Update, 4 May 2009: For an example of these principles in operation in a professional negligence case in which proportionate liability was given effect to (I posted about the main decision here), see Sali v Metzke & Allen (No. 2)  VSC 169, where the successful plaintiff’s costs were reduced by 30% because they raised and failed on numerous issues (and also because, reading between the lines, Justice Whelan was not very impressed by one of the plaintiff’s witnesses).
Original post: Costs have traditionally followed the event. Put up 5 reasons why you should get damages and win on 1 of them, and the starting point has been that you get the costs of the whole proceeding, including of the 4 causes of action which failed. Recent decisions of a Full Federal Court constituted by Victorians and of the Supreme Court have clearly signposted a desire in eminent Victorian judges to get sophisticated about costs so that claimants who propound claims which fail do not get (and may have to pay) the costs of doing so, even if they ‘win the case’. (This might be a good time for solicitors to think about amending that part of their standard costs disclosure letters which deals with s. 3.4.9(1)(g) of the Legal Profession Act, 2004 — range of costs likely to be recovered from the other side if successful.) Justice Robson’s 13,000 word decision on costs in GT Corporation Pty Ltd v Amare Safety Pty Ltd (No 3)  VSC 296 may set a record for such judgments. Certainly, I would be surprised if there were another costs ruling with a table of contents. This is one conscientious judge. At ff, his Honour said:
‘Amare’s counsel referred me to Bowen Investments Pty Ltd v Tabcorp Holdings Ltd (No 2). There, Finkelstein and Gordon JJ, sitting in the Full Court of the Federal Court, said as follows:
The respondent first of all contends that, as regards the trial, the appellant failed on most of the grounds it had pleaded and argued and, accordingly, the appellant should pay a substantial proportion of the respondent’s costs (it suggests 50 to 80 per cent) or alternatively that there should be no order as to costs.
We think there is force in the argument that the appellant should not benefit from the usual rule that costs follow the event. For many years the traditional rule has been that the winner (once the winner is properly identified) is entitled to recover his costs of the trial. It sometimes happens that there is a departure from the traditional rule and the costs order takes account of the success of the parties on particular issues. But to date the award of costs on an issue by issue basis has only been accepted in limited cases and then only when the circumstances are exceptional.
This approach is, if we may be permitted to say so, quite unfair. Its effect is that a winner is entitled to all of his costs even if he raises a plethora of issues on which he is unsuccessful. The unfairness of the traditional rule has been recognised in England where, following Lord Woolf’s interim report, Access to Justice, the Civil Procedure Rules were modified to require the judge to have regard to the circumstances (if it occurs) that the unsuccessful party has succeeded on some issues: see r 44.3(4)(b). In Western Australia, the Supreme Court Rules provide that costs should follow the event of each pleaded cause of action: see r 66(2)(a). This is narrower than the English approach but certainly more reasonable than adherence to the traditional rule.
We do not believe there is any need to wait for a change in the Federal Court Rules to adopt an issue by issue approach here. Costs are in the court’s discretion. Fairness should dictate how that discretion is to be exercised. So, if an issue by issue approach will produce a result that is fairer than the traditional rule, it should be applied. It is not suggested that such an approach requires a precise arithmetical apportionment of the costs as between the winner and loser of the discrete issues. No doubt the assessment will often be rough and ready. But it will have the virtues of both fairness and reasonableness, which are often lacking in the application of the traditional rule.
57 Lord Woolf said in his report about the rule that costs normally follow the result:
22. The rule could, however, be more effective than it is at present. Normally the court uses the rule as a blunt instrument. The general approach is one which involves the winner taking all. This does not necessarily produce a fair result. My approach to case management involves breaking down the issues which make up the litigation. The court has to be prepared to make different orders for costs in relation to different issues to support the new approach to case management.
58 In my view, the authorities binding on me are not inconsistent with Lord Woolf’s recommendation relied on in Bowen’s case.
59 Based on these authorities, the general principles relevant to GT’s application in relation to costs are as follows.
1. The award of costs is in the discretion of the Court or Judge: s 24 Supreme Court Act 1986.
2. The discretion must be exercised judicially: Donald Campbell & Co v Pollak; Cretazzo v Lombardi.
3. The discretion cannot be exercised arbitrarily or capriciously and it cannot be exercised on grounds unconnected with the litigation: Cretazzo v Lombardi; or the circumstances leading up to the litigation: Oshlack v Richmond City Council.
4. Costs are compensatory in the sense that they are awarded to indemnify the successful party against the expense to which he or she has been put by reason of the legal proceedings. The order is not made to punish the unsuccessful party: Latoudis v Casey.
5. As a general rule, costs should follow the event, and a successful party should obtain all of the costs of the action even though it failed to establish some of the alternative heads of its claim: Ritter v Godfrey; McFadzean v CFMBEU.
6. Rule 63.04(1) permits the court, in its discretion, to make an order not only as to a distinct question or issue in the pleading sense, but also to any part of the proceeding: Woolf v Burmon; Cretazzo v Lombardi.
7. The court may, in its discretion, decline to order costs in favour of a successful party, or may order the successful party to pay the costs of the unsuccessful party, where the plaintiff failed to establish discrete heads of claim or failed to establish issues which it pursued in its claim, although ultimately succeeding on the basis of another discrete head of claim: McFadzean v CFMBEU.
8. It is not necessary that the issue concerned was raised unreasonably by the party: Rosniak v GIO. Although, a relevant consideration may include whether the issue was raised unreasonably: Mickelberg v Western Australia.
9. The court may, in its discretion, make an order that is a single order, fixing what proportion of a party’s costs should be paid by another party, thus obviating cross-orders or particular orders as to particular costs: Byrns v Davie; McFadzean v CFMBEU; Nolan v Nolan.
10. The caveat referred to by Jacobs J in Cretazzo v Lombardi may have less weight today than when it was decided: Primcom Pty Ltd v Sqarioto; Mickelberg v Western Australia; and Victoria v Master Builders Association of Victoria.
11. Although the quantum of damages recovered compared to that claimed may be a relevant consideration to the court in exercising its discretion, greater emphasis should be given to the failure or loss on discrete claims or issue and the time occupied in relation to them.’
  FCAFC 107
 Rares J agreed with the reasons of Finkelstein and Gordon JJ
 (June, 1995) [at para 25.22]
  – 
  AC 732
 (1975) 13 SASR 4
  13 SASR 4
 (1998) 193 CLR 72 per McHugh J at 97
 (1990) 170 CLR 534 per Mason CJ at 543, per Toohey J at 562 – 563, per McHugh J at 566 – 567
 (1920) 2 KB 47
  VSCA 289
 (1939) 13 ALJR 431 (HC)
 (1975) 13 SASR 4 at 12
  VSCA 289
 (1997) 41 NSWLR 608
  WASC 140 (S) per Newnes J at  – 
 (1991) 2 VR 568 per Gobbo J at 571
  VSCA 289 at  
  VSCA 134 
 (1975) 13 SASR 4
 (Unreported, SCV, Eames J, 24 April 1995)
  WASC 140 (S) at  – 
 (Unreported, SCV CA, 15 December 1994, BC 9408430)