The Proper Use of the Cost Discretion to Regulate Interlocutory Proceedings

By Dan Morris, Principal, Dan Morris Legal

Introduction

Section 37 of the Supreme Court Act 1935 (WA) and the Rules of the Supreme Court 1971, Order 66, Rules 1 and 2 confer a broad discretion on Western Australian Courts in respect of orders as to costs.

Nothing in this paper should be read as in any way derogating from the breadth of that discretion.

However, as with all discretions, there are relevant considerations that are to be taken into account in order that the discretion should not miscarry. The relevant considerations are well settled in the authorities which are abundant and consensual.

An underlying objective may be discerned from the authorities, towards the efficient and disciplined conduct of Court proceedings.

Is there a “default position”?

It is in my view always dangerous to speak of default positions, when dealing with the exercise of a discretion, because of the very nature of discretionary decision-making. In order to conceptualise the reasoning process, it may be considered more useful and accurate to speak in terms of a startingpoint and recognise that one does not depart from that starting-point, unless a particular proceeding has some unusual feature to justify the departure.

It is often stated that the starting-point is that costs should follow the event. This is certainly the case in the usual course of a final cost disposition following judgment after a trial. However, according to the principal authorities around Australia and the United Kingdom, the cost discretion is to be exercised somewhat differently in interlocutory proceedings. There is a reason for this, which a critical analysis of the relevant cases will reveal.

Use Of Costs To

It is often the case, entirely without blame to either party, that to achieve a proper, narrow focus and discipline by the time of a trial, some initial robustness and messiness is required. This was certainly the case in Laing O’Rourke (BMC) Ltd (formerly Barclay Mowlem Construction Ltd) v Dampier Port Authority [2007] WASC 87 (S) at [14]. That decision concerned an application for either summary judgment or the striking-out of pleadings.

At first instance, the Registrar awarded costs to the party resisting the application. Deciding the appeal after a de novo hearing, Martin CJ.:

(a).did not disturb the Registrar’s decision to dismiss the substantive application; but

(b).critically, overturning the Registrar’s order as to costs at first instance, ordered both those first-instance costs, and on appeal, to be in the cause.

The facts of Laing O’Rourke are summarised by Martin CJ (at [8]):

“(a).the defendant extensively objected to the pleadings in the Statement of Claim;

(b).the plaintiff “voluntarily resiled” from the Statement of Claim in light of the defendant’s objections and accepted the defendant’s proposed amendments to the Statement of Claim;

(c).the amended Statement of Claim was appropriate and the defendant’s objections, had they been heeded before filing of the Statement of Claim, would have avoided the objecting defendant incurring unnecessary costs of the amendments.”

After reading this, one might have expected that the costs of the proceedings both at first instance and on appeal had been awarded to the defendant, having been observed by his Honour to have incurred “unnecessary costs”. However, that was not the case.

Notwithstanding the plaintiff’s late decision to “voluntarily resile” from its Statement of Claim, as a result of the defendant’s proactive steps to point out the deficiencies in its pleadings, and the plaintiff’s acknowledgement that its own appeal lacked merit, his Honour still:

(a).reversed the Registrar’s award of costs to the defendant at first instance; and

(b).substituted an order that the costs of both the application and of the appeal be in the cause.

In justifying the order for costs in the cause, his Honour had this to say (at [14]):

“The view that I take in relation to the proceedings both before the Registrar and on appeal, is that each party has had some measure of success and each party has had some measure of failure. It seems, to me, that in those circumstances, the proper exercise of my discretion is to regard the costs that the parties have incurred as an unfortunate aspect of the way in which this litigation has been conducted. Therefore, the proper exercise of my discretion is to direct that those costs should be borne by the party who is ultimately held responsible for the costs of the litigation generally. I propose, therefore, to order that the costs of the application to the Registrar and the costs of the appeal to me be in the cause.”

Consistently, the WA Court of Appeal in Perdaman Chemicals & Fertilisers Pty Ltd v Griffin Coal Mining Company Pty Ltd [No.3] relevantly held (with my emphasis):

“It is the usual practice to order that the costs of an application for an interlocutory injunction be costs in the cause – that is to say, borne by the ultimate loser of the substantive proceedings. That is because the determination of the application does not involve the determination of substantive rights or obligations, but [involves] only the assessment of whether there is an arguable case for the relief sought, and where the balance of convenience lies. An application brought reasonably for the preservation of the status quo pending the final determination of the proceedings can usually be regarded as an incidental cost of those proceedings properly borne by the ultimate loser. However, different considerations apply if the application is brought or opposed unreasonably, or in a manner which unreasonably inflates the costs of the application to the parties.”

Consider the Court’s focus in the emphasised passages on the following factors:

(a).the question for the Court being whether an arguable case existed for the relief sought;

(b).the reasonableness of the application being brought and opposed; and

(c).the unreasonable inflation of costs. Each such consideration may be read as constraining the exercise of the cost discretion.

More recently and consistently with the WA authorities (but without citing them), in Wright Prospecting v Hamersley Iron, McDougall J. declared:

“In my view, it is inappropriate to attempt to dissect the relevant degrees of success and failure and to reflect that in some costs order. This is a case where the discretion as to costs should be exercised in a broad-brush way, which recognises mixed success and failure. The appropriate way to do that is to make the costs of the application costs in the cause.”

More generally, in Crown in the right of State of New South Wales v Gevaux, Ward J. stated at [12] – [13]:

“In relation to the costs of interlocutory applications, it is common place for costs to be ordered to be “costs in the cause”….

“The rationale for such an order was explained by Beazley, Giles and Hodgson JJA in Petar v Macedonian Orthodox Community Church St. Petka Inc. (No.2) [2007] NSWCA 142”.

Turning to the findings in Petar relied on in the quoted passages (with emphasis added):

“[19] In Stratford v Lindley, Lord Denning observed that the House of Lords had made an order on an interlocutory application that costs be “costs in the cause”. His Lordship observed that the case was “finely balanced” and that, on final hearing, a slight turn in the evidence might have made all the difference to the outcome. He considered (at 1554) that in those circumstances, the House “thought it right to make the costs of the interlocutory proceedings depend on who won or lost in the main action.”….

“[27]Applications for interlocutory injunctions are commonplace. If there is nothing to distinguish an application from the typical case that comes before the Court, then the underlying jurisprudence relating to the exercise of the discretion may warrant the making of what is zreferred to in the legal vernacular as the “usual order”, whether that be costs in the cause or the plaintiff’s costs in the cause.”

“The making of such an order does not displace the exercise of the Court’s discretion. Rather, it is a shorthand form of giving effect to the principles that govern the Court’s discretion in circumstances where there are no countervailing or different circumstances to warrant the exercise of the discretion in a different manner.”

Why should an unsuccessful party to interlocutory proceedings not be made to pay the costs of those proceedings?

The answer to this question in my view lies in the common thread that runs through the cited authorities, in each of which, costs were ordered to be in the cause.

That common feature is that in each instance, the application itself may be seen to have advanced the interests of justice and the proper and efficient conduct of any trial (failing prior settlement), irrespective of the outcome of the application itself. This may be done in a variety of ways:

(a).by triggering appropriate conferral between the parties’ legal representatives;

(b).by causing both parties to condescend to the particulars of their respective cases, on affidavit evidence, thereby exposing any superfluity or weakness in either party’s pleadings or narrowing the focus of the controversy generally;

(c).exposing deficiencies in the pleadings, thereby restoring discipline and clarity to the identification of material issues for determination on the evidence; and/or

(d).triggering settlement negotiations, thereby improving the prospects of compromise, without the need to burden either the parties or the tax-paying public with the costs of an unnecessary trial.

When, then, will it be appropriate to make an adverse costs order in interlocutory proceedings?

In answering this question, a useful starting point is the judicial observations justifying awards of indemnity costs (being mindful that where an adverse costs order is made, it is usually made on a party/party basis). Let us start with Justice Wheeler’s observations in the WA Court of Appeal case of Quancorp Pty Ltd v McDonald 4: “On the one hand, a party should not be discouraged, by the prospect of an unusual costs order, from persisting in an action where its success is not certain. Uncertainty is inherent in many areas of law, and the law changes with changing circumstances. It is inappropriate that a case be too readily characterised as “hopeless” so as to justify an award of indemnity costs to the unsuccessful party. However, where a party has by its conduct unnecessarily increased the costs of litigation, it is appropriate that the party so acting should bear that increased cost. Persisting in a case which can only be characterised as “hopeless” is an example of the type of conduct which may lead the Court to a view that the party whose conduct gave rise to the costs should bear them in full”.

Compare the Court’s observations in Gold Valley Iron and Manganese Pty Ltd v Albarran [2020] WASC 297 at [18], per Curthoys J, enumerating the following relevant factors (amongst others) :

(a).that the Court’s discretion as to the making of an indemnity costs order must be exercised judicially;

(b).that competing principles need to be balanced in assessing the making of a potential award of indemnity costs; and

(c).that an indemnity costs order may be appropriate in situations which are shown to involve some element of improper, or at least unreasonable, conduct by a party or the party’s legal advisers.

These observations originated in findings made by Woodward J in Fountain Selected Meats (Sales) Pty Ltd v International Produce Merchants Ltd (emphasis added):

“Courts in both the United Kingdom and Australia have long accepted that solicitor and client costs [i.e. indemnity costs] can properly be awarded in appropriate cases where “there is some special or unusual feature in the case to justify the court exercising its discretion in that way”.

Synthesising the authorities respectively justifying awards of costs in the cause and indemnity costs, it may be seen that the Courts have been usings their costs discretion to maintain proper rigour and discipline in the conduct of Court proceedings, whilst avoiding making deterrent costs orders which would have a chilling effect on prospective applicants contemplating applications with a view to introducing similar precision and rigour to a case that might otherwise be vaguely articulated, poorly particularised or otherwise conducted in an inefficient and wasteful manner.

With these observations in mind, it remains to consider some of the factors that ought to be weighed in the balance, in determining the appropriate costs disposition, in interlocutory proceedings.

Factors relevant to the exercise of the costs discretion in interlocutory proceedings.

Were genuine and reasonable, good faith efforts made by the party’s legal representatives to confer on the subject matter of the interlocutory application, both before it was commenced and pending its determination?

Did the making of the application, either by the Court’s determination of it or by the solicitors’ conferral that was triggered by it, result in:

(a).narrowing of the legal or factual issues in controversy;

(b).clarification of poorly or vaguely defined material facts, issues or legal contentions;

(c).identification of a material issue of fact or law that had not previously been recognised;

(d).material admissions, agreement as to the proper scope or method of providing discovery, agreement as to the approach to be taken to the disposition or determination of a particular matter of fact or law or some other improvement to the efficient conduct of the proceedings?

Which, if either, side conducted itself in a way that necessitated the interlocutory proceeding?

Did either side conduct itself in a manner that unreasonably prolonged or complicated the interlocutory proceeding?

Was there another, more practical way to deal with the issue concerned in the interlocutory proceeding that might have obviated its need or simplified its conduct?

If the interlocutory proceeding involved a pleading issue, were the pleadings concerned clear, precise, properly particularised and sufficient to identify every material fact of each cause of action alleged, with no internal inconsistencies?

If the interlocutory application sought a summary disposition, did both parties properly and adequately condescend to the particulars of their respective cases, by way of affidavit evidence?

Did either or both parties’ counsel accurately identify the authorities relevant to each issue in contention in the interlocutory proceeding and correctly articulate the effect of those authorities (including any countervailing authority, with appropriate submissions as to why adverse authorities ought to be distinguished in the circumstances)?

If the Court’s discretion in the interlocutory application was constrained by a prescribed rule or test, was each element of the applicable test identified in submissions and did the affidavit evidence properly address each such element, sufficiently to enable the quick and efficient determination of the competing arguments for and against the granting of the application?

Did either or both of the parties’ solicitors make reasonable and continuing efforts to assist the Court, through proper conferral and by minuting proposed orders, to facilitate the proper and efficient case management of that application, or, on the other hand, was case management unreasonably protracted or complicated by the conduct of either or both of the parties?

Conclusion

It may be seen from a critical analysis of the Australian authorities on the proper disposition of costs in interlocutory proceedings that albeit an exercise in discretionary decision making, the discretion is constrained by the need to have regard to relevant considerations. This is not surprising given the nature of costs disposition as the exercise of discretionary, decision-making power by a judicial officer which, like the exercise of any discretion, is subject to the principles stated in Minister for Aboriginal Affairs v Peko-Wallsend Ltd (1986) 162 CLR 24; [1986] HCA 40. These include:

(a).taking all relevant considerations into account;

(b).taking no irrelevant considerations into account;

(c).avoiding and being seen to avoid bias;

(d).Wednesbury reasonableness;

(e).affording natural justice/procedural fairness;

(f).giving adequate reasons for decision; and

(g).correctly applying the law, which may include the objects and purposes of the legislation empowering the decision-maker to make the decision in question.

With respect to the exercise of the costs discretion in interlocutory proceedings, the objects and purposes that according to the authorities are to be served are:

(a).principles of positive case flow management as enshrined, in WA, in Order 1 rules 4A and 4B of the Rules of the Supreme Court WA 1971; and

(b).more fundamentally, protecting the Court from abuses of its process .

It may readily be seen that these principles conflict with the idea of some mechanical application of a default rule or principle in dealing with costs in interlocutory proceedings. That is not necessarily to say that it would find disfavour with applicable principle or authority to take, as a starting point in the consideration of costs disposition, that, all else being equal, it would be appropriate to order that costs be in the cause. Generally speaking, where no unusual feature or circumstances exists, this costs disposition may be seen to strike the most appropriate balance between:

(a).on the one hand, protecting the proceedings of the Court from abuse or, perhaps falling short of abuse, unnecessary distraction away from the objectives of either compromise or final disposition after trial; and

(b).on the other hand, incentivising the parties to continue to assist the Court in maintaining rigour, discipline and focus in the conduct of Court proceedings, by encouraging appropriate interlocutory applications in appropriate circumstances or at the very least, avoiding unnecessarily deterrent costs orders that have the effect of discouraging the parties from seeking proper and necessary curial intervention.