[co-author: Kellie Woods]*
The Supreme Court of Western Australia recently delivered its decision in Citic Ltd v Mineralogy Pty Ltd & Clive Palmer [No 7]  WASC 371. The decision could serve as a stark reminder to litigants about the potential legal costs consequences of engaging in improper or unreasonable conduct in civil litigation.
On 29 October 2021 the Supreme Court of Western Australia delivered judgment in Citic Ltd v Mineralogy Pty Ltd & Clive Palmer [No 7]  WASC 371 (Mineralogy No 7) which might put an end to one chapter of the Citic Ltd, Sino Iron Pty Ltd v Mineralogy Pty Ltd and Clive Palmer litigation which commenced in 2016.
Mineralogy No 7 is a shrewd reminder to litigants about the potential costs consequences of improper and unreasonable behaviour in civil litigation and the Court’s discretionary powers to fully compensate an innocent party for its costs and expenses reasonably and necessarily incurred in defending litigation.
The decision also discusses and applies apportioned or limited costs orders.
In Mineralogy No 7 His Honour Justice Kenneth Martin was asked to determine whether:
- Mineralogy and Mr Palmer’s unreasonable or improper conduct in the litigation warranted an indemnity costs order being made against them– as a “mark of disapproval” of the Defendants’ conduct;
- A special costs order should be made in the Plaintiffs’ favour increasing the maximum amount of legal costs the Plaintiff can recover from Mineralogy, as the unsuccessful party, allowed under the Scale;
- It was appropriate to limit the Plaintiffs’ trial legal costs because the final issues to be determined at trial should have only taken 2 days of trial instead of 4.
An indemnity costs order is an order that the losing party pays all of the successful party’s costs and expenses incurred in the litigation that have been reasonably and necessarily incurred, as opposed to the usual costs order requiring the losing party to pay the successful party’s costs that are reasonably and necessarily incurred to the maximum allowed under the Scale, which is normally between 60% and 70% of the actual legal costs a successful party incurs and pays to its lawyers in litigation.
Reasons for Decision
In his decision (Reasons), His Honour summarised 17 principles the Court will consider when making a costs order in civil proceedings which include that:
- costs awards are at the unfettered discretion of the Court, which must be exercised judicially to achieve a fair and just result;  to ;
- the Court can make an order for indemnity costs where a party has acted improperly or unreasonably as a mark of disapproval of that conduct; , ; and
- the usual rule is that a successful party in litigation should recover their costs allowed under the Scale but the Court can evaluate the parties success and failures in the litigation and where appropriate deal with costs orders on an issue by issue basis but should exercise particular caution before departing from the usual rule; , ,  and .
His Honour stated in his Reasons, which were critical of Mineralogy and Mr Palmer’s conduct, that:
- the Plaintiffs were required to address: “the undeniably burdensome amount of work necessarily done over time in relation to responding to the defendants’ many pleaded resistance arguments”; ;
- the Scale limits: “are likely to be significantly inadequate to produce and deliver in these circumstances a just allowance to the plaintiffs for their costs”; ;
- that the “overall assessment” of the Defendants’ Defence and Counterclaim and “the position as it has been adopted by Mineralogy and Mr Palmer” was unreasonable; ;
- it was appropriate for the Court to “make its disapproval” of the Defendants’ conduct “by an order for indemnity costs” in the Plaintiffs’ favour up to 10 November 2020;  and [53(a)]; and
- an indemnity costs order in the circumstances was just and appropriate and provided greater relief to the Plaintiff; [53(e) and (f)].
In relation to making a special costs order apportioning legal costs and adjusting the maximum amount allowed under the Scale for the Plaintiffs’ legal costs of trial, His Honour:
- stated that an adjustment for the trial costs was required because the parties required the Court to resolve: “transaction document drafting disputation” some of which were trivial and which: “commercially sensible persons in the usual course would never think appropriate to burden a court with”; [53(h)];
- was critical of the Plaintiffs’ conduct regarding an: “ad hoc implied term” which the Court rejected and which caused a significant component of the drafting disagreements between the parties that were heard at trial; ;
- stated that because of the significant issues about the “drafting disputation” and the trial should not have exceeded 2 days, the Plaintiffs were entitled to receive their costs of trial from Mineralogy and Mr Palmer for 2 days, not 4; ; and
- lifted the Scale limits allowed for trial from 10 November 2021 under section 280 of the Legal Profession Act 2008 because it was an: “understatement to say that the unusual complexity and difficulty of this litigation is significantly above and beyond” what might be considered a: “more run of the mill civil litigation” dispute; .
This case serves as a pivotal example of when the Court will exercise its discretion in making an indemnity costs order against a party to litigation who has acted improperly and unreasonably as a mark of disapproval of that conduct.
It is critical that parties act appropriately both before and during litigation and consider the legal costs consequences that might follow from improper or unreasonable conduct.
For litigants exposed to such conduct, a thoughtfully considered indemnity or special costs order can often lead to as substantial reduction in out-of-pocket expenses reducing the commercial burden of civil litigation.