Confidential draft

8. Costs Orders1

8. Costs Orders and Reasonable Fees

Contents

Summary

Discretion to awards costs

Disallowing costs as between parties

Paying discovery costs in advance

Capping discovery costs

Costs as between lawyer and client

Disallowing costs

Limiting costs to actual costs

Costs must be fair and reasonable

Summary

8.1This chapter considers how the targeted use of the Federal Court’s existing costs powers might help control discovery. The chapter first considers costs between the parties, including when the Court might disallow costs that have been improperly, unreasonably or negligently incurred, and how the Court might take into account the failure of parties to conduct proceedings in a way that is consistent with the overarching purpose in s 37M of the Federal Court of Australia Act 1976 (Cth). The ALRC recommends that Federal Court practice notes address how the Court takes this duty into account when awarding costs.

8.2The chapter then considers whether there should be a presumption that parties requesting discovery pay the estimated costs in advance. The ALRC concludes that,although there should not be such a presumption, the order may be useful in some limited circumstances—particularly as an incentive to confine the scope of discovery to reasonable proportions. Accordingly, the ALRC recommends that Federal Court practice notes should provide appropriate guidance about when the Court might order advance payment of estimated discovery costs.

8.3The chapter briefly discusses cost caps, noting their particular value in public interest litigation, but does not make recommendations about their broader use to confine discovery. The chapter then considers whether lawyers, rather than their clients, should sometimes bear the costs of discovery or be prohibited from charging more than their actual costs in conducting discovery. The power of the Court to disallow costs as between a lawyer and their client for incurring costs, for example, without reasonable cause is discussed.

8.4The chapter notes the Court’s power to order a lawyer to bear costs personally because of a failure to comply with the duty to assist their clients to conduct proceedings in a way that is consistent with the new overarching purpose. The ALRC recommends that Federal Court practice notes address how the Court, in awarding costs, might assess whether the lawyers have complied with their duty to assist the parties to conduct litigation in accordance with the overarching purpose. Finally, the chapter expresses support for the proposed introduction in the Legal Profession National Lawof a provision to the effect that a law practice must ‘charge costs that are not more than fair and reasonable in all the circumstances’.

Discretion to awards costs

8.5The Federal Court has a broad power to award costs. Section 43(1) and (2) of the Federal Court of Australia Act provides:

(1) Subject to subsection (1A) and section 570 of the Fair Work Act 2009, the Court or a Judge has jurisdiction to award costs in all proceedings before the Court (including proceedings dismissed for want of jurisdiction) other than proceedings in respect of which this or any other Act provides that costs shall not be awarded.

(2) Except as provided by any other Act, the award of costs is in the discretion of the Court or Judge.

8.6In Hughes v Western Australian Cricket Association (Inc),Toohey J, after noting that the Federal Court Rules (Cth)do not purport to qualify this discretion and that this discretion must be exercised judicially, summarised the way in which the discretion is to be exercised:

1. Ordinarily, costs follow the event and a successful litigant receives his costs in the absence of special circumstances justifying some other order.

2. Where a litigant has succeeded only upon a portion of his claim, the circumstances may make it reasonable that he bear the expense of litigating that portion upon which he has failed.

3. A successful party who has failed on certain issues may not only be deprived of the costs of those issues but may be ordered as well to pay the other party’s costs of them. In this sense, "issue" does not mean a precise issue in the technical pleading sense but any disputed question of fact or of law.[1]

8.7Toohey J added that while there is ‘no difficulty in stating the principles, ... their application to the facts of a particular case is not always easy’.[2]

8.8In its report,Costs Shifting – Who Pays for Litigation, Report 75 (1995), the ALRC explained that the discretion to order an unsuccessful party to pay the successful party’s costs evolved in the equity jurisdiction, ‘apparently in response to the concern that a person should not suffer loss as a result of having to assert or defend his or her rights’.[3] The other common reasons for this rule are that it:

  • compensates successful litigants for at least some of the costs they incur in litigating;
  • allows people without means to litigate;
  • deters vexatious or frivolous or other unmeritorious claims or defences;
  • encourages settlement of disputes by adding to the amount at stake in the litigation; and
  • deters delay and misconduct by making the responsible party pay for the costs his or her opponent incurs as a result of that delay or misconduct.[4]

8.9In 2009, the Federal Court of Australia Actwas amended to ‘make it clear in the legislation that the Court may make certain orders’.[5] The following subsection and note were added to s 43:

(3) Without limiting the discretion of the Court or a Judge in relation to costs, the Court or Judge may do any of the following:

(a) make an award of costs at any stage in a proceeding, whether before, during or after any hearing or trial;

(b) make different awards of costs in relation to different parts of the proceeding;

(c) order the parties to bear costs in specified proportions;

(d) award a party costs in a specified sum;

(e) award costs in favour of or against a party whether or not the party is successful in the proceeding;

(f) order a party’s lawyer to bear costs personally;

(g) order that costs awarded against a party are to be assessed on an indemnity basis or otherwise.

Note: For further provision about the award of costs, see subsections 37N(4) and (5) and paragraphs 37P(6)(d) and (e).[6]

Disallowing costs as between parties

8.10Where a party conducts discovery in an inefficient, wasteful and costly manner, and is ultimately unsuccessful in the litigation, then that party will bear much of the cost of their own waste and inefficiency. However, it could be argued that unsuccessful parties should not have to pay the discovery costs incurred wastefully or unnecessarily by the opposite side.

8.11For example, a company’s poor recordkeeping practices might be one cause of high discovery costs over which the opposite party has no control and arguably should bear limited responsibility. This was a matter of concern to a number who made submissions to this Inquiry. For example, the first issue in the Queensland Law Society’s list of ‘most significant issues that require addressing in relation to discovery’ was the ‘need for many clients to more effectively manage their records (so as to facilitate the early and efficient identification and gathering of potentially relevant records).’[7]E-law Asia Pacific submitted that discovery is becoming increasingly costly ‘due to the often disorganised way in which information is stored within organisations’:

Disciplined archiving practices are the exception rather than the rule, and when a party requests discovery, they could be faced with the possibility that potentially relevant information is stored in a number of disparate locations, in email repositories, on network drives, on local drives on notebook computers, portable devices such as iPhones, BlackBerries, USB memory sticks and the like. Therefore, the question is, should one party have to pay a premium because the other party has not archived its information in an organised way, or has not archived information at all?[8]

8.12Before considering whether the cost of allegedly wasteful discovery work should not be awarded to asuccessful party, it may be noted that judicial concerns have been expressed regarding comparable apportionings of costs. In Cretazzo v. Lombardi (1975), Jacobs J noted that ‘trials occur daily in which the party, who in the end is wholly or substantially successful, nevertheless fails along the way on particular issues of fact or law’:[9]

The ultimate ends of justice may not be served if a party is dissuaded by the risk of costs from canvassing all issues, however doubtful, which might be material to the decision of the case. There are, of course, many factors affecting the exercise of the discretion as to costs in each case, including in particular, the severability of the issues, and no two cases are alike. I wish merely to lend no encouragement to any suggestion that a party against whom the judgment goes ought nevertheless to anticipate a favourable exercise of the judicial discretion as to costs in respect of issues upon which he may have succeeded, based merely on his success in those particular issues.[10]

8.13A similar objection might be made to efforts to apportion discovery costs. Concerns may be raised that parties or lawyers might be dissuaded from fully disclosing all relevant documents by the risk of an adverse costs order.

Improperly, unreasonably or negligently incurred

8.14The Federal Court may disallow, or direct the taxing officer to disallow, costs that have been ‘improperly, unreasonably or negligently incurred’ or ‘direct that a party whose costs are so disallowed shall pay to the other parties the costs incurred by those parties in relation to the proceeding in respect of which his costs have been disallowed’.[11]In a 1999 intellectual property case before the Federal Court, one party claimed that the other party ‘caused unnecessary prolongation of the case and the incurring of unnecessary expenditure in the course of discovery’ by maintaining unreasonablyits denial that one design was consciously based on another design. In that case, Lehane J considered the Court’s power to apportion costs. After noting that the Court has a broad discretion that must be exercised judicially, his Honour said:

Ordinarily, in the absence of special circumstances, the appropriate order is that the unsuccessful party pay the costs of the successful party. Special circumstances may warrant disallowance of certain of the costs incurred by the successful party (O 62 r 36(1) of the Federal Court Rules deals with particular circumstances of that kind). Where an applicant pursues one substantial aim through a number of causes of action and achieves the substantial aim but fails as to a number of the particular causes of action, some apportionment of costs may be justified where those causes of action accounted for a substantial proportion of the hearing time (Hughes). Where a successful party’s conduct of the case unreasonably prolongs proceedings or where that party unreasonably persists in an allegation, or in maintaining a denial, for which there is no foundation, again some apportionment may be appropriate and it may be a proper exercise of the discretion to make the apportionment so as not merely to deprive the successful party of the appropriate proportion of its costs but notionally to require it to pay a portion of the costs of the unsuccessful party…[12]

8.15Justice Lehane noted ‘the difficulty, and no doubt the inappropriateness, of attempting to state rules or even firm guidelines for the exercise of the discretion’.[13]Concerning this discretion, the Full Federal Court has said that,generally speaking,

the demands of the community for greater economy and efficiency in the conduct of litigation may properly be reflected in a qualification of the presumption that a successful party is entitled to all its costs.[14]

Section 37N of the Federal Court of Australia Act

8.16Section 37N of the Federal Court of Australia Act came into effect on 1 January 2010 and provides that parties to a civil proceeding before the Court ‘must conduct the proceeding … in a way that is consistent with the overarching purpose’.[15]This overarching purpose, set out in s 37M, is to facilitate the just resolution of disputes: according to law; and as quickly, inexpensively and efficiently as possible’. It includes as an objective ‘the resolution of disputes at a cost that is proportionate to the importance and complexity of the matters in dispute’.[16]Section 37N(4) provides that in exercising the discretion to award costs,the Court or a Judge must take account of any failure to comply with this duty to conduct the proceeding in a way that is consistent with the overarching purpose.[17]

8.17The relevant Explanatory Memorandum said that:

The Court currently has power in the Court Rules to make disciplinary costs orders where costs have been incurred improperly or without reasonable cause, or are wasted by undue delay or by any other misconduct or default. (Order 62, Rule 9) This new provision will give legislative support to these powers and will make it clear that the court can order costs in a way other than costs against the unsuccessful party.

In connection with the amendments to section 43 of the Federal Court [of Australia] Act, the Court will have the discretion to award costs against a party to the proceeding for conduct that breaches the duty, or against a party’s lawyer personally for failing to assist the party to comply with the duty...

Examples of the type of conduct that the Court might consider to be a breach of this duty, and therefore impose costs, include the following (this is a non-exhaustive list that applies equally to the behaviour of applicants and respondents):

  • unreasonably refusing to participate in conciliation, mediation, arbitration or other alternative dispute resolution opportunities, because alternative dispute resolution provides a mechanism for the parties to resolve their dispute early, quickly and cheaply;
  • failing to act in good faith in attempting to resolve or narrow issues in the proceedings;
  • unreasonably rejecting an offer of settlement of part or whole of the proceeding; or
  • pursuing issues in the proceeding that had no reasonable prospect of success. This might include issues that were vexatious or frivolous.

The intention of this amendment is to bring about a cultural change in the conduct of litigation so that the Court and the parties are focussed on resolving disputes as quickly and cheaply as possible. Parties who act consistently with this duty will be able to avoid cost orders being made against them and overall, their litigation costs should be reduced.[18]

8.18The Courtor a Judge must presumably apply s 37N(4)—take into account any failure to comply with the duty to conduct the proceeding in a way that is consistent with the overarching purpose—whether or not costs have been found to have been ‘improperly, unreasonably or negligently incurred’ under O 62 r 36 of the Federal Court Rules. However, it may have been useful for a note to have been amended to O62 r 36 referring to s 37N, to alert the Court and Judges to the need to consider this, just as a note has been amended to O 62 r 9.

Failing to comply with court directions

8.19Section 37P of theFederal Court of Australia Act concerns the power of the Court to give directions about practice and procedure in a civil proceeding. Section 37P(6)(d) and (e) provide that if a party fails to comply with a direction given by the Court about the practice and procedure to be followed in relation to the proceeding, the Court may, among other things, award costs against a party, or order that costs awarded against a party are to be assessed on an indemnity basis or otherwise.

8.20The Court might, therefore, award costs against a party for failing to comply with a discovery order—and if the order contained a detailed discovery plan, for failing to conduct proceedings in accordance with the discovery plan.

ALRC’s views

8.21In the ALRC’s view, the costs of unsuccessfully litigating a matter in the Federal Court should not necessarily include unreasonable and unnecessary discovery costs incurred by the successful party, such as costs resulting from the successful party’s own poor record-keeping and archiving. The Court’s broad discretion in awarding costs should enable it to address,at least partly, this concern when making costs orders.

8.22Section 37N of the Federal Court of Australia Act directs the Court, when exercising its discretion to award costs, to take into account whetherthe parties have complied with their duty to conduct litigation in accordance with the overarching purpose in s 37M. Discovery is a vital part of litigation that should be conducted in accordance with this overarching purpose. Where it is not, this should be reflected in the apportioning of costs.

8.23Accordingly, the ALRC recommends that Federal Court practice notes concerning discovery address how the Court or a judge might assess whether the parties have complied with this duty in the conduct of discovery. For example, in large complex cases in which discovery costs may be high, the Courtor a judge may consider whether and to what extent parties complied with any discovery plan they were ordered to prepare.[19]

8.24The practice note might also direct practitioners to be prepared to address the Court on these matters. Lawyers may be somewhat reluctant to challenge the proportionality of costs incurred by the opposing side for discovery work out of some concern that their own discovery costs might be challenged in the future.