Federal Court of Australia

Palmer v Premiair Aviation Maintenance Pty Ltd [2022] FCA 185

ORDERS

THE COURT ORDERS THAT:

1.    Pursuant to r 40.02(a) of the Federal Court Rules 2011 (Cth), the costs awarded under Order 2 made on 3 December 2021 be paid by the applicant on an indemnity basis.

2.    For the avoidance of doubt, Order 2 made on 3 December 2021 is to include the costs of seeking Order 1 made above.

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

REASONS FOR JUDGMENT

YATES J:

Introduction

1    Pursuant to consent orders made on 3 December 2021, leave was granted to the applicant to discontinue this proceeding, with the applicant to pay the respondent’s costs.

2    The respondent seeks its costs on an indemnity basis: r 40.02(a) Federal Court Rules 2011 (Cth). The applicant opposes that application.

3    Procedural orders were made for the determination of that question, with the application to be adjourned for hearing on a date to be fixed by the Court or to be determined on the papers.

4    Having received and considered the parties’ submissions, I have determined that it is appropriate that this question be determined on the papers.

Background

5    The proceeding (NSD423/2021) was commenced on 10 May 2021. It concerns work carried out by the respondent on a Cessna Citation X aircraft, which the applicant owns.

6    On 23 November 2020, prior to commencing the proceeding, the applicant’s lawyer wrote to the respondent, stating amongst other things:

1.     My client understands that you are presently in possession of his aircraft and that you have been performing work on the aircraft.

2.     My client has not engaged your company to perform any work on his aircraft.

3.     My client has not entered into a contract with your company in respect of any matters relating to the aircraft.

4.     My client understands that a former employee of Mineralogy Pty Ltd, Mr Carlo Filingeri has been giving instructions to you regarding work to be performed on the aircraft.

5.     My client has not authorised Mr Filingeri to give any instructions on his behalf. Mr Filingeri is employed by Mineralogy, not Mr Palmer.

6.     Mr Palmer has not authorised Mineralogy (nor Mr Filingeri) to act on his behalf in respect of work to be performed on the aircraft.

7    On 4 December 2020, the respondent’s lawyers responded, stating amongst other things:

It is sufficient to point out at this stage that Mr Filingeri was authorised to act on behalf of Mineralogy and in all likelihood on instructions given by Mr Palmer. In any event, the work that has been carried out was pursuant to written agreements between PremiAir and Mineralogy and that Mr Palmer, if he is the owner of the aircraft as you contend, entrusted the aircraft to Mineralogy. The scope of the work to be undertaken was dictated by the instructions given by your clients and the circumstances including, in particular, the fact that the aircraft had not been operated for many years and had been left in the open for most of that time, and obviously was not in an airworthy condition.

Relevantly, you have referred … in your letter of 23 November 2020 to the costs that Mr Palmer will incur in having the aircraft repaired and made airworthy. The confirmation that Mr Palmer wants to have the aircraft made airworthy is consistent with the instructions given by Mr Filingeri. The work that PremiAir has undertaken is necessary to achieve that end. The suggestion that your client can have the benefit of the work carried out to make the aircraft airworthy without paying for the work is absurd.

8    In a Concise Statement filed on 10 May 2021, the applicant alleged, somewhat inconsistently with the position stated in the letter of 23 November 2020 that, in 2020, Mr Filingeri was, in fact, his agent and that Mr Filingeri had entered into contracts with the respondent to carry out work on the aircraft. The applicant alleged, however, that Mr Filingeri had entered into the contracts outside the authority and scope of the agency he had been given. The applicant alleged that the contracts were entered into on 22 June 2020, 27 July 2020, 19 October 2020, and 5 November 2020. He alleged that, between about June and November 2020, the respondent obtained possession of the aircraft in accordance with the terms of the contracts, and dismantled it. He alleged that this constituted damage. He advanced claims in trespass and conversion, detinue, and unconscionable conduct within the meaning of s 21 of the Australian Consumer Law. Amongst other relief, he claimed the estimated cost of reassembling the aircraft ($932,107.92) or, alternatively, its value if not returned ($2,000,000.00).

9    In its response to the Concise Statement, filed on 11 June 2021, the respondent alleged that the applicant had appointed Mineralogy Pty Ltd (Mineralogy) to be the operator of the aircraft. It also alleged that the applicant had appointed Mr Filingeri, who was Mineralogy’s chief pilot, to enter into contracts on behalf of Mineralogy for inspections, maintenance, and repairs in respect of the aircraft, which had not been operated since about 2016, to return it to an airworthy condition.

10    Prior to the commencement of proceeding NSD423/2021, Mineralogy had, itself, commenced a proceeding against the respondent (proceeding NSD46/2021). Proceeding NSD46/2021 also concerned the work carried out on the aircraft by the respondent. In a Concise Statement filed on 21 January 2021, Mineralogy alleged that, between 10 July 2020 and 22 October 2020, the respondent had invoiced it for work carried out on the aircraft, and that it had paid amounts in respect of those invoices in the mistaken belief that it was legally obliged to do so. Mineralogy alleged that it did not own the aircraft and that it had not authorised the respondent to carry out the work. It sought repayment of the amounts it had paid in that regard.

11    On 15 October 2021, the applicant’s lawyer wrote to the respondent’s lawyers in respect of both proceedings, stating amongst other things:

1.     On 2 August 2021, my clients discovered to you documents in the above proceedings. At that time there remained, and still remains, categories of document which are outstanding. My clients had not at that time, and still have not, certified final document lists.

2.     In undertaking further investigations prior to finalising discovery, including having regard to the documents requested by your client pursuant to the outstanding categories of document, my client identified and provided to me for the first time the enclosed additional document, being an Aircraft Lease Agreement naming Clive Palmer as the lessor and Mineralogy Pty Ltd as lessee, dated 25 August 2020 (Lease). I now disclose to you the Lease.

3.     The Lease is plainly relevant to both proceedings and, having now been made aware of the document, my view is that it necessarily has implications for both proceedings. The implications and next steps follow:

(a)     In my and my client’s view, it is now necessary that NSD 423 be discontinued. I hold my client’s instructions to discontinue the proceedings and I seek your client’s consent to that discontinuance. I include as an enclosure a Notice of Discontinuance for your signature. Please let me know if your client has any difficulties in consenting to the discontinuance. If there are no issues, then I will file the signed Notice of Discontinuance once received.

(b)     Aspects of NSD 46 now require amendment (both as a result of the identification of the Lease itself, and also as a result of discontinuance of the related proceeding NSD423). The amendments to the concise statement in NSD 46 will necessarily have flow through effects for the defence and reply, and your client’s cross-claim, and for the scope of discovery and any required lay and expert evidence. …

12    The Lease granted by the applicant conferred sole and exclusive responsibility for the operation and control of the aircraft on Mineralogy. It also imposed the following obligations (amongst others) on Mineralogy:

Lessee shall, during the Term, at its own cost and expense, maintain, inspect, service, repair, overhaul and test or cause the Aircraft to be maintained, inspected, serviced, repaired, overhauled and tested so as to keep the Aircraft in good operating condition, ordinary wear and tear excepted, and in compliance with all Applicable Law, including applicable provisions of relevant regulations and the manufacturer’s recommended inspection and maintenance program for the Aircraft.

The Lessee shall maintain the Aircraft in an airworthy condition with a current and valid airworthiness certification where required from the relevant authority and maintain registration of the Aircraft where required on the relevant civil aircraft registry.

…

Submissions

Respondent’s submissions

13    The respondent draws attention to the fact that the Lease was entered into between the applicant and Mineralogy just three months before the letter of 23 November 2020. It submits that it is apparent from the terms of the Lease that Mineralogy was not only authorised, but obliged, to enter into contracts to restore the aircraft to an airworthy condition. It submits that, if the existence of the Lease is the reason for the applicant’s discontinuance of the proceeding—which appears to be the reason given in the letter of 15 October 2021—then the proceeding did not have reasonable prospects of success “at the outset”. The respondent submits that the applicant’s commencement of the proceeding, which was bound to fail in circumstances where the applicant knew or ought to have known of the Lease, was unreasonable, and that, as a consequence, the respondent was, unreasonably, put to the expense of defending a proceeding that could never have succeeded. Therefore, the respondent submits, the applicant should be ordered to pay the respondent’s costs on an indemnity basis.

14    In this connection, the respondent relies on the following statements of principle by Wigney J in Australian Competition and Consumer Commission v Colgate-Palmolive Pty Ltd (No 5) [2021] FCA 246; 151 ACSR 26 at [6] – [12]:

6    The Court’s discretionary power to award costs derives from s 43 of the Federal Court of Australia Act 1976 (Cth) (FCA Act). The usual rule is that an order for costs means costs “as between party and party”: r 40.01 of the Rules; see also the definition of “costs” in the Dictionary in Sch 1 of the Rules; Mango Boulevard Pty Ltd v Whitton [2015] FCA 1352 at [12]. A party or person who is entitled to costs may, however, apply for an order that costs be awarded in their favour “other than as between party and party”: r 40.02(a) of the Rules. That includes an order that costs be awarded on an indemnity basis.

7     The discretion to award costs on a basis other than as between party and party, including on an indemnity basis, is “unfettered, save that it must be exercised judicially and not arbitrarily or capriciously”: Australian Competition and Consumer Commission v The Construction, Forestry, Mining and Energy Union (No 4) [2018] FCA 684 at [96]. The discretion must also be exercised in light of the requirement that the Court consider any failure by a party to comply with the overarching purpose of the civil practice and procedure provisions to facilitate the just resolution of disputes according to law as quickly, inexpensively and efficiently as possible: see ss 37N(4), 37M(1) of the FCA Act; LFDB v SM (No 2) [2017] FCAFC 207 at [7].

8    The discretion to depart from an order for party and party costs will not be exercised unless there is some special or unusual feature or the justice of the case so requires: Cirillo v Consolidated Press Property Ltd (formerly known as Citicorp Australia Ltd) (No 2) [2007] FCA 179 at [3]; Seven Network Ltd v News Ltd (2009) 182 FCR 160; [2009] FCAFC 166 at [1102]; Melbourne City Investments Pty Ltd v Treasury Wine Estates Ltd (No 2) [2017] FCAFC 116 at [5].

9    The purpose of a costs order is to compensate the successful party, not to punish the unsuccessful one: R v Yurisich (No 2) [2007] FCAFC 51 at [19], citing Latoudis v Casey (1990) 170 CLR 534; Seven Network at [1099]. An award of indemnity costs is to “serve the purpose of compensating a party fully for costs incurred, as a normal costs order could not be expected to do, when the court takes the view that it was unreasonable for the party against whom the order is made to have subjected the innocent party to the expenditure of costs”: Hamod v New South Wales (2002) 188 ALR 659; [2002] FCAFC 97 at [20]; see also Kazal v Independent Commission Against Corruption (No 2) [2020] NSWSC 17 at [60]–[62]; Cirillo at [4]–[5]; Melbourne City Investments at [5].

10     The circumstances in which it may be found to be unreasonable for the successful party to be subjected to the expenditure of any costs are not fixed or closed, but have been found to include, relevantly: where “the applicant, properly advised, should have known that he had no chance of success” (Fountain Selected Meats (Sales) Pty Ltd v International Produce Merchants Ltd (1988) 81 ALR 397 at 401; De Alwis v Minister for Immigration and Multicultural and Indigenous Affairs [2004] FCAFC 77 at [7]); where the moving party “persists in what should on proper consideration be seen to be a hopeless case” (J-Corp Pty Ltd v Australian Builders Labourers Federated Union of Workers (WA Branch) (No 2) (1993) 46 IR 301 at 303); where the applicant’s case was “always clearly foredoomed to fail” and “they ought to have known this to be so” (Smolle v Australian and New Zealand Banking Group Ltd (No 2) [2007] FCA 1967 at [25]); where an application is “wholly untenable and misconceived” (Henke v Carter [2002] FCA 492 at [22]); and where an applicant persists in prosecuting a proceeding without regard to the evidentiary difficulties in the case (Yates Property Corporation Pty Ltd v Boland (No 2) (1997) 147 ALR 685 at 693): see generally Melbourne City Investments at [5]; Seven Network at [1102]; Colgate-Palmolive Company v Cussons Pty Ltd (1993) 46 FCR 225 at 233.

11    Two things should perhaps be noted about these descriptions of the types of cases in which an indemnity costs order may be warranted. First, they use expressions which suggest a high degree of certainty concerning the deficiencies in the losing party’s case. It would appear not to be enough that the losing party’s case was simply weak or tenuous. Second, and relatedly, the deficiencies must be sufficiently manifest and clear such that it can be inferred that the losing party would or should have appreciated them when the action was commenced or continued, at least if they had given proper consideration to, or been properly advised about, the merits of their case.

12    In assessing whether a case can be said to “have no chance of success”, or to be “hopeless” or “foredoomed to fail”, and that the losing party should have known that to be the case, it is also necessary to be wary of reasoning with the benefit of hindsight. As Goldberg J said in Re Kingsheath Club of the Clubs Ltd (in liq) [2003] FCA 1589 at [5], it is “easy with hindsight to make an observation that an action has no chance of success, after the matter has been fully argued and has enjoyed considered attention of experienced solicitors and senior and junior counsel”.

15    The respondent also relies on the following statement by the Full Court in Seven Network Ltd v News Ltd [2009] FCAFC 166; 182 FCR 160 at 1102:

1102    Usually costs are ordered on a party and party basis but if there is “some special or unusual feature in the case to justify the court exercising its discretion” costs may be ordered on some other basis: Preston v Preston [1982] 1 All ER 41 at 58. There must, however, be some justification to depart from the ordinary rule. The discretion to depart from an order for party and party costs will not be exercised unless there is some special or unusual feature or the justice of the case so requires: Re Wilcox; Ex parte Venture Industries Pty Ltd (1996) 141 ALR 727. The categories of case in which it might be appropriate to do so are not closed: Colgate-Palmolive Co v Cussons Pty Ltd (1993) 46 FCR 225. An applicant who should have known that his or her proceeding was foredoomed to failure could be obliged to pay costs on an indemnity basis: Smolle v Australia and New Zealand Banking Group Ltd (No 2) [2007] FCA 1967. A clearly hopeless proceeding may mean that the unsuccessful applicant should be subjected to an order for indemnity costs. An applicant who persists in prosecuting a proceeding without regard to the evidentiary difficulties in the case may be called upon to pay costs on some basis other than the usual basis: Yates Property Corporation Pty Ltd v Boland (No 2) (1997) 147 ALR 685. Specific examples of cases which might attract the exercise of the discretion to award indemnity costs were given by Sheppard J in Colgate-Palmolive Co v Cussons Pty Ltd 46 FCR at 233.

16    The respondent submits further that, if the Lease was not the reason for the applicant discontinuing the proceeding, then the applicant has not offered an alternative explanation for the discontinuance. In other words, the applicant has simply abandoned his case without explanation. Such an abandonment is a relevant factor in considering an application for indemnity costs: Palmer v Gold Coast Publications Pty Ltd [2013] QSC 352 at [31]; Razzy Australia Pty Ltd v Commissioner of State Revenue [2021] VSC 409 at [62].

Applicant’s submissions

17    The applicant submits that there is no basis for the respondent to contend that his claims in the discontinued proceeding would fail because of the Lease. He submits that his claims in respect of contracts up to 25 August 2020 were “able to continue unaffected by the Lease”. He submits, further, that there has been no determination that, under the Lease, Mineralogy could or should enter into maintenance contracts with the respondent.

18    The applicant submits that the respondent has not demonstrated that the discovery of the existence of the Lease was the reason for the proceeding being discontinued. He submits that, in advancing this as the reason, the respondent has engaged in speculation and conjecture. He submits that there is no statement or admission by him that the discovery of the Lease was the reason for the proceeding being discontinued. On the contrary, he submits that the decision taken to discontinue the proceeding was “a reasonable and appropriate forensic decision in circumstances where the key issues to be agitated by [him] could still conveniently be dealt with in the related proceeding…”. In this regard, the applicant submits that there remains a fundamental issue in dispute regarding the authority of “the agent” (Mr Filingeri) to enter into the contracts. He submits that the issue of ownership and control of the aircraft is apt to create a false issue and incur unnecessary time and expense because the respondent will succeed if it is able to show that Mr Filingeri had the relevant authority to bind either the applicant or Mineralogy.

19    The applicant submits, further, that the respondent has conflated the reason for discontinuance with the applicant’s prospects of success. He submits that an inference should not be drawn that the proceeding was discontinued because the existence of the Lease meant that he did not have reasonable prospects of success.

20    Indeed, the applicant submits that the proceeding enjoyed good prospects of success both at the commencement and when they were discontinued, regardless of the existence of the Lease. He points to the fact that, at the time the two of the four contracts were entered into, the Lease did not in fact exist. At the time the proceeding was commenced, it was not “hopeless” or “foredoomed to failure” but, rather, “had good prospects”.

21    Finally, the applicant submits that there is no “special or unusual feature in the case”; it is not “almost certain” that the respondent would have succeeded if the matter had been fully tried; and he has not acted “so unreasonably that the other party should obtain the costs of the action”.

Conclusion

22    In the absence of evidence from the applicant himself, I conclude, from the terms of the letter dated 15 October 2021, that the applicant’s reason for discontinuing proceeding NSD423/2021 was that he was not aware of the Lease, even though the Lease was in his possession, custody, or power, and even though he executed the Lease for himself and on behalf of Mineralogy just three months before the letter of demand of 23 November 2020. I also infer that, had he been aware of the Lease, the applicant would not have commenced the proceeding in the first place. Contrary to the applicant’s submission, there is no other rational conclusion, given the terms of the letter itself, which speak of the necessity to discontinue.

23    The applicant’s submissions—that his claims in respect of contracts up to 25 August 2020 are unaffected by the Lease; that there has been no determination that, under the Lease, Mineralogy could have, or should have, entered into maintenance contracts with the respondent; that there remains an issue as to Mr Filingeri’s authority; and that the proceeding, at the time of its commencement, and at the time of its discontinuance, had good prospects of success—are difficult to reconcile with the terms of the letter itself and the applicant’s unilateral decision to discontinue.

24    In any event, these matters—which seek to support the underlying merits of the proceeding—are really beside the point because they do not engage with the fact that, having commenced the proceeding, the applicant chose not to pursue it. In those circumstances, it is unreasonable to expect that the respondent should bear the costs consequences of those decisions. This, it seems to me, justifies a departure from the ordinary rule that, usually, costs are ordered on a party and party basis. The respondent, as an unwilling party to the proceeding, should be protected, as far as possible, from the adverse costs consequences of what were the applicant’s own forensic decisions, which subjected the respondent to completely unnecessary cost.

25    For these reasons, the applicant should pay the respondent’s costs on an indemnity basis. Orders will be made accordingly.

Associate:

Dated:    7 March 2022