Judge denies legal costs recovery in court win

A Victorian Supreme Court judge has delivered a pointed reminder about the rules on orders for recovery of legal costs in litigation.

In the recent case of Hodgson v Amcor Ltd (no 10) [2012] VSC 294, Justice Vickery did not allow the successful parties to recover a significant part of their legal costs. The judge found that the conduct of the successful parties that was at the centre of the dispute was sufficiently bad to preclude them from recovering part of their legal costs. This judgment was despite the fact that their conduct did not mean that they should lose the case.

The general rule on legal costs recoverability

The starting point in any consideration of costs is that ‘costs should follow the event’. This effectively means that a court will generally order an unsuccessful party to pay an amount towards the legal costs of the successful party.

This is reflected in the High Court’s observation in Oshlack v Richmond River Council (1998) 193 CLR 72, at 96 that ‘by far the most important factor which courts have viewed as guiding the exercise of the costs discretion is the result of the litigation’.

Despite the general rule, the question whether to award costs is always in the discretion of the court. The list of matters that a court will consider is lengthy, but generally speaking, courts will consider:

• how the parties have conducted themselves in the litigation
• whether offers of settlement have been made
• whether a party was successful on every issue they raised, or just some.

It is less common for courts to depart from the general rule on costs on the basis of conduct engaged in long before the litigation began, as his Honour did in this case. Justice Vickery’s judgment could represent a willingness on the part of judges to consider an even greater range of factors in their decisions on costs.

The circumstances of the case

The case involved former senior managers of the multinational packaging company Amcor Ltd during the period between 2000 and 2004. Amcor was found guilty of illegal cartel conduct. Each manager resigned or had their contracts of employment terminated in late 2004.

After the departure of the former managers, it was discovered that they had engaged in various activities not compatible with their duties to the company. In particular, they held undisclosed financial interests in companies that were negotiating to purchase businesses being sold by Amcor.

The Court ultimately found that the managers had engaged in serious breaches of their duties to Amcor, but that Amcor had not suffered any loss as a result of the conduct because the businesses were sold for market value. On that basis, Amcor’s claim against the managers was not successful.

Under the ordinary rule of legal costs recoverability, the managers ought to have received an order that Amcor pay their legal costs of successfully defending the litigation, but Justice Vickery declined to make that order, finding instead that they should receive only 35% of their legal costs.

Working on the basis that ordinarily costs orders may only cover about 50% of the actual costs incurred, the order made in this case could well have left the former managers having to cover approximately 80% of the (no doubt substantial) legal costs of defending Amcor’s unsuccessful claim.

Justice Vickery’s decision was based on his view that the managers should only be entitled to recover legal costs in relation to the issue of whether the businesses were sold for market value. He held that because they had been found to have engaged in serious misconduct, the managers should not receive any costs associated with the investigations and trial time that concerned this conduct (which his Honour estimated to be about 65% of the total cost of the litigation).

Conclusion

The decision in this case is based on facts that are unique. But, of course, this can be said for all litigation and the principles in this case could therefore have wider application.

The Court’s apparent willingness to look to a broad range of factors in exercising its discretion on costs is something that litigants and their lawyers should be aware of. Awards of costs in complicated legal matters can run to hundreds of thousands of dollars (and indeed more in some cases).

For this reason, parties to litigation need to be aware of the range of possible cost outcomes when planning for litigation and should obtain legal advice on how to manage costs risk at an early stage in their litigation.

If you would like more information on these issues, please contact Rocco Russo or Justin Ditton on +61 7 3231 2444.