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’.[1]
That statement has been followed subsequently and, in my view, very likely represents the law in Australia.[2]
Nevertheless, it is possible to find statements made, apparently without consideration of Woodward J’s observation, in cases[3] 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.[4]
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.
[1] Fountain Selected Meats (Sales) Pty Ltd v International Produce Merchants Pty Ltd [1988] FCA 202; (1988) 81 ALR 397 (Woodward J) at [21] citing his Honour’s earlier decision in Australian Transport Insurance Pty Ltd v Graeme Phillips Road Transport Insurance Pty Ltd [1986] FCA 85; (1986) 71 ALR 287 at 288.
[2] Thors v Weekes (1989) 92 ALR 131 at 152 (Gummow J); Vink v Tuckwell (No. 3) [2008] VSC 316 at [93] and [101] (Robson J); Rosemin Pty Ltd v Gasp Jeans Chadstone Pty Ltd (No. 2) [2010] FCA 406 (Middleton J); Tetijo Holdings Pty Ltd v Keeprite Australia Pty Ltd (Federal Court of Australia, 3 May 1991, unreported, French J: see Colgate-Palmolive Co v Cussons Pty Ltd[1993] FCA 536 at [24]; (1993) 46 FCR 225 at 233-4 (Sheppard J) at [17]). To similar effect is Jarrold v Isajul (No. 2) [2013] VSC 657 (McMillan J).
[3] Chen v Chan [2009] VSCA 233 at [10] (Maxwell P, Redlich JA and Forrest AJA) (‘Special circumstances may also include the making of an allegation of fraud which is not proved’), but what the Court must have meant is revealed by a consideration of the cases cited for that proposition: Australian Transport Insurance Pty Ltd v Graeme Phillips Road Transport Insurance Pty Ltd [1986] FCA 85; (1986) 10 FCR 177 (the very source of Woodward J’s the ‘something more’ proviso); Re Talk Finance and Insurance Services Ltd [1994] 1 Qd R 558 (a case about a knowingly false allegation of fraud) and NIML Ltd v Man Financial Australia Ltd (No. 2) [2004] VSC 510 (an inadequate factual foundation case).
[4] Gino Dal Pont, Law of Costs (2013) at [8.58]; citing Ex parte Cooper (1878) 10 Ch D 313 at 322; Chambers and Campbell v Merchants Bank of Canada (1922) 68 DLR 381 at 385, 392.
Cooper is scant authority for the ‘rule’, consisting of nothing other than an affirmation of a registrar’s disallowance of a successful party’s costs to the extent of an unsuccessful fraud claim which took much time. There is nothing to suggest that the deprivation of those costs was anything other than an issue-by-issue costs order, or an order under the principle that the fraud allegation had an insufficient factual foundation or was irrelevant. Chambers and Campbell is even more scant authority. The first pin-point citation is to a dissenting judgment, and what Beck JA actually said at 385 is:
‘Although it is said to be the general rule that a party, setting up fraud but failing to prove it, though succeeding nonetheless, ought to be deprived of costs, I think the rule ought not be given effect to, unless the fraud alleged is glaring and likely to injure the reputation of the party against whom it is alleged’.
The second pin-point citation is to a judge in the plurality who said nothing about costs of unproven allegations of fraud but made clear that he saw ‘not a scintilla of evidence’ in support of the fraud allegations, suggesting that this was really a no factual foundation case.
In a later Canadian case, Mitran v Guarantee RV Centre Inc, 1999 ABQB 276; [1999] 12 WWR 669 (Alta QB), the plaintiff got costs despite unsuccessful allegations of fraud because their making, though ‘not well thought out’ was not ‘reprehensible, scandalous or outrageous’: SLT v AKT, 2008 ABQB 450 at [27]. In that last case, the Court of Queen’s Bench of Alberta said:
‘While in some cases Courts have deprived a successful party of the costs of the action where fraud has been alleged and not proved, this is not a general rule and I am of the opinion that the character of the allegations and the circumstances in each case must be considered before a conclusion can be reached as to whether a successful party should be deprived of all costs because of unfounded charges of fraud.’
To similar effect is Conway v Zinkhofer, 2007 ABQB 2 at [23] and the cases there cited where, furthermore, Kenny J said that whether the allegations were made intentionally or recklessly is one of the considerations.
