FEDERAL COURT OF AUSTRALIA AM Stevens Pty Ltd v Australian Red Cross Society [2002] FCA 91 COSTS – application for leave to amend pleadings – where considerable delay in bringing application for leave – costs thrown away – whether gross sum should be paid – whether costs should be taxed forthwith. COSTS – application for leave to amend pleadings – where application ultimately successful – whether opposition unreasonable. Federal Court Rules O 62 r 3, O 62 r 4(2)(c), O 62 r 19 AM Stevens Pty Ltd v Australian Red Cross Society [2001] FCA 1265 referred to Beach Petroleum NL and Claremont Petroleum NL v Johnson (No 2) (1995) 57 FCR 119 referred to Canvas Graphics Pty Ltd v Kodak (Australasia) Pty Ltd, unreported, FCA, 23 January 1998, O'Loughlin J referred to Re Wilcox; Ex parte Venture Industries Pty Ltd (No 2) (1997) 72 FCR 151 referred to Colgate-Palmolive Co v Cussons Pty Ltd (1993) 46 FCR 225 referred to McKellar v Container Terminal Management Services Ltd [1999] FCA 1639 referred to All Services Australia Pty Ltd v Telstra Corporation Ltd (2000) 171 ALR 330 referred to Murran Investments Pty Ltd v Aromatic Beauty Products Pty Ltd [2000] FCA 1732 referred to AM STEVENS PTY LTD v AUSTRALIAN RED CROSS SOCIETY & ORS AG99 of 1998 FINN J CANBERRA 12 FEBRUARY 2002 IN THE FEDERAL COURT OF AUSTRALIA AUSTRALIAN CAPITAL TERRITORY DISTRICT REGISTRY AG99 OF 1998 BETWEEN: AM STEVENS PTY LTD APPLICANT AND: AUSTRALIAN RED CROSS SOCIETY FIRST RESPONDENT PRANK NOMINEES PTY LTD (formerly National Capital Properties Pty Ltd) SECOND RESPONDENT AUSTRALIAN RED CROSS SOCIETY FIRST CROSS-CLAIMANT PRANK NOMINEES PTY LTD SECOND CROSS-CLAIMANT LEIGHTONS CONTRACTORS PTY LTD CROSS-RESPONDENT JUDGE: FINN J DATE OF ORDER: 12 FEBRUARY 2002 WHERE MADE: CANBERRA THE COURT ORDERS THAT: 1. The applicant pay the first and second respondents' costs of the Notice of Motion of 14 June 2001; and 2. The first and second respondents be at liberty to tax the costs occasioned by the amendment of the statement of claim including the costs of the motion of 14 June 2001, and the applicant pay those costs forthwith upon taxation. Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules. IN THE FEDERAL COURT OF AUSTRALIA AUSTRALIAN CAPITAL TERRITORY DISTRICT REGISTRY AG99 OF 1998 BETWEEN: AM STEVENS PTY LTD APPLICANT AND: AUSTRALIAN RED CROSS SOCIETY FIRST RESPONDENT PRANK NOMINEES PTY LTD (formerly National Capital Properties Pty Ltd) SECOND RESPONDENT AUSTRALIAN RED CROSS SOCIETY FIRST CROSS-CLAIMANT PRANK NOMINEES PTY LTD SECOND CROSS-CLAIMANT LEIGHTONS CONTRACTORS PTY LTD CROSS-RESPONDENT JUDGE: FINN J DATE: 12 FEBRUARY 2002 PLACE: CANBERRA REASONS FOR JUDGMENT 1 I have given the applicant, AM Stevens Pty Ltd, leave to amend its Statement of Claim: see AM Stevens Pty Ltd v Australian Red Cross Society [2001] FCA 1265. The original application and Statement of Claim were filed on 25 September 1998. 2 As I indicated when granting leave, the history of this matter does no credit to the litigation system. It has been marked by a now significant number of directions hearings; the applicant's leisurely response to requests for particulars and then for particulars of damage; shifts, glacial in pace but significant in substance, both in the claims now advanced and the damages now claimed; and by some laxness on the applicant's part in particular in complying with directions given. The respondents, in my view, have clear reason for dissatisfaction with the manner in which the proceeding has been prosecuted against them to date. 3 The respondent opposed the grant of leave to amend, in the event unsuccessfully. They now seek that the Court make a lump sum order of $40,000 payable forthwith in respect of costs thrown away over the three year period since the filing of the application. The lump sum is sought essentially for the reason that significant costs have been incurred and wasted to date; that it will be impossible to assess with any accuracy those costs that have been thrown away; and that any attempt to make such an assessment will be costly, time consuming and labour intensive. The order that the costs be payable forthwith is founded primarily on the manner in which the applicant has conducted the proceeding to date and the apprehension that the litigation will not be finalised within a further 12 months. 4 For its part the applicant (i) acknowledges it should pay the respondents' costs of and incidental to the amendment including costs thrown away; (ii) it opposes both the making of a lump sum order – in part because of the lack of adequate evidence to support the sum proposed, and because of the lack of complexity in the matter such as to justify taking that course – and the order that the costs be paid forthwith; and (iii) it seeks that the respondents pay the costs of the motion to amend, or else no costs be awarded, because its opposition thereto has been unreasonable. 5 The Court's power to by-pass a taxation of costs and to order instead that a party be paid a gross sum specified in that order, is contained in O 62 r 4(2)(c) of the Federal Court Rules. In Beach Petroleum NL and Claremont Petroleum NL v Johnson (No 2) (1995) 57 FCR 119, von Doussa J noted the principles upon which this power should be exercised in the following terms (at 120): "The purpose of the rule is to avoid the expense, delay and aggravation involved in protracted litigation arising out of taxation. The power is appropriate to be used in complex cases. An order that costs be assessed as a gross sum does not envisage that any process similar to that involved in taxation should take place, but the power must be exercised judicially and after giving the parties an adequate opportunity to make submissions on the matter." 6 Additionally, it should be said that in exercising that power, the Court should be mindful of those fundamental principles governing costs and their incidence such as are contained in O 62 r 19 of the Federal Court Rules: Canvas Graphics Pty Ltd v Kodak (Australasia) Pty Ltd, unreported, FCA, 23 January 1998, O'Loughlin J. That rule provides: "On every taxation the taxing officer shall allow all such costs charges and expenses as appear to him to have been necessary or proper for the attainment of justice or for maintaining or defending the rights of a party, but, except as against the party who incurred them, costs shall not be allowed which appear to the taxing officer to have been incurred or increased: (a) through over-caution, negligence or misconduct; (b) by payment of special fees to counsel or special charges or expenses to witnesses or other persons; or (c) by other unusual expenses." 7 In the present matter, it clearly is the case that the respondents have incurred costs now made unnecessary by the amendment. They have, though, made no attempt actually to estimate what those costs might have been. No costs consultants have been asked to give evidence in support of the sum sought. No detailed foundation for that sum has been advanced. Rather, the only evidence they have put on is in an affidavit of an employed solicitor in the firm of solicitors representing them which simply asserts that the respondent's costs to date in defending the proceeding up to the date of the affidavit are over $60,000 "calculated on a solicitor/client basis and consisting of fees of Meyer Clapham, both billed and unbilled, and counsel's fees" and which is then simply discounted to arrive at the sum of $40,000 which is sought as the gross sum. 8 In Beach Petroleum, von Doussa J commented (at 123) that before fixing a gross sum: "the Court should be confident that the approach taken to estimate costs is logical, fair and reasonable. On the one hand the Court must be astute to prevent prejudice to the respondents by overestimating the costs, and on the other hand must be astute not to cause an injustice to the successful party by an arbitrary "fail safe" discount on the cost estimates submitted to the Court." In the present matter there is simply no evidentiary basis for the claim that could provide such confidence, even if it be considered that the case otherwise was one in which a gross sum award was appropriate (a matter on which I express no opinion). I am not in the circumstances prepared to order that a gross sum be paid. I should say, additionally, that I cannot be satisfied that the sum sought would not have the effect of recovering costs considered to have been needlessly incurred for whatever cause, as distinct from recovering costs thrown away by the amendment. 9 The respondents, as the applicant concedes, are entitled to their costs thrown away. They submit, though, that those costs should be assessed otherwise than on a party and party basis, and should be taxed and payable forthwith. 10 As to the basis for assessment, I take as my starting point the principles stated by Cooper and Merkel JJ in Re Wilcox; Ex parte Venture Industries Pty Ltd (No 2) (1997) 72 FCR 151 at 156-157; "1. Section 43 of the FCA confers an absolute and unfettered discretion on the Court to make orders as to costs but the discretion must be exercised judicially. 2. In order to exercise the discretion judicially the following principles have been accepted by the Court as applicable: (a) the Court ought not to depart from the rule that costs be ordered on a party and party basis unless the circumstances of the case warrant the Court in departing from the usual course; (b) the circumstances which may warrant departure from the usual course arise as and when the justice of the case so requires or where there may be some special or unusual feature in the case to justify the Court in departing from the usual course; (c) whilst the circumstances in cases in which indemnity costs have been ordered offer a guide, the question must always be whether the particular facts and circumstances of the case in question warrant the making of an order for costs other than on a party and party basis." 11 It is unnecessary here to refer in any detail to the types of circumstances in which departures from the party and party rule have occurred: see eg Colgate-Palmolive Co v Cussons Pty Ltd (1993) 46 FCR 225. Suffice it to say that the present circumstances are far removed from such cases. The applicant's delay in providing further and better particulars first of its original claim and then of its loss, warrant criticism. And it was slow in providing a final version of its proposed amendment. But regrettable though the above may be, it does not constitute such a special or unusual feature in the case as would warrant a departure from the ordinary rule. 12 However, in relation to when the costs should be paid, I am satisfied that the circumstances are such as to warrant a departure from the usual rule encapsulated in O 62 r 3(3) of the Federal Court Rules. That sub-rule provides: "An order for costs of an interlocutory proceeding shall not, unless the Court otherwise orders, entitle a party to have a bill of costs taxed until the principal proceeding in which the interlocutory order was made is concluded or further order." 13 The principles governing the exercise of the discretion conferred by O 62 r 3 have been helpfully identified in several decisions some of which have been collated in the decision of Weinberg J in McKellar v Container Terminal Management Services Ltd [1999] FCA 1639. For present purposes, though, I need only refer to observations made by Kiefel J in All Services Australia Pty Ltd v Telstra Corporation Ltd (2000) 171 ALR 330 at 333: "[11] The making of an order under O 62, r 3 is justified where a court can conclude that a party in whose favour costs orders have been made to date should not be required to wait until the finalisation of the proceedings to obtain payment of them. This may be so where, through no fault of that party, there has been substantial delay in the proceedings, having the effect of substantially postponing a final determination in the matter. This most commonly arises where an applicant has attempted a number of versions of the statement of claim with the result that additional directions hearings were necessary, which should not have been; interlocutory applications had to be brought; and, moreover, substantial delays were incurred in the attempt to plead a case: see Life Airbag Company of Australia Pty Ltd v Life Airbag Company (NZ) Ltd (Fed C of A, Branson J, 22 May 1998, unreported); Harris v Cigna Insurance Australia Ltd (1995) ATPR 41-445; Batten v CTMS Ltd [1999] FCA 1576 and generally McKellar v Container Terminal Management Services Ltd [1999] FCA 1639. In Batten, the effect of the delay was that the matter could not advance, since the respondent could not be required to plead to the statement of claim in its earlier forms. That there has been some delay in a proceeding does not itself suggest an order for payment, in the interim, of costs is appropriate." 14 Her Honour's final comment has been reiterated subsequently by Mansfield J in Murran Investments Pty Ltd v Aromatic Beauty Products Pty Ltd [2000] FCA 1732 where it was indicated at [69] that it is not the fact of delay which is relevant but its effect upon the proceeding and the position in which the other party is then placed. 15 In the present matter, it was a little under two years and nine months from the date when the original application and Statement of Claim was filed that the motion to amend was filed. The relevant costs thrown away were costs incurred in that period yet, as the applicant concedes, the case itself could not be considered a complex one. 16 What seems clear on the relatively scant material before me is that the applicant has been less than diligent in prosecuting its claim and has, furthermore, been slow to provide the respondents with particulars, first, of its claim and then of its alleged loss and damage. In respect of the latter it was the continued prompting of the respondents that seems likely to have been the catalyst to a wholesale revision of the loss and damage claim now to be advanced. 17 This case is not simply one of inconsequential delay. The applicant has been so dilatory in formulating the claim it wishes to pursue that it cannot properly expect the respondents simply to await the final outcome of the proceedings before they have the benefit of the order made in their favour. As I indicated at the outset of these reasons, the progress of this matter has been lamentable. The civil justice processes simply are not designed for the leisurely pursuit of a claim in the manner apparently contemplated by the applicant. It is, in my view, clear that the final resolution of this matter lies some time off. I do not consider the respondents' estimate unrealistic. They should not be required to wait yet another year to recover costs actually incurred up to four years previously. I will order that the costs thrown away be taxed forthwith. 18 The final questions are whether any award of costs of the motion to amend should be made and, if so, by which party (or parties) they should be paid. The applicant's case is that its costs should be paid or else no costs should be awarded. It is contended that the case for amendment was a clear one; the respondents indicated their opposition from the outset and that they would seek more than ordinary costs but did not clearly state their grounds of objection; and their objections were, for the most part concerned with the strength of the substantive case, which were not relevant to the leave application. 19 The respondents understandably, and quite justifiably, deny that their opposition and conduct were unreasonable. I do not consider it was their function to mentor the applicant in the preparation of an unobjectionable pleading (though they did provide some helpful comment upon it); they clearly had an arguable case and made the more so by the "oracular fashion" in which some claims were made in the original statement of claim; and they were entitled to test the applicant's case, and had an interest in so doing because of its bearing on their own claim against the Cross-respondent. I can see no reason for the applicants not being ordered to pay the respondents' costs of the motion. 20 The orders of the Court will be that (i) the applicant pay the first and second respondents' costs of the Notice of Motion of 14 June 2001; and (ii) the first and second respondents be at liberty to tax the costs occasioned by the amendment of the statement of claim including the costs of the motion of 14 June 2001, and the applicant pay those costs forthwith upon taxation. I certify that the preceding twenty (20) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Finn. Associate: Dated: 12 February 2002 Counsel for the Applicant: Mr P Gray Solicitor for the Applicant: Minter Ellison Counsel for the First and Second Respondents: Mr P Donohoe QC & Mr R Arthur Solicitor for the First and Second Respondents: Meyer Clapham Date of Hearing: Written submissions of 10 & 26 September, 18 October 2001 Date of Judgment: 12 February 2002