The irresponsible advancement in litigation of allegations of fraud undoubtedly triggers the jurisdiction to award indemnity costs and even to make personal costs orders: White Industries (Qld) Pty Ltd v Flower & Hart (1998) 156 ALR 169, approved on appeal at (1999) 87 FCR 134, discussed in this post.
But what about responsibly advanced, but ultimately unsuccessful, allegations of fraud? In a leading case, Woodward J said:
‘It is sometimes said that [special] costs can be awarded where charges of fraud have been made and not sustained; but in all the cases I have considered, there has been some further factor which has influenced the exercise of the court’s discretion: for example, the allegations of fraud have been made knowing them to be false, or they have been irrelevant to the issues between the parties’.
That statement has been followed subsequently and, in my view, very likely represents the law in Australia.
Nevertheless, it is possible to find statements made, apparently without consideration of Woodward J’s observation, in cases and commentaries which appear to say that the mere failure of a fraud allegation justifies departure from the usual rules of thumb in to costs. Professor Gino Dal Pont’s outstanding Law of Costs speaks of ‘the “rule” that a party alleging but failing to prove fraud is deprived of costs even if successful in the action generally’ without citing Australian authority, before suggesting that it is too broadly formulated.
Conduct rules often require lawyers in Australia to make allegations of criminality, fraud and other serious misconduct only after having warned their clients of the consequences of doing so and obtained specific instructions to go ahead and make the allegations (e.g. Victorian Bar Conduct Rules, r. 34). Quite what such an advice ought to contain is, I suspect, not immediately apparent to most lawyers. Conceivably, uncertainty about the content of this obligation, and fear about costs consequences even in the absence of misconduct on the part of those responsibly advancing fraud allegations, are matters which contribute to allegations of fraud being made so rarely. It would be helpful if the law in relation to the consequences of failing in a responsibly advanced serious allegation were clarified and more widely disseminated throughout the profession. Continue reading “The costs consequences of failing to prove a responsibly advanced allegation of fraud”