Varnhagen v State of South Australia (No 3) - [2022] SASCA 134

Supreme Court of South Australia
(Court of Appeal: Civil)
VARNHAGEN & ANOR v STATE OF SOUTH AUSTRALIA & ORS (No 3)
[2022] SASCA 134
Judgment of the Court of Appeal
(The Honourable President Livesey, the Honourable Justice Doyle and the Honourable Justice Bleby)
15 December 2022
PROCEDURE - CIVIL PROCEEDINGS IN STATE AND TERRITORY COURTS - COSTS - APPEALS AS TO COSTS
PROCEDURE - CIVIL PROCEEDINGS IN STATE AND TERRITORY COURTS - COSTS - APPEALS AS TO COSTS - RELEVANT PRINCIPLES - WHERE WRONG EXERCISE OF DISCRETION
The Court had before it two issues relating to costs.
The first concerned an application for leave to appeal against the costs order made by the primary judge on 21 October 2022. The primary judge ordered that the respondents recover from the appellants costs of the action in a fixed amount of $50,000.
The second issue concerned the costs of the appeal in which this Court rejected the appellants’ challenge to the validity of the South Australian Public Health (COVID 19) Amendment Act 2022 (SA).
The Court held:
1. There have been material errors made in the exercise of the costs discretion.
2.The exercise of the costs discretion first required that a view be formed about whether and to what extent there had been success or failure in the proceedings.
3.The appellants should be given leave to appeal against the costs order. The costs appeal should be allowed.

Supreme Court Act 1935 (SA) S 40; Emergency Management Act 2004 (SA); Judiciary Act 1903 (Cth) s 78B; Uniform Civil Rules 2020 (SA) r 151.1, 194, 213, referred to.
Chattaway v Minister for Health (No 2) [2021] SASC 89; Cretazzo v Lombardi (1975) 13 SASR 4, 11-12; Ewins v BHP Billiton Ltd (No 2) [2005] SASC 164; Flowers v Finlayson [2021] SASCA 75; House v The King (1936) 55 CLR 499; Kable v Director of Public Prosecutions (NSW) (1996) 189 CLR 51; McDonald v Attorney General for the State of South Australia [2022] SASCA 43; Palace Gallery Pty Ltd v Liquor and Gambling Commissioner (No 2) (2014) 120 SASR 299; Rail Commissioner v Warner [2011] SASCFC 90; Re The Minister for Immigration and Ethnic Affairs (Cth); ex parte Lai Qin (1997) 186 CLR 622; Varnhagen & Anor v State of South Australia & Ors [2022] SASC 118; Varnhagen v State of South Australia [2022] SASC 108; Varnhagen & Anor v State of South Australia & Ors (No 2) [2022] SASCA 118, considered.

VARNHAGEN & ANOR v STATE OF SOUTH AUSTRALIA & ORS
(No 3)

[2022] SASCA 134
Court of Appeal – Civil: Livesey P, Doyle and Bleby JJA
THE COURT:
Introduction

The Court has before it two issues relating to costs.
The first concerns an application for leave to appeal against the costs order made by the primary judge on 21 October 2022.[1] The primary judge ordered that the respondents recover from the appellants costs of the action in a fixed amount of $50,000.
[1] The ‘Record of Outcome – Judgment’ was sealed on 25 October 2022 (FDN 113).
The second issue concerns the costs of the appeal in which this Court rejected the appellant’s Kable challenge to the validity of the South Australian Public Health (COVID‑19) Amendment Act 2022 (SA) (the Amendment Act).[2]
[2] Varnhagen & Anor v State of South Australia & Ors (No 2) [2022] SASCA 118 (Livesey P, Doyle and Bleby JJA).
For the reasons that follow, leave to appeal should be granted under r 213.1(1)(c) of the Uniform Civil Rules 2020 (SA) and the appeal against the costs order allowed. The appellants must pay the costs of the appeal determined on 15 November 2022.
Relevant background
On 14 December 2021, the appellant made an application for judicial review.
That application initially sought certiorari and declaratory relief concerning jurisdictional error associated with directions given by the State Co‑ordinator, following a declaration made on 22 March 2020 that a major emergency was occurring by reason of the outbreak of Covid-19 within South Australia. That declaration was made pursuant to s 23 of the Emergency Management Act 2004 (SA), initially for 14 days. From time to time the declaration was extended and directions were given. On 7 October 2021, a vaccination direction was given.
On 22 February 2022, consent orders were made by the primary judge regarding the costs of the judicial review proceeding in the following terms:
Pursuant to r 194.2 of the Uniform Civil Rules 2020 (SA), order that, in the event that the application filed on 14 December 2021 is:
1.1allowed and costs follow the event: the Applicants’ costs of the proceedings other than any appeal of the Application on a party‑party basis be fixed in the sum of $50,000;
1.2dismissed and costs follow the event: the Respondents’ costs of the proceedings other than any appeal of the Application on a party‑party basis be fixed in the sum of $50,000.
The application filed on 14 December 2021 is the originating application for judicial review. Rule 194.2 of the Uniform Civil Rules 2020 (SA) is in the following terms:
194.2—Costs budget may be ordered
(1) The Court may make an order fixing the costs, or the maximum costs, that may be recovered between parties in relation to a proceeding, or a stage of or step in a proceeding.
(2) Unless the Court otherwise orders, an order made under subrule (1) will not include any costs—
(a)payable under rule 69.5, rule 74.3, rule 154.5, rule 154.6, rule 154.11, rule 154.12, rule 154.13, rule 194.4(2) or rule 194.4(3); or
(b)ordered to be paid because of a party’s failure to comply with these Rules or an order of the Court.
On 4 March 2022, another vaccination direction was given under s 25 of the Emergency Management Act 2004 (SA) entitled the Emergency Management Act (Healthcare Setting Workers Vaccination No 7) (COVID-19) Direction 2022.[3]
[3] See Varnhagen & Ors v State of South Australia& Anor [2022] SASC 108, [27] (Hughes J).
This last-mentioned direction became the focus of the application for judicial review. The application went to trial in the Supreme Court over eight days during March and April 2022. The evidence was completed on 20 April and the matter was adjourned to 18 May 2022 for closing submissions. By the time closing submissions were underway, on 4 May 2022 a Bill concerning the Amendment Act had been introduced into Parliament and by 24 May 2022 it had passed both Houses.[4] As the primary judge explained:[5]
The events of 24 May 2022 changed the course of the proceedings. On that day the Amendment Act received assent and the Emergency Declaration was revoked. Whilst these events occurred outside of the proceedings, the declaration was only ever liable to endure for its stated length or its revocation by the State Coordinator, whichever was the earlier. The length of each of the declarations was 28 days. On an application for judicial review, a fresh decision made by the decision-maker that renders the proceedings inutile is always a possibility.
[4] Varnhagen v State of South Australia [2022] SASC 108, [57]-[58] (Hughes J); Varnhagen v State of South Australia (No 2) [2022] SASC 118, [15]-[17] (Hughes J).
[5] Varnhagen v State of South Australia (No 2) [2022] SASC 118, [15] (Hughes J).
In the wake of the passage of the Amendment Act on 30 May 2022 the respondents applied for summary dismissal of the primary proceedings. On 2 June 2022 the appellants foreshadowed a constitutional challenge based on Kable.[6] On 30 June 2022, the appellants gave notice of a constitutional matter pursuant to s 78B of the Judiciary Act 1903 (Cth) concerning the Amendment Act.
[6] Kable v Director of Public Prosecutions (NSW) (1996) 189 CLR 51 (Kable).
On 21 July 2022, the primary judge directed that the respondents’ summary judgment application and the appellants’ Kable point would be heard and determined as a separate trial within the primary proceedings pursuant to r 151.1(2) of the Uniform Civil Rules 2020 (SA).
The hearing of those matters occurred on 1 August 2022.
Though it concerned entirely new points, the hearing on 1 August 2022 proceeded within the existing proceedings. The applicants made minor amendments to the grounds of their judicial review application to accommodate these new issues.[7]
[7] Varnhagen v The State of South Australia (No 2) [2022] SASC 118, [19]-[20].
The primary judge rejected the appellants’ Kable challenge and gave the respondents summary judgment on 27 September 2022. On 4 October 2022, the appellants appealed the decision of the primary judge delivered on 27 September 2022. It is agreed between the parties that it was otherwise unnecessary for the primary judge to make any substantive determination of the issues raised by the judicial review application dated 14 December 2021.
On 19 October 2022, Bleby JA made another order pursuant to r 194.2 concerning the costs of the appeal to this Court, “capping” those costs at a maximum recoverable amount of $20,000.
On 21 October 2022, the primary judge made the order for costs which is the subject of the application for leave to appeal. Her Honour concluded:[8]
The applicants accept that their unsuccessful challenge to the validity of the legislation should attract an order for costs in the respondents’ favour. In my view, there is no basis to disturb the order that was made on 22 February 2022 with respect to any aspect of the proceedings.
The applicants should pay the respondents’ costs of the proceedings in the sum of $50,000.
[8] Varnhagen v The State of South Australia (No 2) [2022] SASC 118, [34]-[35].
The appellants later amended their notice of appeal to challenge this order.
Following an urgent hearing of the appeal on 11 November, this Court dismissed the appeal against the rejection of the Kable point on 15 November 2022.[9] The Court then set 7 December as the date for argument about the appeal against the costs order made on 21 October 2022, as well as regarding the costs of the appeal which were reserved at the time judgment was delivered.
[9] Varnhagen & Anor v State of South Australia & Ors (No 2) [2022] SASCA 118 (Livesey P, Doyle and Bleby JJA).
The appeal against the costs order
The “costs capping” order made on 19 October 2022 concerning the costs of the appeal did not extend to the appeal against the costs order made on 21 October 2022.
The appellants require leave to appeal against the costs order pursuant to r 213.1(1)(c) of the Uniform Civil Rules 2020 (SA). Whether leave to appeal should be granted turns on well-established criteria.[10] There is a particular hesitation in granting leave to appeal on a matter of practice and procedure, especially on a question of costs.[11]
[10] McDonald v Attorney‑General for the State of South Australia [2022] SASCA 43, [21] (Livesey P and Bleby JA).
[11] Flowers v Finlayson [2021] SASCA 75, [27] (Lovell, Doyle and Livesey JJA).
The appellants called in aid the well‑known approach described in Re The Minister for Immigration and Ethnic Affairs (Cth) ex‑parte Lai Qin,[12] where the applicant commenced judicial review proceedings so as to challenge a decision refusing her a protection visa but where, part way through those proceedings, the Minister granted the visa. The applicant sought her costs but the High Court held that, absent a party acting unreasonably in bringing or maintaining proceedings, where there has been no hearing on the merits there will usually be no order as to costs:[13]
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.
[12] Re The Minister for Immigration and Ethnic Affairs (Cth); ex‑parte Lai Qin (1997) 186 CLR 622, 625 (McHugh J) (Lai Qin).
[13] Re The Minister for Immigration and Ethnic Affairs (Cth); ex‑parte Lai Qin (1997) 186 CLR 622, 625 (McHugh J).
The primary judge regarded this decision as distinguishable because of the existence of the 21 February 2022 costs order and because the appellants failed on the merits regarding the challenge they made to the validity of the Amendment Act heard on 1 August 2022:[14]
However, the application of that authority to the current circumstances is doubtful. There are two significant distinguishing and relevant factors. The first is that there is a costs order in place secured on the application of the applicants, which was not sought to be re-visited when the extra-curial events became likely to occur. The second is that an aspect of the proceedings was determined on its merits: the challenge to the validity of the legislation.
[14] Varnhagen & Ors v The State of South Australia& Anor [2022] SASC 118, [27] (Hughes J).
The primary judge also regarded this case as distinguishable from the case of Palace Gallery Pty Ltd v Liquor and Gambling Commissioner (No 2),[15] where judicial review proceedings required that the Court determine the proper construction of a provision of the Liquor Licensing Act 1997 (SA). Just before the hearing, a Bill was introduced which rendered those proceedings otiose. The Full Court determined that each party should bear their own costs, explaining:[16]
The defendants are manifestations of the executive government of the State who have had the benefit of legislation which was calculated, in the objective sense, to support their case in litigation before the court. The ultimate question in issue in this action was the validity of the Code of Practice made by an executive agency in the purported exercise of a statutory power. In enacting the Amending Act, Parliament moved to remedy legislatively a perceived defect in the legislative foundation for that executive action. The rights of citizens to invoke the judicial review jurisdiction of this court, to pass on the validity of executive acts made pursuant to a statutory power, is a fundamentally important constitutional right. As a general rule, litigants who act reasonably in bringing proceedings in that jurisdiction should not suffer a costs penalty for bringing an action which is subsequently denied any utility because the alleged deficiency in the statutory support for the impugned executive action is retrospectively remedied in anticipation of an adverse declaration by the court. If that general rule is not applied, the threat of Parliamentary action would unduly inhibit the invocation of the jurisdiction of this court to ensure that the executive does not act beyond the scope of its statutory authority.
[15] Palace Gallery Pty Ltd v Liquor and Gambling Commissioner (No 2) (2014) 120 SASR 299 (Palace Gallery).
[16] Palace Gallery Pty Ltd v Liquor and Gambling Commissioner (No 2), (2014) 120 SASR 299, [12] (Kourakis CJ, Blue and Stanley JJ).
Although the Full Court did not cite Lai Qin, in the paragraph preceding the one extracted above, reference was made to Boscaini Investments Pty Ltd v Kensington City Corporation where Debelle J had applied Lai Qin:[17]
The Court will not usually try an action to determine the issue of costs if no other issue needs to be determined.[18] The Court will, however, facilitate the conclusion of proceedings by exercising its costs discretion where the sole outstanding issue is that of costs.[19] The relevant criteria are set out in Booth v Helensvale Golf Club Ltd.[20]Generally, no order will be made where it is impossible to predict what the outcome would have been.[21] Moreover, where the subject matter of the litigation has ceased to exist through the actions of a non-party, it is usual that each party should bear its own costs.[22] These considerations favour an order that each party bears its own costs of the remainder of the action.
[17] Palace Gallery Pty Ltd v Liquor and Gambling Commissioner (No 2) (2014) 120 SASR 299, [11] (Kourakis CJ, Blue and Stanley JJ).
[18] Tobin v Tobin (1977) 75 LSJS 9.
[19] Australian Securities Commission v Aust-Home Investments Ltd (1993) 44 FCR 194.
[20] Booth v Helensvale Golf Club Ltd [1997] 2 Qd R 141.
[21] Boscaini Investments Pty Ltd v Corporation of the City of Kensington and Norwood [1999] SASC 327 (Debelle J).
[22] Parap Hotel Pty Ltd v Northern Territory Planning Authority (1993) 112 FLR 336.
The primary judge regarded this case as closer to Chattaway v Minister for Health (No 2),[23] where an application for judicial review was interrupted by a case stated to the Full Court concerning the interpretation of legislation relevant to the application. The case stated was answered favourably to the respondents and the applicant’s judicial review proceeding was not determined. In that case, the court referred to the applicant’s forensic strategic decisions and held that these did not deprive the respondents of their costs where the proceedings were dismissed, even if an aspect of those proceedings had become moot. At the hearing of this appeal the appellants distinguished Chattaway and the respondents did not support the contention that it was relevant to the determination of the appeal.
[23] Chattaway v Minister for Health (No 2) [2021] SASC 89 (Chattaway), [12] (Stanley J).
The contentions of the parties
The appellants conceded that they must meet the costs of the hearing on which they failed, but otherwise that there should have been no order as to the costs of the judicial review proceedings. The appellants submitted that the primary judge erred in construing the order made on 22 February 2022 as effectively awarding the respondents costs in a fixed sum, subject perhaps to there being some proper basis for departing from that starting point. Rather, the order should have been construed as only fixing the costs payable in the event that the court made a determination, in the ordinary exercise of its discretion as to costs, that it was appropriate that there be an order that the costs of the action follow the event.
The appellants further submitted that, even if the primary judge purported to exercise her discretion as to costs in the ordinary way, she nevertheless acted on a wrong principle because she failed to apply Lai Qin.
The respondents, whilst not contesting the construction of order advanced by the appellants, contended that the reasons of the primary judge disclosed no error in approach or in the exercise of the discretion as to costs. They highlighted the conduct of the appellants in maintaining their Kable challenge within the existing proceedings which gave them the potential to benefit from the earlier costs order made in February 2022. They also emphasised the offers they made to discontinue the proceedings following developments in the Parliament during May 2022. Finally, the respondents supported the reliance of the primary judge on the failure of the appellants to apply to vary the terms of the 22 February 2022 order.
The determination of the costs appeal
As may be expected, the parties agreed that the determination of an award of costs is a matter for the exercise of the court’s discretion and that the costs discretion must be exercised judicially.[24] Subject to the overriding discretion of the court as to costs, costs will ordinarily follow the event, see r 194.5(2) of the Uniform Civil Rules 2020 (SA).
[24] Supreme Court Act 1935 (SA) s 40 and Uniform Civil Rules 2020 (SA) r 194.5; Cretazzo v Lombardi (1975) 13 SASR 4, 11-12 (Bray CJ).
The question in this case is whether it has been shown that the exercise of the discretion as to costs has been vitiated by any specific error, such as by failing to act in accordance with an appropriate principle, acting on a wrong principle or by otherwise making a material error of fact or law:[25]
The exercise of the unfettered discretion in relation to costs orders should only be interfered with if an error of principle has been made or it is clear that the actual order is so unreasonable or unjust as to require the appellate Court to substitute own discretionary order.
[25] Rail Commissioner v Warner [2011] SASCFC 90, [168] (Peek J with whom Sulan J agreed).

The approach of the primary judge is encapsulated in the following passages from her Honour’s reasons:[26]
The question is not, as the applicants put it, whether the applicants have been shown to have acted unreasonably so as to warrant a departure from the proposition that the parties bear their own costs, if the merits of the dispute have not been determined. By virtue of the order made on 22 February 2022 being the starting point for the Court’s discretion, and the applicants’ subsequent choices and the respondents’ order having the proceedings dismissed, the question is whether there is any reason not to act in accordance with the order of 22 February 2022. In my view, there is not.
In light of the fact that the applicants had an opportunity to apply to revisit the order prior to the hearing of the challenge to the validity of the Amendment Act, and did not take it, I do not consider that the applicants have established a basis for making an order that departs from the terms of the order made on 22 February 2022.
[26] Varnhagen v The State of South Australia (No 2) [2022] SASC 118, [29]-[30].
The reference to the appellants’ “subsequent choices” is a reference to their forensic decision to proceed with their challenge to the Amendment Act within the existing judicial review proceedings, together with their further decision not to revisit the terms of the costs order made on 22 February 2022.[27]
[27] Varnhagen v The State of South Australia (No 2) [2022] SASC 118, [9], [21]-[23].
Though it is not necessary to come to a final view, it seems unlikely that the r 194.2 order made on 22 February 2022 capped costs, as distinct from specifying a fixed amount to be recovered. The contrast between the terms of the orders made in February and October 2022 is clear, as is the facility under the rules for making orders by way of fixed amount as distinct from capping the amount recoverable. It was not argued that the recovery of a fixed amount of $50,000 should be viewed as relevantly unreasonable or unjust.[28] The appellants rested their case on the existence of identifiable error in the exercise of the discretion as to costs.
[28] House v The King (1936) 55 CLR 499.
Contrary to the observations made in the passages from the reasons of the primary judge set out above, the terms of the order made on 22 February 2022 represented no substitute for the exercise of the unfettered discretion as to costs. One could not “start” with that order. Rather, an objective assessment of those terms demonstrates that they were intended to operate depending upon the way in which the costs discretion was otherwise exercised.
One could therefore not act in accordance with the 22 February 2022 order without first determining whether there had been success or failure, and without next determining whether the case was one appropriate for the making of an award that costs should follow the event. The operation of these orders was predicated on whether the 14 December 2021 application was allowed, or alternatively dismissed, and whether the court then determined in the exercise of its discretion that it was appropriate to order that “costs follow the event”. Depending on the way in which the costs discretion was exercised, the costs then awarded would be in the amount of $50,000.
It was necessary that these issues be approached in a broad way as “questions of costs are usually, although not always, best dealt with on a broad basis”.[29] When evaluating the question of success or failure it was necessary to evaluate, as a matter of substance rather than form, what was litigated and the extent to which what had been litigated succeeded or failed.
[29] Ewins v BHP Billiton Ltd (No 2) [2005] SASC 164, [29] (Doyle CJ).
The stark feature of this litigation is that most of it was occupied with what culminated in the eight days spent during March and April 2022 litigating the 14 December 2021 application. It was agreed that the issues addressed during those hearings had been overtaken by the Amendment Act and it was also agreed that it was neither necessary nor appropriate for the primary judge to rule on them.
It follows that, contrary to the approach taken below, it was necessary to start with Lai Qin and Palace Gallery. That the main part of the case was overtaken by a combination of new legislation and the expiry of the declarations and directions which had from time to time been renewed did not warrant viewing this case in any different way.
Similarly, the decision to press on with the 1 August 2022 argument in the existing judicial review proceeding rather than commence a fresh proceeding could not be permitted to obscure what had occurred: the initial challenge had been overtaken and a new challenge had been commenced raising different points. It cannot be said, in these circumstances, that it was appropriate to view all of the litigation through the prism of the 1 August 2022 argument, or that it was appropriate to ignore that the main part of the case had been rendered otiose through no fault of the parties.
Finally, it cannot be said that the approach taken in Lai Qin and Palace Gallery should not have been followed because of the appellants’ failure to negotiate or because they did not revisit the terms of the February 2022 costs order. None of this could be said to have altered the requisite approach. None of that conduct was capable of supporting a conclusion that it put the respondents to additional costs or demonstrated that the appellants had acted in a manner that was relevantly unreasonable.
As there have been material errors made in the exercise of the costs discretion, the costs order dated 21 October 2022 must be set aside. If error was shown, the parties invited this Court to re-exercise the costs discretion, see r 217.11(1) of the Uniform Civil Rules 2020 (SA).
The appellants conceded that they should be ordered to pay the costs of and incidental to the hearing on 1 August 2022. As a matter of substance, though what was then litigated formed part of the proceedings commenced on 14 December 2021, the issues were separate and distinct. Costs should follow that event. An order should be made that the respondents recover from the appellants their costs of and incidental to the hearing on 1 August 2022.
It was not suggested that the earlier conduct of the appellants between December 2021 and May 2022 was relevantly unreasonable or that, if the approach in Lai Qin and Palace Gallery applied, there should be any order other than no order as to costs. The forensic decisions taken by the appellants have not been shown to have added to the length or complexity of these proceedings. They do not represent a sufficient reason to depart from the approach taken in Lai Qin and Palace Gallery.
It is therefore appropriate to otherwise make no order as to costs of the proceedings commenced on 14 December 2021.
The costs of the appeal to the Court of Appeal
That then leaves the costs of the appeal determined on 15 November 2022.
The appellants submitted that, if they succeeded on the costs appeal there should be no order as to costs because though they failed with one ground of appeal, they succeeded with another. Recognising that far more costs were incurred in connection with the substantive appeal, the appellants contended that “public interest considerations” supported an order that there be no order as to costs.
In our view it is appropriate that the appellants be ordered to pay the respondents’ costs of the appeal determined on 15 November 2022. Making no order is not justified by any public interest considerations. An order such as that would be unjust, for it would fail to recognise the marked disparity in the issues litigated on 11 November and 7 December 2022.
Subject to two matters, the appellants should be awarded their costs of the costs appeal. The first of these is that the parties have taken a commendably robust approach to the fixing and capping of costs in this litigation. The parties should be invited to indicate whether it is appropriate to fix the costs of the costs appeal and, if so, in what amount. The second matter is that the parties should also be invited to indicate whether an order permitting set-off should be made regarding the costs of each appeal, see r 194.3(4) of the Uniform Civil Rules 2020 (SA).
Conclusion
The appellants should be given leave to appeal against the costs order. The costs appeal should be allowed.
The appellants are to pay the respondents’ costs of and incidental to the hearing on 1 August 2022, but there is otherwise to be no order as to the costs of the 14 December 2021 application for judicial review.
There will be orders that the appellants are to pay the respondents’ costs of the appeal determined on 15 November 2022, and that the appellants are to have the costs of the appeal against the costs order determined today.