Subway Systems Australia v Ireland (No 2)
[2013] VSC 693
•13 December 2013
| IN THE SUPREME COURT OF VICTORIA | Not Restricted | |
AT MELBOURNE
COMMON LAW DIVISION
JUDICIAL REVIEW AND APPEALS LIST
No. S CI 2012 6362
| SUBWAY SYSTEMS AUSTRALIA PTY LTD (ACN 009 277 034) | Applicant |
| v | |
| AARON IRELAND LYNETTE IRELAND | Respondents |
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JUDGE: | CROFT J | |
WHERE HELD: | Melbourne | |
DATE OF HEARING: | On the papers (Applicant’s written submissions (22 November 2013); Respondents’ written submissions (18 November 2013)). | |
DATE OF DETERMINATION: | 13 December 2013 | |
CASE MAY BE CITED AS: | Subway Systems Australia v Ireland (No 2) | |
MEDIUM NEUTRAL CITATION: | [2013] VSC 693 | |
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COSTS – Whether costs of mediation are “costs in the proceeding” – whether mediation by consent relevant – the role of mediation in a proceeding – overarching obligations of parties – Newcastle City Council v Paul Wieland [2009] NSWCA 113, Charlick Trading Pty Ltd v Australian National Railways Commission [2001] FCA 629 – Supreme Court (General Civil Procedure) Rules 2005, Order 63, Civil Procedure Act 2010 (Vic), s 7.
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APPEARANCES: | Counsel | Solicitors |
| For the Applicant | Mr J. Moore | Minter Ellison |
| For the Respondents | Mr J. Catlin | George Konidaris & Co |
HIS HONOUR:
Introduction
On 18 October 2013, I handed down judgment in an appeal by Subway Systems Australia Pty Ltd (“SSA”) against part of the orders of the Victorian Civil and Administrative Tribunal (“VCAT”) in VCAT Proceeding R43 of 2012, in which SSA and Subway Realty Pty Ltd (“SR”) were respondents and the Respondents, Aaron Ireland and Lynette Ireland (“Irelands”) in this proceeding were the applicants (“the judgment”).[1]
[1]Subway Systems Australia Pty Ltd v Aaron Ireland & Anor [2013] VSC 550.
An outline of the grounds of the appeal and the questions of law upon which the appeal was brought are set out in the judgment. The abbreviations and expressions appearing in these reasons bear the same meanings as they bear in the judgment.
Background
On 16 May 2013, the parties appeared before this Court for the first time seeking leave to appeal against part of the orders made in the proceeding in VCAT. There was discussion at the hearing in relation to the operation of the arbitration clause in the Franchise Agreement, particularly given that the default appointing authority applicable to the arbitration agreement provided by the clause is the Permanent Court of Arbitration in The Hague.[2]
[2] Judgment at [51] and [52].
At the conclusion of the discussion in relation to the arbitration clause attention turned to dispute resolution, more broadly, with respect to the present proceedings.
While it was indicated by the parties that there had already been a mediation under the auspices of the Small Business Commissioner as contemplated by the Retail Leases Act 2003 (“Retail Leases Act”), I expressed my view that a further mediation was highly desirable. I subsequently adjourned the proceeding so that the parties could provide written submissions with respect to the validity and operation of the arbitration clause in the Franchise Agreement and also to arrange and attend a further mediation. There was no suggestion that this mediation would be constrained in any way as to the matters that might be addressed by the parties in this forum. Indeed any such constraint would be contrary to the very nature of mediation. A critical aspect of the nature of mediation is the opportunity it provides parties to resolve all or some matters in controversy between them – whether or not those matters are the subject of the particular piece of litigation in which the mediation is ordered or in relation to which it is conducted by agreement.
On 31 July 2013 the mediator informed the Court that the matter had not resolved at mediation. On 20 September 2013 the parties again attended Court for the hearing of the application for leave to appeal and the appeal. For the reasons set out in the judgment, I granted leave to appeal but dismissed the appeal and directed the parties to bring in orders to give effect to those reasons. I otherwise reserved the question of costs and invited submissions in relation to this issue.
The parties informed the Court, on 8 November 2013, that they had conferred with each other regarding the form of order to give effect to the reasons, but had been unable to reach an agreement on the appropriate wording of the orders.
While the parties are in agreement that there should be an order that the respondents are entitled to the costs of the proceeding, agreement was not reached as to whether those costs should include the costs of the mediation ordered on 16 May 2013.
“Costs of the proceeding”
Whether the Irelands are entitled to the costs order they seek turns on the proper construction of the expression “costs of the proceeding” for the purposes of Order 63 of the Supreme Court (General Civil Procedure) Rules 2005 (“the Rules”), particularly Rule 63.20, and whether this should include the costs of the mediation in the present circumstances.
In Newcastle City Council v Paul Wieland[3] (“Wieland”), the New South Wales Court of Appeal was asked to consider this same question. At first instance, the District Court held that the mediation was undertaken as part of the litigation process, having regard, among other factors, to the fact that the mediation was court ordered and that it had been discussed before the court on a number of occasions. In dismissing the appeal, the Court of Appeal held that where a court orders that a party pay the costs of the proceeding, this must be construed as ordinarily including the costs of a mediation – in this respect the court had regard to the relevant statutory provisions in the Civil Procedure Act 2005 (NSW) and Uniform Civil Procedure Rules 2005 (NSW).
[3]Newcastle City Council v Paul Wieland [2009] NSWCA 113.
The Irelands, in their submissions, also point to Ipp JA’s reference in Wieland to two other cases that provide “compelling policy reasons why costs of mediation should be included in the costs of the proceedings.”[4] Ipp JA was referring to the discussion of the issue in Higgins v Nicol (No 2)[5] (“Higgins”) and Charlick Trading Pty Ltd v Australian National Railways Commission[6] (“Charlick”).
[4]Newcastle City Council v Paul Wieland [2009] NSWCA 113 at 41.
[5] Higgins v Nicol (No 2)(1972) 21 FLR 34.
[6]Charlick Trading Pty Ltd v Australian National Railways Commission [2001] FCA 629.
In Higgins, the Court was faced with the question whether the costs of settlement negotiations could be claimed as costs in the proceeding where, even though the negotiations were unsuccessful, the work in question was conducted bona fide and in the ordinary course of the litigation. In that case, Joske J said:[7]
“I see no reason why [the costs of attempting to arrive at a compromise] should not be regarded as part of the course of the hearing and be allowed for on a party and party taxation just as much and in the same way as the calling and examination of witnesses is part of the course of the hearing and is allowed for on taxation.”
[7]Higgins v Nicol (No 2)(1972) 21 FLR 34 at 57-58.
Mansfield J in Charlick expressed a similar view, emphasising the important public interest in fostering and supporting the application of dispute resolution techniques such as negotiation and mediation with a view to avoiding the time, cost and uncertainty of litigation:[8]
“I do not accept the proposition that costs of negotiations to explore compromise of a claim should never be allowed on a party and party taxation. There is a substantial public interest, as well as private interest, in the resolution of disputes by negotiation or by mediation. It is not a common feature of litigious claims that the parties are required to consider, and often to participate in, pre-trial mediation. The Rules prescribe powers and procedures to that effect. Negotiation and mediation may resolve a dispute entirely. Apart from the benefit to the parties of such resolution, such an outcome saves the costs associated with the trial and releases judicial and court resources to deal with other matters. Negotiation and mediation often also partly resolve a dispute so as to enable the focus of the parties in litigation to be more confined, again with consequential savings of time and expense to the parties and to the benefit of the public. In my view, steps taken by the parties to confine the areas of their dispute will often be able to be categorised as necessary or proper for the attainment of justice. They will often facilitate the presentation of the case so as to enable a just result to be achieved in an expeditious and economic manner. Even if those processes do not in fact result in any consensual outcome, either totally or in relation to certain issues or matters which then do not require proof, it does not follow that the processes themselves were not necessary or proper for the purpose of [whether those costs are allowed on taxation].”
[8]Charlick Trading Pty Ltd v Australian National Railways Commission [2001] FCA 629 at 92.
While SSA concedes that the court’s comments in Wieland on the policy reasons underpinning its decision were relevant in that particular case, it submits that there is nothing in that decision that should detract from the proposition that whether the costs of a mediation are to be paid by a party will depend upon the circumstances of the particular case in question.
In Charlick, Mansfield J, after rejecting a submission that costs of a negotiation should never be allowed, said:[9]
“Those observations are not intended to lay down any precept that the costs of a private negotiation or mediation should as a general rule be allowed on a party and party taxation. Whether they are allowed will depend upon the particular circumstances. Often, the parties agree upon the basis upon which the costs of mediation will be borne, or the agreement made at mediation will include terms as to costs.”
[9] Charlick Trading Pty Ltd v Australian National Railways Commission [2001] FCA 629 at 92.
As the Irelands point out, a leading text on costs[10] has little to say on the question of whether the costs of a mediation should be rightly included as costs in the proceeding.[11] In Victoria, the Rules are similarly silent on the issue. Rule 63.78 does, however, provide:
“Costs reasonably and properly incurred with respect to negotiations for compromise shall be allowed whether or not the negotiations were successful.”
[10]G E Dal Pont, Law of Costs (3rd ed, LexisNexis Butterworths, 2013).
[11] Respondents’ submissions, paragraph 15.
Although Rule 63.78 is addressing negotiations, broadly, without reference to mediation it might be thought it must follow that mediation which is ordered by the Court must more readily be taken to be comprehended as being part of the “the proceeding” than negotiations between parties which are both unstructured and voluntary and would not be subject to a mandatory order by the Court. Mediation is, however, different in that, unlike negotiations, it is a formal process to which parties can be directed and, indeed, one in which they may be ordered to participate.
The old adage is that you can take a horse to water but not make it drink. This is, however, more likely true of unstructured negotiations than mediation. In the former only narrow self interest may be the driver and other obstacles may prevent agreement whereas with the latter a mediator may assist the parties see a broader interest, thus moving the parties to a perspective free of such obstacles which are then seen as extraneous to reaching a settlement.
Additionally, the importance of dispute settlement techniques other than litigation – particularly mediation – is clearly accepted by Parliament in the provisions of the Civil Procedure Act 2010 (Vic) (“Civil Procedure Act”). This is clear from a variety of provisions in this Act, including the provisions of sub-s 1(2)(d) which, by reference to the main purposes set out in sub-s 1(1), states that the Civil Procedure Act provides for the “further enhancement of appropriate dispute resolution processes.” “Appropriate dispute resolution” is defined, in s 3(a) as including “mediation, whether or not referred to a mediator in accordance with rules of court”. Moreover, the Civil Procedure Act contains provisions which have the effect of requiring the application of these techniques in suitable cases – provisions for which their touchstone is the overarching purpose of the legislation as stated in s 7:[12]
[12] In discussing the guiding purpose of the Act, the Court of Appeal said in a judgment handed down in four related proceedings – Yara Australia Pty Ltd v Oswal; Carson & ors v Oswal; ANZ Banking Group Limited v Oswal; Apache Fertilisers v Oswal [2013] VSCA 337 :
“7 Overarching purpose
(1) The overarching purpose of the Act and the rules of court in relation to civil proceedings is to facilitate the just, efficient, timely and cost-effective resolution of the real issues in dispute.
(2) Without limiting how the overarching purpose is achieved, it may be achieved by –
(a) the determination of the proceeding by the court;
(b) agreement between the parties;
(c) any appropriate dispute resolution process –
(i) agreed to by the parties; or
(ii) ordered by the court.”
Having regard to the treatment of negotiations in this context in the authorities to which reference has been made and the provisions of the Rules and the approach of Parliament in the Civil Procedure Act I am of the view that in all but unusual circumstances mediation must be regarded as an intrinsic part of the process of civil litigation.[13] The question then is whether there are unusual circumstances here which would warrant the taking of a different view with respect to this matter.
[13] And see Commercial Court – Practice Note 10 (2011), particularly paragraph 8.7.
Who sought the mediation?
The Irelands submit that the fact that the mediation was not sought by them but was, rather, an “opportunity taken by the Appellant to avoid completion of the appeal that day in circumstances in which the Court had expressed a firmly negative view about one matter in question”[14] should mean that SSA is now not able to resist a costs order for that mediation.
[14] Respondents’ submissions, paragraph 12.
The Irelands say that given the Court’s and SSA’s enthusiasm for the mediation, their position should be seen as merely one of “acquiescence”.
Whether a mediation is a mutually agreed step has been held to be relevant to the question whether the costs of the proceeding are to include the costs of a mediation.
In Mead v Allianz Australia Insurance Ltd,[15] Bergin J said:[16]
“It seems to me, however, that to make an order as sought by Mr Fagan would be inconsistent with the agreement reached between the parties and, in any event, as a matter of policy it would not be appropriate to make such an order in circumstances where a consensual order for mediation was made; a Mediation Agreement was entered into; and a compromise was reached between the parties.”
[15]Mead v Allianz Australia Insurance Ltd [2007] NSWSC 500.
[16]Mead v Allianz Australia Insurance Ltd [2007] NSWSC 500 at 14.
SSA rejects the notion that the mediation was anything other than a mutually agreed mediation. It says that it is clear from the transcript that the mediation was first raised by the Court, and it was then left to the parties to decide whether to agree to have orders made providing for mediation. While counsel for the Irelands did indicate some slight reservation at the hearing on 16 May 2013 as to the possibility of a successful mediation when it was first raised,[17] it is quite clear from the transcript that there was an agreement between the two parties that they would discuss the matter of a potential mediation upon the Court adjourning and inform the Court of their decision, “either way.”[18]
[17] Transcript, p 28.06.
[18] Transcript, p 29.30.
In Wieland, Hodgson JA observed that even though the costs of the proceedings would generally include the costs of a court-ordered mediation, there may be a pre-existing agreement that so strongly indicates that the costs of a mediation were to be treated entirely separate from other costs of the proceeding so as to justify a conclusion that a later order concerning the costs of the proceeding was not intended to include the costs of the mediation.[19]
[19]Newcastle City Council v Paul Wieland [2009] NSWCA 113 at 4.
In the present case there is, in my view, no evidence of an agreement of the kind contemplated by Hodgson JA. The only written evidence before the Court of party agreement to mediation are the consent orders which were sent to the Court, orders which relevantly provide:
“5. Subject to further order, the costs of the mediation be paid in the first instance by the parties in equal shares.”
In my view the language of this order clearly contemplates the possibility of further orders with respect to the costs of the mediation, as the Court thinks fit.
SSA submits that the reference in these orders to “in the first instance” and “subject to further order” should be read as intending to cover merely a situation where “some particular conduct of the parties altered the presumptive arrangement that costs be shared (for instance, one party failing to attend the mediation), or that the costs of the mediation would be treated as part of the costs of the underlying dispute in VCAT.”[20] In my view this is to strain the otherwise clear language of these orders and to ignore the position that orders in this form are commonly made in court ordered mediation and orders appointing a special referee under Rule 50.01. Similar, though not identical form, procedural orders are commonly made in arbitration proceedings. An order in this form simply means that parties are to fund the mediation or other dispute resolution process – equally in the absence of any particular reason to vary the proportions, such as where there are multiple parties – pending the completion of the mediation, other process or trial when the ultimate burden of costs will be determined.
[20] Applicant’s submission, paragraph 13.
Part of the VCAT proceeding?
In this proceeding, SSA submits that the Court should decline the Irelands’ application as it is clear “that what was mediated was not the present proceeding (which concerned a narrow question of law) but the overall commercial dispute between the parties encapsulated in the proceedings before VCAT.”[21] SSA says that at the time the mediation orders were made in this Court, the parties had yet to attend a mediation in the proceedings that were still on foot at VCAT, other than the compulsory (pre-issue) mediation that had been held under the auspices of the Small Business Commissioner as contemplated by the Retail Leases Act.
[21] Applicant’s submissions, paragraph 8.
On this basis, SSA submits that the correct view of the effect of the referral to mediation contained in the orders of 16 May 2013 was to bring forward the mediation that would otherwise have taken place as a result, in due course, of an order of VCAT in relation to the principal proceedings, which remain in the tribunal.[22]
[22] Applicant’s submissions, paragraph 11.
If the Court is minded to make an order for the costs of the mediation, SSA submits that it should order that the costs of the mediation be treated as the costs of the parties in the proceeding before VCAT[23], as it is entitled to do under s 148(7) of the Victorian Civil and Administrative Act 1998 (Vic) (“VCAT Act”).
[23] Applicant’s submissions, paragraph 15.
The first part of this submission is clearly an accurate statement. The purpose of the mediation ordered on 16 May 2013 was for the very reason of bringing the parties together to seek to resolve the substantive underlying dispute that was the subject of the VCAT proceeding; and hence the appeal proceeding before the Court. In circumstances such as the present any other position would be absurd. The purpose of the justice system in Victoria – its elements including the Courts, VCAT and other bodies and tribunals – is, as is made very clear by the Civil Procedure Act, to resolve disputes fairly, cost effectively and as expeditiously as possible; whether by litigation, other techniques or a combination of two or more. It follows that where, as in the present circumstances, the dispute between the parties spans more than one element in the justice system it is both appropriate and in the public interest for either, or any, of these elements to take steps to encourage resolution of the whole dispute between the parties – a position entirely consistent with, if not required, by the provisions of the Civil Procedure Act.
It follows from the nature of techniques such as mediation[24] that where a dispute does span different elements of the justice system distinctions in terms of the subject matter of segments of substantive matters in dispute, jurisdictional or procedural matters are simply not of any real significance. The parties can, and very often do, transcend all this by agreement.
[24] L. Boulle, Mediation principles, processes and practice (3rd ed, LexisNexis Butterworths, 2011).
This Court’s approach to case management reflects this position, involving as it does close administrative and supervisory control over litigation proceedings, with the primary goal being to encourage parties to identify and reach agreement on as many issues as possible to avoid the need for trial, or to reduce its length and complexity where a hearing is needed.[25]
[25] L. Boulle, Mediation principles, processes and practice (3rd ed, LexisNexis Butterworths, 2011).
Turning more particularly to the present matter, while it is true that the successful resolution of the issues between the parties at the mediation would have the prospect or possibility of resolving the dispute at VCAT, any attempt to distinguish between matters before VCAT and this Court is to seek to impose an artificial separation in the context of the real issues in dispute. For the reasons indicated such an approach could not be regarded as consistent with the overarching purpose of the Civil Procedure Act.
Consequently, I am of the opinion that though the purpose of the mediation was to attempt to resolve the substantive underlying dispute between the parties, this step is properly characterised as part of the current proceeding in this Court.
Having reached this position it would, as SSA submits, be open to the Court to order that the costs of the mediation be treated as costs in the VCAT proceeding, pursuant to s 148(7) of the VCAT Act. There are, in my view, two obstacles to or considerations which militate against this course. The first is that, for the preceding reasons, I am of the opinion that the mediation is properly characterised as part of the current proceeding in this Court. That being the case, there may be arguments raised before VCAT as to the extent to which VCAT may have regard to the circumstances of the proceedings in this Court for the purpose of exercising its discretion as to costs were an order to be made as SSA contends.[26] Secondly, and I think more significantly, this Court is in a better position than VCAT would be in to weigh the factors relevant to the outstanding costs issues in these, the Court’s, proceedings and, consequently, the Court should properly determine these issues.
[26] See XYZ v State Trustees Ltd (2006) 25 VAR 402; [2006] VSC 444; and, also Cityrose Trading Pty Ltd v Booth 920080 71 ATR 91; [2008] VSC 495.
Conclusion
For the preceding reasons, I make the following orders to give effect to the reasons for judgment handed down on 20 September 2013:
(a) The Applicant’s application for leave to appeal is granted.
(b) The Applicant’s appeal is dismissed.
(c) The Applicant pay the Respondents’ costs of the proceeding including reserved costs and costs of the mediation, on a party and party basis pursuant to the Supreme Court Scale to 31 March 2013 and from 1 April 2013 on the standard basis pursuant to the Supreme Court Scale, to be taxed in default of agreement.
8. One of the main purposes of the Act is ‘to provide for an overarching purpose in relation to the conduct of civil proceedings to facilitate the just, efficient, timely and cost-effective resolution of the real issues in dispute’. The Act provides for ‘overarching obligations for participants in civil proceedings to improve standards of conduct in litigation’, and ‘expanding the powers of the courts in relation to costs in relation to civil proceedings.’
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