Counting the (legal) costs of discontinuing a proceeding

Perhaps just as significant as the decision to commence a proceeding is the decision to discontinue it. While the discontinuing party may be liable to pay the other side’s costs, the matter ultimately is at the court’s discretion. The recent Supreme Court decision in Course v Hannan & Ors[1] highlights some of the factors a court can consider when determining the question of costs of a discontinued proceeding.

The facts

The proceeding centred around the plaintiff’s claim for oppression under Part 2F.1 of the Corporations Act 2001 (Cth), brought against company in which the plaintiff was a significant shareholder. The plaintiff commenced this claim by originating process in December 2014 and sought, amongst other things, an order that the company be wound up under a particular provision of the Act.

In August 2015, the Court ordered the company be wound up on the basis it was just and equitable to do so and granted the plaintiff leave to proceed with her claim against the company in liquidation. It was of some significance that the applicable statutory provision and the grounds pursuant to which the company was wound up differed to that on the plaintiff had brought her claim.

In October 2017, the plaintiff filed a statement of claim. Later, at a directions hearing in the proceeding in December 2017 she sought the Court’s leave to discontinue her claim against the company and the other defendants prior to trial. The plaintiff signalled at that juncture that she intended only to seek costs.

In July 2018, the Court gave leave to the plaintiff to discontinue the proceeding and heard the parties on the question of costs.

The Court’s decision

At the costs hearing, the plaintiff sought that the defendants pay her costs on a standard basis. The defendants sought their costs from the plaintiff, and alternatively an order that each party bear its own costs.

The matter was heard before Connock J. In determining liability for the costs of discontinuance, his Honour began by looking at the applicable law in such circumstances. The starting point is rule 63.15 of the Supreme Court (General Civil Procedure) Rules 2015[2] which provides:

‘Unless the Court otherwise orders, a party who discontinues or withdraws part of a proceeding, counterclaim or claim by third party notice shall pay the costs of the party to whom the discontinuance or withdrawal relates to the time of the discontinuance or withdrawal.’

His Honour clarified that this provision merely represents the ‘starting point’ on the question of liability for costs and ought not be overstated,[3] and that in exercising its discretion a court ought consider all relevant aspects of the proceeding and not only the fact of discontinuance.

Connock J went on to depart from the presumption in rule 63.15, there being what his Honour described as a basis ‘sufficient to warrant a departure from the starting point of rule 63.15’.[4] The Court ordered that the defendants pay the plaintiff’s costs up until a point in time leading up to the winding up order, and that the parties otherwise bear their own costs. The primary reason for this was that the plaintiff had to an extent already obtained some of the relief she had sought in the proceeding; winding up orders and other ancillary orders were made back in August 2015; ‘a measure of practical and legal success [had] been achieved’.[5]

This was so notwithstanding two key matters. First, it did not matter that the plaintiff had in her originating process in December 2014 sought a range of remedies that did not expressly seek the winding up order on the basis the Court ultimately ordered. This was a technicality the defendants sought to invoke in their submissions but one which his Honour considered immaterial in circumstances where the plaintiff’s 2014 originating process had sought ‘further or other orders as may be just or necessary’ and where the Court had prior to the winding up order permitted the plaintiff to amend her originating process so as to seek a winding up order under the appropriate statutory provision.

Second, it was enough to depart from the costs presumption notwithstanding  the defendants’ submission, and his Honour’s observation, that there remained a number of allegations in the plaintiff’s statement of claim filed in October 2017 that remained hotly contested, such allegations being ‘the issues that would absorb the vast majority of the time and costs if the Proceeding had not been discontinued’.[6]

How did any settlement offers affect the costs outcome?

The defendants sought to rely on a settlement offer made to the plaintiff seeking indemnity costs at trial if the plaintiff did not achieve an outcome better than those cited in the offer. To this his Honour stated:

‘[I]n the same way it is not appropriate to speculate about outcomes or carry out hypothetical trials where there has been no determination of the merits of contested issues, it is similarly inappropriate to speculate as to whether a settlement offer may or may not be a better outcome than would have been achieved at trial’.[7]

In other words, because the matter had not proceeded to trial there was no basis on which the Court could assess the reasonableness of the defendants’ offer to compromise the proceeding and therefore no way to know whether the plaintiff could be said to have acted unreasonably in rejecting the offer.

Looking to the next phase of the proceeding — from the time of the winding up order to the time of discontinuance — the parties’ chronology of events showed that little of substance happened during that period; the proceeding adjourned by consent on a number of occasions and on the express basis that there be no order as to costs. His Honour stated:

‘The real question is whether a point in time was reached after which it can be concluded that the plaintiff acted so unreasonably by not discontinuing the Proceeding at that point that she would be ordered to pay the [defendants’] costs of the Proceeding from that point on. I have concluded that the answer to that question is no’.[8]

In reaching that view, Connock J was mindful of the fact that after the winding up order there were certain investigations that the liquidator was to undertake which might have borne upon ‘the practical and substantive considerations relevant to the pursuit of the Proceeding’.[9] It was also relevant that the decision to discontinue was made some time after the winding up order was made but only a short time after the parties finally exchanged pleadings — pleadings being the time at which the parties crystallised their respective positions in the proceeding.

His Honour also noted that ‘in taking the positive step of mutually supporting the discontinuance of the claim notwithstanding the genuine differences between the plaintiff and the [defendants] that had not been resolved for either side, each party appears to have acted in line with the relevant obligations under the [Civil Procedure Act]’.[10]

Conclusion

While the discretion to award costs is at large, and while court rules provide a starting point for the question of costs in the event of discontinuation of a proceeding, the Court’s decision in Course v Hannan & Ors reveals a number of factors relevant to the decision to depart from that rule. Amongst other things, it was relevant that:

  • the discontinuing party had already found some success in the proceeding in terms of the relief it had sought; and
  • no party to the proceeding — including, importantly, the party seeking discontinuance — had acted in a way that needlessly prolonged the proceeding or acted in a way contrary to the requirements of the Civil Procedure Act.

[1]: [2018] VSC 401.

[2]: Substantially similar rules exist for other Victorian courts and for the Federal Court. On the other hand, the Federal Circuit Court’s rules appear to lack the same starting point: see Federal Circuit Court Rules 2001 (Cth) r 13.02.

[3]: Course v Hannan & Ors [2018] VSC 401, [33].

[4]: Ibid [46].

[5]: Ibid [36].

[6]: Ibid [60].

[7]: Ibid [56].

[8]: Ibid [69].

[9]: Ibid [70].

[10]: Ibid.