feature interlocutory Costs: exceptional, special, or neither? By Cameron Ford* When r 63.18 of the Supreme Court Rules was introduced in 1988, no doubt it was the fond hope of the Judges and the Rules Committee that costs arguments on interlocutory applications would decrease. Instead, anecdotally at least, the opposite seems to have occurred. And not only is there argument over who should have costs, but there is often a preliminary argument over what is the appropriate test for the awarding of costs in interlocutory applications. It is often argued by a party resisting interlocutory costs that they can only be awarded in “exceptional circumstances”. Two senior junior counsel argued this and related questions recently for nearly an hour. Hopefully there will be an authoritative statement, even byway of obiter, by the Court of Appeal in the not too distant future which will put an end to this type of costly costs argument. The suggestion that exceptional circumstances are required before an order for interlocutory cost will be made has its aetiology in the decision of Martin J (as he then was) in TTE Pty Ltd & Anor v Ken Day Pty Ltd2. There, in words oft-quoted since, his Honour said: “...there must be something exceptional about the circumstances ofthe interlocutory application under consideration to lead the Court, in the exercise of its discretion, to make an order as to costs, taxation and payment” Those words have been interpreted and abbreviated since to mean that costs will only be awarded where there are exceptional circumstances. It is respectfully submitted that this interpretation is incorrect. Four things may be said about his Honour’s comments in TTE: 1. They did not referto “exceptional circumstances”; 2. They were obiter; 3. If they did refer to “exceptional circumstances”, practice has changed significantly since 1990 to renderthem inapplicable today; 4. Such a requirement improperly fetters the exercise ofthe Court’s discretion. Page 16 — 2/2005 1. Not "exceptional circumstances" It is respectfully suggested that when his Honour used the words quoted above, he did not mean that exceptional circumstances had to be shown before interlocutory costs would be awarded. His Honour’s exact words need to be closely examined. He said there had to be “something exceptional about the circumstances”. That, it is submitted, is quite different from saying there needs to be “exceptional circumstances”. To begin with, “something exceptional” is singular, whereas “exceptional circumstances” is plural. In other words, to satisfy the former phrase, there need only be one thing about the case that is exceptional. To satisfy the latter phrase, either everything need be exceptional, or there need be a preponderance of exceptional factors. While it is true that the plural “circumstances” is sometimes used to referto one event or factor, in this context a requirement that the re “are exceptional circumstances” clearly indicates that it is contemplated that there be more than one factor. Articulating the distinction in this way can make it appear merely a technical one and therefore artificial. That is a common feature of attempting to articulate the sense of words or a phrase, rather than its literal meaning. Here, the sense of Martin J’s phrase is that there needs to be some feature of the circumstances that is unusual or out ofthe ordinary, justifying an order for costs. On the other hand, the sense of the phrase “exceptional circumstances” is that there needs to be more than one feature, or the circumstances generally need to be exceptional. There could be cases where there is only one exceptional factor, but it is so outstanding or extraordinary that it flavours the remaining circumstances to bring them within what lawyers understand to be exceptional circumstances. Generally, however, it is submitted that it will be much easier to satisfy the requirement that there be “something exceptional about the circumstances” than that there be “exceptional circumstances.” Unfortunately, we have abbreviated his Honour’s words to the latter phrase, misrepresenting his meaning. Supporting that contention is his Honour’s explanation of his comments, immediately following those quoted above. He said: “Given the tenor of the Rules, it would not be just to make interlocutory orders for costs, or, if made, to orderthat they may be taxed earlierthan completion ofthe proceedings, with a view to punishing the unsuccessful party. To do so may engender a reluctance in parties to properly ventilate their problems during the pre-trial process. What is required is an approach which seeks to have a successful party reimbursed the expense of interlocutory proceedings which, for example, would have been unnecessary if the otherside had * Cameron Ford is a Senior Associate with Cridlands Lawyers feature acted reasonably; or which are unnecessarily burdensome; or which are made at a time, such as here, when that party has been deprived ofthe value ofthe work done in preparation of his case for trial. In such instances, and the list is not intended to be definitive or complete, it may well be within the Court’s discretion to exercise the powerto override the principles established by the Rules. Costs in interlocutory matters no longer follow success. No order as to costs ought to be made against the unsuccessful party, in the usual run of cases, even if contested, if the grounds of the application or resistance, as the case may be, are reasonable. However, if such application or resistance is without real merit, as is often the case, the successful party should not have to bear his costs.” To explain what he meant by “something exceptional”, his Honour did not give a list of factors to be read conjunctively. The few matters he referred to were done so disjunctively, indicating that any one of those or similar factors would suffice. And the matters he did refer to would not, without more, normally come within the phrase “exceptional circumstances”. This can be tested against the established meaning of that phrase. In WurramarbavPassmore3, Mildren J said: “In R vKelly [1999] 2 All ER 13 at 20, Lord Bingham of Cornhill CJ said that exceptional circumstances means: “out ofthe ordinary course, or unusual, or special, or uncommon. To be exceptional, a circumstance need not be unique, or unprecedented, or very rare; but it cannot be one that is regularly, or routinely or normally encountered.” In AWA v Independent News Auckland Limited [1996] 2 NZLR 184 at 186 Hammond J said: “As a matter of general approach, it is usually construed as meaning something like “quite out ofthe ordinary”.” party had failed to comply with orders ofthe court. Martin J said that there would be something exceptional justifying a costs order if there was no real merit to the application or resistance, as is often the case. Those very words clearly indicate that he was not intending to elevate the threshold for a costs order to “exceptional circumstances” as defined by Mildren J above. That definition, well settled, is that there must be circumstances “quite out ofthe ordinary”. Something that is “often the case” could hardly be described as also being “quite out ofthe ordinary”. The Master adopts the same practice in his court. It is respectfully suggested that error has followed where Martin J’s comments have been abbreviated to a phrase well-known to lawyers, but which is something quite different from that intended by his Honour. 2. Obiter This is certainly how some judges have understood his Honour. In VivanetvPower4, Mildren J said: In TTE, Martin J was dealing with an application for taxation of interlocutory costs before the conclusion ofthe proceeding under r 63.04(3). The defendant had consented to paying the plaintiff’s costs of the interlocutory applications. “The discretion is unfettered, but nevertheless must be exercised judicially and generally speaking, that means showing special circumstances: see Milingimbi Strictly speaking, therefore, his Honour’s comments on orders for costs under r 63.18 were obiter, although of course deserving of respect. Educational and Cultural Association Incorporated v Davis and The Museums and Art Galleries Board (1990) NTJ 923 at 3. Change in practice 928-929, per Kearney J; Re Wilcox; ex parte Venture Industries Pty Ltd and Others (1996) 141 ALR 727 at 729; 734. What special circumstances existed here?” “Special” circumstances are clearly less unusual than “exceptional” circumstances. In deliberately using that phrase, it is suggested that Mildren J was indicating that something less than exceptional circumstances need be shown; something more along the lines of that required by Martin J’s “something exceptional about the circumstances.” That is the approach that Mildren J has taken since. During the course of argument on an application for interlocutory costs in Renehan v Leeuwin Ocean Adventure Foundation Ltd & AnoP his Honour stated that he was ofthe view that it is not necessary to show exceptional circumstances to obtain an order for those costs. His Honour ordered costs there principally because the If Martin J is to be taken to have held that exceptional circumstances are required for interlocutory costs orders, it is submitted that the practice since 1990 has so changed as to remove the basis for that requirement. One reason his Honourgave forthe radical departure in the rules was to encourage parties to communicate, and to discourage unnecessary interlocutory applications. Those comments, and the change in the rules, were made on a very different backdrop of court practice than exists today, in the late 1980s, the new fangled concept of case flow management was only in its infancy. At that time, the interlocutory list before the Master would routinely run to three to four pages, and the Judge’s list would rarely be less than two pages. There was effectively no other method of obtaining orders on practice and procedure than by interlocutory application. From memory, the majority of those applications were for routine orders for particulars, discovery, interrogatories and the like. continued page 18... 2/2005 — Page 17 i feature Interlocutory Costs: exceptional, special, or neither? cont*.. After the appointment of Martin J in 1988, Status Assessment Meetings (SAMs) were introduced where lawyers were required to do the then unthinkable and explain to a judge why no steps had been taken in a matter for, sometimes, three to five years. In time, those SAMs developed into the directions hearings of today, directly contributing to the decline in interlocutory applications, especially for routine matters. Today, an interlocutory application is the exception rather than the rule. Because of relatively effective case management practices, most ofthe ordinary interlocutory matters are dealt with in directions hearings. Practitioners are forced to communicate, at least in the directions hearing, if not at other times. Interlocutory applications are not brought with anything approaching the frequency or peremptoriness of the past, nor (generally) for run-of-the-mill orders. The relevance to this topic is this: if the reason for requiring exceptional circumstances before an order for interlocutory costs is made is to encourage communication and discourage unnecessary applications, that reason has been substantially removed since 1990. Case management by the Court has very effectively reduced the number of interlocutory applications, and while, no doubt, practitioners could always communicate betterwith each other, there is not the level of unmeritorious, unnecessary or merely routine applications there were at that time. Thus, if Martin J did in fact hold that exceptional circumstances were necessary in 1990 to ground an application for costs in interlocutory applications, the reason for so holding does not pertain in 2005. 4. Fettering the Court's discretion The rules give to the Court a broad, unfettered discretion on the question of costs. Rule 63.18 simply says that “each party shall bear his own Page 18 — 2/2005 costs of an interlocutory or other application in a proceeding ... unless the Court otherwise orders.” If authority were needed for that proposition, it can be found in the decision of Asche CJ in Benton v Noye6, on the effect of the words “unless the Court otherwise orders.” (See also Smith vReynolds7). In Oshlack v Richmond River Council8, Gaudron and Gummow said: “The provisions of s 69 ofthe Court Act which confer upon the court the discretion exercised by the primary judge attract the application of the general proposition that it is inappropriate to read a provision conferring jurisdiction or granting powers to a court by making conditions or imposing limitations which are not found in the words used. The necessity for the exercise of the jurisdiction or power by a court favours a liberal construction. Considerations which might limit the construction of such a grant to some different body do not apply.” (references omitted) As Martin (BR) CJ said recently in R v Day9 in relation to a different provision, “[tjhe use of words such as ‘exceptional’ or ‘special’ is not unusual and if the Legislature had intended to impose such a stricter test it would have said so.” And in relation to this particular rule, his Honour said in Drover v Northern Territory ofAustralia10, said: “Order 63.18 does not in its terms require that a court be satisfied that there is something exceptional about the circumstances of an interlocutory application before it is appropriate to order costs on the application. This was a view expressed by Martin J in TTE v Ken Day. It is unnecessary for me to determine whether I agree with that view.” His Honour went on to hold that in that case there were exceptional circumstances, however his reservation highlights the point made here, that there is no requirement of exceptional circumstances in the rule when it would have been a simple matter for the Judges to have said so when formulating the rule. While it is not appropriate to read words into provisions conferring power or jurisdiction, it is permissible for an appellate court to give guidance as to the exercise of the power or discretion. In Norbis v Norbis11, Mason CJ and Deane J said: “It has sometimes been said by judges of high authority that a broad discretion left largely unfettered by Parliament cannot be fettered by the judicial enunciation of guidance in the form of binding rules governing the manner in which the discretion is to be exercised: see, for example, Mallet (ALJR) at p 249; (ALR) at pp 195 6 Evans v Bartlam [1937] AC 473 at 488-9; Gardnerv Jay (1885) 29 Ch D 50 at 58. However, it does not follow that, because a discretion is expressed in general terms, Parliament intended that the courts should refrain from developing rules or guidelines affecting its exercise. ... The proposition referred to at the beginning ofthis paragraph should not be seen as inhibiting an appellate court from giving guidance, which falls short of constituting a binding rule, as to the manner in which the discretion should be exercised.” Mason CJ repeated some of those comments in Latoudis v Casey12, saying: “But it does not follow that any attempt to formulate a principle or a guideline according to which the discretion should be exercised would constitute a fetter upon the discretion not intended by the legislature. Indeed, a refusal to formulate a principle or guideline can only lead to exercises of feature Interlocutory Costs: exceptional, special, or neither? cont... discretion which are seen to be inconsistent, a result which would not have been contemplated by the legislature with any degree of equanimity.” However, there is a limit even to the guidance, orthe use of that guidance. Brennan J said in Norbis v Norbis13-. “ It is one thing to say that principles may be expressed to guide the exercise of a discretion: it is another thing to say that the principles may harden into legal rules which would confine the discretion more narrowly than the parliament intended. The width of a statutory discretion is determined by the statute; it cannot be narrowed by a legal rule devised by the court to control its exercise.” Here, the word “exceptional” is not necessary for the rule to operate; it is perfectly workable without that word. Importing that word into the provision, or requiring exceptional circumstances before the Court will otherwise order, is not providing the type of guidance envisioned by Mason CJ and Deane J. Rather, it crosses the border and has the potential to harden into a legal rule which would confine the discretion more narrowly than the Judges intended. There is one caveat. It should be noted that, in at least one area, the High Court has imposed the requirement of exceptional circumstances where the inherent power conferring the discretion is not expressly fettered by any such consideration. The Court has held that an applicant for a stay of execution of an orderwhich is the subject of an application for special leave to the High Court, must establish special circumstances: Bryant v Commonwealth Bank of Australia14; TIO v Costa & Sortino15. However, in Bryant and later cases, Kirby J explained the exceptional reasons behind the High Court’s importing that requirement into the exercise ofthe discretion. It is worth noting, also, that the power being exercised is part of the inherent jurisdiction of the Court, and not emanating from a rule or statute. It is therefore subject to any limitations which the Court is of the view are inherently necessary to control the Court’s processes. It is respectfully submitted that to require exceptional circumstances before ordering costs on interlocutory applications would be to do more than provide guidance - it would be to introduce a consideration into the exercise of the discretion that was not intended by the discretionconferring authority, and thereby fetterthe exercise of that discretion. This argument was put to Thomas J in Iraklis Roussos Nominees Pty Ltd & Anor v Romeso Pty Ltd & Ors16, however her Honourwas not required to rule on it as she found there were exceptional circumstances in that case. What is the test? It is significant that in Victoria, where the rule is identical (63.20), there appears never to have been any suggestion that exceptional circumstances are required. The rule appears to have attracted very little judicial comment. It seems that the Court has always treated the matter as one of general unfettered discretion requiring little exposition. Senior Master Mahoney of the Supreme Court of Victoria, to whom I am indebted, kindly responded to a query about the Victorian application ofthe Rule. He wrote that the rule is treated as having the same effect as where the court has not said anything as to costs,17 in which case they abide the event. In Re Edwards & Son; ex parte Tomlins18, Higinbotham J, with whom Williams and Holroyd JJ agreed, said of costs: “They will abide the event without anything being said about them. It may be as well to state that we shall follow underthe new practice the same rules as underthe old, and that where costs are not mentioned they will abide the event.” This meant that the winner of the proceeding would be entitled to the costs, whether or not successful in the interlocutory application. It was this practice that was changed by the subject rule, so that where the court was silent, each party bore their own costs. The new rule means nothing more than silence means no order at all, and that the old practice that costs abide the event has gone. Senior Master Mahoney stated that the view that special or extraordinary circumstances were required for an order to be made would not win acceptance in that Court, and that the judicial discretion is exercised without any implied limitations. Anecdotal evidence from those practising in Victoria is that a victor in an interlocutory application will, all things being equal, obtain an order for costs. The rule simply means that, if the Court is silent, there is no order, but the Court has powerto make an order in appropriate circumstances. In Victoria, while it may not be automatic, success is one of those circumstances. This approach avoids the long costs arguments with which we are becoming familiar and which, unfortunately, is a side-effect of allowing costs to be awarded in “particular”, “special” or “additional” circumstances. Each of those standards, lowerthan “exceptional”, broadens the factors which can influence the exercise of the discretion, thereby inviting argument in more cases. To adopt the Victorian approach would be to allow that clear success by one party would be a strong factor favouring granting that party costs. Success would not, however, operate to the exclusion of other factors and the Court would be entitled to take other matters into account. continued page 20... 2/2005 — Page 19 \ feature Interlocutory Costs: exceptional, special, or neither? cont... A different approach There is a further possible approach. Prior to the introduction of r 63.18, costs were in the discretion of the court, but a practice had developed of the successful party having an expectation of receiving its costs. Perhaps a better way of stating this is that the result of the application was a - and perhaps the most significant factor in the exercise of the discretion. Absent some disentitling conduct, the successful party usually got its costs. Where there was such conduct however, the court retained a discretion to deprive the successful party of its costs. In Oshtack, McHugh J said19: “The traditional exceptions to the usual order as to costs focus on the conduct ofthe successful party which disentitles it to the beneficial exercise of the discretion. In Anglo-Cyprian Trade Agencies Ltd v Paphos Wine Industries Ltd, Devlin J formulated the relevant principle as follows: ‘No doubt, the ordinary rule is that, where a plaintiff has been successful, he ought not to be deprived of his costs, or, at any rate, made to pay the costs of the other side, unless he has been guilty of some sort of misconduct.” “Misconduct” in this context means misconduct relating to the litigation, or the circumstances leading up to the litigation. Thus, the court may properly depart from the usual order as to costs when the successful party by its lax conduct effectively invites the litigation; unnecessarily protracts the proceedings; succeeds on a point not argued before a lower court; prosecutes the matter solely for the purpose of increasing the costs recoverable; or obtains relief which the unsuccessful party had already offered in settlement ofthe dispute. Apart from anomalous examples Page 20 — 2/2005 in the equity jurisdiction, there are very few, if any, exceptions to the usual order as to costs outside the area of disentitling conduct.” (references omitted). Those comments describe the circumstances in which the court will depart from the normal rule. It could be argued that they should apply to whateverthe normal rule is, whether it is that the successful party have its costs, or that each party bears its own costs. Justice McHugh’s comments are also remarkably similar to those of Martin J in TTE giving examples of conduct which would attract a costs order. This is a further indication that his Honourdid not intend to limit the discretion only to circumstances which were exceptional. Rule 63.18 effectively moved the starting point for the exercise ofthe discretion. Instead of starting from the position that, ceteris paribus, the successful party has its costs, the discretion is exercised from the position that each party bears its own costs. Formerly, the starting point would be to place in the evenly balanced scales the factor of one party’s success. That would tilt the scales heavily in that party’s favour. Then the unsuccessful party might attempt to load its side ofthe scales. Under this approach to the new rule, the fact of success is not accorded any more weight than any other factor, and perhaps considerably less. It would not be quite true to say that it is removed from the equation all together. On its own, it will not tip the scales in favour ofthe successful party, but it might be enough to balance the scales and result in no order for costs where the unsuccessful party complained of, for example, mild misconduct on the part of the victor. The court might well agree in such a case that the victor’s conduct could have been better, but hold that success on the application balanced the mild misconduct. In that sense, the factor of success might still have some part to play. All of this may be a long-winded way of paraphrasing Mildren J, that special circumstances are needed before an order will be made for costs on an interlocutory application. The reason forgoing into greater detail is to dispel any suggestion that “special” is close to “exceptional”. Special circumstances should be understood in the sense described by McHugh J in Oshtack. (See also Mildren J in Bernd Matzat v Gove Flying Club Incorporated & Ors20.) Other adjectives to describe the enlivening circumstances could be “particular” or even “additional”. “Particular” is generally interpreted as being less unusual than “exceptional”21. If this approach were adopted, this writer has a preference for the qualitative-neutral word “additional”, used by Mansfield J in CultivaustPty Ltd v Grain Pool Pty Ltd22. There his Honoursaid23: “There is also consensus as to the proper starting point to the exercise of that discretion. It is ordinarily the case that costs should follow the event to compensate the successful litigant: Ruddock v Vardarlis (2001) 115 FOR 229 at 235, [12] per Black CJ and French J. Generally, further, there will need to be some additional circumstances which warrant departure from ordering costs simply on a party and party basis and for ordering costs on an indemnity basis: Colgate- Palmolive Co v Cussons Pty Ltd (1993) 46 FCR 225 at 232 - 233 per Sheppard J.” His Honour was dealing with indemnity costs, however the same word could be used to describe the different circumstances justifiying an orderfor interlocutory costs. In other words, there must simply be some additional factors which would justify such an order. feature Interlocutory Costs: exceptional, special, or neither? cont... Oshlack and Cultivaust were both cases dealing with the costs ofthe proceeding. Experience, if not authority, suggests that the usual rule is displaced more easily when dealing with the costs of interlocutory applications than of substantive proceedings. While the enlivening conduct might be ofthe same type, generally it seems that a greater degree of that conduct is required to displace the usual order in substantiave proceedings than in interlocutory applications. The test could simply be formulated by saying that costs will be awarded in interlocutory applications where in all the circumstances it is just to do so, or if there are additional circumstances warranting an order. Assistance is often gained by examining cases where the discretion has been exercised previously. Care must be taken with that approach here, however, as this paper suggests that in many prior cases too high a test has been imposed. Nevertheless, the following are some instances of costs being awarded on interlocutory applications, namely where the application was: (a) for an interlocutory injunction which failed:- Taylor & Vincent v Diamand & Zikos Developments Pty Ltd24; NT ofA v Tops Services Pty Ltd25 (Martin CJ - and taxed); JH Evins Industries (NT) Pty Ltd v Diano Nominees Pty Ltd26] Ballarat v Queens Old Grammarians’ Assoc Inc Ballarat & Queens Anglican Grammar School27 (where the rule is the same); Kennedy Taylor (Vic) Pty Ltd v Baulderstone Hornibrook Pty Ltd [2000] VSC 43 Pullicino v Harness Racing Board of Victoria28] Iraklis Roussos (supra) (b) without real merit:- Woodleigh Nominees Pty Ltd v CBFC Leasing29] Yow v Northern Territory Gymnastic Assoc Inc30. (c) discrete and significant in terms of argument and time:IGA Distribution Pty Ltd v King & Taylor Pty Ltd31] (d) unnecessary or could have been avoided:- Lexcray Pty Ltd v Northern Territory32 (e) final in its effect on an issue or as to a party:Yow; Otter Gold NL vBarcon (NT) Pty Ltd33 Those cases, however, provide an imperfect guide to the awarding of costs in interlocutory applications. As many of them applied the higher test of requiring exceptional circumstances, there will be many situations where costs should be awarded in cases less exceptional. Conclusion Martin J’s comments in TTE have been misapplied and the requirement of exceptional circumstances before granting costs in interlocutory applications should be expressly abandoned. Instead, the Court may adopt one of at least two approaches. The first, and preferred, is that of Victoria, that r 63.18 does no more than provide that where the Court is silent there will be no order as to costs. The effect of this approach is that success is a strong factor in exercising the discretion. Alternatively, the Court could continue to adjectively constrain the exercise of the discretion by such words as “special”, “particular” or “additional”. Of those, the latter is preferred as it fetters least the exercise of the discretion and does not impose any qualitative limitation on the relevant factors. be hoped that the Court ofAppeal will soon pronounce on the approach to be taken and remove one more obstacle to resolution of interlocutory matters. ® Endnotes 2 3 4 5 6 7 8 (1990) 2 NTLR 143 at 145 [2003] NTSC 121 at [28]-[29] [2001] NTSC 66 at [15] (unreported, 15 December2005) (1988) 93 FLR 466; 63 NTR 1 at 3 [1989] VR 309 at 312 (1998) 193 CLR 72; (1998) 152 ALR 83 at [21] 9 [2004] NTCCA 2 at [30] 10 [2004] NTSC 29 at [29] 11 (1986)161 CLR 513 at 519; 65 ALR 12 at 15 12 (1990) 170 CLR 534 13 at 537 14 (1996) 134 ALR 460 15 (2002) 11 NTLR 212 16 [2004] NTSC 3 17 Williams, Civil Procedure 63.20.25 18 (1885) 11 VLR 304 at 311 19 at 97 20 [1998] NTSC 36 21 see R v Day, supra, at [25] & [30] per Martin (BR) CJ, agreeing with Mildren J in Duthie v Smith (1992) 83 NTR 21 22 [2004] FCA1568 23 supra at [12] 24 (1997) 6 NTLR 164 (CA) 25 [1994] NTSC 32 26 [1989] NTSC 4 27 [2001] VSC 457 28 [1999] VSC 533 29 [1996] NTSC 79 30 (1991) 1 NTLR 180 31 [2002] VSC 412 32 [2002] NTSC 63 33 (2000) 10 NTLR 189 If these options continue to cause difficulty, or prolonged and avoidable costs arguments, return could always be made to the displaced rule that costs follow the event. That is a matterforthe Rules Committee. Unless the rule is amended, it is to 2/2005 — Page 21 1
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