Federal Court of Australia

Zhang v Lu [2025] FCA 806

ORDERS

THE COURT ORDERS THAT:

1. The respondent pay the applicant’s costs of the cross-claim.

2. A consolidated costs order be made, allowing for set off between:

(a) Order 1 of the orders made on 21 March 2025;

(b) Order 2 of the orders made on 21 March 2025; and

(c) Order 1 of these orders made on 16 July 2025.

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

REASONS FOR JUDGMENT

BROMWICH J:

1 This is an adjudication on costs in relation to a cross-claim filed by the respondent on 14 March 2025 and discontinued on 4 April 2025.  It is useful to set out a brief background of the matter and the costs orders previously made in this proceeding as they will be relevant to the question of costs and whether an alternative form of costs order such as a consolidated costs order would be appropriate.

2 On 14 February 2025, the applicant commenced this defamation proceeding by way of an originating application which sought damages and an order that the respondent be restrained from publishing the alleged defamatory material.

3 On 14 March 2025, the respondent filed a notice of cross-claim which claimed, inter alia, that the applicant had harmed the respondent’s reputation by posting defamatory remarks on social media platforms and had initiated the proceedings in bad faith to intimidate the respondent.  The notice of cross-claim also sought compensation and alleged that the applicant’s proceeding constituted “an abuse of process” and was “driven by malice”.

4 On 18 March 2025, the respondent filed an interlocutory application for “interlocutory costs against the applicant”, citing rr 26.01(1)(a)-(d) of the Federal Court Rules 2011 (Cth), which deals with summary judgment, as the basis for the application.

5 On 19 March 2025, the applicant filed a notice of discontinuance in relation to the proceeding she had brought.

6 At a case management hearing on 21 March 2025, I ordered that:

(1) The discontinuance of the proceeding brought by the applicant on 19 March 2025 be with costs, in accordance with the default position under r 26.12(7) of the Rules.

(2) The interlocutory application filed by the respondent on 18 March 2025 be dismissed with costs.

7 With only the cross-claim remaining, I ordered for the respondent to either file a notice of discontinuance of the cross-claim, or to file an amended notice of cross-claim, by 4 April 2025.  If the cross-claim was discontinued, both parties were ordered to file brief submissions on the question of costs.

8 The cross-claim was discontinued on 4 Apil 2025 and both parties have since provided their submissions on costs.  Two related questions arise in these circumstances and on the parties’ submissions, being whether the respondent should bear the costs of the cross-claim and whether a consolidated costs order should be made.

9 For the following reasons, I consider that the respondent should be ordered to pay the applicant’s costs for the cross-claim in accordance with r 26.12(7) of the Rules and that a consolidated costs order should be made, allowing for set off between the parties’ respective costs entitlements.

The parties’ submissions

10 The respondent’s submissions were apparently directed towards the costs of the interlocutory application, which were already addressed by the orders made on 21 March 2025.  Assuming that the submissions were intended to address the costs of the cross-claim, the respondent contends that she should not be required to bear those costs for the following reasons:

(1) A costs order would place an undue financial burden on her.  The respondent submits that she is financially disadvantaged as a result of her previous domestic situation and her impecuniosity has been exacerbated by the applicant’s actions as her former legal representative in past criminal and family law proceedings.

(2) The respondent suffers from poor mental health, such that she could not follow her solicitor’s legal advice.

(3) The applicant should not be “rewarded by the court” through a favourable costs order, because she engaged in “disentitling conduct”, namely:

(a) the originating application had no reasonable prospect of success;

(b) that proceeding was frivolous and vexatious; and

(c) that proceeding was an abuse of process.

(4) The applicant misused her superior financial position to hinder the early resolution of the proceedings by engaging “highly expensive legal professionals”: Defamation Act 2005 (NSW) s 40(1)(a).

11 In relation to points 1 and 2 above, the applicant contends that a party’s impecuniosity, domestic background and mental health conditions are not matters which affect the determination of costs: Northern Territory v Sangare [2019] HCA 25; 265 CLR 164 at [25] (Kiefel CJ, Bell, Gageler, Keane, Nettle JJ); Datta v AAI Limited trading as GIO & Ors (No 2) [2025] NSWSC 373 at [20] (Rothman J).  Noting the clear defects in the notice of cross-claim filed by the respondent, the applicant submits that unmeritorious litigation is no less unmeritorious because of the respondent’s personal circumstances and therefore, the applicant should not be put to the expense of defending such an action.

12 In response to point 3 above, the applicant points out that the merits of the case that she originally brought have no bearing on the costs of the abandoned cross-claim, especially since costs have already been awarded against her upon discontinuing the original proceeding.  To the extent the respondent argues that the commencement of the original proceeding ought to disentitle the applicant from receiving a costs order in respect of the cross-claim, the applicant argues that the cross-claim contained additional allegations of dishonesty and overcharging which went well beyond the matters raised in the original proceeding.

13 In response to point 4 above, the applicant submits that there was no evidence to suggest that the lawyers acting for her are “highly expensive”.  In any event, the applicant submits that she was entitled to retain quality legal representation, having regard to the serious nature of the allegations contained in the notice of cross-claim which included allegations of dishonesty, abuse of process and malicious prosecution.  Further, the applicant submits that s 40(1) of the Defamation Act has limited application here given the scope of the cross-claim was not limited to an action in defamation.

14 Overall, the applicant submits that the respondent has disclosed no basis to justify a departure from the underlying policy reflected in r 26.12 of the Rules.

Legal principles and consideration

15 Rule 26.12 of the Rules provides that a party claiming relief may discontinue a proceeding in whole or in part by filing a notice of discontinuance.  Rule 26.12(7) addresses the costs consequences of filing a notice of discontinuance:

Unless the terms of a consent or an order of the Court provide otherwise, a party who files a notice of discontinuance under subrule (2) is liable to pay the costs of each other party to the proceeding in relation to the claim, or part of the claim, that is discontinued.

16 The onus is on the respondent, as the discontinuing party, to demonstrate why costs should not be awarded in accordance with this default position: Taylor v Minister for Immigration, Citizenship, Migrant Services and Multicultural Affairs [2020] FCA 1760 at [10] (Flick J).

17 The conduct of the parties and the reasons for discontinuance are relevant to the question of whether a party should be relieved from the costs consequences of discontinuing a proceeding.  As to the reasonableness of the respondent’s conduct in commencing and conducting the cross-claim, I note that she was ordered to file an amended notice of cross-claim in the event that the cross-claim was not discontinued, as it contained unparticularised allegations of dishonesty and bad faith, as well as vague allegations of defamatory statements that were not identified.  Those inadequately pleaded allegations contained in the notice of cross-claim were of a serious nature, especially in the context of the applicant being a legal practitioner, as they called into question her honesty and her ability to uphold professional and ethical obligations.

18 The respondent’s submissions also contained unnecessary and scandalous material unrelated to the question of costs.  Instead, they were directed towards the applicant’s discontinued claim and the applicant’s past behaviour in her capacity as the respondent’s former legal representative.  It is not necessary to detail those allegations, except to reiterate that the conduct of the applicant in commencing her claim, for which costs have already been ordered, is not relevant in determining whether the respondent should be required to pay the costs of the discontinued cross-claim.  Given the respondent was warned against including unsubstantiated and scandalous material in her filed documents, I consider that their inclusion in her submissions reflects a level of unreasonableness on her part.

19 The primary reason advanced by the respondent for why costs should not be awarded against her relates to her lack of financial means and poor mental health, which she contends has been worsened by the applicant’s actions in this proceeding.

20 In response, the applicant submits that r 26.12(7) reflects the “basic justice that a successful party should be compensated for expenses it has incurred because it has been obliged to litigate by the unsuccessful party”: Sangare at [27] (Kiefel CJ, Bell, Gageler, Keane and Nettle JJ). Importantly, for the circumstances of this case, their Honours went on to state at [27]:

That consideration of basic justice does not lose its compelling force simply because the successful party happens to be wealthy: the successful party, whether rich or poor, did not ask to be subjected to the expense of unmeritorious litigation. The statutory power to order costs affords the successful party necessary protection against unmeritorious litigation; and unmeritorious litigation is no less unmeritorious because it is pursued by a person who is poor or who is a litigant-in-person.

21 Although the merits of the cross-claim have not been determined to make the respondent an unsuccessful party in that sense, an analogous approach may be applied to the exercise of discretion under r 26.12(7), at least where the reason for discontinuance is entirely attributable to the discontinuing party, as is the case here: VDCL v Purcell [2024] FCA 107 at [24] (Horan J).

22 The respondent sought to provide evidence in the form of loan agreements and bank records to demonstrate her lack of financial means.  However, the impecuniosity of a party, alone, is insufficient to displace the default position that a party who files a notice of discontinuance should pay the costs of the other party.  Generally, a party’s financial position has no relevant connection with costs orders in litigation, except to the extent that it may inform the structure of a costs order and allow for payment over time to avoid inflicting unnecessary hardship on the impecunious party: Sangare at [32].

23 Similarly, to the extent that a court may be sympathetic to the difficulties faced by the respondent in the context of her domestic life and mental health, those factors are not persuasive in determining whether this Court should depart from the default position under r 26.12(7) of the Rules.  As such, the respondent has not met her onus of establishing that there is any good reason for making an order other than that she should pay the applicant’s costs of the cross-claim.

24 As to the form that the costs orders should take, the Court’s Costs Practice Note (GPN-COSTS) provides that where possible, the Court’s preference is to avoid the making of costs orders that lead to potentially expensive and lengthy taxation of costs hearings, when sophisticated costs orders like lump sum or consolidated costs orders could be used to reduce complexity and cost.

25 As the applicant correctly pointed out in her submissions, consolidated costs orders should be considered where there is a mix of potential costs entitlements, including where there are costs orders favouring opposing parties: GPN-COSTS at [3.7].  Noting that both parties have already had costs awarded in their favour with respect to the applicant’s claim (in the respondent’s favour) and the respondent’s interlocutory application (in the applicant’s favour), I consider it appropriate to make a consolidated costs order allowing for set off between the parties’ awards of costs.  This would simplify the costs process and avoid the creation of three separate competing costs orders for a matter which was only active for two months.

Conclusion

26 The costs consequences for the discontinuance of the cross-claim should reflect the default position set out in r 26.12(7) of the Rules, namely that the respondent pay the applicant’s costs of the cross-claim.

27 The applicant’s entitlement to costs, including the costs of the interlocutory application as ordered on 21 March 2025 and the costs of the cross-claim, should be set off against the respondent’s costs entitlements for the applicant’s claim also ordered on 21 March 2025.

Associate:

Dated:    16 July 2025