Federal Court of Australia VDCL v Purcell [2024] FCA 107 File number(s): VID 619 of 2023 Judgment of: HORAN J Date of judgment: 22 February 2024 Catchwords: COSTS – leave to discontinue proceedings – costs of discontinued proceeding – discontinuing party liable for costs under r 26.12(7) of the Federal Court Rules 2011 (Cth) unless terms of a consent or an order of the Court provide otherwise – where discontinuing party seeks order that each party bear their own costs – whether good reason for Court to order otherwise under r 26.12(7) – where proceeding discontinued by applicant due to lack of financial means – where applicant acted reasonably in conduct of proceeding – whether applicant's impecuniosity amounts to good reason to order that each party bear their own costs – applicant liable to pay respondents' costs Legislation: Australian Crime Commission Act 2002 (Cth) ss 7C(2), 28 Federal Court of Australia Act 1976 (Cth) s 43(2) Federal Court Rules 2011 (Cth) r 26.12 Cases cited: Armstrong v Australian Community Pharmacy Authority [2012] FCA 577 Australian Securities and Investments Commission v Diploma Group Limited (No 3) [2017] FCA 891 Colgate Palmolive Company v Cussons Pty Limited (1993) 46 FCR 225 Dalian Huarui Heavy Industry International Co Ltd v Duro Felguera Australia Pty Ltd [2018] FCA 905 El-Debel v Secretary, Department of Immigration and Border Protection [2014] FCA 474; 141 ALD 611 Francis v Allen & Unwin (No 2) [2015] FCA 229 Harvey Norman Holdings Limited v Fels [2002] FCA 13; ATPR 41-852 Lo v Australian Community Pharmacy Authority [2013] FCA 639 O'Neill v Mann [2000] FCA 1680 Primary Health Care Ltd v Australian General Practice Network Ltd [2012] FCA 174 Re Minister for Immigration and Ethnic Affairs; Ex parte Lai Qin (1997) 186 CLR 622 Taylor v Minister for Immigration, Citizenship, Migrant Services and Multicultural Affairs [2020] FCA 1760 Trade Practices Commission v Manfal Pty Ltd (No 3) (1991) 33 FCR 382 Travaglini v Raccuia [2012] FCA 620 Zhao v Ausin Group (Australia) Pty Ltd (No 2) [2023] FCA 498 Division: General Division Registry: Victoria National Practice Area: Administrative and Constitutional Law and Human Rights Number of paragraphs: 26 Date of last submissions: 15 December 2023 (Applicant) 18 December 2023 (Respondent) Date of hearing: Determined on the papers Solicitor for the Applicant: Radovic Lawyers Solicitor for the Respondents: Australian Government Solicitor ORDERS VID 619 of 2023 BETWEEN: VDCL Applicant AND: ANDREW PURCELL First Respondent COMMONWEALTH OF AUSTRALIA Second Respondent order made by: HORAN J DATE OF ORDER: 22 FEBRUARY 2024 THE COURT ORDERS THAT: 1. The applicant be granted leave to file a notice of discontinuance no later than 14 days from the date of this order. 2. The applicant pay the respondents' costs of the proceeding, including the application for leave to file the notice of discontinuance, to be 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 HORAN J: 1 By an originating application filed on 8 August 2023, the applicant sought judicial review of a decision by the first respondent on 28 July 2023 to issue a summons under s 28 of the Australian Crime Commission Act 2002 (Cth) (the ACC Act) requiring the applicant to appear before an examiner on that same day, together with a determination made by the Board of the Australian Crime Commission authorising an intelligence operation under s 7C(2) of the ACC Act (the Special Australian Criminal Intelligence Commission Operation Determination (Serious Financial Crime) 2022). 2 The examination that was initially scheduled for 8 August 2023 did not proceed on that date, apparently for reasons unrelated to the applicant or the commencement of this proceeding. At a subsequent case management hearing on 29 August 2023, Rangiah J made timetabling orders under which the proceeding was set down for hearing on 16 November 2023. 3 On 15 September 2023, the applicant notified the Court that he intended to discontinue the proceeding. There was some initial confusion in relation to the filing by the applicant of a notice of discontinuance which had not been signed by all parties (cf. r 26.12(3)(b) of the Federal Court Rules 2011 (Cth)). Subsequently, however, the applicant confirmed that he sought leave to file a notice of discontinuance pursuant to r 26.12(2)(c) of the Rules. While the respondents advised that they did not oppose the discontinuance of the proceeding, there was disagreement between the parties on the issue of liability for costs. 4 Under r 26.12(7), the party who files a notice of discontinuance of a proceeding is liable to pay the costs of each other party to the proceeding, unless the terms of a consent or an order of the Court provides otherwise. 5 In the light of the foreshadowed discontinuance of the proceeding, the hearing on 16 November 2023 was vacated. On 5 December 2023, I made orders by consent for the parties to file submissions and any evidence on the questions of: (a) whether leave should be granted to the applicant to discontinue the proceedings pursuant to r 26.12(2)(c) of the Rules; and (b) if leave is granted, whether any order should be made as to costs (noting r 26.12(7) of the Rules) and, if so, the basis of such an order. 6 The parties have agreed for those questions to be determined by the Court on the papers. 7 For the following reasons, I consider that is appropriate that the applicant should be liable to pay the respondents' costs in accordance with r 26.12(7) to be taxed in default of agreement, and that no order should be made providing otherwise. The applicant should be granted leave to file a notice of discontinuance pursuant to r 26.12(2)(c). The parties' submissions 8 In the present case, the applicant submits that the Court should exercise its discretion so as to order that each party bears their own costs of the proceeding. In support of this position, the applicant submits: (a) although the usual position is that the party discontinuing a proceeding is liable to pay the costs of the other party or parties, the award of costs remains in the discretion of the Court pursuant to s 43(2) of the Federal Court of Australia Act 1976 (Cth); (b) the discontinuance of proceedings does not automatically attract an award of costs against the discontinuing party, and consideration must be given to the conduct of the parties in the matter and the reasons for discontinuance (referring to O'Neill v Mann [2000] FCA 1680 at [13]); (c) at the time that the summons was issued, the applicant had recently been released from custody after serving a relatively lengthy term of imprisonment, and had completed a parole order; (d) when it became apparent to the applicant that he did not have the means to continue the application, he promptly instructed his solicitors to discontinue the proceedings; (e) the Court should consider whether the applicant had acted reasonably in commencing and conducting the proceedings until their proposed discontinuance; (f) as both parties had acted reasonably in commencing and defending the proceedings respectively, the appropriate resolution was that each party should bear their own costs of the proceeding; (g) in particular, the applicant had not acted unreasonably, and had not made any false or irrelevant allegation or acted in a way that caused a loss of time to the other parties or to the Court (see Colgate Palmolive Company v Cussons Pty Limited (1993) 46 FCR 225); and (h) further, the applicant did not bring the proceeding for an ulterior motive or in wilful disregard of known facts or clearly established law, nor did he make baseless allegations or groundless contentions which unduly prolonged the case (referring to Harvey Norman Holdings Limited v Fels [2002] FCA 13; ATPR 41-852). 9 As mentioned above, the respondents do not oppose the grant of leave to file of a notice of discontinuance, subject to the question of costs. The respondents note that leave to discontinue is generally granted unless the discontinuance would cause some injustice: see Primary Health Care Ltd v Australian General Practice Network Ltd [2012] FCA 174 at [4] (Stone J). The respondents accept that they were notified that the proceedings would be discontinued at a relatively early stage and before the merits of the applicant's case had been addressed, and (putting to one side the issue of costs) the respondents do not contend that they would suffer any substantial prejudice or injustice as a result of the proceedings being discontinued. 10 In relation to costs, the respondents submit as follows. (a) The respondents are entitled to their costs pursuant to r 26.12(7), unless the Court otherwise orders, and the applicant bears the onus of bringing forward some explanation as to why costs should not be ordered in accordance with that rule: see Taylor v Minister for Immigration, Citizenship, Migrant Services and Multicultural Affairs [2020] FCA 1760 at [8]-[10] (Flick J); Zhao v Ausin Group (Australia) Pty Ltd (No 2) [2023] FCA 498 at [15]-[16] (McElwaine J); Francis v Allen & Unwin (No 2) [2015] FCA 229 at [20] (Katzmann J). (b) It is doubtful whether the starting point in r 26.12(7) is displaced by the principle identified in Re Minister for Immigration and Ethnic Affairs; Ex parte Lai Qin (1997) 186 CLR 622 at 624-625 (McHugh J) and O'Neill at [13] to the effect that the appropriate course in cases where both parties have acted reasonably and there has been no determination on the merits is to make no order as to costs. Each of those cases was decided in a different context by reference to different rules. While the fact that the parties may have acted reasonably is a relevant factor, it is not conclusive as to whether r 26.12(7) should be displaced: see Australian Securities and Investments Commission v Diploma Group Limited (No 3) [2017] FCA 891 at [18] (McKerracher J). (c) In so far as the applicant relies on his impecuniosity as an explanation for the discontinuance, this is not generally recognised as a matter that ordinarily deprives a successful party of their costs: see Northern Territory v Sangare (2019) 265 CLR 164 at [26], [35]-[36]. In circumstances where the respondents are ostensibly treated by r 26.12(7) as having achieved a successful outcome (Zhao at [17]), there is no good reason why a similar approach should not be taken in the present context. The respondents note that it is likely that the applicant lacked the funds to commence and carry on the litigation from the outset, and that there is no evidence before the Court as to the applicant's current financial position or his capacity to meet a costs order made against him. (d) The applicant is not seeking to discontinue the proceeding due to a supervening event or circumstance that has rendered the matter inutile. While the respondents note that the summons was ultimately "discharged" on 20 December 2023, the applicant was notified of that outcome on 21 December 2023 by which time he had already sought to discontinue the proceeding primarily for reasons of his impecuniosity. (e) The decision in Colgate Palmolive (and, for that matter, the relevant passage in Fels at [11]) was concerned with an application for indemnity costs, and has no relevance to the present case. (f) Accordingly, the applicant has not provided any sound explanation sufficient to discharge his onus to show that a costs order departing from r 26.12(7) would be appropriate. Consideration 11 Rule 26.12 of the Rules provides that a party claiming relief may discontinue a proceeding in whole or in part by filing a notice of discontinuance. Unless the notice of discontinuance is filed before the return date fixed in the originating application or before the pleadings have closed, the party must obtain the consent of the opposing party or the leave of the Court: r 26.12(2). Rule 26.12(7) addresses the costs consequences of the filing of a notice of discontinuance (whether by consent or by leave or, where permitted, without either consent or leave): (7) Unless the terms of a consent or an order of the Court provide otherwise, a party who files a notice of discontinuance under subrule (2) is liable to pay the costs of each other party to the proceeding in relation to the claim, or part of the claim, that is discontinued. 12 Save for the position in relation to costs, the application for leave to discontinue the proceeding is not opposed by the respondents. Although a grant of leave to discontinue is not automatic or granted as a matter of course (see Trade Practices Commission v Manfal Pty Ltd (No 3) (1991) 33 FCR 382 at 383 (Lee J); Fels at [5]-[6]), leave is normally granted provided that there is no injustice to other parties: O'Neill at [11], referring to Covell Matthews & Partners v French Wools Ltd [1977] 1 WLR 876 at 879. An applicant should not be compelled to litigate against his or her will and, if necessary and appropriate, discontinuance can be made subject to such terms or conditions as are necessary to protect the position of the respondent. In the present case, there is no reason not to grant leave to the applicant to file the notice of discontinuance. The only question for determination is whether an order should be made in relation to the costs of the proceeding. 13 The applicant's position is, in essence, that he should not pay the costs of the respondents because it was reasonable for him to commence the proceeding, and he promptly sought to discontinue the proceeding when it became apparent that he did not have the financial means to pay the associated legal costs. 14 Rule 26.12(7) is not necessarily founded on a premise that, when a proceeding is discontinued by an applicant, the respondent is the successful party. There may be a range of circumstances leading to the discontinuance of a proceeding, not all of which may be equated to success on the part of either the applicant or the respondent in the sense of a vindication of that party's position in relation to the claims forming the subject matter of the proceeding. For example, there might be circumstances in which the relief sought in the proceeding has been overtaken or rendered inutile by supervening events or circumstances beyond the control of any of the parties, or where (as was the case in Lai Qin at 624) the applicant "has achieved the relief sought in the action either by settlement or by extra-curial means". 15 Nevertheless, previous decisions of this Court have generally accepted that r 26.12(7) prescribes a starting point or a default position that, in the absence of any agreement between the parties, a party who files a notice of discontinuance should pay the costs of each other party unless "good reason" is shown for exercising the discretion to order otherwise: see, for example, Armstrong v Australian Community Pharmacy Authority [2012] FCA 577 at [9], [13]-[14] (Rares J); El-Debel v Secretary, Department of Immigration and Border Protection [2014] FCA 474 at [17]; 141 ALD 611 (Foster J); Diploma Group Limited (No 3) at [2]. While some decisions have described this as creating a "presumption" that the discontinuing party ought pay the costs of the other side unless good reason is shown (see Dalian Huarui Heavy Industry International Co Ltd v Duro Felguera Australia Pty Ltd [2018] FCA 905 at [7] (Barker J), cited in Zhao at [15] and Taylor at [8], [22]), it is unnecessary to determine whether such a description is apposite: cf. Lo v Australian Community Pharmacy Authority [2013] FCA 639 at [60] (Katzmann J), cited in Francis at [20]. 16 The general policy embodied in r 26.12(7) is that, where a party elects to discontinue a proceeding, the other party has a prima facie entitlement to an award of costs: see Travaglini v Raccuia [2012] FCA 620 at [36] (McKerracher J). The Court retains a discretion to displace or depart from that position under r 26.12(7) in the circumstances of the particular case. Like any discretion as to costs, the discretion under r 26.12(7) must be exercised judicially by reference to facts connected with or leading up to the litigation. The need for good reason to be shown for any departure from the default position under r 26.12(7) should not unduly constrain or fetter the judicial discretion to make a different costs order in appropriate circumstances. Nevertheless, the onus is on the party who seeks to depart from the costs consequences under r 26.12(7), other than by the terms of a consent, to make an application to the Court and to explain and establish the basis on which a different costs order should be made: Francis at [20]; Taylor at [9]-[10]; Zhao at [16]. 17 In exercising the discretion under r 26.12(7), it remains relevant to consider the conduct of the parties and the reasons for discontinuance: cf. O'Neill at [13]. However, the fact that the discontinuing party has acted reasonably is not necessarily sufficient of itself to warrant a departure from the costs consequences under r 26.12(7). As McKerracher J observed in Diploma Group Limited (No 3) at [18], even if an applicant acted reasonably in bringing and conducting the proceeding, "unless the litigation is rendered futile by external events, such as a settlement, or the objective of the litigation being achieved in other ways, the discontinuing party is almost always liable for costs". 18 In this regard, it may be necessary to distinguish cases that were brought under rules in different terms to r 26.12(7), including where there was no express provision for the costs consequences of a discontinuance that was granted by leave, and the matter was left to the general discretion of the Court. This includes the oft-cited statement made by McHugh J in Lai Qin at 625: 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. 19 That statement was made in the course of a discussion of "the principles which govern an application for costs when a party elects not to pursue an action because he or she has achieved the relief sought in the action either by settlement or by extra-curial means", and in terms addressed a situation in which "the litigation was settled or its further prosecution became futile". Further, the applicable rule of the Court considered by McHugh J in Lai Quin dealt with circumstances "[w]hen for any reason the further prosecution of a proceeding [became] unnecessary", except for the purpose of determining costs, and conferred a discretion on the Court in such circumstances to hear an application to determine the question by whom the costs of the proceeding should be paid and to make such order as was just: see former O 71, r 39 of the High Court Rules 1952 (Cth). 20 In the present case, it does not appear to be suggested that the applicant acted unreasonably in commencing the proceeding. There is no need for present purposes to canvass in detail the grounds of the originating application. These included allegations that the summons issued by the first respondent was invalid because it failed to comply with the statutory requirement to set out, so far as was reasonably practicable, the general nature of the matters in relation to which the applicant was to be questioned; and that the first respondent had formed the requisite state of satisfaction under s 28(1) of the ACC Act based on an incorrect understanding of the law, including on the basis that identified provisions of the Act were constitutionally invalid in so far as they purported to apply to certain classes of "federally relevant crime" which were said to have a "tenuous connection" in some of their operations to heads of Commonwealth legislative power and/or in so far as they purported to allow examination in relation to the facts and circumstances of pending criminal charges. The applicant separately challenged the validity of the Board's determination under s 7C(2) authorising the relevant intelligence operation for the purposes of which the summons for examination was issued. I express no view one way or the other on the merits of the grounds set out in the originating application. It is clear that the Court should not try a hypothetical action, nor is it is possible or appropriate in the present case to assess the strengths of the respective parties' cases, nor make any prediction as to the outcome of the proceeding for the purposes of dealing with the costs consequences of discontinuance. 21 This is not a case in which some supervening event or circumstance resulted in the proceedings being rendered futile or the relief sought becoming unnecessary. I note that the respondents' submissions refer to the "discharge" of the summons on 20 December 2023. At a case management hearing on 29 August 2023, the Court was informed by counsel for the respondents that the compulsory examination did not proceed as originally scheduled on 8 August 2023, and that the examination had been "stood down" for a period of four weeks for reasons unrelated to the commencement of the proceeding. There is no material before the Court to indicate that the examination subsequently took place before the summons was "discharged". 22 In one sense, the ultimate discharge or withdrawal of the summons might potentially be capable of demonstrating that the relief sought in the proceeding had become unnecessary by reason of the supervening conduct of the respondents (compare the facts considered in Lai Qin at 624, 627-628). However, the difficulty is that this did not occur until well after the applicant had already indicated that he intended to discontinue the proceeding, and applied for leave to file the notice of discontinuance. In any event, the parties have not provided any evidence in relation to the circumstances leading to or surrounding the discharge of the summons, so that it is not possible to draw any conclusions in relation to the reasonableness of the respondents' conduct in that context. 23 Rather, the present case is properly characterised as one in which the applicant is effectively surrendering or "abandoning a proceeding and giving up his claim for relief", where ordinarily the appropriate order is that the applicant pay all or part of the respondents' costs: El-Debel at [29]; Travaglini at [36]. 24 The principal reason put forward by the applicant for seeking to discontinue the proceeding concerns his lack of financial means. Impecuniosity resulting in an inability to meet a costs order is not relevant to the exercise of the discretion to award costs against an unsuccessful party: see generally Sangare at [35]-[36]. Although the applicant is not an unsuccessful party in that sense, in so far as there has been no determination of the merits of the proceeding, in my view an analogous approach may be applied to the exercise of the discretion under r 26.12(7), at least in circumstances where the reason for discontinuance is entirely attributable to the applicant. As I understand the submissions made on behalf of the applicant, however, he does not argue that it would be futile to order costs against him by reason of his inability to meet any such costs order, but rather seeks to rely on his lack of financial means in order to explain why he cannot further prosecute the proceeding. Such an argument is neither addressed nor precluded by the High Court's decision in Sangare. 25 While the applicant has not filed any evidence of his financial position in order to substantiate his asserted inability to meet his legal costs, I am prepared to assume that this is the principal reason for the applicant's decision to discontinue the proceeding. However, in all of the circumstances, I do not consider that this constitutes good reason for relieving the applicant of the obligation to pay the respondents' costs as contemplated by r 26.12(7). The respondent did not cause or contribute to the applicant's impecuniosity, and there is no suggestion that its conduct of the proceeding has been unreasonable. The applicant has not met his onus of establishing that there is any good reason for making an order other than that he should pay the respondent's costs of the proceeding. Conclusion 26 Accordingly, pursuant to r 26.12(2)(c) of the Rules, the applicant is granted leave to file a notice of discontinuance of the whole of the proceeding. The costs consequences of such discontinuance are governed by r 26.12(7), and no order will be made providing otherwise. Rather, for the avoidance of doubt, an order will be made reflecting the terms of r 26.12(7), namely that the applicant pay the respondents' costs of the proceeding, including the application for leave to file the notice of discontinuance. I certify that the preceding twenty-six (26) numbered paragraphs are a true copy of the Reasons for Judgment of the Honourable Justice Horan. Associate: Dated: 22 February 2024