

21    I have already indicated that I do not accept the First Respondent’s third submission (on either possible interpretation of it).

22    With respect to his first and second submissions, I do not consider that the extent of amendment embodied within the 4FASOC justifies an exercise of the discretion to dispense with FCR r 40.13. The amendments are certainly considerable and it may be accepted that the First Respondent must significantly redraw his defence in order to plead to them. On the other hand, I do not think that the 4FASOC discloses an entirely new case – the substance of the dispute and the core allegations against the First Respondent remain the same as that disclosed in the 3FASOC.

23    It may also be accepted that the new allegations will require evidence and submissions at trial which would not otherwise have been required (although, equally, the abandoned allegations will have the opposite effect on the scope of the trial) and the Applicant’s inability properly to plead his case in the beginning has added a degree of expense and delay to the matter. But these considerations form the basis of the First Respondent’s entitlement to costs thrown away. They do not, either individually or taken together, ground a conclusion that it would be unjust for those costs to be taxed in the usual manner.

24    In that circumstance, I decline to make an order that r 40.13 be dispensed with.

Payable forthwith?

25    There would be no utility in an order that costs be payable forthwith if there were no order that the costs may be taxed immediately notwithstanding r 40.13. Accordingly, I decline to make an order that the First Respondent’s costs be payable forthwith.

Conclusion and Disposition

26    The only order I will make is that the Applicant pay the First Respondent’s costs thrown away by reason of the amendment of the pleadings undertaken pursuant to the orders of 10 September 2021.

Associate:

Dated:    13 January 2022