Jewel River Pty Ltd v Captured Pty Ltd - [2009] SADC 2

DISTRICT COURT OF SOUTH AUSTRALIA
(Civil)
JEWEL RIVER P/L v CAPTURED P/L
[2009] SADC 2
Judgment of His Honour Judge Millsteed
15 January 2009
PROCEDURE - COSTS - APPEALS AS TO COSTS
Appeal against an order by a Master pursuant to r 52.03 of the District Court Rules 1992 allowing the plaintiff to discontinue an action without an order as to costs - whether Master erred in finding that the plaintiff's action had been rendered futile - whether Master erred in taking into account interlocutory costs orders - appeal dismissed.
District Court Act 1991 s 43; District Court Rules 1992; District Court Rules 2006, referred to.
Beare v Light Regional Council [2008] SADC 72; George v Dowling (1992) 57 SASR 579; Re the Minister for Immigration and Ethnic Affairs; Ex parte Lai Qin (1997) 186 CLR 622; Smith v Airservices Australia (2005) 146 FCR 37; Bucknell v Robins [2004] QCA 474; Hutchison v Nominal Defendant (1972) 1 NSWLR 443; Pentroth Pty Ltd v Kirschild Pty Ltd (2006) 96 SASR 129, considered.

JEWEL RIVER P/L v CAPTURED P/L
[2009] SADC 2
Introduction

This is an appeal by the defendant, Captured Pty Ltd, against an exercise of discretion by a Master, pursuant to rule 52.03 of the District Court Rules 1992 (“the old Rules”) allowing the plaintiff, Jewel River Pty Ltd, to discontinue an action without an order as to costs.
Facts
The relevant factual background is derived principally from the affidavit of Timothy Lawrence Dean (“Dean”), director of the plaintiff, sworn on 13 March 2008, filed in support of the application for discontinuance. On the hearing of the appeal Mr Dal Cin, counsel for the defendant, accepted that it was appropriate to determine the appeal on the basis of the facts set out in the Dean affidavit.
On 1 July 2002 the defendant sold to the plaintiff the leasehold of property at 36 North East Road, Walkerville and the business conducted on the property known as the Walkers Arms Hotel (“the Hotel”). The plaintiff insured the property and business with Zurich Australian Insurance Limited (“Zurich”).
Following settlement a dispute arose between the parties that resulted in the plaintiff instituting proceedings against the defendant in the Supreme Court of South Australia.
On 14 November 2002 the parties entered into a settlement agreement to resolve the matter. The parties agreed that the defendant would within 28 days carry out at its expense certain works at the Hotel that were primarily related to facilities and access for disabled persons. The parties further agreed that the defendant would obtain a certificate from one of two firms namely, Disability Consultancy Services or HC Harrison Consultants (“Harrisons”) confirming that the works had been completed.
Subsequently, a dispute arose between the parties as to whether the appellant had performed works, in accordance with the provisions of the settlement agreement.
On 8 August 2005 the plaintiff brought an action against the defendant claiming damages in the amount of $172,092 for breach of contract in failing to carry out works as required by the settlement agreement. The defendant entered a defence on 9 September 2005. The dispute between the parties hinged on the proper interpretation and construction of the relevant provisions of the agreement.
On 18 November 2007 the Hotel suffered substantial damage in consequence of a fire on the premises. The damaged sections of the Hotel included areas that were the subject of dispute between the parties, in particular, the “main area” that contained the dining room, kitchen, bar, gaming area and bottle shop. There is no dispute that the fire was totally unforseen and occurred through no fault of the plaintiff.
In his affidavit Dean deposed that during the period November to December 2007 he had to consider whether the proceedings against the defendant should be pursued having regard to the nature of the damage caused by the fire, ongoing investigations into the fire by the plaintiff’s insurer, Zurich, and Zurich’s attitude to granting the plaintiff an indemnity in respect of the damage caused to the Hotel.[1]
[1] The Dean affidavit [34]
On 19 December 2007 the plaintiff’s solicitors received an email from the plaintiff’s insurance broker advising that Zurich had granted the plaintiff indemnity.
By email dated 17 January 2008 the plaintiff’s solicitors requested from Zurich formal confirmation that indemnity had been granted and further requested copies of any damage assessment reports.
By letter dated 31 January 2008 to the plaintiff’s solicitors, Zurich confirmed that indemnity had been granted. The letter enclosed a report from Mountford Prider Pty Ltd (“the Mountford report”)[2] outlining the nature and extent of the damage caused by the fire. The report recommended, amongst other things, that the “main area be cleared to floor slab level” due to extensive fire damage.
[2] Referred to in the Dean affidavit as Exhibit TLD 26
In his affidavit, Dean deposed[3] that he formed the view that it was futile to continue prosecution of the action and incur further costs, primarily, because of the damage the Hotel had suffered in the fire and the indemnity granted by Zurich. Furthermore, notwithstanding the indemnity it remained unclear what would happen to the hotel. It was not known whether the Hotel would be demolished and rebuilt or attempts would be made to preserve part of the Hotel and rebuild other parts that had not been totally destroyed. The decision rested with Zurich.
[3] The Dean affidavit [28],[40],[43]-[46]
By letter dated 5 February 2008 the plaintiff’s solicitors invited the defendant to consent to an order that the proceedings be discontinued on the basis that each party bear their own costs. On 14 February 2008 the defendant’s solicitors informed the plaintiff by letter that the defendant would not consent to such an order.
On 13 March 2008 the plaintiff filed a Notice for Specific Directions seeking an order that it be granted leave to discontinue the action on the basis that there be no order as to costs. As I earlier said the application was supported by the Dean affidavit. The defendant opposed the application relying upon the affidavit of its solicitor.
On 28 April 2008, the matter came on for hearing before the Master who had overseen the interlocutory proceedings in the matter.
On 26 May 2008 the Master rescinded all previous orders as to costs and granted leave for the plaintiff to discontinue the proceedings, with no order as to costs, under r 52.03 and delivered written reasons for her decision.
Before I turn to the Master’s reasons for decision, and the defendant’s grounds of appeal, it is convenient to make some observations about the nature of an appeal from a Master’s judgment or decision and to set out some of the general principles governing costs orders where proceedings are discontinued.
Nature of appeal
An appeal lies from a judgment[4] made by a Master of the Court pursuant to s 43 of the District Court Act 1991 (SA) (“the Act”). The appeal is by way of rehearing, the nature of which is governed by the Rules of Court.
[4] 'Judgment’ is defined in s3 (1) of the Act to mean a judgment, order or decision including an interlocutory order or judgment
The District Court Civil Rules 2006 (“the 2006 Rules”) commenced on 4 September 2006. Rule 8 of the 2006 Rules provides:
(1) The general principle is that the old rules continue to apply to—
(a)     a primary action commenced before the commencement date; and
(b)     a secondary action introduced into a primary action commenced before the commencement date; and
(c)     appellate or review proceedings commenced before the commencement date.
Accordingly, and it was common ground between the parties, despite some initial uncertainty on the part of Mr Blight, counsel for the plaintiff, that the 2006 Rules govern this appeal.[5]
[5] This approach has been taken in several cases - see Daniels v Deputy Commissioner of Taxation [2007] SASC 114; Graziano v Graziano [2008] SASC 142; Bennett v WMC (Olympic Dam Corporation) Pty Ltd [2008] SADC 420; Wiltshire-Smith v Samuels [2007] SADC 27; Fong v Shi [2007] SADC 72
Rule 97.01 of the old Rules provided:
[That] an appeal pursuant to section 43(2) of the Act against interlocutory judgment of a Master shall be by way of rehearing and, in matters involving the exercise of a discretion, the Judge may exercise his own discretion without regard to the manner in which it was exercised in the decision, order or direction appealed against.
It is clear that under the old rule an appeal was a rehearing in which the judge could exercise his or her discretion afresh without regard to how it had been exercised by the Master, although the judge was not required to ignore the manner in which the master had exercised the discretion.[6]
[6] O’Brien v Lovrinov Crafter Pty Ltd [1999] SASC 159 per Martin J at [20]
The 2006 Rules differ as to the nature of a rehearing. Rule 292 states:
(1)An appeal is to be by way of rehearing (unless the law under which the appeal is brought provides to the contrary).
(2)Subject to any limitation on its own powers arising apart from these rules, the Court may determine an appeal as the justice of the case requires despite the failure of the parties to an appeal to raise relevant grounds of appeal, or to state grounds of appeal appropriately, in the notice of appeal.
(3)     Subject to any limitation on its powers arising from these rules, the Court may—
(a)     draw inferences of fact from evidence taken at the original hearing and, in its own discretion, hear further evidence on a question of fact;
(b)     amend or set aside the judgment subject to appeal and give any judgment that the justice of the case requires;
(c)     remit the case or part of the case for rehearing or reconsideration;
(d)     make orders for the costs of the appeal.
In Beare v Light Regional Council[7] Tilmouth DCJ expressed the view that r 292 provides for a rehearing at large and that it is not necessary to identify error before a Judge on appeal can interfere.
[7] [2008] SADC 72 and [25]
I respectfully disagree. Rule 292 omits the words contained in the old rule which enabled an appellate judge to exercise his or her discretion “without regard to the manner in which it was exercised in the decision, order or direction appealed against”. In my view this change reflects an intention to narrow the scope of the rehearing so that upon an appeal, against an exercise of discretion, the judge is not entitled to substitute his or her discretion unless some error in the manner in which the Master exercised the discretion has been established.[8] In other words, the principles expressed by the High Court in House v The King[9] apply.
[8] see George v Dowling (1992) 57 SASR 579 per Mullighan J at 582
[9] (1936) 55 CLR 499 at 505
This interpretation accords with the decision in George v Dowling[10] where Mullighan J had occasion to consider amendments made in 1987 to r 97.03 of the Supreme Court Rules. In its original form, the rule provided that appeals from Masters to a single Judge were to be by way of rehearing however, the Judge was free to exercise his own discretion without regard to the manner in which the discretion had been exercised by the Master. The new rule simply provided that appeals from Masters were to be by way of rehearing.
[10] (1992) 57 SASR 579
Mullighan J made the following observations about the effect of the amendment:[11]
It may be readily seen that the change in the rule to its present form … altered the nature of an appeal from a master. Prior to that alteration an appeal from a master was, in my view, an appeal by way of rehearing … and where the appeal was from an exercise of a discretion, the judge hearing the appeal could exercise the discretion afresh upon the material before him without regard to the manner in which it was exercised by the master. Now, although the rule provides that an appeal from a master is an appeal by way of rehearing, it is of a different nature. The amendment to the rule removing the power to receive further evidence and to exercise a discretion afresh makes that plain. Now the question on appeal from a master is whether his decision ought to be affirmed or overturned in light of the material which was before him and where it involved the exercise of a discretion, some error must be established: Stirling District Council v Casley-Smith (1989) 50 SASR 297, per Perry J at 311; Mullett v Gabriel (1989) 52 SASR 330, per O’Loughlin J at 333; Remm Construction (SA) Pty Ltd v Wallbridge & Gilbert Pty Ltd (unreported, Supreme Court, SA, Mullighan J, No 3090, 28 October 1991).
[11] (1992) 57 SASR 579 at 582
These remarks apply with equal force to the changes made by r 292.
It should be noted that r 292 also operates as a rule of the Supreme Court. It follows that if the construction adopted in Beare is correct then it should also apply to Supreme Court appeals. However, there are a number of decisions of the Supreme Court, which counsel have drawn to my attention, where the principles expressed in House v The King have been applied to appeals regulated by r 292.[12]
[12] see for example: Manos v Maros (2007) 249 LSJS 67 at [41], [50]; FMV Stanke Holdings Pty Ltd v O’Meara (2007) 252 LSJS 87 at [141]
In my view, the principles governing appeals under r 292 are accurately summarised by Simpson DCJ in Bennett v WMC (Olympic Dam Corporation) Pty Ltd in the following passage:[13]
There is no rule which allows the Judge to exercise his own discretion without regard to the manner in which it was exercised by the Master. While the appeal is in the nature of a rehearing, it is nevertheless relevant to bear in mind the principles which guide an appeal from a discretionary decision on an interlocutory application, i.e., there is a strong presumption in favour of the correctness of the decision appealed from and the decision should be affirmed unless the court is satisfied that the decision is the product of the decision maker acting on a wrong principle, or giving weight to extraneous or irrelevant matters, or failing to give weight or sufficient weight to relevant considerations, or making a mistake as to the facts. It is not enough to find that if I had been in the position of the learned Master, I would have taken a different course or exercised the discretion differently. (Australian Coal and Shale Employees’ Federation v Commonwealth (1953) 94 CLR 621 at 627; House v The King (1936) 55 CLR 499 at 504-505; Mullett and another v Gabriel and another (1989) 52 SASR 330 at 333; Thomas v Thomas [2000] SASC 408).
[13] above in 7 at [4]
So, in order for the defendant to succeed in the present appeal, it must demonstrate that the Master’s exercise of discretion miscarried by reason of error of law or fact.
Costs: general principles
The plaintiff instituted its action against the defendant before the 2006 Rules commenced on 4 September 2006. Accordingly pursuant to DCR 8 the old Rules apply to the plaintiff’s action and its discontinuance.
The old Rules relevantly provide:
52.01 A plaintiff may at any time before the commencement of the trial, discontinue his claim, either wholly or in part, against a defendant. After that time a plaintiff may discontinue only with the leave of the Court, or with written consent of all parties filed in the Court.
…
52.03 Unless the court otherwise orders or the parties consent, the party discontinuing or withdrawing shall pay the costs up until the date of delivery of the notice, of the party against whom the claim or defence was discontinued or withdrawn. No further order shall be required to enable the party against whom the claim or defence was discontinued to tax his costs.
In Re the Minister for Immigration and Ethnic Affairs; Ex parte Lai Qin[14] McHugh J examined the discretion to make no order as to costs in circumstances where proceedings had been rendered futile by extrinsic circumstances. An applicant for a protection visa under the Migration Act 1958 (Cth), whose application had been refused by the Minister, and who had failed in review proceedings before the Refugee Review Tribunal, commenced proceedings in the High Court for prohibition, certiorari and mandamus directed to the Minister and the Tribunal. Before the application was heard the Minister in the exercise of his discretion granted her a protection visa. In the result the Minister’s decision made it unnecessary for the applicant to seek the relief sought in the proceedings. In granting the applicant leave to discontinue, McHugh J held that there should be no order as to costs because both parties had acted reasonably in commencing and defending the proceedings.
[14] (1997) 186 CLR 622
His Honour said:[15]
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.
[15] Ibid at 624
McHugh J went on to say:[16]
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. …
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. This approach has been adopted in a large number of cases.
(footnotes omitted)
[16] (1997) 186 CLR 622 at 625
In Pentroth Pty Ltd v Kirschild Pty Ltd[17] the plaintiff brought an action against the defendant hotel for breach of an agreement to reduce noise emanating from the hotel. The plaintiff’s application for an interlocutory injunction restraining the defendant from allowing noise, exceeding certain levels, to be emitted from the hotel pending trial was adjourned upon the defendant giving an undertaking in that regard. The plaintiff subsequently filed a notice of discontinuance of the injunction proceedings. The Full Court dismissed the defendant’s appeal against an order that the plaintiff pay the defendant’s costs in respect of part of the proceedings only.
[17] (2006) 96 SASR 129
The Full Court rejected the defendant’s contention that r 52.03 confined the court’s discretion by creating a presumptive entitlement to costs. White J (with whom the other members of the Court agreed) said:[18]
The circumstances in which parties may discontinue the whole or part of proceedings, and therefore the circumstances in which the court may be required to exercise the discretion with respect to costs, are diverse. That diversity suggests that r 52.03 should not readily be construed as containing an intention by the court that its discretion with respect to costs should be confined. As to the need for flexibility in cases of discontinuance, Finn J in O’Neill v Mann has said in relation to the counterpart rules of the Federal Court:
It properly can be said that there is an “underlying policy” in the Rules that the discontinuing party should be liable for the other party’s costs unless the court orders otherwise … But so various can be the reasons for, and circumstances of, discontinuance that that policy cannot safely be said to have hardened into a “usual rule” where leave is granted such as exists where there has been a determination of a claim on its merits … The conduct of the parties in the matter and the reasons for the discontinuance can bear heavily on the exercise of the discretion as to costs …
(footnotes omitted)
[18] Ibid at [24]

White J held that the Master was correct in approaching the exercise of his discretion in the manner suggested by McHugh J in Ex parte Lai Qin. His Honour said:[19]
This approach suggests that the court should not, in effect, try an action simply for the purposes of determining an appropriate outcome for costs. There may be cases in which the court considers that a party’s conduct in commencing the litigation, or in continuing it, was unreasonable or in which it can, conveniently, form a view as to the probable outcome. In such cases, an order that the discontinuing party pay costs may be appropriate. Much may depend on any explanation provided to the court for the discontinuance, as well as the circumstances surrounding its commencement and continuance generally. However, when the court is satisfied that the conduct of the parties has been reasonable, it will usually be appropriate for the court to make no order as to costs.
[19] (2006) 96 SASR 129 at [35]
The Master’s decision
In the present case, it is clear from the Master’s reasons that she determined that no order should be made in respect of costs because both parties had acted reasonably in commencing and defending the proceedings until further prosecution of the action had become futile due to the damage caused by the fire. The Master said:
23The court has a discretion within Rule 52.03, together with the court’s general discretion on costs and the discretion to be exercised in the light of all of the relevant circumstances.
24In considering the plaintiff’s application, the court will endeavour to ensure that the discontinuance does not disadvantage the defendant.
25It is noted that Rule 52.05 provides that the discontinuance of an action before trial shall not be a defence to any subsequent action for the same or substantially the same cause of action provided that the costs of the previous action have been paid. If the costs have not been paid, the subsequent action may be stayed until payment.
26I have been the Master overseeing the interlocutory proceedings in this matter. I heard and determined two applications. The plaintiff by application FDN 11, sought an order that the parties respective experts confer to determine “a quote, and if possible a joint position in relation to the quote, for all types of work that have been assumed to be undertaken in relation to this dispute. I refused the application, reserving costs, stating the plaintiff’s intentions in attempting to narrow the dispute were admirable. I refused the defendant’s application FDN 16 that there be a preliminary hearing on liability and awarded the plaintiff costs of the application.
27I note that the majority of the interlocutory costs orders have been made in the plaintiff’s favour.
28Both parties are arguably disadvantaged by a discontinuance with no order as to costs. A discontinuance is no bar to any subsequent action. I accept the plaintiff cannot say that the matter will or will not be the subject of further proceedings. The plaintiff has acted prudently and promptly following the fire in making this application. But at this stage there is no point to further litigation in these proceedings as the plaintiff cannot prove the loss and the defendant cannot defend. This is not a matter where I can confidently say a particular party “was almost certain to have succeeded if the matter had been fully tried” per McHugh J in Ex parte Lai Qin at 625.
29In conclusion, I am of the view plaintiff and the defendant have acted reasonably in commencing and defending the proceedings and each had an arguable case. I consider the conduct of the parties to have been reasonable to the time when further prosecuting became futile, including the making of this application. I do note in passing the defendant had several extensions of time to serve expert reports over 6 months or so which arguably delayed the matter being referred to trial. To again quote McHugh J in Ex parte Lai Qin at p625, in such circumstances where both parties have acted reasonably: “the proper exercise of the discretion will usually mean the court will make no order as to costs”.
It is to be observed that the plaintiff applied for leave, and the Master purported to grant leave, to discontinue the proceedings. In fact, no such leave was required. Leave is necessary only where a claim is discontinued after the commencement of the trial (see r 52.01). In the present matter the action had not been set down for trial. However, nothing turns on this point. The gravamen of the defendant’s complaint is that the Master erred in making an order pursuant to r 52.03 that required the parties to bear their own costs in the matter.
Grounds of Appeal
By Notice of Appeal filed on 7 July 2008 the appellant appealed against the Master’s decision on the following grounds:
1.The learned Master erred in that she failed to give sufficient weight to the costs incurred by the defendant in circumstances where the plaintiff did not undertake to the Court that the plaintiff or an insurer on its behalf would not seek to litigate the same issues again in fresh future proceedings.
2. The learned Master should have refused the application.
3.The learned Master should have directed that the plaintiff pay the defendant’s costs of the action.
Arguments on appeal
Counsel for the defendant, Mr Dal Cin, contended that Master erred in applying the principle expressed in Ex parte Lai Qin that there will usually be no order as to costs in circumstances where “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”.
He did not challenge the Master’s findings (1) that she could not confidently say that a particular party was almost certain to have succeeded if the matter had been fully tried and (2) that both parties had acted reasonably in commencing and defending the proceedings up until the fire. Nor did he challenge the Master’s finding that by reason of the fire “the plaintiff cannot prove the loss and the defendant cannot defend”. However, he submitted that the Master erred in concluding that the action had thereby become futile within the meaning contemplated by McHugh J in Ex parte Lai Qin.
Mr Dal Cin submitted, as I understood his argument, that the principles expressed by McHugh J applied where the subject matter of the action had ceased to exist or the relief sought was no longer required due to extrinsic circumstances.[20] In the present case, the plaintiff’s action involved a claim for damages for breach of contract the success of which hinged on the construction of the settlement agreement. Because the fire had merely affected the plaintiff’s ability to prove its loss and the defendant’s ability to defend the claim (loss not being an element of a cause of action for breach of contract) the subject matter of the litigation had not ceased to exist.
[20] see for example Parap Hotel Pty Ltd v Northern Territory Planning Authority (1993) 112 FLR 336 (Supreme Court NT)
Mr Dal Cin submitted that, in reality, the plaintiff had decided not to proceed with the action because it had received an indemnity. He argued that it was significant that the plaintiff was not prepared to give an undertaking before the Master that no further claim would be instituted against the defendant. He submitted that this gave rise to an inference that the plaintiff was seeking to give Zurich the option to exercise rights of subrogation and pursue the same, or substantially the same, action against the defendant. The consequence of the Master’s orders were that the defendant would be required to bear its own costs and be faced with further litigation in the future.
In addition to the “futility point”, Mr Dal Cin contended that the Master erred in taking into account the interlocutory cost orders in the proceedings. He submitted that the Master took the view that by rescinding the previous cost orders in favour of the plaintiff she was achieving a balance between the parties when she should have focused on whether it was reasonable for the defendant to bear its own costs of the action (“the interlocutory costs point”).
Consideration
The futility point
At the outset I should mention that on the hearing of the appeal Mr Blight submitted that this point was not the subject of a ground of appeal. However, he did not suggest that his client had been disadvantaged by this omission. In the circumstances it is appropriate that I exercise my powers under r 292 (2) and determine this appeal, as the justice of the case requires, despite the defendant’s failure to properly raise the futility point in the notice of appeal.
In my view, there is force in the defendant’s submission that the remarks made by McHugh J in Ex parte Lai Qin were directed at circumstances where the subject matter of the action had effectively evaporated and the relief sought was no longer required. Indeed, McHugh J was careful to state that the principles with which he was concerned were those which “govern an application for costs when a party elects not to pursue an action because he or she has achieved the relief sought in the action either by settlement or by extra curial means”.[21]
[21] above at 624
However, there is no sound reason why the principles expressed in Ex parte Lai Qin should not apply to a case such as the present. To my mind there is no material distinction between cases where the relief sought is no longer required and those where the ability to prove the grounds for relief (for example loss) is compromised or denied by a supervening event. A continuation of the action in the latter case is just as pointless. The trial is reduced to one about costs.
In any event it is clear that the approach adopted by McHugh J does not constitute a hard and fast rule.[22] His Honour’s remarks provide guidance in respect of a common species of futility. They were not intended to limit the discretion.[23] As Stone J observed in Smith v Airservices Australia[24] the circumstances in which proceedings may be perceived as futile are diverse:
Often an application for leave to discontinue proceedings is made because the applicant believes that further prosecution of the proceedings has become futile. This may be because the applicant believes he or she will be unable to substantiate the claim or because the parties have settled their dispute or because a change in extrinsic circumstances means that the proceedings are no longer a necessary or appropriate means to the desired end. The reason for the futility is a relevant consideration in determining whether costs are to be awarded.
(my emphasis)
Stone J went on to say:[25]
The respondent submitted, correctly in my view, that futility is not a matter of subjective belief but a matter of fact: either the proceedings were futile or they were not. It follows that in the absence of extrinsic circumstances such as are described at [47] and [48], where there has been no hearing on the merits of the case it is not possible to say with certainty that the proceedings have become futile even where discontinuation is an acknowledgement of likely defeat. Nevertheless the applicant’s belief as to futility and the reasonableness of that belief is a relevant factor in the exercise of the Court’s discretion as to costs.
[22] One Tel Ltd v Deputy Commissioner for Taxation [2000] FCA 270, Burchett J at [5]
[23] see ACN Pty Ltd v Coopers Brewery Ltd [2006] FCA 1119 Finn J at [21]
[24] (2005) 146 FCR 37 at [48]
[25] Ibid at [51]
The extrinsic circumstances which Stone J described in [47] and [48] are those present in the Ex parte Lai Qin type of case.
In a case such as the present the fact that a plaintiff genuinely believes, on reasonable grounds, that he or she will be unable to prove the loss upon which his or her claim was based due to some extrinsic circumstance or supervening event is a highly relevant factor. Indeed, it may be decisive where the parties have both acted reasonably up until the point of discontinuation. As White J observed in Pentroth “when the court is satisfied that the conduct of the parties has been reasonable, it will usually be appropriate for the court to make no order as to costs”.[26]
[26] above at [35]
The present situation is to be contrasted with cases where the evidence to be put before the court to prove or disprove a claim for damages arising out of a breach of contract is lost for reasons which are not extrinsic to the proceedings, as occurred in Bucknell v Robins.[27]There the plaintiff applied for leave to discontinue his action for damages for breach of contract and professional negligence after the trial judge ruled certain evidence to be inadmissible. He contended that as a result of the ruling the proceedings were futile. The judge refused the application and ordered instead that there be no order as to costs. The defendant appealed against the no costs order. The Queensland Court of Appeal allowed the appeal and ordered that the plaintiff pay the defendant’s costs.
[27] [2004] QCA 474
Philippides J, with whom the other members of the Court agreed, said:[28]
This was not a case which turned on whether the parties acted reasonably in commencing and defending the proceeding. Rather, the basis for the respondent’s discontinuance made it a case of the kind discussed by Finn J in O’Neill v Mann [2000] FCA 1680, at [13]:
… where the discontinuance can be said to be an acknowledgement by an applicant of likely defeat or where no objective circumstances provides reason for the discontinuance, a costs order in favour of the other party will ordinarily be made.
(my emphasis)
[28] Ibid at [19]
In the present case the Master concluded that there were objective circumstances, namely the damage caused by the fire, which provided a reason for the discontinuance. It could not be said that the plaintiff’s decision to discontinue on those grounds was unreasonable. As Lord Denning rhetorically stated in JT Stratford & Son v Lindley (No 2):[29]
So what is to be done? Is this case to go on simply about costs? I think not.
[29] [1969] 1 WLR 1547 at 1553
In light of the Master’s unchallenged findings that she could not confidently say that the defendant was almost certain to have succeeded if the merits of the claim had been tried, that both parties had acted reasonably in commencing and defending the proceedings, that the fire had thwarted the plaintiff’s ability to prove loss and the defendant’s ability to defend the claim, it cannot be said that the Master demonstrably erred in the exercise of her discretion.
There are two further matters that I should mention.
First, there is Mr Dal Cin’s reliance on the plaintiff’s failure to give an undertaking that no further claim would be brought against the defendant. He submitted that it could be inferred from the failure to give such an undertaking that fresh litigation was likely. As Mr Blight argued, under Rule 52.01 the plaintiff had an absolute right to discontinue the action (without leave) because the matter had not been set down for trial. There is no mandatory requirement that a party seeking to discontinue a proceeding must undertake to the Court that it (or any insurer on its behalf) will not seek to litigate the same issues again in future proceedings.
Mr Blight further argued that the defendant’s argument was, in any event, speculative. He submitted that the plaintiff could not give an undertaking because it was not able to bind Zurich. In my opinion, it was open to the Master to accept that submission, as she did.[30] In any event, given the Master’s findings that the plaintiff could not prove loss due to the fire damage, Zurich would be in no better position than the plaintiff to proceed with a claim. In those circumstances the possibility of fresh litigation is highly unlikely.
[30] Master's reasons [28]
Next, there is the Master’s reference in her reasons for decision to old rule 52.05.[31] That rule states:
The discontinuance of an action before trial shall not be a defence to any subsequent action for the same, or substantially the same, cause of action provided that the costs of the previous action have been paid. If the costs have not been paid, the subsequent action may be stayed until payment.
[31] Master's reasons [25] set out herein at [42]
It is not clear to me why the Master mentioned this rule. It is possible that she considered that it was relevant to take into account that any subsequent action against the defendant could be stayed until the defendant’s costs in the present action had been paid. If that was the Master’s reasoning she was, in my view, wrong in concluding that r 52.05 provides such a measure of protection though the protection is probably available in another form for reasons that I will briefly canvass.
Rule 52.05 has no application to proceedings commenced after 4 September 2006 when the 2006 Rules came into operation. Any fresh proceedings instituted against the defendant would be governed by the 2006 Rules (see Rule 8). In any event, as both counsel submitted, the reference in r 52.05 to “costs of the previous action” probably means costs ordered and payable by the party who discontinues the action. Here the Master exercised her discretion to make no order as to costs.
I turn to the 2006 Rules. Rule 108 states:
Subject to the following exceptions, a party who discontinues an action or a claim is not prevented from bringing a further action based on the same or substantially the same claim.
Exceptions—
1. If a party to the later action is entitled to costs in relation to the earlier action, the Court may, on application of that party, stay an action based on the same or substantially the same action until the costs have been paid.
2. (not relevant).
It seems to me that a party would be “entitled” to costs only if, as under the old rule, it had a costs order in its favour. Accordingly, r 108 also fails to provide the measure of protection that the Master may have had in mind.
However, pursuant to r 117 (1) the Court may make any order it considers necessary for the proper conduct of a proceeding or otherwise in the interests of justice. Rule 117 (2) provides examples of how the Court may exercise its powers. The examples include striking out a proceeding in circumstances where the court considers it frivolous, vexatious or an abuse of process. The Court’s powers under r 117, in my view, probably extend to staying a fresh action on grounds of an abuse of process until the defendant’s costs, in an earlier discontinued action, were paid regardless of whether the defendant had a costs order in its favour.
In Hutchison v Nominal Defendant[32] the plaintiff’s first action was non-suited because the notice of intention to make a claim against the Nominal Defendant was bad. The plaintiff was ordered to pay costs. The plaintiff subsequently served a valid notice of intention and instituted a second action against the Nominal Defendant. The defendant sought an order from the Supreme Court of New South Wales staying the second action until the costs of the first action had been paid. The defendant sought to invoke the inherent jurisdiction, there being no equivalent to old r 52.03 or r 108. The application was granted.
[32] (1972) 1 NSWLR 443
Isaacs J said:[33]
It is undoubtedly established law that a second action brought in respect of the same subject matter in respect of which the plaintiff has already brought an action and failed will be stayed until the costs of the first action have been paid. This is not an absolute right, but is in reality an exercise of the discretion of the court to stay proceedings which are either vexatious, unjust, oppressive, malicious or frivolous in the particular circumstances, and the courts have taken the view that it is certainly unjust and oppressive for a defendant who has already faced an action by the plaintiff and succeeded and has not been paid his costs to run the risk of having to face a second action on the same subject matter with probably the same result and risk that if the plaintiff fails in that second action the defendant will be unable to recover his costs or may be left lamenting in respect of them. And it is partly for this reason that such special orders are made.
[33] Ibid at 448-449

Although there was a costs order in favour of the Nominal Defendant it was not suggested by Issacs J that the power to stay proceedings could not be invoked absent such an order. To my mind, there is no reason in principle why the power should be limited in that manner. I note that in R v Ulman-Naruniec (No 2)[34] Robertson DCJ exercised the court’s inherent jurisdiction to stay a criminal trial as an abuse of process until the Crown paid or gave an undertaking to pay the reasonable costs of two earlier trials. The Court of Criminal Appeal dismissed an appeal against the order.[35] There is no reason to think that a similar approach could not be taken by the court in the exercise of its civil jurisdiction.
[34] [2003] SADC 52
[35] (2003) 143 A Crim R 531
However, it is not necessary to resolve this issue. The Master’s observation that any subsequent action against the defendant might be stayed until payment of the costs incurred by the defendant in these proceedings was a peripheral point. The learned Master was clearly of the view that both parties in the present matter had acted reasonably in commencing and defending the proceedings and that that the plaintiff’s discontinuation of the proceedings was not unreasonable. As I earlier remarked, having regard to those findings and the relevant legal principles, it cannot be said that she demonstrably erred in the exercise of her discretion.
The interlocutory costs point
This criticism of the Master’s reasons must also be rejected. In my view, the Master referred to the fact that the majority of the interlocutory costs orders had been made in the plaintiff’s favour for the purpose of explaining that the defendant would be disadvantaged if she made an unqualified no costs order. To ensure that the defendant did not suffer any disadvantage she rescinded the previous cost orders. There can be no complaint about that approach. Furthermore, the fact that most of the interlocutory costs orders had been granted to the plaintiff provided some evidence of the reasonableness of the plaintiff’s conduct throughout the proceedings.[36]
[36] see Pentroth Pty Ltd v Kirschild Pty Ltd above 15 at [37]
Conclusion
In my view there is no substance in the defendant’s complaints. Accordingly, the appeal is dismissed. I will hear the parties as to costs.