Federal Court of Australia

Albert St Group Pty Ltd v Universal Real Estate Vic North Pty Ltd [2026] FCA 552

ORDERS

THE COURT ORDERS THAT:

1.    The proceeding against the Third Respondent be dismissed.

2.    There be no order as to costs associated with the joinder and dismissal of the proceeding involving the Third Respondent.

3.    The Second Respondent pay the costs of this application, as taxed in default of agreement.

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

REASONS FOR JUDGMENT

BENNETT J:

1    This is an application for costs by the Second Respondent in circumstances where the Applicant discontinued its proceedings as against the Third Respondent. For the reasons below, the Second Respondent’s application for costs is refused.

Introduction and background

2    It is useful to briefly set out the factual circumstances that gave rise to the present application.

3    The Applicant commenced proceedings in this Court on 7 August 2024 against the First and Second Respondents, setting out its claim by concise statement. Broadly speaking, the case as against the First and Second Respondents concerns alleged misleading and deceptive conduct of a real estate agent in relation to the sale of a former gold mining site in Sebastopol (a suburb of Ballarat, Victoria).

4    The Applicant initially proceeded against only the First and Second Respondents. It referred to the Third Respondent in setting out the relevant facts in the concise statement. At a case management hearing on 26 May 2025, the Applicant sought that the proceeding continue by way of pleadings and sought leave to join the Third Respondent. The Second Respondent did not object to leave being granted, but sought its costs thrown away by reason of the joinder. Those costs were reserved.

5    On 10 June 2025, the Applicant filed a statement of claim, which included a claim in negligence and for breach of retainer against the Third Respondent, which is a firm of solicitors that advised the Applicant on the relevant transaction. The following steps then took place:

(1)    The Second Respondent filed and served a defence, naming the Third Respondent as a concurrent wrongdoer in the apportionable claim;

(2)    The parties all filed and served affidavits of lay evidence on which they intended to rely. The Second Respondent’s affidavit deposed to matters relating to the Third Respondent at various points; and

(3)    On 3 December 2025, a mediation was conducted, attended by all parties including the Third Respondent.

6    In January 2026 the Applicant and Third Respondent sought orders dismissing the Applicant’s proceeding against the Third Respondent. The consent orders filed by the Applicant and the Third Respondent contemplated that there would be no order as to the costs of the proceedings as between them. The Second Respondent maintains a proportionate liability claim against the Third Respondent.

7    The Second Respondent then sought to be heard about the costs order that was sought, and filed submissions and evidence in support of an order for the costs of certain aspects of the claim referable to the joinder of the Third Respondent. It characterises the costs that it seeks as being “costs of all the work done by [the Second Respondent’s] representatives that has been wasted because of the late joinder and subsequent release of the Third Respondent”. It also sought the reserved costs of the joinder, being the costs of the case management hearing.

8    The Second Respondent relies upon the affidavit of Mr David McKenzie, solicitor for the Second Respondent, affirmed on 17 February 2026, in which he gives his view that there were costs incurred that “would not have been required (or that would have been required but cheaper and quicker)” had the Third Respondent not been a party. He also states that he is not aware of the terms of any settlement that gave rise to the conclusion of the proceedings involving the Third Respondent.

9    The Applicant relied upon an affidavit of Mr George Livaditis, solicitor for the Applicant, affirmed on 24 February 2026, setting out detail about the circumstances relating to the joinder of the Third Respondent and some of the circumstances surrounding the case management hearing of 26 May 2025.

Principles

10    The principles relevant to the present issue are not in dispute. The award of costs is a matter of discretion, that discretion being broad and unfettered save that it must of course be exercised judicially and not arbitrarily or capriciously (Summers v Repatriation Commission (No 2) [2015] FCAFC 64 at [13]-[14] (Kenny, Murphy and Beach JJ)). An order for costs may be made in relation to any part of a proceeding (Federal Court of Australia Act 1976 (Cth), s 43(3) (Act)).

11    The usual order for costs is that the successful party has their costs paid by the unsuccessful party. As explained below by reference to Re Minister for Immigration and Ethnic Affairs; Ex parte Lai Qin [1997] HCA 6; 186 CLR 622 (Lai Qin) at 624-5 (McHugh J)), generally speaking the Court will not conduct a hypothetical action to determine costs liability where the parties have decided to conclude their dispute. The reasons for that approach are obvious: settlement is not encouraged by arid debates about the very issues which the parties have decided to compromise.

Second Respondent’s Argument

12    The Second Respondent advances a range of arguments in support of its application for costs:

(1)    It argues that it was put to expense by reason of the Applicant joining the Third Respondent some eight or nine months after the commencement of the proceeding. It submits that the joinder of the Third Respondent was “late, inefficient and unreasonable” in circumstances where the facts necessary to have commenced the claim against all Respondents were known at the outset.

(2)    It argues that the Court can infer from the orders providing for the dismissal of the proceeding against the Third Respondent with no order as to costs that “the Applicant has capitulated as against the Third Respondent, in the sense that it has effectively surrendered to it”. It argues that the proposed orders should be taken, in the absence of any contrary evidence, to give rise to an inference that the Third Respondent should never have been joined to the proceeding. It is argued that “capitulation” by the Applicant means that “all those affected should be indemnified”.

(3)    Separately or alternatively, it is argued that the late joinder and subsequent release of the Third Respondent means that the Applicant has acted in a manner inconsistent with the overarching purpose of seeking to resolve the proceeding as quickly, inexpensively and efficiently as possible (Act, ss 37M and 37N). It is said that these are matters that are relevant to the exercise of discretion as to costs (citing Act, s 37N(4); LFDB v SM (No 2) [2017] FCAFC 207 at [7] (Besanko, Jagot and Lee JJ.)).

Consideration

The “late” joinder

13    The Second Respondent does not appear to argue that the Third Respondent should not have been joined at all. Indeed, its argument seems to proceed on the basis that the Third Respondent should have been an original respondent to the application, rather than joined some eight months later. This is not a case where an entirely unreasonable course has been adopted in joining (for example) the wrong entity or person.

14    There is no coherent basis to conclude that the timing of the joinder in the circumstances of this case altered the costs landscape materially for the Second Respondent. In particular, the joinder occurred prior to the matter proceeding by way of pleadings. I can see no basis for criticism of the joinder of the Third Respondent at the time that it occurred.

The “capitulation” argument

15    The Second Respondent also argues that the compromise between the Applicant and the Third Respondent must be seen as a capitulation by the Applicant, resulting in a general entitlement to costs by the other parties. The concept of capitulation was considered in Zhao v Suzhou Haishun Investment Management Co Ltd [2020] VSCA 34 at [10] (Tate, McLeish and Hargrave JJA). The facts of that case are distinct from the present. In that case, the respondent had the benefit of a summary judgment determination that had been appealed by the applicant. The applicant had reasonable prospects of success on that appeal (see [4]; [14]), but caused herself to become bankrupt before it could be heard (see [6]). She made no provision for the trustees to continue the claim, and they elected not to do so (see [7]). It was in those circumstances that the Court of Appeal said at [19] that:

In all the circumstances, we conclude that this is a case where the applicant has, after litigating her application for leave to appeal and putting the respondent to considerable cost in that regard, made the tactical decision to present her own bankruptcy petition and thus, subject to the right of her bankruptcy trustees to pursue the application for leave to appeal, effectively surrendered.

16    By contrast, in this case, the evidence is to the effect that there was a commercial conclusion to the claim against the Third Respondent. The public interest supports the settlement of proceedings of this kind. The authorities generally do not encourage carrying out an analysis of which party would have been successful had the matter proceeded to hearing. As explained in Lai Qin at 624-5 (McHugh J) (emphasis added, citations omitted):

In most jurisdictions today, the power to order costs is a discretionary power. Ordinarily, the power is exercised after a hearing on the merits and as a general rule the successful party is entitled to his or her costs. Success in the action or on particular issues is the fact that usually controls the exercise of the discretion. A successful party is prima facie entitled to a costs order. When there has been no hearing on the merits, however, a court is necessarily deprived of the factor that usually determines whether or how it will make a costs order.

In an appropriate case, a court will make an order for costs even when there has been no hearing on the merits and the moving party no longer wishes to proceed with the action. The court cannot try a hypothetical action between the parties. To do so would burden the parties with the costs of a litigated action which by settlement or extra-curial action they had avoided. In some cases, however, the court may be able to conclude that one of the parties has acted so unreasonably that the other party should obtain the costs of the action. In administrative law matters, for example, it may appear that the defendant has acted unreasonably in exercising or refusing to exercise a power and that the plaintiff had no reasonable alternative but to commence litigation. Thus, for example, in R v Gold Coast City Council; Ex parte Raysun Pty Ltd, the Full Court of the Supreme Court of Queensland gave a prosecutor seeking mandamus the costs of the proceedings up to the date when the respondent council notified the prosecutor that it would give the prosecutor the relief that it sought. The Full Court said that the prosecutor had reasonable ground for complaint in respect of the attitude taken by the respondent in failing to consider the application by the prosecutor for approval of road and drainage plans.

…

If it appears that both parties have acted reasonably in commencing and defending the proceedings and the conduct of the parties continued to be reasonable until the litigation was settled or its further prosecution became futile, the proper exercise of the cost discretion will usually mean that the court will make no order as to the cost of the proceedings. This approach has been adopted in a large number of cases.

17    In the context of this case, it cannot be said that the mere compromise of a proceeding constitutes a capitulation – particularly where the basis for that submission resides in an inference from the simple fact of the orders that the Court is asked to make, without knowledge or evidence of the underlying compromise reached between the parties.

Costs of the 26 May 2025 case management hearing

18    The Second Respondent also seeks the costs of making submissions on 26 May 2025 at a case management hearing. At that hearing, the Second Respondent did not object to the orders for the joinder of the Third Respondent. The Second Respondent still does not proffer any coherent reason that the order should not have been made at that time. There is no basis for the reserved costs to be made in the Second Respondent’s favour.

Other arguments

19    The Second Respondent argues that the Applicant has acted unreasonably in the proceeding, by the late joining and subsequent release of the Third Respondent. None of the evidence before me supports the conclusion that the Applicant has acted in a manner that is so unreasonable as to cause the exercise of a costs discretion against it in this respect.

Conclusion

20    Overall, the approach of the Second Respondent to the identification of costs is strained at best. It seeks to identify piecemeal aspects of the conduct of the proceeding which might not have been incurred but for the joinder, before arguing that the conclusion of the proceeding between the Applicant and Third Respondent has been unreasonable. Given the interest that this Court has in encouraging the settlement of disputes, and the absence of any evidence suggesting impropriety or unreasonableness, I have decided it is not appropriate to make any part of the costs order sought. It follows that there will be no order for costs, in the manner originally contemplated by the orders proposed by the Applicant and the Third Respondent.

21    Each party sought the costs of the present application. I have largely accepted the Applicant’s submissions as to the disposition of the issue. It is appropriate therefore that the costs of this application be borne by the Second Respondent.

Associate:

Dated:    6 May 2026