Factory 5 Pty Ltd v State of Victoria (No 2)

The case of Factory 5 Pty Ltd v State of Victoria (No 2) involved Factory 5, the applicant, and the State of Victoria, the first respondent, with proceedings brought in the Supreme Court of Victoria. The primary dispute centred around the costs incurred during the litigation, particularly whether costs should follow the event where the respondent had failed on some issues but successfully resisted the applicant’s cause of action. An additional concern was whether indemnity costs could be awarded if a party acted imprudently or unreasonably, assessed objectively without regard to the financial position or other personal circumstances of the offeree. The case also questioned whether an order for costs should be made against a non-party liquidator due to the failure to establish a sufficiently close connection between the liquidator and the litigation.

The court was tasked with determining the appropriate allocation of costs given the mixed outcomes of the litigation. It needed to consider whether the principle that costs should follow the event should apply, given the partial success of the respondent. Furthermore, the court had to examine the circumstances under which indemnity costs might be awarded, particularly focusing on the objective assessment of imprudence or unreasonableness without consideration of the personal financial situation of the party. Additionally, the court had to decide whether the liquidator, who was not a party, could be held liable for costs due to the insufficiently demonstrated close connection between the liquidator and the litigation.

The Supreme Court concluded that costs should follow the event, and as such, the applicant was to pay the costs of the first respondent on a party-party basis. The court found that the respondent’s partial success warranted an allocation of costs in this manner. Regarding indemnity costs, the court ruled that an objective assessment of imprudence or unreasonableness was sufficient without delving into the personal financial circumstances of the offeree. Lastly, the court held that the liquidator was not liable for costs because the connection between the liquidator and the litigation was not sufficiently close.

As a result of the court's decision, the applicant was ordered to pay the costs of the first respondent on a party-party basis. The court’s ruling ensured that the principle of costs following the event was upheld in light of the mixed outcomes of the litigation, while also clarifying the conditions under which indemnity costs may be awarded and the circumstances necessary to hold a non-party liquidator liable for costs.