Capping discovery costs

9.37 The Federal Court has the power to cap costs under O 62A r 1 of the Federal Court Rules, which provides:

The Court may, by order made at a directions hearing, specify the maximum costs that may be recovered on a party and party basis.^[41]

9.38 Order 62A r 2 excludes certain costs that one party may have caused the other to incur unnecessarily. Order 62A r 3 provides that an order under r 1 may include any directions the Court considers necessary to effect the economic and efficient progress of the proceedings to trial or hearing of the action. Order 62A r 4 permits the Court to vary the maximum recoverable costs.^[42]

9.39 The purpose of the Order was explained in a letter dated 6 November 1991 from the then Federal Court Chief Justice to the then President of the Law Council of Australia:

There is concern within the Court, reflecting that within the wider community and the legal profession, that the cost of litigation, particularly for persons of ordinary means, places access to the civil courts beyond their reach and thus effectively denies them justice.

A deterrent to the assertion or the defence of rights in civil litigation is a fear of the ultimate exposure in terms of the legal costs to which an unsuccessful party may be subjected. …

One suggestion that has been made proposes a change to the Rules so as to empower a judge, early in proceedings, to make an order fixing a ceiling on the amount of costs recoverable from the unsuccessful party in the litigation. This ceiling could be defined by reference both to party and party costs and by reference to solicitor/client costs. It should be pointed out that this proposal does not involve the Court in regulating the costs recoverable by a solicitor from his or her client but rather, where costs are ordered to be paid on a solicitor/client basis, the maximum that would be recoverable would be the fixed amount. …

It is anticipated that such a rule, if introduced, would be applied principally to commercial litigation at the lower end of the scale in terms of complexity and the amount in dispute, although it could be applied in other cases as appropriate.^[43]

9.40 In Hanisch v Strive Pty Ltd, Drummond J considered the scope and purpose of O 62A.^[44] His Honour held that the principal object of O 62A was ‘to arm the Court with power to limit the exposure to costs of parties engaged in litigation in the Federal Court which involves less complex issues and is concerned with the recovery of moderate amounts of money’.^[45] Drummond J further concluded that, where the issues before the Court were not complex and where the monetary compensation recoverable was limited, these will be ‘powerful factors that justify the making of an order under O 62A’.^[46]

9.41 In Corcoran v Virgin Blue Airlines Pty Ltd, Bennett J outlined the following factors relevant to the exercise of the Court’s discretion in making an order under O 62A r 1:

• the timing of the application;

• the complexity of the factual or legal issues raised in the proceedings;

• the amount of damages that the applicant seeks to recover and the extent of any other remedies sought;

• whether the applicant’s claims are arguable and not frivolous or vexatious;

• the undesirability of forcing the applicant to abandon the proceedings; and

• whether there is a public interest element to the case.^[47]

9.42 The Public Interest Advocacy Centre has called for a ‘specific public interest costs rule’ that ‘would provide greater certainty for courts and tribunals and litigants as to the circumstances when such an order is available’.^[48]

9.43 It has been noted that judges will often have insufficient information to fix costs caps at an appropriate level.^[49]

ALRC’s views

9.44 In its report, Costs Shifting, the ALRC recommended that a court or tribunal, by order made at a directions hearing, should be able to specify the maximum amount that may be recovered pursuant to an order for costs.^[50] The ALRC argued that such a power allowed a court

to set a budget so that management of the case may be tailored according to appropriate financial limits. The imposition of a cap allows each party to make an informed assessment of the costs and risks involved and to weigh them against the potential benefits. It can encourage the efficient and economic conduct of the proceedings. The imposition of a cap does not prevent a party who wants to spend more than the specified amount from doing so, it simply prevents those additional costs being passed on to the other party.^[51]

9.45 The ALRC also recommended that courts should be able to make a public interest costs order.^[52]

9.46 The potential, broader use of O 62A of the Federal Court Rules to limit the cost of discovery may be a considerable departure from the original intended use of O 62A for ‘commercial litigation at the lower end of the scale in terms of complexity and the amount in dispute’, as suggested by the then Chief Justice.^[53] Furthermore, the complexity of cases in which discovery costs may be unreasonably high may mean that estimating reasonable costs in advance (for the purpose of capping costs to that reasonable estimate) may be prohibitively difficult.

9.47 Care must also be taken to ensure that the processes of discovery and, more broadly, justice are not compromised by the Court imposing a limit on discovery costs. Fair outcomes might not be achieved if parties fail to spend the funds needed to discover relevant documents, because they know the cost will not be recovered. There is a risk that a court-imposed cap could be read to imply that relevant and important documents need not be discovered, if discovering them requires funds over the cap.

9.48 However, despite these concerns, the ALRC considers that capping discovery costs in appropriate cases may focus the scope of discovery and maintain proportionality to the issues in dispute. For example, where the importance of an issue in dispute may be readily quantified, a court may be less reluctant to cap the cost of discovery in advance.

9.49 The ALRC therefore concludes that the Federal Court of Australia Act should be amended to provide expressly that the Court or judge may make an order that specifies the maximum cost that may be recovered for giving discovery or taking inspection. Practitioners should also be prepared to address the Court on when such an order may be appropriate. Accordingly, the ALRC also recommends that Federal Court of Australia practice notes outline relevant circumstances the practitioners might address in relation to this order, and an order for advance payment of discovery costs discussed earlier in this chapter.