Case: Re Smith; ex parte Inspector-General in Bankruptcy [1996] FCA 1076
Outcome: referred to
The applicants submitted that the respondents should pay their costs on a party and party basis up to and including 15 April 2005 (the date I delivered reasons for judgment in Bradshaw 1 ). They conceded that they must bear the respondents' costs thereafter, although only on a party and party basis. There was, they said, nothing in their conduct of the case that warranted a departure from the usual course, because their reliance on Re Smith; ex parte Inspector-General in Bankruptcy [1996] FCA 1076 (" Re Smith ") was not unreasonable and, in respect of the application to reopen, the Court had itself considered, as at 15 April 2005, that the applicants should be given an opportunity to quantify their loss. 8 The applicants contended that, even though no monetary order was made in their favour, they were partially successful in the proceeding. They noted that: (1) the respondents had not admitted that the first respondent breached the bond; (2) the first respondent argued unsuccessfully that the applicants' claim was statute-barred; and (3) the second respondent argued unsuccessfully that it had revoked its surety. The applicants observed that they had in fact established liability under the bond and as surety, although the applicants properly conceded that arguments (2) and (3) "did not occupy a great deal of the court's time". 9 The respondents contended that the making of the declarations was never controversial and that the real question in dispute was whether "the bond was, in effect, a good behaviour bond, forfeitable without proof of loss". They sought their costs on a party and party basis until 15 April 2005, after which they sought costs on an indemnity basis. They argued that costs incurred after 15 April 2005 were incurred unnecessarily because evidence quantifying loss could have been led at an earlier stage. They contended that they would not have incurred any costs subsequent to 15 April 2005 had the application to reopen not been made. In written submissions, the second respondent said that "[t]he 'special or unusual' circumstances warranting an order for indemnity costs are the loss of time to the parties and the Court by the Applicants taking the approach that they did". 15 I am of the view that the justice of the case warrants an award of indemnity costs in the respondents' favour for the period after 15 April 2005. The decision in Re Smith may explain the applicants' conduct at the first hearing but it does not explain their conduct thereafter. Further, whilst it is true to say that, as at 15 April 2005, the court itself considered that the applicants should be given an opportunity to quantify their loss, the court formed the contrary view when it was informed of the circumstances known to both parties and relevant to the issue. 16 As already stated in Bradshaw 2 at [23], these circumstances showed that the applicants should be taken to have opened and closed their case at the first hearing on the basis that they would not quantify their loss. Although there were factors militating in favour of a grant of leave to reopen, they were outweighed by contrary considerations. These considerations included that: (1) the applicants deliberately chose not to quantify the Commonwealth's loss at the first hearing; (2) prior to the first hearing, the applicants had plainly led the respondents to believe that the applicants were proceeding on the basis that quantum was irrelevant and, in any case, that the loss could not be quantified; (3) the applicants did not make any application for a split trial, although it was open to them to do so; (4) before the first hearing, the applicants knew that it would be said against them that they could not succeed without evidence quantifying their loss; and (5) whilst there were no pleadings, the issue in debate was clearly addressed in the correspondence between the parties prior to the first hearing. These considerations are also relevant to the respondents' application for indemnity costs. 17 Had had the applicants so chosen, they might have led evidence as to quantification at the first hearing. Had they done so, they could have argued that the Commonwealth was entitled to the amount of the bond but they could also have sought to quantify their loss in the event that the court preferred the respondents' submission on the point to theirs. Had the applicants done this, then there would have been no occasion for any subsequent hearings. The applicants took the stance, however, that the quantum of the loss was irrelevant and the loss could not be quantified. In my view, the applicants acted unreasonably in seeking to resile from the position that that they had adopted in communications with the respondents prior to and at the first hearing. The costs incurred by the respondents after 15 April 2005, when Bradshaw 1 was delivered, should be paid by the applicants on an indemnity basis. I reiterate that although, as at that date, I was minded to give the applicants a further opportunity to quantify their loss, I formed a clear contrary view once I was informed of the circumstances known to both parties, though not the court, as at that date.