When the loser pays – the Australian costs system at work in failed actions
Appropriate costs orders following dismissal of the Octaviar class action – Application for costs orders against lead applicant and funder, jointly and severally, not opposed – Application for indemnity costs order dismissed.
This was a class action on behalf of certain noteholders in the Octaviar group of companies, against the trustee for the noteholders, alleging the trustee had breached various duties, causing loss to the noteholders. Following a lengthy trial, the applicant's and class members' claims were dismissed, albeit that decision is now subject to appeal (Oztech Pty Ltd v Public Trustee of Queensland (No 15)  FCA 819).
In this judgment Yates J considered the appropriate costs order(s) to be made in respect of the proceeding at first instance. Neither the applicant nor the applicant’s funder opposed an order for costs being made against them on the standard basis, jointly and severally. However, the respondent sought an order for indemnity costs from 26 May 2015 onwards:
- on the basis of the applicant’s rejection of a 'walk away' offer on that date
- also, because the proceeding 'was a speculative investment in litigation for commercial gain; unjustified allegations of fraud and dishonesty had been made; and the burden of the likely shortfall in cost recovery should not be borne by the noteholders for whose benefit the proceeding, ostensibly, had been brought [because the respondent, as a trustee, would be entitled to recover that shortfall out of the funds which it held on behalf of the noteholders]'.
In relation to the first point, his Honour noted that the settlement offer had been made at a relatively early stage of the proceeding (shortly after service of the respondent's defence), and was not satisfied that it represented a 'genuine compromise' or that the applicant’s rejection of the offer was, in the circumstances at that time and based on the information available to it, unreasonable.
In relation to the first limb of the second point the respondent submitted (at ):
The losses suffered by the noteholders of the OIN Trust and the position occupied by the [respondent] in connection with that trust were obviously enough perceived by the funder as presenting an opportunity to extract a profit from the 'deep pockets' of a public entity. The history of this litigation reveals a process by which the allegations, evidence and even the identity of the applicant were constantly shaped and re-shaped (often radically), not with a view to the consistent pursuit of any fundamental grievance, but merely by reference to their perceived capacity to serve the ultimate commercial aim of the funder in the forensic exigencies of the moment.
In response to that submission, his Honour said (at -):
Funded litigation, of the present kind, will always bear the character of litigation undertaken for commercial gain, when seen from the perspective of the funder. What other objective can the funder have than to derive profit from taking on the risk of exploiting a legal asset? Minds will differ about the desirability of permitting such a course, but funded litigation is now an accepted feature of the legal landscape of group proceedings. I do not think that either the applicant in the group proceedings, or the funder of those proceedings, should bear indemnity costs if the proceedings are unsuccessful, just because, from the perspective of the funder, they are carried on for commercial gain. In short, the motive of commercial gain does not mean that the case is thereby elevated to a special status for the purpose of awarding costs. This is why the respondent's submissions are conditioned on the further allegation that the proceedings were speculative. His submission is that the case was principally directed and controlled by a funder for its commercial ends rather than an attempt to satisfy or remedy a pre-existing grievance of noteholders.
Although I rejected the applicant's case on a large number of bases, and made a number of significant criticisms of its structure and of the evidence adduced in support of it, I am not persuaded that it would be appropriate for me to find that it was a speculative case. My ultimate findings and conclusions were based on a considerable amount of analysis and arrived at after a significant period of reflection. Although I do not doubt the soundness of my own findings and conclusions, it does not follow that, as a consequence, the applicant's case was speculative. Still less does it follow that the proceeding has the character which the respondent says it bears.
His Honour also rejected the allegation that there had been unjustified allegations of fraud and dishonesty on the part of the applicant, and also held that the burden of the likely shortfall in cost recovery being borne by the noteholders was a matter not directly relevant to the conduct of the litigation itself.
His Honour therefore dismissed the respondent’s application for a special costs order.
Oztech Pty Ltd v Public Trustee of Queensland (No 17)  FCA 2068
- Federal Court of Australia, Yates J
- Applicant's Solicitors: Squire Patton Boggs; Respondent's Solicitors: Clayton Utz
- Applicant's Funder: International Litigation Partners No 9 Pte Ltd
Read more on Austlii: Oztech Pty Ltd v Public Trustee of Queensland (No 17)  FCA 2068
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