Supreme Court New South Wales Medium Neutral Citation: NSW Rifle Association Inc v The Commonwealth of Australia (No. 2) [2012] NSWSC 1098 Hearing dates: 6 September 2012 Decision date: 14 September 2012 Jurisdiction: Equity Division Before: White J Decision: Order that the Commonwealth's notice of motion filed on 27 July 2012 be dismissed. Catchwords: COSTS - exception to the general rule that costs follow the event - application that costs order be set aside and new order made in accordance with provisions of clause of licence - whether respondent liable to pay costs notwithstanding it was successful in litigation - whether court's discretion to order costs should be exercised to give effect to parties agreement - Civil Procedure Act 2005 (NSW), s 98 - contractual provisions not plain and unambiguous PRACTICE AND PROCEDURE - conduct of litigation - where claims not pleaded - public interest in finality of litigation - held costs order should not be reopened Legislation Cited: Civil Procedure Act 2005 Cases Cited: NSW Rifle Association Inc v The Commonwealth of Australia [2012] NSWSC 818 Kyabram Property Investments Pty Ltd v Murray [2005] NSWCA 87 Taree Pty Ltd v Bob Jane Corporation Pty Ltd [2008] VSC 228 Autodesk Inc v Dyason (No. 2) [1993] HCA 6; (1993) 176 CLR 300 Wentworth v Rogers [2002] NSWSC 921 De L v Director-General, NSW Department of Community Services [1996] HCA 5; (1996) 187 CLR 640 Abigroup Limited v Sandtara Pty Ltd [2002] NSWCA 45 Watson Wyatt Superannuation Pty Ltd v Oberlechner [2008] NSWSC 272 Australian Broadcasting Commission v Australasian Performing Right Association Ltd [1973] HCA 36; (1973) 129 CLR 99 Port of Melbourne Authority v Anshun Pty Ltd (1981) 147 CLR 589 Category: Costs Parties: NSW Rifle Association Inc (Plaintiff) The Commonwealth (Defendant) Representation: Counsel: R J Ellicott QC with N Kabilafkas (Plaintiff) B R McClintock SC with B D Kaplan (Defendant) Solicitors: Hunt & Hunt (Plaintiff) Ashurst (Defendant) File Number(s): 2011/393228 2012/41950 Judgment 1HIS HONOUR: On 20 July 2012 I made final orders in these proceedings (NSW Rifle Association Inc v The Commonwealth of Australia [2012] NSWSC 818). After making those orders I said I would hear the parties on costs, but that prima facie the NSWRA was entitled to its costs of both proceedings. Neither party had any submissions to make as to costs and accordingly I ordered the Commonwealth to pay the costs of both proceedings. 2The costs order was made pursuant to s 98 of the Civil Procedure Act 2005 and in accordance with r 42.1 of the Uniform Civil Procedure Rules that prima facie costs follow the event. 3On 27 July 2012 the Commonwealth filed a notice of motion seeking orders that the order of 20 July 2012 that the defendant pay the plaintiff's costs of both proceedings be set aside and that instead it be ordered that the plaintiff pay the defendant's costs of those proceedings on a full indemnity basis including all consultants' fees incurred by the defendant. In support of that notice of motion the defendant's solicitor, Mr Roser, deposed that at the time judgment was delivered and submissions were invited on the question of costs, he was not aware of the provisions of clause 12.10 of the licence. 4Clause 12.10(b) of the licence provides: "12.10 Costs and expenses ... (b) The User must pay all reasonable costs and expenses of the Owner in relation to: (i) any variation [of] this document; (ii) the termination of this document; (iii) the enforcement or protection, attempted enforcement or protection or waiver of any right under this document; and (iv) the consideration or giving of any consent by the Owner under this document, including legal costs and expenses on a full indemnity basis, and consultants' fees." 5The Commonwealth submits that pursuant to clause 12.10(b)(iii) the NSWRA is contractually liable to pay its costs and expenses of the proceedings, notwithstanding that it failed in its defence of the NSWRA's claims and failed in its cross-claim. The submission is put on two bases. First, the Commonwealth submits that the NSWRA is required to pay all reasonable costs and expenses of the Commonwealth in relation to the NSWRA's enforcement or protection, or attempted enforcement or protection, of NSWRA's rights under the licence. Secondly, it says that the NSWRA is liable to pay the Commonwealth's reasonable costs and expenses of the Commonwealth's attempted enforcement of its asserted rights under the licence. The Commonwealth submits that the discretion to order costs under s 98 should be exercised so as to give effect to the parties' agreement. 6Without seeking leave to amend its notice of motion, the Commonwealth contended that if it were not entitled to the orders sought under clause 12.10, it was nonetheless entitled to orders requiring the plaintiff to pay part of the fees of consultants engaged by the Commonwealth whose reports were referred to in the remedy notices. The Commonwealth relied upon clause 9.7(b) and (f). Clause 9.7 provides: "9.7 Indemnity The User indemnifies the Owner against any claim, action, damage, loss, liability, cost or expense which the Owner incurs or is liable for in connection with: (a) any damage, loss, injury or death, caused or contributed to by the User or User's Agents; (b) any default by the User under this document; (c) the use of the Licensed Area, the Licensed Range and the Caravan Park by the User or User's Agents; (d) any service or the misuse of any service to the Licensed Area or the Caravan Park, unless caused by the act or negligence of the Owner; (e) any ammunition, firearms or related items or equipment located or used on the Licensed Area, the Licensed Range, the Caravan Park or any other part of the Range if brought onto the Range by the User or the User's Agents; (f) the failure of the User to comply with the requirements of the Environmental Management Plan or the Fire Safety Management Plan, except to the extent that any such claim, action, damage, loss, liability, cost or expense is caused by the negligence of the Owner or its agents." 7The Commonwealth submitted that in accordance with clause 9.7(b) the NSWRA should be ordered to pay its costs of and in connection with the defaults identified in paragraphs [147]-[154] and [214] of my reasons for judgment. It submitted that pursuant to clause 9.7(f) the NSWRA should be ordered to pay its costs or expenses in connection with the NSWRA's failure to comply with the Fire Safety Management Plan. 8The first question is whether the Commonwealth should be permitted to advance these arguments. It filed a further amended cross-claim in proceedings 2012/41950 in which it sought, amongst other relief, declarations that the Buildings were not in a good and safe state of repair, that the NSWRA had failed to repair damaged asbestos materials and had failed to comply with the Fire Safety Management Plan, that the remedy notices were valid, and that the Commonwealth was entitled to terminate the licence pursuant to subclause 10.2(b) of the licence. It sought a declaration that the licence was terminable by the Commonwealth at will or on giving reasonable notice to the NSWRA and a declaration that it had terminated the licence. It sought an order for possession. It made no claim for payment of expenses incurred in connection with the NSWRA's alleged breaches of the licence. It did not plead clause 12.10 or clause 9.7 of the licence. It made no claim that the NSWRA was required to pay its costs of the proceedings whether the NSWRA was successful or unsuccessful. Indeed, it made no claim for costs at all. The present claims were matters which, if not pleaded, would be likely to take the NSWRA by surprise. If the claims were to be made they ought to have been pleaded (r 14.14(1)); Kyabram Property Investments Pty Ltd v Murray [2005] NSWCA 87 at [16]; Taree Pty Ltd v Bob Jane Corporation Pty Ltd [2008] VSC 228 at [49]-[56]). 9In my reasons for judgment of 20 July 2012 I noted (at [154]) that the hearing was not conducted as a building case because both parties recognised that the validity of the remedy notices did not depend upon a finding of the extent of breaches of clause 6.2(a)(i) or 6.2(b). It may well have been the case that if the Commonwealth had pleaded that it was entitled to recover its expenses incurred in connection with any breach by the NSWRA of its obligations under clause 6.2 that a different approach might have been taken to the litigation. 10Because the notice of motion was filed within 14 days after the orders were entered there is jurisdiction to set aside the costs order as if it had not been entered (r 36.16(3A)). But even in the case of orders that have not been entered, the jurisdiction to set aside a final order to allow re-agitation of the matter is exercised with great caution, having regard to the importance of the public interest in the finality of litigation (Autodesk Inc v Dyason (No. 2) [1993] HCA 6; (1993) 176 CLR 300 at 302; Wentworth v Rogers [2002] NSWSC 921 at [7]). In Autodesk Inc v Dyason (No. 2) Mason CJ said (at 301-302) that: "The exercise of the jurisdiction to reopen a judgment and to grant a rehearing is not confined to circumstances in which the applicant can show that, by accident and without fault on the applicant's part, he or she has not been heard. It is true that the jurisdiction is to be exercised with great caution, having regard to the importance of the public interest in the finality of litigation. It is equally true, as this court said in Wentworth v Woollahra Municipal Council (1982) 149 CLR at 684, that: [g]enerally speaking, it will not be exercised unless the applicant can show that by accident without fault on his part he has not been heard." 11Mason CJ said (at 303) that: "What must emerge, in order to enliven the exercise of the jurisdiction, is that the Court has apparently proceeded according to some misapprehension of the facts or the relevant law and that this misapprehension cannot be attributed solely to the neglect or default of the party seeking the rehearing." (See also Wentworth v Rogers at [7].) 12The NSWRA submits that the sole reason the court did not consider the operation of clauses 12.10 and 9.7 and their effect on the Commonwealth's asserted entitlement to costs and expenses was that the Commonwealth failed to plead those clauses and to raise its present contentions as it should have done at the hearing if they were to be maintained. 13The Commonwealth cited De L v Director-General NSW Department of Community Services (No. 2) [1997] HCA 14; (1997) 190 CLR 207 at 215 where the High Court said: "The power of this Court to reopen its judgments or orders is not in doubt. The Court may do so if it is convinced that, in its earlier consideration of the point, it has proceeded 'on a misapprehension as to the facts or the law', where 'there is some matter calling for review' or where 'the interests of justice so require'. It has been said repeatedly that a heavy burden is cast upon the applicant for reopening to show that such an exceptional course is required 'without fault on his part', ie without the attribution of neglect or default to the party seeking reopening. By such expressions of the power to reopen final orders, courts seek to recognise competing objectives of the law. On the one hand, there is the principle of finality of litigation which reinforces the respect that should be shown to orders, final on their face, addressed to the world at large and upon which conduct may be ordered reliant upon their binding authority. On the other hand, courts recognise that accidents and oversights can sometimes occur which, unrepaired, will occasion an injustice. In the case of a final court of appeal, such as this Court, that injustice may be irremediable, unless the Court itself, acting promptly, is persuaded to reopen its orders so as to afford relief in the exceptional circumstances of the case." 14In De L v Director-General, NSW Department of Community Services [1996] HCA 5; (1996) 187 CLR 640 costs had been ordered against the Director-General without regard to regulation 7 of the Family Law (Child Abduction Convention) Regulations 1986 (Cth), which it was said (ultimately unsuccessfully) precluded the High Court from making the order for the costs that it did. The point was allowed to be agitated because, amongst other reasons, the court accepted that the oversight of the regulation occurred by accident because the parties' submissions were naturally focused on the substance of the contest to which the regulation was not relevant. In substance, it was found that the Director-General was not at fault in not adverting to the matter on the hearing of the substantive appeal. This case does not lay down a different principle. 15I accept the submission of the NSWRA that the Commonwealth should not be permitted to re-open the issue of what costs orders should be made. The matters which the Commonwealth seeks to agitate ought to have been pleaded. They ought to have been agitated at the hearing. It is only because the Commonwealth did not raise this contention that it was not considered. There was no evidence as to why the matter was not raised. Mr Roser was not aware of clause 12.10 of the licence. There was no evidence from any relevant officer of the Commonwealth. I infer that it did not occur to any relevant officer that it might be arguable that the licence meant that the Commonwealth could recover its costs even if it lost. Even if the licence has that effect, it would not be unjust to hold the Commonwealth to the basis upon which the proceedings were litigated. 16In the interests of finality of litigation I do not consider that the costs order should be reopened. 17In any event, I do not consider that a different costs order should be made. The costs order was made pursuant to s 98 of the Civil Procedure Act which provides that costs are in the discretion of the Court. Whilst the exercise of that discretion is regulated to some extent, for example by r 42.1 that provides that the Court is to order that costs follow the event, unless it appears that some other order should be made, the question is what is the just outcome as to costs. The Commonwealth accepts that a contractual agreement does not oust the Court's statutory discretion to award costs (Abigroup Limited v Sandtara Pty Ltd [2002] NSWCA 45 at [9]; Watson Wyatt Superannuation Pty Ltd v Oberlechner [2008] NSWSC 272 at [36]). In the latter case Brereton J considered a submission similar to the Commonwealth's submission in this case. His Honour said (at [34]-[37]): "[34] First Mortgage failed on its cross-claim, which is the only matter which has been litigated, and Mr Oberlechner succeeded in resisting that cross-claim. In those circumstances, ordinarily First Mortgage would be required to pay Mr Oberlechner's costs. [35] However, First Mortgage argues that Mr Oberlechner should pay its costs, and on an indemnity basis, pursuant to a provision - cl 20.1 - in the filed memorandum incorporated in the Tura Beach mortgage, by which the mortgagor agrees to pay or reimburse the mortgagee on demand for the mortgagee's costs in 'otherwise acting in connection with the mortgage such as enforcing or preserving rights'. [36] The current proceedings relate to the rights under a deed of charge. The Court is not inclined to give a wide construction to provisions such as cl 20.1 in any event. While such a provision is a relevant consideration when the Court comes to exercise its discretion as to costs, the agreement of the parties cannot bind the Court's discretion on issues of costs. [37] In my view, the second cross-claim in these proceedings is not an act in connection with the mortgage within the meaning of cl 20.1(b). The mortgage, and rights under the mortgage, formed no material fact in the cause of action on which First Mortgage had to rely if it were to succeed in these proceedings, which did not involve enforcing or preserving rights under the mortgage, but enforcing or preserving rights said to arise under the deeds of charge. Even if I were of another view on the proper construction of cl 20.1(b), as a matter of discretion, I would not order the successful cross-defendant to pay the unsuccessful cross-claimant's costs on the basis of that clause." 18In my view it would not be a just outcome if the NSWRA were required to pay the Commonwealth's costs even though it was compelled to bring this litigation by the Commonwealth's purported termination of the licence on three months' notice, that was subsequently withdrawn, and to assert the invalidity of the remedy notices that I have found were invalid. Moreover, even if the Commonwealth has a contractual right under clause 12.10 to recover its costs, I do not see why the Commonwealth should not be required in the exercise of the discretion conferred by s 98 to pay the NSWRA's costs in circumstances where those costs were incurred as a result of conduct of the Commonwealth that I have found had no valid basis. 19It is the case that the statutory discretion as to costs will often be exercised having regard to the terms of an agreement between the parties. Usually this question arises in the case of a mortgage or lease where a mortgagee or lessor is successful and seeks to recover its costs on a basis other than the ordinary basis. It was in that connection that the Court of Appeal said in Kyabram Property Investments Pty Ltd v Murray (at [12]) that: "[12] It is well established that a mortgagee may rely upon its contractual entitlement to costs so as to claim an order other than on a party/party basis. In Re Adelphi Hotel (Brighton) Ltd [1953] 2 All ER 498, Vaisey J at 502 observed that the prima facie rule was that costs were awarded on a party/party basis unless some alternative basis was shown 'either on some well-recognised principle, or under some contract plainly and unambiguously expressed'. The New Zealand Court of Appeal applied the rule to the payment of a mortgagee's legal costs in a recovery action: ANZ Banking Group (NZ) Ltd v Gibson (Court of Appeal) [1986] 1 NZLR 556 at 566, 569." (Bold type in original.) 20Unless the meaning of the contractual provision, and, if relevant, its validity, has been litigated at the hearing, then if the provision is not plain and unambiguous, it does not provide the basis for determining how the statutory discretion is to be exercised. In this case I am asked to decide the parties' contractual rights and obligations where they are not plain and where the issue has not been litigated. 21Clause 12.10 is not plain and unambiguous. If I were required to exercise the statutory discretion in accordance with clause 12.10 of the licence, I would not construe it in the way the Commonwealth contends. In my view, the natural reading of clause 12.10(b)(iii) is that the User (the NSWRA) is to pay the Owner's (the Commonwealth's) reasonable costs and expenses in relation to the enforcement or protection by the Commonwealth, or the attempted enforcement or protection by the Commonwealth, or the waiver by the Commonwealth, of any right under the document. The proposition that the NSWRA should pay the Commonwealth's costs on a full indemnity basis where the NSWRA is enforcing or protecting its rights that the Commonwealth wrongly denies is such an unreasonable construction that it should only be adopted if the words used unambiguously require such a construction. Where two constructions are open, a construction that avoids capricious, unreasonable, inconvenient or unjust results is to be preferred (Australian Broadcasting Commission v Australasian Performing Right Association Ltd [1973] HCA 36; (1973) 129 CLR 99 at 109). Clause 12.10(b)(iii) is silent as to whose enforcement or protection, or attempted enforcement or protection, or waiver, of rights under the licence is to give rise to the NSWRA's liability to pay the Commonwealth's reasonable costs and expenses. The reasonable construction is that it is only the Commonwealth's enforcement or protection of its rights, or attempted enforcement or protection or waiver of its rights, that will result in the NSWRA incurring that liability. 22I would not accept the Commonwealth's submission that the NSWRA was obliged to pay its costs because it was attempting to enforce a right under the licence. On my findings the Commonwealth was not entitled to the rights it asserted. It was not attempting to enforce a right, but was attempting to enforce an asserted right. The Commonwealth argued that because the clause applied both to the enforcement of a right and the attempted enforcement of a right, it should follow that the clause applied where there was an attempted enforcement of an asserted right. This was said to be inherent in the notion of attempted enforcement. I do not agree. The Commonwealth could have a right under the licence (and not merely an asserted right), which it could only attempt to enforce. For example, if the NSWRA was in breach of its obligation to pay the licence fee, the Commonwealth might incur expense in attempting to enforce the NSWRA's obligation to pay the fee. It might have a right to the fee, but might not be able to enforce that right because the NSWRA did not have the funds with which to pay. Its costs of attempting to enforce an actual right would be payable on the indemnity basis under clause 12.10 even if it were unsuccessful in enforcing the right. 23For these reasons I would reject the Commonwealth's submissions that by reason of clause 12.10 the statutory discretion should be exercised so that costs should be ordered in its favour, even though it was unsuccessful in the proceedings, even if I were of the view that the Commonwealth should be permitted to agitate that issue. It is unnecessary to consider the additional arguments raised by the NSWRA that if the clause had the meaning for which the Commonwealth contends, the clause would be invalid. 24If clause 9.7 has the operation for which the Commonwealth contends, it would nonetheless not entitle the Commonwealth to the relief sought in the notice of motion. No application was made for leave to amend. Indeed, notwithstanding that I directed the service of written submissions, the Commonwealth's written submissions did not include any submission based on clause 9.7. I was told that in correspondence the Commonwealth's solicitor advised the NSWRA's solicitor that the Commonwealth would also be relying on clause 9.7(f). The NSWRA provided written submissions in relation to clause 9.7(f), although the Commonwealth did not. In oral submissions the Commonwealth relied upon clause 9.7(b) which had been neither adverted to in its written submission, nor, as I understand it, in correspondence. In the Commonwealth's oral submissions in chief no reliance was placed on clause 9.7(f). It was only in reply that the Commonwealth relied on that clause. This is not the way to conduct litigation. 25Neither clause 9.7(b) nor clause 9.7(f) relates directly to the costs of this litigation. If the Commonwealth is entitled to recover any expense under clause 9.7(b) or (f), it is not as a cost of the litigation, but as an expense incurred in connection with either a default under the licence (clause 9.7(b)), or the NSWRA's failure to comply with the Fire Safety Management Plan (clause 9.7(f)). Whilst the statutory discretion as to costs should prima facie be exercised in accordance with a clear contractual agreement in relation to the costs of proceedings, it does not follow that the costs discretion should be modified to enforce an asserted contractual claim for expenses that would be claimed as disbursements incurred in the litigation. The Commonwealth could have claimed those expenses in the proceedings relying on clause 9.7(b) and (f). It did not do so. It would be arguable that if it sought to recover those expenses in fresh proceedings in reliance on clause 9.7(b) and (f), it might be estopped on the principles of Port of Melbourne Authority v Anshun Pty Ltd (1981) 147 CLR 589. Contrary to the Commonwealth's submission, prima facie, such a defence would not be barred by the Court of Appeal's decision in Abigroup Limited v Sandtara Pty Ltd. There, the Court of Appeal held (at [11]) that a lessor was not entitled to enforce a contractual right of indemnity prior to the completion of the first proceedings and therefore was not estopped because it did not claim on the indemnity basis in those proceedings. On the Commonwealth's submissions, that is not this case. On its submissions it could have claimed reimbursement of expenses in these proceedings, but it did not do so. 26Clause 9.7(b) is not plain and unambiguous. Clause 10.1 of the licence provides that the User (the NSWRA) is in default if any of six listed matters is satisfied. One of these is that the Commonwealth has given the NSWRA a notice asking the NSWRA to remedy a breach which has not been remedied within 14 days or such longer period as is specified in the notice. A breach of clause 6.2 does not by itself mean that the NSWRA is "in default". 27The Commonwealth argued that the NSWRA was required to indemnify it in respect of expenses that the Commonwealth incurred in connection with the breaches that I found. It submitted that in clause 9.7(b) the reference to "any default by the User under this document" included any breach by the NSWRA of the licence whether or not that breach resulted in the NSWRA being "in default" under clause 10.1. At the very least, that is debatable. I am not persuaded that the submission is correct. It would not be appropriate to exercise the costs discretion under s 98 on the basis of a debatable construction of clause 9.7(b). 28It is also debatable whether the expenses claimed by the Commonwealth said to be recoverable under clause 9.7(f) were incurred "in connection with" the NSWRA's failure to comply with the Fire Safety Management Plan. It would be arguable that the expense of the report prepared by Elk-Seagren Consulting Pty Ltd of 3 April 2012 (NSW Rifle Association Inc v The Commonwealth of Australia at [214]) was incurred solely for the purpose of enabling the Commonwealth to assert an entitlement to terminate the licence. Whether such an expense was incurred "in connection with" the failure of the NSWRA to comply with the Fire Safety Management Plan, or whether it was incurred solely in connection with the desire of the Commonwealth to terminate the licence, not because of failure to comply with the Fire Safety Management Plan, but because it considered that the Malabar Headland should be used as a national park and not as a rifle range, could be open to argument. 29On the limited evidence adduced I would infer that the Commonwealth engaged the services of Elk-Seagren Consulting Pty Ltd only because it wished to find grounds to terminate the licence. Counsel for the Commonwealth submitted that the Commonwealth was concerned about the fire safety measures at the Range. No-one on behalf of the Commonwealth gave evidence to that effect. The fire safety measures had not been attended to for over a decade without any complaint by the Commonwealth. In my view, the alleged breach of clause 9.7(f) is not a matter that I can decide. As the issue is debatable it is not relevant to the exercise of the costs discretion under s 98 of the Civil Procedure Act, even if it were open to the Commonwealth to rely upon that matter. 30For these reasons I order that the Commonwealth's notice of motion filed on 27 July 2012 be dismissed. I will hear the parties on costs. DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 14 September 2012