Australia: Landmark Decision On Protective Costs Orders

Last Updated: 23 September 2009
Article by Tim Webster

The successful party recovers its costs from the unsuccessful party? Not always!


Usually, the successful party recovers its costs from the unsuccessful party in the litigation. However, if a protective costs order (PCO) is made, the unsuccessful party is not necessarily burdened by all of the successful party's costs.

The Environmental Defenders Office (EDO) sought a protective costs order in the Land and Environment Court on behalf of the Blue Mountains Conservation Society Inc (BMCS) in proceedings claimed to be in the public interest.

In June 2009 the EDO filed proceedings in the Land and Environment Court alleging that a State owned electricity generator had polluted the waters of the Coxs River.

In addition to the claim, the EDO filed a motion seeking a PCO prior to the substantive proceedings being heard by the Court.

PCO's have not been widely granted by the Australian courts. This was the first time a PCO had been sought in proceedings in the Land and Environment Court prior to the hearing of the substantive matter.

The hearing

The EDO argued that the litigation was in the public interest and of critical importance to the water quality in the Sydney drinking water catchment.

It stated, however, that the BMCS would not proceed with the litigation unless an order was made limiting the costs payable in the event that the case was unsuccessful.

The EDO relied primarily on the English decision of R (on the application of Corner House Research) v Secretary of State for Trade and Industry [2005] 4 ALL ER 1 (Corner House), and the Federal Court decision of Bennett J in Corcoran v Virgin Blue Airlines Pty Limited [2008] FCR 864 which dealt with applicants who were legally aided.

The defendant conceded that while the Court had power to make a PCO, consideration must be given to the obligations imposed by section 60 of the Civil Procedure Act 2005 (NSW) to ensure proportionality of costs to the importance and complexity of the issues raised.

In the substantive proceedings the EDO seeks declarations that the defendant has committed a criminal offence by polluting water. The defendant argued that it was also in the public interest that it be able to fully defend its reputation and preserve its business as a state owned corporation, without being limited to recovering a small portion of its costs if successful.

The reasoning

When determining whether a PCO should be made, Pain J adopted the following principles and found:

  1. Timing of application – the application was made early and was therefore timely.
  2. Whether the claim appears arguable – this was not put in issue by the defendant for the purposes of the motion. Her Honour went on to state "my best guess at this stage is that the legal matters raised will be complex and novel in terms of the operation of the Protection of the Environment Operations Act 1997 (NSW) (POEO Act) and civil enforcement of a provision of that Act, a breach of which also gives rise to a criminal offence... This matter if it proceeds will be a test case as it is likely that novel questions in relation to the operation of the POEO Act will be raised and considered by this Court for the first time."
  3. Whether public interest litigation – Her Honour stated "I accept the plaintiff's submission that there are special factors which identify this matter as likely to be in the public interest... On the evidence presented concerning the objects and activities of the BMCS and the environmental protection issues the litigation seeks to address I can conclude that it appears this matter is one of public interest."
  4. Whether the plaintiff has a private interest – the BMCS was found to derive no financial benefit from the proceedings.
  5. Continuation of proceedings – the evidence of the BMCS President was that the proceedings will not continue if a PCO is not made in the amount of $20,000.
  6. Counsel acting pro bono – BMCS's counsel indicated he was acting pro bono.
  7. Parties' financial means – her Honour found "the cost estimate provided in the evidence relied on by defendant appears generally a reasonable estimate of the amount of likely costs to be incurred in the range $232,000 to $285,000." Her Honour also stated the defendant has "substantial resources as a large state government corporation. While the PCO, if made, will mean that it will not recover most of its legal costs and disbursements if it is successful in the litigation, it will not suffer financial hardship as a result of the making of the order."
  8. Rewarding inefficient litigation – her Honour believed that while the defendant argued there would be no incentive for the BMCS to run its case efficiently, "that submission overlooks Rule 42.2(4) which enables a Court to vary any order made under this rule if special circumstances arise. Special circumstances could include in my view the conduct of litigation in a frivolous or vexatious manner."

The decision

Her Honour held that:

  • legal matters raised in the proceeding will be complex and novel in terms of the civil enforcement of a provision of the POEO Act – a breach of which also gives rise to a criminal offence
  • if the matter proceeds it will be a "test case" as it likely that novel questions will be raised and considered by the Land and Environment Court for the first time
  • the subject matter of the proceedings is one of public interest
  • the evidence of the BMCS President is that the proceedings will not continue if a protective costs order is not made in the amount of $20,000 and an order limiting the payment of costs ought to be made in that amount.

Her Honour stated that while "a PCO should not be made lightly at an early stage in the proceedings given that it is occurring before all issues are known and the result of the case is determined...", she determined that "in the interest of justice an order should be made."

The consequences

Her Honour commented that the Land and Environment Court has broad third party standing provisions and it was important to recognise the impact which practice and procedure rules have on access to justice.

While public access to the Courts is fundamental, one of the safeguards of the usual costs position is that a party who brings a claim must be prepared to pay the opposing party's costs if that claim is unsuccessful.

Following this judgment, it is open to any public interest group to argue (at the start of the litigation) that the Court should cap the costs payable by it (if unsuccessful) to an amount that it is prepared to commit to the litigation.

Government instrumentalities and government owned corporations can expect an increase in the number of public interest claims commenced against them.

The defendant intends to seek leave to appeal the decision to the New South Wales Court of Appeal.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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