Federal Court of Australia

Kitchen v Director of Professional Services Review (No 4) [2022] FCA 780

ORDERS

THE COURT ORDERS THAT:

1.    Subject to Order 2 of these Orders, the first respondent pay that part of the applicant’s costs on a party-party basis incurred in respect of his proceedings against the first and second respondents from commencement of the Originating Application filed on 13 November 2019, such costs to be taxed if not otherwise agreed.

2.    The applicant pay the costs of the first respondent incurred in respect of the applicant’s oral application for indemnity costs made on 14 April 2021, such costs to be taxed if not otherwise agreed.

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

REASONS FOR JUDGMENT

COLLIER J

1    The substantive proceeding in respect of which costs are now sought arose from a review of the provision of services provided by Dr David Kitchen (applicant), an ophthalmologist operating in Rockhampton and Gladstone, by Medicare for the period 1 February 2016 to 31 January 2017. The purpose of the review was to ascertain whether the applicant had engaged in inappropriate practice within the meaning of s 82 of the Health Insurance Act 1973 (Cth) (HI Act).

2    In his originating application filed on 13 November 2019, the applicant sought judicial review of the conduct of the Director of Professional Services (first respondent) in referring him for review, and the second respondent’s conduct in conducting the review pursuant to s 93 of the HI Act. An amended originating application for judicial review of the conduct of the respondents, including the Notification and Disqualification (as defined in that application) was filed by the applicant on 28 November 2019. A further amended originating application was filed by the applicant on 15 September 2020, in which the applicant sought additional relief including review of the decision of the first respondent to set up the second respondent, pleaded additional grounds of relief, and sought additional relief pursuant to s39B (1A)(c) of the Judiciary Act 1903 (Cth)(Federal Court Act) or alternatively s 21 of the Federal Court of Australia Act 1976 (Cth).

3    On 2 February 2021, at a case management hearing, I made orders effectively disposing of these proceedings but for the question of costs. In those orders, inter alia, I issued a writ of certiorari quashing:

(a)    the decision of the first respondent made on 14 November 2018 to establish Professional Services Review Committee No. 1157;

(b)    the Referral dated 14 November 2018 made under section 93 of the Act;

(c)    the decision of the second respondent made on 20 November 2019, pursuant to section 104(2) of the Act; and

(d)    the decision of the first respondent made on 20 November 2019, pursuant to section 105(1) of the Act, to fully disqualify the applicant and give the Chief Executive Medicare written notice of the disqualification.

4    This proceeding was listed for hearing as to costs at 10.15 am on 14 April 2021. At the commencement of that hearing it became clear that there was agreement between the applicant and the second respondent that there be no order for costs between the applicant and the second respondent. The hearing proceeded referable to the question of costs between the applicant and the first respondent.

5    During the course of that hearing it was evident that the incident that constituted the “event” for the purpose of costs was in dispute. In the event that the Court awarded costs against the first respondent, it was also unclear as to the extent to which such costs would cover costs incurred in respect of actions by the second respondent.

6    Further at that hearing, it became apparent that the parties were some distance apart in respect of the basis on which costs would be assessed as against the first respondent. Counsel for the first respondent submitted that the first respondent agreed to pay the applicant’s costs on the standard basis as against the first respondent for the whole period, and it was on the issue of costs being assessed on an indemnity basis that the parties disagreed. Counsel for the applicant submitted that the costs of the applicant should be assessed on an indemnity basis.

7    After hearing the parties, I made the following orders:

1.    There be no order as to costs as between the applicant and the second respondent.

2.    By 4.00 pm on 30 April 2021, the applicant file and serve supplementary written submissions referable to:

(a)    the extent to which any costs payable by the first respondent would extend to the proceedings prior to 15 September 2020;

(b)    the extent to which any costs payable by the first respondent would extend to the conduct of the second respondent; and

(c)    the characterisation of “the event” in these proceedings, which costs ordinarily would follow in accordance with such authorities as Oshlack v Richmond River Council (1998) 193 CLR 72.

(additional costs issues)

3.    By 4.00 pm on 21 May 2021, the respondent file and serve supplementary written submissions referable to the additional costs issues.

4.    By 4.00 pm on 28 May 2021, the applicant file and serve supplementary written submissions in reply in respect of the additional costs issues.

5.    There be liberty to apply.

6.    Judgment stand reserved as at 4.00 pm on 28 May 2021.

8    In accordance with these orders, written submissions have been received from both the applicant and the first respondent. I now turn to determine the question of costs in general, and the additional costs issues.

legal principles

9    Section 43 of the Federal Court Act allows the Court to award costs. Section 43(1) relevantly provides:

(1)    The Court or a Judge has jurisdiction to award costs in all proceedings before the Court (including proceedings dismissed for want of jurisdiction) other than proceedings in respect of which this or any other Act provides that costs must not be awarded…

10    In accordance with s 43(3)(g), costs may be awarded on an indemnity basis. In Re Wilcox; Ex parte Venture Industries Pty Ltd (1996) 72 FCR 151, at 152-153, Black CJ observed referable to an award of costs on an indemnity basis, in summary:

    the starting point for any consideration of an application for indemnity costs is that in the ordinary case costs will follow the event and the Court will order the unsuccessful party to pay the costs of the successful party, on a party and party basis, a basis which will fall short of complete indemnity;

    nevertheless, the Court has an absolute and unfettered jurisdiction in awarding costs, although that discretion must be exercised judicially;

    indemnity costs may properly be awarded where there is some special or unusual feature in the case justifying the Court exercising its discretion in that way;

    care must be taken not to circumscribe the discretion by reference to closed categories;

    it is not a necessary condition of the power to award costs that a collateral purpose be shown;

    the categories warranting the exercise of the discretion are not closed; and

    in each case it will be necessary to look at the particular facts and circumstances to see whether an exercise of discretion to order costs on an indemnity basis is warranted.

11    Instances in which it has been considered prudent to depart from the usual course and award indemnity costs include those involving irrelevant or false allegations of fraud, misconduct causing loss of time, commencement or continuation of proceedings for an ulterior purpose, and a disregard for facts or clearly established law: Colgate-Palmolive Company v Cussons Pty Ltd (1993) 46 FCR 225. However, an award of indemnity costs is a compensatory, rather than punitive, measure: Hyder v Commissioner of Taxation (No 3) [2022] FCA 493. As Gray J observed in Hamrod v New South Wales (2002) 188 ALR 659 (Carr and Goldberg JJ concurring):

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

12    The prosecution of a weak or tenuous case does not justify the award of costs on an indemnity basis. As was explained by Wigney J in Australian Competition and Consumer Commission v Colgate-Palmolive Pty Ltd and Another (No 5) (2021) FCA 246 at [11]:

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.

13    In proceedings involving a body or organisation acting as in the capacity of a regulator, being a position enshrined in statute, particular care should be taken not, prematurely and in the absence of substantial evidence to the contrary, to conclude that the regulatory action was commenced in the knowledge the it was “hopeless or foredoomed to fail”. As Wigney J further observed in Australian Competition and Consumer Commission v Colgate-Palmolive Pty Ltd and Another (No 5):

17.    What could perhaps be said about the position of regulators such as the Commission is that, before making an order for indemnity costs against the Commission when it has been unsuccessful in a penalty proceeding, the Court would ordinarily need to be affirmatively satisfied to a high degree not only that the proceeding was hopeless or foredoomed to fail, but also that the Commission ought to have realised that to be the case before commencing or while pursuing the proceeding. The Court should generally be slow to infer, in the absence of fairly compelling facts and circumstances, that a regulator charged with important statutory functions and duties, such as the Commission, would commence or pursue penalty proceedings in enforcement of regulatory legislation in such circumstances.

14    His Honour went on to observe that the legislation administered by statutory regulators and the police is often complex, and the cases that they may prosecute are often difficult to prove. Justice Wigney continued:

18.    The public responsibilities of regulators mean that they must, on occasion, pursue hard cases; cases based on circumstantial or highly contentious evidence or perhaps unsettled areas of law. It follows that it might reasonably be expected that they will lose some cases, sometimes emphatically. A regulator who chooses only to pursue easy cases and easy targets might perhaps have an excellent strike rate in terms of winning cases, but it would not be doing its job. These types of considerations, which do not apply to ordinary civil litigants, should be taken into account when assessing whether an indemnity costs order against a regulator such as the Commission is warranted. Even in the case of ordinary civil litigants, indemnity costs “are not awarded as a means of deterring litigants from putting forward arguments that might be attended by uncertainty”: Hamod at [20].

    (emphasis added)

15    I respectfully adopt the observations of Wigney J in this regard.

the event

16    In written submissions filed on 21 May 2021, the first respondent accepted that:

    the event from which costs should follow was that where the applicant had “ultimately been successful in its application” against the first and second respondents;

    this “success” was constituted by the Orders dated 2 February 2021 effectively disposing of the substantive proceedings; and

    the normal course was that costs follow the event.

17    Given these concessions made by the first respondent, and no contrary argument from the applicant, plainly the “event” for the purposes of costs in this proceeding was the making of Orders dated 2 February 2021 whereby the applicant had been wholly successful in his substantive application.

proceedings prior to 15 september 2020

18    The first respondent accepted, in written submissions, that it was to:

pay that part of the Applicant’s costs on a party-party basis incurred in respect of its proceedings against the First and Second Respondent from commencement of the Originating Application on 13 November 2019.

19    There is no dispute that the costs payable by the first respondent extend to the commencement of these proceedings, prior to 15 September 2020.

iNdemnity costs

20    Plainly, the substantive issue remaining for determination is the basis on which costs are to be awarded to the applicant. The applicant seeks costs against the first respondent on an indemnity basis. In written submissions dated 22 February 2021 the applicant contended that indemnity costs should be awarded on the following grounds:

First, up until 4 December 2020 the Director positively maintained the position that she had complied with s 89C(2) of the Health Insurance Act 1973 (Cth) (the Act) by taking the applicant’s written submissions into account in making her decision to refer this matter to a Professional Services Review Committee under s 93. By letter of 4 December 2020, the Director has not conceded that she did not in fact take the submissions into account as required by s 89C(2). There is no suggestion that any new facts came to light at a late stage which justified the concession not being made until December 2020. In those circumstances it was unreasonable for the Director to put the applicant to the cost of over a year of litigation, and the hearings before the Committee, before making the concession.

Second, the Director persisted with her resistance of the applicant’s application to set aside the referral for in excess of 12 months, notwithstanding that she knew facts which, on a proper consideration, revealed her resistance of the application to be hopeless.

Third, the Director did not conduct the litigation in a way that was expeditious. Her conduct of the proceeding added unnecessary costs and burden on the applicant. The Director did so in three ways:

(a) The applicant raised concern regarding the Director’s failure to consider his submissions in February 2019, before the proceeding was commenced. The Director did not meaningfully respond. Rather, the Director effectively required the applicant to bring these proceedings to demonstrate her failure to take into account his submissions.

(b) The Director did not meaningfully engage in the provision of documents by way of discovery for over 6 months. Only on the eve of the return of the applicant’s application for discovery did the Director volunteer documents evidencing her failure to consider the applicant’s submissions.5

(c) The Director took adversarial positions opposing interlocutory relief sought by the applicant in respect of the conduct of the Committee, in circumstances where the Director knew, or ought to have known that the referral to the Committee was invalid. The Director also sought the separate determination of the question of an extension of time, after the applicant (by then) twice been requested the Director to agree to discover the documents evidencing her consideration of the applicant’s submissions. It may be inferred that the Director took the step of seeking the separate determination of that question in the hope that it may bring the proceeding to a premature end, thereby denying the applicant the discovery he sought.

21    The first respondent contended that costs should not be awarded on an indemnity basis, in summary, on the grounds that:

    there was no improper conduct in the pre-proceedings phase;

    its approach to the extension of time application was unimpeachable;

    it consented to the filing of the applicant’s Further Amended Originating Application (FAOA), and its case in this respect was not inarguable or hopeless; and

    any award of indemnity costs against the first respondent would be punitive.

consideration

22    I am not persuaded that costs should be awarded against the first respondent on an indemnity basis.

23    First, I am not satisfied that the first respondent conducted itself improperly in the pre-proceeding phase. It appears that the reason for the first respondent’s alleged “unresponsiveness” to the concerns raised by the applicant in correspondence dated 4 February 2019 was that this correspondence was actually addressed to the second respondent’s representatives. As first respondent submitted:

(a)     the Applicant’s solicitor opened the letter by referring to two notices issued under s 105A of the HIA, a power only the Second Respondent possesses;

(b)     the penultimate paragraph of the Applicant’s solicitor’s letter is directed to compliance with those two notices in the course of the proceedings before the Second Respondent; and,

(c)     the final paragraph of the Applicant’s solicitor’s letter stated, ‘In the circumstances, we are instructed to invite the committee to agree that once proceedings are instituted it will not take any further steps in relation to the review of Dr Kitchen’s conduct. That is, a request directed to the Second Respondent, not the First Respondent.

24    The applicant cannot, as a result, assert that the first respondent was unresponsive to those concerns. Indeed, the legal advisors for both the first and second respondent are taken to be, and must be, distinct and entirely separate: s 106ZPL of the HI Act.

25    Second, the applicant relied on the decision of Griffiths J in National Home Doctor Service Pty Ltd v Director of Professional Services Review (2020) 276 FCR 338, [2020] FCA 386 in support of his application for indemnity costs. In that case Griffiths J observed, at [132], that the relevant legislative regime contained its own procedural fairness requirements and, after referring to other authority, continued:

134.    These observations are directly pertinent to the proceeding here having regard to the terms and effect of s 89C(1) and with its particular reference to s 91. A right to be heard by the person under review affords that person an opportunity to persuade the Director to terminate the complaint at a relatively early stage. That right is different from the rights which the person under the review who is the subject of a subsequent referral has before the Committee.

26    It followed from these observations, in the submission of the applicant, that the first respondent unmeritoriously opposed the applicant’s originating application as referable to a decision lacking the characteristic of finality, when according to the decision of Griffiths J this simply was not the case.

27    In the context of the present costs application, I am not persuaded that such decisions as Geoffrey W Edelsten v Health Insurance Commission [1990] FCA 449 and Phan v Kelly [2007] FCA 269 are no longer either relevant or binding. I note the observation of Griffiths J in National Home Doctor Service Pty Ltd at [147] to the effect that the regulatory regime in force in 1989, which was the subject of the decision in Edelsten, was notably different from that before his Honour in 2020 (and similarly before me). However as the first respondent submitted, in National Home Doctor Service Pty Ltd Griffiths J was primarily considering the issue of procedural fairness referable to a review and a decision made pursuant to s 89C (1) of the HI Act: see for example at [46] of his Honour’s reasons. I am not persuaded that the decision in National Home Doctor Service Pty Ltd means that the first respondent’s opposition to the applicant’s originating application was unmeritorious such that an award of indemnity costs against the first respondent is warranted.

28    Third, I note that there was substantial delay in the applicant filing his Originating Application for Judicial Review, being some 10 months after he had first notified the second respondent of his intention to do so. I am not persuaded, given this substantial delay on the part of the applicant, that the first respondent failed to conduct these proceedings in an expeditious manner.

29    Finally, I am not satisfied that the first respondent’s case was inarguable or hopeless. I further note the regulatory capacity in which the first and second respondents acted, and in that context relevant principles explained by Wigney J to which I have already referred.

conclusion

30    I am not satisfied that costs should be awarded on an indemnity basis against the first respondent in the substantive proceedings. The first respondent accepted that it was to pay that part of the applicant’s costs on a party-party basis incurred in respect of his proceedings against the first and second respondents from commencement of the originating application on 13 November 2019, such costs to be taxed if not otherwise agreed. I consider an order in these terms to be appropriate, subject to the proviso that the applicant should pay the costs of the first respondent referable to his claim for indemnity costs, such costs similarly to be taxed if not otherwise agreed.

Associate:

Dated:    12 July 2022