Alijagic v Australian Bosnian-Hercegovina Cultural Association Incorporated

[2025] NSWSC 393

Supreme Court

New South Wales

Medium Neutral Citation:

Alijagic v Australian Bosnian-Hercegovina Cultural Association Incorporated [2025] NSWSC 393

Hearing dates:

On the papers – final submissions 18 March 2025

Decision date:

24 April 2025

Jurisdiction:

Equity - Applications List

Before:

Kunc J

Decision:

No order as to costs

Catchwords:

COSTS — Party/Party — General rule that costs follow the event — Proceedings discontinued or dismissed by consent

Legislation Cited:

Associations Incorporation Act 2009 (NSW)

Civil Procedure Act 2005 (NSW)

Uniform Civil Procedure Rules 2005 (NSW)

Cases Cited:

Edwards Madigan Torzillo Briggs Pty Ltd v Gloria Stack [2003] NSWCA 302

In the matter of Keybridge Capital Limited [2025] NSWSC 8

Luo v Carbone [2019] NSWSC 830

Nichols v NFS Agribusiness Pty Ltd (2018) 97 NSWLR 681; [2018] NSWCA 84

ONE.TEL v Deputy Commissioner of Taxation (2000) 101 FCR 548; [2000] FCA 270

Oshlack v Richmond River Council (1998) 193 CLR 72; (1998) 193 CLR 72; (1998) 152 ALR 83; [1998] HCA 11

Re Minister for Immigration & Ethnic Affairs of the Commonwealth of Australia; Ex Parte Lai Qin (1997) 186 CLR 622; [1997] HCA 6

Xero Linear Lighting Systems NSW Pty Ltd v Benson [2024] NSWSC 916

Category:

Costs

Parties:

Hasan Alijagic (Plaintiff)
Australian Bosnian-Hercegovina Cultural Association Incorporated (Defendant)

Representation:

Counsel:
G McDonald (Plaintiff)
J Zmood (Defendant)

Solicitors:
ANB Lawyers (Plaintiff)
Circle Bridge Legal (Defendant)

File Number(s):

2024/00278115

Publication restriction:

Nil

JUDGMENT

Summary

1. General meetings of voluntary associations can become the subject of heated dispute. The dispute is almost always best resolved by holding another meeting rather than the intervention of the Court, not least when the passage of time means that another such meeting must be held in any event. That is what happened in this case, leaving costs as the inevitable and intractable issue for determination by the Court.

2. On 10 February 2025, the plaintiff, Mr Hasan Alijagic, and the defendant, the Australian Bosnian-Hercegovina Cultural Association Inc consented to orders for the dismissal of both Mr Alijagic’s proceedings and the Association’s notice of motion for summary dismissal of those proceedings (dismissal motion). The consent orders also allowed for costs to be decided on the papers.

3. As there was no final hearing, the only common ground was that the principles set out by McHugh J in Re Minister for Immigration & Ethnic Affairs of the Commonwealth of Australia; Ex Parte Lai Qin (1997) 186 CLR 622; [1997] HCA 6 are applicable.

4. Mr Alijagic seeks an order for costs as assessed or agreed, including on the indemnity basis. The Association seeks costs on the ordinary basis until 22 November 2024, and thereafter on the indemnity basis in reliance on the non-acceptance of an offer of compromise.

5. Each party says the other acted unreasonably or capitulated (or both), thereby engaging exceptions set out in Lai Qin to what might be termed the default position of there being no order as to costs. The casting of these mutual anathemas fortifies the Court in its conclusion that, for the reasons which follow, the proper exercise of the Court’s discretion is that there be no order as to costs.

6. Mr Alijagic’s submissions were prepared by Mr G McDonald of Counsel. The Association’s submissions were prepared by Mr J Zmood of Counsel.

Procedural history

7. Mr Alijagic is a member and former president of the Association. The underlying dispute relates to the events leading up to and occurring during a “Special i.e. Extraordinary General Meeting” of the Association which was held on 31 March 2024 (the March SGM).

8. On 4 April 2024, Mr Alijagic sent a letter to the Association calling for a “Special i.e. Extraordinary General Meeting” (SGM) to be called within 21 days pursuant to clause 12 of the Association’s constitution. It was stated the purpose of the meeting would be to remove Mr Alijagic as a Public Officer, change the name of the Association, elect an auditor under clause 18 of the constitution, amend the current constitution, and other business. The letter attached 79 names and signatures.

9. On 16 April 2024, the Association sent a letter in response to Mr Alijagic. The letter accepted Mr Alijagic’s resignation. The letter also stated that the new committee would be reviewing all documents that were handed over by Mr Alijagic, and following legal advice, a SGM would be convened to review the constitution and address the change of name. In relation the appointment of an auditor, the letter stated:

“We note that an election of an auditor pursuant to clause 18 of the Constitution stipulates ‘shall’ and not ‘must’, as such it is not obligatory that an auditor be elected at an AGM, as you are no doubt aware, this never occurred in previous years.”

10. On 30 May 2024, ANB Lawyers, on behalf of Mr Alijagic, sent a letter to the Association stating that the letter of 16 April 2024 was unsatisfactory, considering the letter of Mr Alijagic dated 4 April 2024 had the signatures of 25 percent of the Association’s members required to requisition a SGM under the constitution. The position stated in the 4 April 2024 letter was reiterated, and the Association was called upon to convene a SGM prior to 6 June 2024. It was said that the letter would be relied upon in relation to costs.

11. On 5 June 2024, Circle Bridge Legal, on behalf of the Association, sent a letter in response. This contended that the 4 April 2024 letter was not sufficient under the constitution to require a SGM be convened because not all of the members who signed the petition were financial members. This meant the petition was invalid. This letter also stated that it would be relied upon in relation to costs.

12. On 7 June 2024, ANB Lawyers sent a letter arguing that the petition was in fact valid, and the Association was invited to convene a SGM before 16 June. The letter also stated that legal proceedings would be commenced if the Association did not comply. The letter also advised that the request in the petition for other business to be raised at the SGM related to allegations about financial mismanagement by the president and treasurer of the Association.

13. Following more correspondence between the lawyers, ANB Lawyers sent a letter of offer on 12 July 2024 (Mr Alijagic’s offer) “to avoid the litigation”, which required a SGM be held within 15 days of the offer being accepted and an independent registered company auditor to be appointed to the Association, and invoked the principles in Calderbank v Calderbank [1975] 3 All ER 333. Mr Alijagic’s offer was expressed to be open until 26 July 2024 and the proposed summons was attached. The letter foreshadowed an application for indemnity costs at the conclusion of any legal proceedings.

14. There was no response to Mr Alijagic’s offer and he filed his summons on 29 July 2024 seeking either the reconvening of the March SGM or the convening of a new SGM, together with an order that the Association appoint a registered company auditor.

15. On 9 October 2024, Mr Alijagic filed a statement of claim. This disclosed that Mr Alijagic had requested, and had been granted, access to the financial records of the Association for a seven year period. The burden of his complaint was that the March SGM had been improperly conducted and interrupted so as to prevent him raising his concerns about a “financial matter”, being the validity of an invoice for $15,968.70 for painting purportedly issued to the Association.

16. On 31 October 2024, the Association filed its defence, together with a notice of motion (dismissal motion) which sought the dismissal or strike out of the proceedings pursuant to r 13.4 or r 14.28 of the Uniform Civil Procedure Rules 2005 (NSW). The dismissal motion was accompanied by an affidavit which did no more than attach the constitution.

17. Mr Alijagic’s solicitors sent the Association’s solicitors a letter of offer on 4 November 2024 for the dismissal of the dismissal motion only. This offer was not accepted by the Association.

18. The Association filed a further affidavit in support of the dismissal motion on 20 November 2024, and on the same day sent a Calderbank offer to Mr Alijagic’s solicitors (the Association’s offer) proposing that the proceedings be dismissed with no order as to costs and being open for acceptance until 3.30pm the next day. This offer was not accepted by Mr Alijagic. The further affidavit deposed that the Association would be holding its Annual General Meeting on 19 January 2025 after financial accounts had been audited and that the meeting would include a specific item of business to enable Mr Alijagic to raise his concerns about the invoice.

19. The dismissal motion came before me in the Applications List on 22 November 2024 and was stood over for further directions or hearing on 6 December 2024, again in the Applications List.

20. On the 6 December 2024, Mr GD McDonald of Counsel appeared for Mr Alijagic and Mr P Morris solicitor appeared for the Association. Mr McDonald submitted (Transcript of 6 December 2024 T32):

“My client’s position is that the matter should be adjourned until the new term. By then either the meeting of members that my client has sought, and the appointment of an order will have taken place and we won’t need to press this matter, it will just be a costs argument. Or none of those things will have happened, even though they have been promised, and then we’ll need to press the relief sought. It’ll all find its own way by January, as has been indicated in the affidavit evidence. My application is just to adjourn until then. No need to address this strike-out application today.”

21. I acceded to that application, standing the dismissal motion over to the Applications List on 7 February 2025.

22. The Association held its Annual General Meeting on 19 January 2025 (January 2025 AGM), which was attended by Mr Alijagic, who addressed the meeting.

23. The listing on 7 February 2025 was vacated by consent on 6 February 2025, and I made orders to the effect that the only remaining issue to be decided was costs.

24. On 10 February 2025, I made consent orders in chambers that both the proceedings and the dismissal motion be dismissed, without prejudice to any application for costs. I further ordered that the issue of costs be reserved and determined on the papers. Submissions were to be completed by 14 March 2025.

Mr Alijagic’s submissions

Capitulation

25. Mr Alijagic argues that the Association’s actions in giving him everything for which he had brought an action represented a capitulation on its behalf, and its previous written submissions to the Court in support of the dismissal motion effectively conceded it was doing so.

26. The relief that Mr Alijagic sought in his 3 October 2024 statement of claim was the convening or reconvening of a meeting of the Association where he would be able to ventilate his concerns, and the appointment of an auditor. Mr Alijagic submits that there are uncontested facts which show on their face that the Association capitulated.

27. First, it is undisputed that the Association convened the January 2025 AGM, and that the financial statements of the Association were reviewed by a registered auditor.

28. Mr Alijagic also points to the Association’s earlier written submissions in support of the dismissal motion, which included:

[6] These proceedings have ceased to have utility. The plaintiff will get what he wants on 19 January 2025. In fact, the plaintiff is getting more than what he asked for because rather than being relegated to “other business”, the plaintiff is getting an item on the agenda that is specifically drafted to facilitate discussion of his concerns…

[8] The club should not continue to face proceedings in circumstances where it has given the plaintiff everything that the plaintiff wants (and more).

It is Mr Alijagic’s submission that these words clearly demonstrate that the Association acceded to his requests.

29. Mr Alijagic relies on the recent decision of Black J in In the matter of Keybridge Capital Limited [2025] NSWSC 8 for the proposition that costs may be ordered in the event of proceedings settling prior to a hearing, if one party has effectively capitulated. In order to support the submission that capitulation may be manifest in the party’s objectives in bringing the proceedings being sufficiently secured by the outcome, particular attention was drawn to this passage in Keybridge:

“[4] Keybridge, by its solicitors’ submissions, acknowledges that exceptions to that general principle may arise if a party capitulated or acted unreasonably, but submits that such a finding can only be made if that categorisation of the conduct is obvious and based on undisputed facts. In One.Tel Ltd v Cmr of Taxation (2001) FCR 548; (2000) 171 ALR 227; [2000] FCA 270, Burchett J observed where a party effectively surrenders to the other party, and that qualification was noted with approval by the Court of Appeal in Nadilo v Eagleton [2021] NSWCA 232 at [9]. Mr Emmett, who appears for WAM, in turn submits and I accept that:

“The Court may make a costs order, even though there has not been a determination on the merits, if the Court is satisfied that one party has effectively surrendered or capitulated; see generally FCA US LLC v Mahindra Automotive Australia P/L [2021] FCA 1091 at [35], followed eg in Franpina Developments P/L v John Anthony Arena P/L [2022] NSWSC 57 at [23]. As was recognised there and the cases cited therein, it is not necessary to find that a party has acted in a manner that can be characterised as unreasonable, if in substance they capitulated or surrendered. A party does not have to achieve complete success in order to establish that the other party effectively surrendered or capitulated; it is enough to demonstrate that the outcome secured sufficiently achieves the party’s purpose in bringing the proceedings.””

Unreasonableness – auditor

30. Accepting that the Court will only make a finding of unreasonableness where the conduct is obvious and based on uncontested facts, Mr Alijagic submits that the Court is not required to consider whether or not the Association was required to audit its financial affairs or appoint an auditor under the Associations Incorporation Act 2009 (NSW). Mr Alijagic instead points to the constitution which provides:

“[18] The Auditor or Auditors shall be elected at the Annual General Meeting. These persons shall peruse all accounts, receipts, certificates, books, etc. and at the Annual General Meeting they shall present a report to the members of their finding. Auditing shall be done at regular intervals no longer than 6 (six) months.”

31. Mr Alijagic further submits that the Court is not required to determine whether an auditor could, would or should have been appointed by the Association.

32. By failing to appoint an auditor when requested by Mr Alijagic, it is submitted that the Association behaved unreasonably. It is further submitted that the purported auditor who had been previously undertaking the required reviews of the Association’s financial statements, Ms Strik, was not a qualified auditor. The evidence relied upon for this submission is an email of Ms Strik dated 3 January 2025, which includes:

“I acknowledge that I am no longer a qualified member for audit purposes. My membership lapsed. I sold my practice in [X] and I did not prepare the financial accounts for ABHC, they were prepared by Bahra Harambasic who has her own practice. As a favour I performed the checking of the prepared accounts but they were signed in error as auditor. The society is a Tier 2 organisation and does not require the accounts to be audited according to the Department Fair Trading…

I am now retired and only do a few clients from home…although I did check the Accounts for the association they were not audited.”

33. However, the key issue highlighted by Mr Alijagic is that following the commencement of the proceedings, the Association appointed Mr Shulman, who is a registered company auditor, who prepared the financial statements that were presented at the January 2025 AGM. This is despite prior to the proceedings, Mr Sead Draskovic, on behalf of the Association, stated in correspondence with Mr Alijagic:

“We note that an election of an Auditor pursuant to clause 18 of the Constitution stipulates ‘shall’ and not ‘must’, as such it is not obligatory that an auditor be elected at an AGM.”

34. Mr Alijagic again relies upon Keybridge:

“[5] Keybridge also refers to Nichols v NFS Agribusiness Pty Ltd (2018) 97 NSWLR 681 at 683-684, where Basten JA observed that:

“… although it is possible to make an order for costs against one party if it can be shown that it has invited the litigation by its unreasonable behaviour, or has unreasonably pursued the litigation, such an order should only be made where that judgement is manifest by reference to known circumstances, not in dispute between the parties. If the question cannot be answered without reviewing large swathes of evidence and resolving, on a tentative basis, disputed questions of fact, the task should not be embarked upon.”

35. Mr Alijagic submits that the Association invited the litigation through its plainly unreasonable conduct.

Association’s submissions

No capitulation by the Association

36. The Association rejects the proposition that its actions or words were a clear capitulation. On the point of reconvening the AGM, the Association noted the requirement placed upon them by s 37 of the Act to call an AGM. Further, it is any member’s right under s 38 of the Act to speak at such a meeting. As such, the Association submits that both the AGM taking place in the usual course, and Mr Alijagic speaking at it, is not evidence of capitulation.

37. The Association argues that the words in their submission relied upon by Mr Alijagic (see [28] above), are not an admission or capitulation. Instead, the words were used in the context of arguing as to the lack of utility in the proceedings, considering the relief sought by Mr Alijagic would occur in the usual course.

38. With regard to the appointment of an auditor, the Association submits that it is a Tier 2 association and, as such, not required to appoint a registered auditor. Instead, all it is required by the Act to do, is to produce and table a financial statement. The Association submits that the words “audit”, “auditing” and “audited” accounts in the constitution should be given their ordinary meaning, rather than one inconsistent with the Act. The financial statements of the Association had been prepared by a registered accountant, Ms Harambasic and signed off by retired auditor, Ms Strik. Following the resignation of Ms Strik, which occurred after the commencement of these proceedings, the Association appointed Mr Shulman, who is both an accountant and auditor. The Association submits that appointing an individual who, by happenstance, is both an accountant and auditor is not a capitulation to the requests of Mr Alijagic. Further, the Association submits the appointment was required by the Act and its constitution following the resignation of Ms Strik, rather than an action taken to meet the demands of Mr Alijagic.

39. The Association’s ultimate submission in response to the issue of capitulation is that it undertook actions in the usual course of business, in accordance with legislative requirements, and that none of its actions were admissions nor do they constitute capitulation.

Unreasonableness

40. The Association argues that the conduct of Mr Alijagic constituted unreasonableness, and pointed to five specific matters:

1. Failure to accept the Association’s offer;

2. Inchoate fraud allegations;

3. Delay;

4. Conduct at the January 2025 AGM; and

5. Letter to Ms Strik.

Association’s offer

41. The Association’s basal argument as to unreasonableness was Mr Alijagic’s rejection of the Association’s offer sent on 20 November 2024. The Association relies on the following points to show the failure to accept the offer was unreasonable:

1. The state of the proceedings in which the offer was made was following the close of pleadings. While not all of the evidence had been served, counsel had been briefed since the beginning of the matter and all of the points in issue had been clearly identified;

2. Although the period for acceptance was short, there is no minimum period of acceptance required for a Calderbank offer, and Mr Alijagic had prepared a reply that day so it can be inferred his legal team was fully aware of potential risks in proceedings, as well as being in a position to make an informed decision on the offer, and no extension of time to consider the offer was requested;

3. The offer extended to both the statement of claim and the dismissal motion, which was more extensive than the offer from Mr Alijagic (see [17] above) which was only that the dismissal motion be dismissed, and the Association pay Mr Alijagic’s costs;

4. Mr Alijagic’s position at the time of the offer was made was weak, because he had not satisfied the requirements under the constitution to have a SGM called. Mr Alijagic had also failed to explain why the auditing requirements of a Tier 1 association should apply to the Association, which was a Tier 2 association;

5. The letter was succinct; and

6. The letter foreshadowed, and Mr Alijagic was put on notice that, an application for costs on an indemnity basis would be sought.

Fraud allegations

42. At the January 2025 AGM, the Association submits that Mr Alijagic withdrew his initial complaints, and instead raised new allegations of fraud. The Association agues these allegations were unsubstantiated and inchoate. As such, they were an abuse of process and should result in a special costs order.

Delay

43. The actions of Mr Alijagic resulted in there being no utility in the relief he sought. To highlight the delay, the Association points to the four month delay in bringing the proceedings, and then the several occasions on which Mr Alijagic consented to “leisurely” timetabling, rather than seeking to have the matter expedited. All of this occurred in the context of a twelve month electoral cycle. The speed of Mr Alijagic’s prosecution of the proceedings was to be contrasted with the apparent urgency evidenced in Mr Alijagic seeking that a SGM be convened within seven days of the Court’s orders. The Association also relied on the fact that Mr Aligajic had been aware of the invoice since his inspection of the Association’s financial records in January 2022.

January 2025 AGM

44. The Association alleges that Mr Alijagic, at the January 2025 AGM, made a number of new allegations, issued threats from the floor, and threatened to have further members of the board of the Association joined in these proceedings. The Association describes these actions as unreasonable in the context of the proceedings.

Letter to Ms Strik

45. The Association points to the letter from Mr Alijagic’s solicitors that was sent to Ms Strik dated 11 December 2024 and which included:

“7. We note that you do not satisfy any of the above requirements to be an auditor of the Association…

9. Our client is concerned that you have undertaken, and intend to undertake, auditing work which you may not be qualified to perform.

10. Our client is further concerned that your office appears to have undertaken general accounting work for the Association, including in periods where you appear to have undertaken ‘auditing’ work for the Association.

11. Our client is further concerned about the conflict of interest in this matter…

17. We assume that you have been notified of the concerns of our client which have been set out within the documents filed and served on the Association as part of the Supreme Court of NSW Proceedings…

19… It may be necessary for you to properly audit and/or comment on the conduct of members of the management committee of the Association, and as such yourself and your firm ought to consider your obligations and duties.

20. Our client is minded to refer this matter to the Tax Practitioners Board.

46. The Association argues that these claims are incorrect, and causing a third party to believe incorrectly that they have breached the law and potentially face disciplinary action is plainly unreasonable conduct.

Capitulation by Mr Alijagic

47. The Association argues that Mr Alijagic did not obtain the precise relief he sought in bringing the proceedings, and that by signing the consent orders he effectively capitulated. The following was said to show how Mr Alijagic did not achieve his desired outcome:

1. The January 2025 AGM was held as was scheduled, rather than a SGM being reconvened or called as was sought;

2. Mr Alijagic was simply allowed to speak at the January 2025 AGM as was his right as a member;

3. At the January 2025 AGM, Mr Alijagic did not ventilate the issues he brought the proceedings to discuss; and

4. Th relief sought of an auditor being appointed was entirely misconceived and statutorily unnecessary and there is no evidence to substantiate the contention that Mr Shulman was appointed to carry out the audit requested by Mr Alijagic.

Mr Alijagic’s response

48. In his submissions in reply, Mr Alijagic argues that there was no delay in bringing the proceedings, because the solicitors on both sides were in communication, and he further denies that the timetabling was needlessly “leisurely”. Mr Alijagic also submits that the timing of the January 2025 AGM is not relevant to the question in issue. This is particularly so where he alleges a member of the Association gave an undertaking that the meeting would be called and Mr Alijagic would be allowed to speak, which it is submitted constitutes a clear capitulation. Mr Alijagic further responded that fraud had never been pleaded, but was an issue only raised by the Association.

49. In response to the Association’s submission that he had capitulated, Mr Alijagic submits that he achieved the precise outcome he sought.

50. With respect to the Association’s offer, Mr Alijagic submitted it was not unreasonable for him to have refused the offer for four reasons:

1. At the point in time at which the Calderbank offer was sent, all the Association had filed was a single page affidavit which annexed the Association’s constitution. The affidavit did not address the issues in the statement of claim, nor did it explain the relevance of the constitution;

2. The day the Calderbank offer was sent, the Association also filed another affidavit which was more substantial (see [18] above);

3. The offer made in the Calderbank offer was simply for Mr Alijagic to capitulate, without an order for costs; and

4. The Calderbank offer was sent at 4.56pm on 20 November 2024 and required acceptance by 3.30pm on 21 November 2024. This period is less than one business day which was unreasonable, particularly where the additional evidence had only just been served.

51. Mr Alijagic also drew the Court’s attention to his offer sent to the Association on 12 July 2024 (see [13] above). That offered, in substance, the relief sought in the statement of claim, as well as containing background and reasoning. The period of acceptance was also reasonable, being 14 days, and included a copy of the summons. The failure of the Association to provide a reasonable explanation for failing to meet the demands of Mr Alijagic is submitted to be unreasonable conduct.

Legal Principles

52. The Court has the power to order costs under s 98 of the Civil Procedure Act 2005 (NSW). A successful party may have a “reasonable expectation” of being awarded costs (Oshlack v Richmond River Council (1998) 193 CLR 72; (1998) 152 ALR 83; [1998] HCA 11 at [22], [134]). Costs generally follow the event: UCPR Pt 42 r 42.1.

53. However, the position is different where there has been no hearing and, therefore, no “event”. Where there has been no hearing, so that the Court has not determined the merits, there may not be a party who has clearly won. The principles to be applied in such a case were set out by McHugh J in Lai Qin at pages 624-625 (citations omitted):

“In most jurisdictions today, the power to order costs is a discretionary power. Ordinarily, the power is exercised after a hearing on the merits and as a general rule the successful party is entitled to his or her costs. Success in the action or on particular issues is the fact that usually controls the exercise of the discretion. A successful party is prima facie entitled to a costs order. When there has been no hearing on the merits, however, a court is necessarily deprived of the factor that usually determines whether or how it will make a costs order.

In an appropriate case, a court will make an order for costs even when there has been no hearing on the merits and the moving party no longer wishes to proceed with the action. The court cannot try a hypothetical action between the parties. To do so would burden the parties with the costs of a litigated action which by settlement or extra curial action they had avoided. In some cases, however, the court may be able to conclude that one of the parties has acted so unreasonably that the other party should obtain the costs of the action. In administrative law matters, for example, it may appear that the defendant has acted unreasonably in exercising or refusing to exercise a power and that the plaintiff had no reasonable alternative but to commence litigation. Thus, for example, in R v Gold Coast City Council; Ex parte Raysun Pty Ltd, the Full Court of the Supreme Court of Queensland gave a prosecutor seeking mandamus the costs of the proceedings up to the date when the respondent Council notified the prosecutor that it would give the prosecutor the relief that it sought. The Full Court said that the prosecutor had reasonable ground for complaint in respect of the attitude taken by the respondent in failing to consider the application by the prosecutor for approval of road and drainage plans.

Moreover, in some cases a judge may feel confident that, although both parties have acted reasonably, one party was almost certain to have succeeded if the matter had been fully tried. This is perhaps the best explanation of the unreported decision of Pincus J in South East Queensland Electricity Board v Australian Telecommunications Commission where his Honour ordered the respondent to pay 80 per cent of the applicant's taxed costs even though his Honour found that both parties had acted reasonably in respect of the litigation. But such cases are likely to be rare.

If it appears that both parties have acted reasonably in commencing and defending the proceedings and the conduct of the parties continued to be reasonable until the litigation was settled or its further prosecution became futile, the proper exercise of the cost discretion will usually mean that the court will make no order as to the cost of the proceedings.”

54. Davies AJA, with whom Mason P and Meagher JA agreed, said in Edwards Madigan Torzillo Briggs Pty Ltd v Gloria Stack [2003] NSWCA 302 that:

“[5] When proceedings are brought to an end without a determination after a trial, the judge may find it difficult, even impossible, to make an award of costs. If the judge does make an award, it will generally be because the judge is satisfied that one party has had a substantial victory and the other a substantial loss, or that there has been a marked difference in the reasonableness of the actions taken by the parties, so that one party should be rewarded for its reasonable actions and the other party should suffer a detriment in costs.”

55. This was quoted with approval by Payne JA in Nichols v NFS Agribusiness Pty Ltd (2018) 97 NSWLR 681; [2018] NSWCA 84 at [27]-[30]. In Nichols, the correct approach for considering unreasonable actions by a party was set out by Basten JA at [8]-[10]:

“[8] Secondly, although it is possible to make an order for costs against one party if it can be shown that it has invited the litigation by its unreasonable behaviour, or has unreasonably pursued the litigation, such an order should only be made where that judgment is manifest by reference to known circumstances, not in dispute between the parties. If the question cannot be answered without reviewing large swathes of evidence and resolving, on a tentative basis, disputed questions of fact, the task should not be embarked upon.

[9] …Further, once there is a real dispute as to a significant fact in issue in the proceedings, it is inappropriate to determine that matter, other than in making an interlocutory ruling, by accepting one party's case without permitting the other party an opportunity to challenge the opposing party's witnesses.

[10] Once it becomes apparent that such a course is required, the hypothesis on which the examination was undertaken is negated and the inquiry should stop.”

56. For determining whether one party has capitulated for the purposes of determining costs, Burchett J in ONE.TEL v Deputy Commissioner of Taxation (2000) 101 FCR 548; [2000] FCA 270 at [6] said:

“[6] In my opinion, it is important to draw a distinction between cases in which one party, after litigating for some time, effectively surrenders to the other, and cases where some supervening event or settlement so removes or modifies the subject of the dispute that, although it could not be said that one side has simply won, no issue remains between the parties except that of costs. In the former type of case, there will commonly be lacking any basis for an exercise of the Court's discretion otherwise than by an award of costs to the successful party. It is the latter type of case which more often creates problems, since there may be difficulty in discerning a clear reason why one party, rather than the other, should bear the costs.”

57. The principles that govern Calderbank letters are not to be applied identically when transferred to situations in which there has been no final hearing. However, they may still be a relevant consideration, as was observed by Darke J in Luo v Carbone [2019] NSWSC 830 at [45]:

“Both parties relied on the offers of compromise or Calderbank offers they made. As the proceedings did not proceed to a formal hearing on the merits, these offers could not be relied upon by either party to found a claim for indemnity costs under Division 3 of Part 42 of the UCPR, nor could they fall under the well-established principles governing Calderbank letters. Nevertheless, the reasonableness of a party’s rejection of such an offer may be a factor which informs the Court’s discretion to award costs in a particular case. This is because such conduct will be relevant to the basal enquiry described by McHugh J in Lai Qin as to whether one party has acted unreasonably in the commencement or the maintenance of the proceedings.”

58. In Xero Linear Lighting Systems NSW Pty Ltd v Benson [2024] NSWSC 916 at [82] and [108] I considered the policy reasons underlying these principles:

“[82] The approach to the question of costs which is derived from Lai Qin is both fortified, and independently required, by the Court’s obligation to exercise its discretion in accordance with the overriding purpose. It is completely antithetical to the overriding purpose to allow arguments over costs to become substantial satellite hearings which require the Court to traverse contested matters that have otherwise been resolved by settlement…

[108] First, in general, to displace the outcome of there being no order as to costs the issues of unreasonable conduct or capitulation need to be demonstrable clearly and concisely by reference to uncontroversial facts. If complex submissions and large amounts of evidence are required, these are likely to be signs that the Court is being invited to descend into disputed facts and subjective analyses of parties’ positions over the course of the litigation which Lai Qin and the overriding purpose in the CPA make clear the Court should not embark upon.

[109] Second, when negotiating a settlement parties will often be well advised to consider whether they should factor in their respective expended legal costs at an early stage of their settlement calculus as something they are likely to have to bear, rather than leaving the question of costs until after all other issues have been agreed.”

Consideration

59. As the principles I have set out above make clear, the starting point for making an order as to costs where there has not been a final hearing is that the parties should bear their own costs. While the exercise of discretion will turn on the facts of each case, in general to make a costs order against one of the parties in these circumstances, the Court must be satisfied of one of the following on clear and uncontested evidence:

1. One party behaved so unreasonably in commencing or defending proceedings; or

2. One party was almost certain to succeed on the interconvertible facts, which may be evidenced by the other party capitulating.

60. The Court is not satisfied on either point in this case. The Court accepts that the settlement of this case was brought about by the proceedings being rendered superfluous not by any conduct of the parties, but by the march of time bringing on the January 2025 AGM. Neither party “capitulated” in the requisite sense but each ultimately acquiesced in Mr Aligajic’s concerns being dealt with at the January 2025 AGM.

61. Insofar as each party asserted the other side had been unreasonable, the Court’s overall impression is one of intransigence on the part of both parties, each of whom could have done far more to resolve in a non-litigious way Mr Alijagic’s concerns about the invoice and any issues he had about financial management of the Association. The parties appear to have done no more than continued to assert their respective positions in a manner redolent of trench warfare. In coming to that assessment, the Court takes into account, without being exhaustive:

1. Mr Alijagic did not ultimately get the relief he claimed in his summons and then statement of claim, which was the reconvening of March SGM or the calling of new SGM. His contention that a new SGM had been validly requisitioned was never resolved, nor his argument about an auditor.

2. Mr Alijagic’s offer was unreasonable, because it contained no element of compromise, inviting complete capitulation by the Association. The unreasonableness was compounded by the offer being made before suit, demanding what would be sought in the litigation and threatening litigation if the so-called offer was not accepted.

3. The Association’s offer was unreasonable for the reasons identified by Mr Alijagic (see [50] above).

Conclusion

62. Neither party has demonstrated that there should be any departure from the general principle as to the exercise of the Court’s costs discretion as set out in Lai Qin. The Court finds that in the circumstances of this case, which was ultimately rendered otiose by the January 2025 AGM, that the just outcome is that there be no order as to costs.

Decision last updated: 24 April 2025