Hughes Aircraft Systems International v Airservices Australia

[1997] FCA 1011

IN THE FEDERAL COURT OF AUSTRALIA

NEW SOUTH WALES DISTRICT REGISTRY

GENERAL DIVISION

NG913 OF 1994

BETWEEN:	HUGHES AIRCRAFT SYSTEMS INTERNATIONAL APPLICANT
AND:	AIRSERVICES AUSTRALIA RESPONDENT

IN THE FEDERAL COURT OF AUSTRALIA

AUSTRALIAN CAPITAL TERRITORY DISTRICT

REGISTRY

GENERAL DIVISION

ACT G86 OF 1995

BETWEEN:	HUGHES AIRCRAFT SYSTEMS INTERNATIONAL APPLICANT
AND:	AIRSERVICES AUSTRALIA RESPONDENT

JUDGE:	FINN J
DATE OF ORDER:	24 SEPTEMBER 1997
WHERE MADE:	CANBERRA

THE COURT ORDERS THAT:

1.The Respondent pay the applicant’s costs of the application NG913 of 1994 on a party and party basis.

2.Costs in ACTG86 of 1995 be adjourned to the further hearing of the application.

Note:Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.

IN THE FEDERAL COURT OF AUSTRALIA

NEW SOUTH WALES DISTRICT REGISTRY

GENERAL DIVISION

 NG913 OF 1994

BETWEEN:	HUGHES AIRCRAFT SYSTEMS INTERNATIONAL APPLICANT
AND:	AIRSERVICES AUSTRALIA RESPONDENT

IN THE FEDERAL COURT OF AUSTRALIA

AUSTRALIAN CAPITAL TERRITORY DISTRICT

REGISTRY

GENERAL DIVISION

ACT G86 OF 1995

BETWEEN:	HUGHES AIRCRAFT SYSTEMS INTERNATIONAL APPLICANT
AND:	AIRSERVICES AUSTRALIA RESPONDENT

JUDGE	FINN J
DATE:	24 SEPTEMBER 1997
PLACE:	CANBERRA

REASONS FOR JUDGMENT

As both of these matters relate to the award of costs in what, compendiously, I will describe as the Hughes litigation, it is appropriate to deal with them together.  They come before me in consequence of the order I made in G86 of 1995 requiring the parties to bring in short minutes of orders to reflect my reasons for judgment in that proceeding of 30 June 1997.

In both matters (which I particularise below) the applicant, Hughes Aircraft Systems International (“Hughes”) seeks costs on an indemnity basis from the respondent, Airservices Australia (“AA”).  There is not any significant disagreement between the parties as to the discretion this court possesses in the award of costs or as to the principles that have been accepted as guiding the exercise of that discretion.  Here I merely note that in Re Wilcox;  Ex parte Venture Industries Pty Ltd (1996) 141 ALR 727 Cooper and Merkel JJ (at 732) endorsed the following principles “enunciated in [Colgate Palmolive Co v Cussons Pty Ltd (1993) 46 FCR 225] and generally applied in the court”:

“(1)     Section 43 of the [Federal Court Act, 1977] confers an absolute and unfettered discretion on the court to make orders as to costs but the discretion must be exercised judicially.

(2)     In order to exercise the discretion judicially the following principles have been accepted by the court as applicable:

(a)the court ought not to depart from the rule that costs be ordered on a party and party basis unless the circumstances of the case warrant the court in departing from the usual course;

(b)the circumstances which may warrant departure from the usual course arise as and when the justice of the case so requires or where there may be some special or unusual feature in the case to justify the court in departing from the usual course;

(c)while the circumstances in cases in which indemnity costs have been ordered offer a guide, the question must always be whether the particular facts and circumstances of the case in question warrant the making of an order for costs other than on a party and party basis.”

It is unnecessary to repeat the non-exhaustive list of factors given by Sheppard J in Colgate Palmolive that might justify an award of indemnity costs.

I turn now to the cost awards sought.

NG 913 of 1994

This was an application made by Hughes for preliminary discovery from AA under O15A r6 of the Federal Court Rules.  It was successful.  On 28 June 1995 Davies J published reasons for judgment which resulted in preliminary discovery being ordered.  On 4 March 1996 Davies J was asked to rule on the question of costs in that application.

In the event his Honour concluded that:

“I think that justice would be done if the costs were reserved to see how those proceedings turned out and to see whether Hughes was or was not successful.  It seems to me it would be just to everyone that if Hughes was not successful that Hughes should pay the entire costs of the discovery and of these present proceedings, but that if he is successful, then I think it is probably fair that the costs, or almost all the costs what have occurred would be found to have been costs which would have been incurred in those proceedings that have now been commenced and should be looked upon as costs in those proceedings.”

The preliminary discovery led eventually to a further application (G86 of 1995) in which I found that AA’s predecessor - the Civil Aviation Authority (“the CAA”) - had committed breaches of its tender process contract with Hughes, and had engaged in conduct in contravention of s52 of the Trade Practices Act, 1974 (Cth) (“the TPA”) in, and in consequence of (in the case of some TPA claims), the award of what has been referred to as the TAAATS II contract. For the detail of that litigation to date I refer to my reasons of 30 June 1997.

Hughes present submission as to the award of costs in NG913 of 1994 is that, having been “successful” in G86 of 1995 (notwithstanding that the issue of assessment of damages remains outstanding), it now should be awarded its costs and awarded, moreover, on an indemnity basis.

I am of the view that this application for costs is appropriate and that an award should be made, but on a party and party basis only.

While Davies J adjourned the question of costs to me and intimated that, in his view, those costs should be looked upon as if costs in G86 of 1995, I consider the primary issue which Davies J was addressing and which I regard as the essential issue, is whether Hughes’ preliminary discovery application was a “successful” one in the sense that it led to a subsequent application that has, in turn, vindicated the original application.

While G86 of 1995 has as yet not been pursued to finality for the reasons given below, my findings in it have in my view vindicated the original application to the extent that it properly can be said that it has been attended with such degree of success to Hughes as to warrant an order in its favour.  That there are significant outstanding issues between the parties does not detract from this:  Hughes has been able to prove that civil wrongs in the form at least of breaches of contract have been committed.  While such proof may not necessarily be sufficient presently to justify an award of costs to it (even in the action for breach of contract):  see Nexus Minerals NL v Brutus Constructions Pty Ltd, Federal Court, unreported, Full Court, 10 September 1997;  it should be sufficient for an award in the case of an O15A r6 application. 

The bases upon which indemnity costs are sought are twofold:  first, that AA has practised concealment of relevant information such that the truth was only late in emerging;  and secondly, that the case (ie G86 of 1995) was one that should never have been defended once that information came to light.

As to the first of these Hughes relies primarily (a) on the various circumstances of concealment of information which I found in G86 of 1995 gave rise to contraventions of the TPA; and (b) on the very late revelation of what in G86 of 1995 are referred to as the “Dubs Notes”. The latter were the handwritten notes of the then corporate secretary of the CAA of the meetings leading to the award of the TAAATS II contract. Emblematic of the concealment practised, so it is submitted, was the refusal by the CAA of Hughes’ request for documents, thus occasioning the need for the preliminary discovery application.

While I have in my reasons of 30 June (a) commented adversely on the conduct of the CAA particularly in relation to the concealment at the 12 January 1994 debrief of irregularities in, and breaches of, the TAAATS process;  and (b) indicated the privileged position of the CAA as an information monopolist, I do not regard the conduct of concealment that founded claims made in G86 of 1995 as having particular bearing on the essential matter of the AA’s conduct of NG913 of 1994 and hence on the costs question before me.  Of possibly greater significance was the failure to discover the Dubs Notes after the commencement of G86 of 1995.  Their existence was revealed to Hughes on 6 June 1996, Hughes previously having been told that they had been destroyed in accordance with Dr Dubs usual practice.  Explanation has been given of the unusual circumstances which led first to the survival of the Notes and then to their discovery.  Suffice it to say here that I am prepared to accept that explanation - I need not recount it here - and that it gives a benign complexion to what otherwise could be seen as reprehensible conduct.  The Dubs Notes were an important element in facilitating proof of Hughes’ claims.

Overall I do not regard the CAA’s conduct in the matters to which I have referred, nor more generally in its resistance to the O15A r6 application, as being of such character as to justify a departure from the ordinary basis for an award of costs.

I should add, though it is of less relevance to NG913 of 1994, that I do not consider that the application made in G86 of 1995 was one that the CAA should never have defended.  There was sufficient that was novel, or uncertain or arguable to remove the defence made to Hughes’ claims from that realm in which an award of indemnity costs could reasonably be contemplated.

In the event then in NG913 of 1994 I order the respondent to pay the applicant’s costs of the application on a party and party basis.

G86 of 1995

By agreement the parties have proceeded in two stages in this matter. The first, I can somewhat inaccurately describe as the “liability stage”; the second, as the “damages” stage. As I earlier indicated, in my reasons of 30 June 1997 I made findings that the CAA had committed breaches of its contract with Hughes and had engaged in conduct that contravened the TPA. To date I have only (relevantly) made an order on the contract claims of Hughes. That order was that - “There be judgment for the Applicant for breach of contract with damages to be assessed”. No orders as yet have been made in respect of Hughes’ TPA claims notwithstanding my findings of contraventions.

Whether or not this proceeding is one in which an order for indemnity costs should, ultimately be made - I express no view on this - the immediate question is whether an appropriate stage has been reached in the application where a costs order in respect of the proceeding so far is at all appropriate.

It is Hughes’ submission that the parties having agreed to “divide the trial” and Hughes having been successful in the part already heard, it should receive its costs for that part - the more so as the respondent has positively contested that part.

The AA in turn submits that the time for costs orders has not arrived:  the case is all about money;  that issue remains to be resolved;  and it may be the case that in the contract claim for example, only nominal damages will be awarded.

It is important to emphasise that this application was not brought simply to vindicate some right in the applicant for which declaratory relief as such would have been accepted as adequate relief in the circumstances.  Notwithstanding that my findings so far would entitle Hughes to at least an award of nominal damages, the substance (or “essence”) of even the contract claim can properly be said to be a claim for substantial damages.  Unless and until such an award was won it could not be said that Hughes was “successful”:  that award was ‘the event at which the applicant was aiming’:  cf Alltrans Express Ltd v CVA Holdings Ltd [1984] 1 WLR 394 at 401; and see generally Nexus Minerals NL v Brutus Constructions Pty Ltd, above. It is more so the case with the TPA claims in which no order favourable to Hughes has as yet been made.

It was both expedient and prudent for the parties to “split” the action in the way they have.  The prospect of incurring unnecessary expense in the event of the application failing at the first hurdle doubtless contributed to this.  The respondent clearly was entitled to contest the “liability” issues - and as I earlier noted the application raised issues enough that were novel, uncertain or arguable.  The respondent cannot be faulted on that ground.  But by so doing and losing in relation to some matters central to that part of the application, it has not in my view now to bear the burden of the costs thus far.  The contest remains a live one.  The applicant understandably looks forward to now heightened prospects of success.  But it has not yet, relevantly, secured that success.

The costs award sought is premature and the question of costs will be adjourned pending the further hearing of the application.

I certify that this and the preceding six (6) pages are a true copy of the Reasons for Judgment herein of the Honourable Justice Finn

Associate:

Dated:             23 September 1997

Counsel for the Applicant:	R V Gyles QC
Mr Speakman
Solicitor for the Applicant:	Mallesons Stephen Jaques
Counsel for the Respondent:	R Macfarlan QC
Dr S E Griffiths
Solicitor for the Respondent:	Freehill Hollingdale & Page
Date of Hearing:	30 July 1997
Date of Judgment:	24 September 1997