Federal Court of Australia

Australian Securities and Investments Commission v BHF Solutions Pty Ltd (Costs) [2023] FCA 1007

ORDERS

THE COURT ORDERS THAT:

1.    The respondents are to pay the applicant’s costs (including reserved costs) of the proceeding (both at first instance and on remittal) as agreed or, failing agreement, as taxed.

2.    The respondents are to pay the applicant’s costs of and incidental to the costs’ hearing on 15 August 2023.

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

REASONS FOR JUDGMENT

HALLEY J:

A.    Introduction

1    The only issue remaining to be determined in these proceedings is the question of the costs of the hearing at first instance and the remittal hearing following the successful appeal of the applicant, the Australian Securities Investment Commission (ASIC), to the Full Court of this Court.

2    These reasons assume a familiarity with the reasons in Australian Securities and Investments Commission v BHF Solutions Pty Ltd [2021] FCA 684 (first instance hearing or J1), the hearing of the remittal of these proceedings in Australian Securities and Investments Commission v BHF Solutions Pty Ltd (No 2) [2023] FCA 787 (remittal hearing or J2), and the reasons of the Full Court of this Court in Australian Securities and Investments Commission v BHF Solutions Pty Ltd (2022) 293 FCR 330; [2022] FCAFC 108 (FFC).

3    The Full Court allowed ASIC’s appeal and made orders that the first respondent, BHF Solutions Pty Ltd (BHFS), and the second respondent, Cigno Pty Ltd (Cigno), pay its costs of the appeal. The Full Court remitted the proceedings to the primary judge for determination of ASIC’s allegations against Cigno, relief, and the costs of the first instance hearing.

4    On 12 July 2023, I delivered judgment in the remittal hearing in which I expressed a preliminary view that the respondents should pay ASIC’s costs of both the first instance hearing and the remittal hearing: at J2 [170]. I made orders, specifically in Orders 6 and 7 of the orders made on 12 July 2023, that in the absence of agreement as to costs, the parties should exchange written submissions and the question of costs would be determined on the papers, unless a party requested an oral hearing.

5    The parties agreed that the respondents should pay ASIC’s costs of the remittal hearing but were not able to agree orders for costs of the first instance hearing. The parties exchanged written submissions and Cigno requested an oral hearing, rather than a determination on the papers.

6    ASIC seeks an order that the respondents pay its costs of the first instance hearing.

7    BHFS seeks an order that the respondents pay 80% of ASIC’s costs of the first instance hearing.

8    Cigno submits that there be no order as to the costs of the first instance hearing. Alternatively, it seeks a costs order that the respondents pay 50% of ASIC’s costs of the first instance hearing.

9    The principal issue for determination in the first instance proceedings was whether the fees and charges payable to Cigno were fees and charges “for providing credit” within the meaning of s 5(1) and s 6(5) of the National Credit Code (Code) in Sch 1 of the National Consumer Credit Protection Act 2009 (Cth) (Construction Issue). Related, but less significant issues, were whether (a) BHFS and Cigno were carrying on a business, (b) ASIC could rely on the extended definition of contract (Extended Contract Issue), (c) Australian Securities and Investments Commission v Teleloans Pty Ltd (2015) 234 FCR 261; [2015] FCA 648 (Logan J) is distinguishable from the first instance proceeding, or the relevant reasoning was plainly wrong, and (d) Cigno acted as the agent of BHFS or the agent of Ms Leah Morrow (Agency Issue).

10    The principles governing the discretion to award costs are well established. They were recently restated by the Full Court of this Court in Construction, Forestry, Maritime, Mining and Energy Union v Fair Work Ombudsman (The Botany Cranes Case) (No 2) [2023] FCAFC 56 at [4] (Bromberg, Moshinsky, and Bromwich JJ). Their Honours cited with approval the following statements by the Full Court in Sandvik Intellectual Property AB v Quarry Mining & Construction Equipment Pty Ltd (No 2) [2017] FCAFC 158 at [9]-[11] (Greenwood, Rares, and Moshinsky JJ):

9    Section 43(3)(e) of the Federal Court of Australia Act 1976 (Cth) provides that an award of costs may be made in favour of, or against, a party whether or not that party is successful in the proceeding. The approach usually taken is that costs follow the outcome of an appeal: see Firebird Global Master Fund II Ltd v Republic of Nauru (No 2) (2015) 327 ALR 192 at [6] per French CJ, Kiefel, Nettle and Gordon JJ; see also Les Laboratoires Servier v Apotex Pty Ltd (2016) 247 FCR 61 at [303]; Oshlack v Richmond River Council (1998) 193 CLR 72 at [66]-[68].

10    In Queensland North Australia Pty Ltd v Takeovers Panel (No 2) (2015) 236 FCR 370, Dowsett, Middleton and Gilmour JJ, after referring to Ruddock v Vadarlis (No 2) (2001) 115 FCR 229 and State of Victoria v Sportsbet Pty Ltd (No 2) [2012] FCAFC 174, said at [11] that these decisions treat the success or failure of the relevant party as being the starting point in consideration of the question of costs, but contemplate at least three distinct categories of situation in which a successful party might be deprived of costs, or even ordered to pay the costs of the other side. These were identified as follows:

One such category is where the applicant has been only partially successful in that it has not obtained all of the relief sought. The second category is where a party has succeeded in obtaining the relief sought, but has not succeeded on all bases (factual or legal) upon which it sought such relief. Of course, it is possible that a particular outcome will fall into both categories. A third category involves consideration of the successful party’s conduct of the case.

C    After referring to the decision of Finkelstein and Gordon JJ in Bowen Investments Pty Ltd v Tabcorp Holdings Ltd (No 2) [2008] FCAFC 107, Dowsett, Middleton and Gilmour JJ in Queensland North Australia then said at [18]:

[Section 43 of the Federal Court of Australia Act] does not mention costs following the event. In Ruddock, Bowen Investments and Sportsbet, the Court proceeded on the basis that ordinarily, the successful party may reasonably expect to receive its costs, whether that outcome be described as costs following the “event” or otherwise. The question of costs is within the Court’s discretion. As we have said, relevant factors include the extent of a party’s success, the extent of its success or failure on individual issues and its conduct of the proceedings.

(Emphasis in original.)

B.    Submissions

11    Cigno submits, by reference to the number of pages in the pleadings, submissions, transcript and in the reasons for judgment for the first instance hearing, that between two and three times as much effort was directed at the Extended Contract Issue than on the Construction Issue. It submits that the Extended Contract Issue was (a) a discrete, separable and dominant issue, (b) complex, costly and time consuming to address and resolve, (c) unnecessary and irrelevant to the relief sought and ultimately obtained by ASIC, and (d) dependent on overturning the decision in Teleloans, a decision that ASIC had chosen not to appeal.

12    Mr P. Travis of counsel, who appeared for Cigno, also submits that from a public policy perspective, ASIC:

…ought to be encouraged to think twice about when it is going to bring citizens into court and it is going to raise serious matters against them, that it… – causes of actions or claims or construction issues that are irrelevant and will only cause to deflect the citizen from the task at hand, deplete their resources and distract them from actually meeting the serious questions that ought to be addressed. And that’s what happened here. We have two-thirds in very rough terms, of the time and resources being taken up dealing with what was purely a distraction. And it was an ambitious distraction, at best, because of the need to retake Teleloans.

13    Mr Travis submits that ultimately the question was always whether it was just in all the circumstances to depart from the usual rule that costs at first instance would follow the event, as ultimately determined on appeal. He submitted that:

There’s no rule that requires disentitling conduct, the question is always whether it’s just in the circumstances to depart from the usual rule and when the court asks itself that question, it has a range of orders that can be made and tailored to the situation, and in this case, there is – the fair order is that when a party brings a dominant and separate issue like this and it takes up time in the sense that it’s dominant; it takes centre stage, requires resources to be spent to deal with it, and it’s unsuccessful, and as a separate issue, it could have otherwise – then, at that point, it’s – the fairer order is that Cigno ought to get its costs, but to deal with the situation of a mixed-success case, they can just be offset against one another as a matter of convenience and fairness.

14    Ms D. Forrester of counsel, who appeared for BHFS, submits that BHFS was not advocating any “mathematical approach” to the determination of the costs of the first instance hearing. Rather, Ms Forrester submits there should be some deprivation of ASIC’s entitlement to costs at trial because of its lack of success on the Extended Contract Issue. Ms Forrester acknowledged that no proportionate costs order had been sought before the Full Court, notwithstanding that the Full Court had not accepted the two grounds of appeal directed at the Extended Contract Issue. Ms Forrester submits, however, that the Extended Contract Issue was “front and centre at trial”, unlike before the Full Court, and that provided the Court with a principled basis to deprive ASIC of a proportion of its costs at first instance. Ms Forrester submits that an appropriate discount, in all the circumstances, was in the order of 20%.

15    Dr Allars SC, who appeared for ASIC, submits that the Extended Contract Issue was a “fallback basis” or alternative contention advanced by ASIC. Dr Allars submits it was not a “discrete or separable issue”: see Les Laboratoires Servier and Another v Apotex Pty Ltd and Another (2016) 247 FCR 61; [2016] FCAFC 27 (Bennett, Besanko and Beach JJ). Dr Allars described it as “another route by which ASIC could find its way home in establishing that the financial supply fee was a charge for providing credit within section 6(5)”. Dr Allars submits it was advanced in the context of a common substratum of issues and facts for all of ASIC’s claims against the respondents.

16    Dr Allars submits that ASIC had at all times approached the proceedings in a careful and confined approach. Dr Allars further submits that merely adding up paragraphs of submissions, reasons for judgment and the transcript was an artificial exercise, and the Construction Issue was always the critical issue to be determined.

17    Finally, Dr Allars submits that the Agency Issue was a comparatively minor issue that had, in any event, not been raised by ASIC in its amended statement of claim. Dr Allars submits that the issue had its origins in Cigno’s submissions in the first instance hearing and ASIC was “just responding to an argument put against it in the rights claim”.

C.    Consideration

18    A relevant, but not determinative issue, to be addressed is whether ASIC might have been able to succeed on the Extended Contract Issue if it had otherwise failed on the Construction Issue. Advancing additional and unsuccessful substantive claims that did not provide an alternative path to success could generally be expected to weigh in favour of an otherwise successful party being deprived of a proportion of their costs.

19    The principal case advanced by ASIC in the first instance hearing was that the credit was provided under the Morrow Loan Agreement and the Morrow Drawdown Summaries: at J1 [87(a)]. ASIC described this as the “BHFS Contract”.

20    ASIC advanced an alternative case in the first instance hearing in which it alleged that the Morrow Online Applications, the October 2019 Approval Email and Text, the Morrow Loan Agreement, the Morrow Drawdown Summaries, the Morrow Services Agreement, the Morrow Drawdown Request Summaries, the October 2019 Welcome Email, the Morrow Drawdown Approval Emails, the BHFS/Cigno Agreement and the BHFS/Cigno Agreement Amendments constituted a credit contract: at J1 [87(b)]. ASIC alleged that these contracts and arrangements constituted a series or combination of contracts, or contracts and arrangements, and were therefore a “contract” within the meaning of that term in s 204 of the Code. ASIC described this combined contract as the “Composite Contract”. ASIC alleged that the Cigno fees were charges made for the provision of credit under the Composite Contract.

21    ASIC, however, alleged in both its primary case under the BHFS Contract and in its alternative case under the Composite Contract, that BHFS was the credit provider. In neither case did ASIC contend that Cigno was a credit provider.

22    In those circumstances, it therefore followed, as O’Bryan J concluded at FFC [205]:

…ASIC’s allegation that the Cigno fees (and particularly the Financial Supply Fee) were charges made for the provision of credit within the meaning of s 6(5) is not affected by whether the credit arrangements are viewed as a combined contract, applying the extended definition in s 204, or simply as a series of commercially related contracts. Precisely the same issues arise on either approach. The application of s 6(5) requires the characterisation of the charge in question to determine whether it is made for the provision of credit being, on ASIC’s case, the credit provided by BHFS. Importantly, s 6(5) does not require that the charge be made under the credit contract.

23    Unlike the position in Teleloans, a failure to establish the existence of a “composite contract” would not be fatal as the first instance proceeding was concerned with s 6(5), rather than s 6(1), of the Code. In that sense, consistently with the dictum of O’Bryan J at FFC [208], the Extended Contract Issue did not assist ASIC’s case on the determination of whether Cigno engaged in a credit activity by exercising the rights of BHFS.

24    It follows that there is some force in the submissions advanced by the respondents that, at first instance, ASIC advanced a case that raised a discrete and unnecessary issue that was determined against it and, therefore, it is appropriate that ASIC be deprived of at least some of its costs at first instance.

25    On balance, however, I am not persuaded that there should be a departure from the usual order that costs should follow the event for both the first instance hearing and the remittal hearing.

26    First, ASIC substantially obtained all of the relief that it sought against both respondents after it ultimately succeeded on the Construction Issue. ASIC did not fail to obtain any of the relief that it sought by reason of its lack of success on the Extended Contract Issue.

27    Second, the Construction Issue was always the critical and fundamental issue for determination in the proceeding: at J1 [79] and [135]. The other issues raised by ASIC, including both the Extended Contract Issue and the Agency Issue, were neither determinative nor critical to the relief that ASIC was seeking.

28    Third, there is no necessary causal relationship between the time and effort that might be devoted to an issue and the number of pages in submissions, pleadings and in reasons for judgment that might address the issue. In many cases, and particularly in this case, given the primary significance of the Construction Issue to the determination of the proceeding, any comparison is of limited assistance in making a quantitative assessment of the amount of effort and resources devoted by the parties to the Extended Contract Issue.

29    Fourth, the Construction Issue and the Extended Contract Issue shared a common factual background. The facts directly relevant to the Extended Contract Issue provided at least a contextual background to the Construction Issue. In any event, there were no materially disputed factual issues. The Extended Contract Issue was best characterised as an alternative construction case. It raised additional matters of construction to be determined, but against a common and agreed factual background.

30    Fifth, I do not accept that in this case, there is any justification for depriving ASIC of its costs on the basis that the Court should convey a message to ASIC from a public policy perspective that it should have “thought twice” before it raised the Extended Contract Issue in the proceeding. The proceeding raised difficult and important issues of statutory construction. As I observed at J1 [161]:

On one view, given the beneficial and protective purpose and object of the Code, it might be thought that this produces a result that could not have been intended, but as the High Court stated in Cooper Brookes (Wollongong) Proprietary Limited v The Commissioner of Taxation of the Commonwealth of Australia (1981) 147 CLR 297; [1981] HCA 26 at 305 (Gibbs CJ), when construing a provision “it must be given its ordinary and grammatical meaning, even if it leads to a result that may seem inconvenient or unjust”.

31    While ultimately not determinative, as explained above, it is perhaps not surprising that ASIC considered it relevant to the Construction Issue to determine whether the interrelationship between the various agreements that the respondents entered into with each other and Ms Morrow, gave rise to a single or composite credit contract, particularly given the emphasis on s 204 of the Code in previous authorities. ASIC otherwise conducted the proceedings in a focused and efficient manner, including proceeding by way of agreed facts, reducing the number of borrowers the subject of the proceeding from three to one and focusing only on one of the fees charged by Cigno, namely the financial supply fee. The first instance hearing was concluded in two days. It could not be suggested that the length of the hearing was materially disproportionate to the significance of the issues to be addressed, even taking into account the attention given to the Extended Contract Issue.

32    If anything, ASIC’s responsibilities as a regulator would suggest that from a public policy perspective, a Court should be less inclined, rather than more inclined, to depart from the usual rule that costs follow the event, when ASIC has otherwise successfully obtained the relief that it was seeking in a proceeding.

D.    Disposition

33    Orders will be made that the respondents are to pay ASIC’s costs of both the first instance hearing and the remittal hearing.

34    The parties accept that the costs of the costs’ hearing should follow the event. ASIC also submits that it should receive its costs even if it is unsuccessful, but that submission does not need to be addressed because ASIC has been successful.

Associate:

Dated:    24 August 2023