Introduction

Protective costs orders are orders made by a court at the beginning of a proceeding, capping the parties' potential liability to pay their opponent's costs in the event they are unsuccessful. They are a recent and rare introduction to the legal landscape in Australia, and appear to be limited to cases where the court must determine an important public interest issue, with an impact extending well beyond the dispute between the parties in question.

It is important for regulators and other public authorities to know what protective costs orders are, and in what cases they are likely to be granted. This articles focuses particularly on recent developments in the Victorian Court of Appeal.

Costs and public law litigation more generally

Regulators, by their very nature, make statutory decisions and administer legislation that affects the rights and interests of members of the public. Particularly since the reforms of the 1970s, regulators and other administrative decision-makers have become familiar with the processes by which individuals or organisations aggrieved by their decisions may apply for review in a court or a tribunal.

When a party commences a court proceeding, in most cases the unsuccessful party will be ordered to pay a proportion of the successful party's legal costs. However, there is no entitlement to such an order – rather, the court will exercise a broad statutory discretion as to whether compensation for costs is appropriate in the circumstances. In some proceedings regarding important issues of public law, courts have refrained from ordering costs against an unsuccessful party, on the basis that both parties were acting reasonably and there was a public interest in having the legal uncertainty resolved by a court.

In most cases, the risk of an Adverse Costs Order is an important discipline that encourages litigants not to commence or defend proceedings frivolously, to settle their disputes where possible, and compensates a successful party for the costs of vindicating its rights. However, in some cases the risk of an adverse costs order will also deter members of the public from seeking to have their grievances determined by a court, so that a legal question of public significance may never be resolved at all.

What is a protective costs order?

In rare and exceptional cases, Australian courts have granted a protective costs order, pursuant to specific statutory powers, or potentially a broader statutory discretion as to costs. The effect will be to prospectively cap one or all parties' potential exposure to liability for their opponent's costs. A key question that will determine whether a protective costs order may be granted is whether the applicant would reasonably abandon the proceeding in the absence of such an order, and whether there is a greater public interest in the proceeding being heard and determined.

The making of protective costs orders follows earlier cases decided in the UK and Canada. The first protective costs order was made in Australia by the Federal Court in Corcoran v Virgin Blue Airlines Pty Ltd.¹ That case was unusual in that it involved an issue under the Disability Discrimination Act 1992 (Cth), arising between a commercial airline and two passengers, rather than an issue between members of the public and a government authority. The protective costs order in Corcoran was given relatively limited effect, capping the two applicants' potential exposure to a costs order at $15,000 and $30,000 respectively, or $45,000 in total.

In Victoria, a subsequent series of cases in the Court of Appeal have provided regulators and public authorities with greater clarity on the circumstances in which protective costs orders will be made. This article examines three case studies decided since 2013 as a means of drawing some general conclusions.

Case studies from the Victorian Court of Appeal

Aitken & Others v State of Victoria [2013] VSCA 28

The parents of children in Victorian state schools had applied to VCAT, alleging that the provision of special religious instruction amounted to discrimination against their children under the Equal Opportunity Act 2010 (Vic).

At trial, VCAT held that no discrimination resulted in these circumstances, concluding that the students who did not attend special religious instruction were not treated any less favourably, and that the religious belief of the children was not a substantial reason for the separation of those not participating. As is the case in most VCAT proceedings, there was no order as to costs.

The applicants applied to the Court of Appeal, seeking leave to appeal and also seeking a protective costs order, capping their potential liability for appeal costs in the amount of $10,000.

The Court of Appeal refused leave to appeal, and refrained from deciding whether it had power to make a protective costs order. However, it indicated that a protective costs order would not have been appropriate in the circumstances in any event – although discrimination was an issue of some public importance, the underlying grievance had already been resolved by a change in State Government policy.

Bare v Small & Others [2013] VSCA 204

Mr Bare was a young man who had migrated to Australia from Ethiopia with his family. Mr Bare alleged that, when he was 17, he had been assaulted and subjected to racial abuse by Victoria Police. Mr Bare complained to the Office of Police Integrity (OPI) about the assault and requested that an investigation to be undertaken by the Director of Police Integrity. The Director's delegate refused the request, and referred the matter to the Ethical Standards Division of Victoria Police.

Mr Bare argued that the decision was inhumane with, or failed to give proper consideration to, his right not to be treated or punished in a cruel, inhuman or degrading way, under section 10(b) of the Victorian Charter of Human Rights and Responsibilities (Charter).

Section 38 of the Charter provides that it is unlawful for a public authority to make a decision that is incompatible with, or fails to give proper consideration to, a human right protected by the Charter.

In contrast, section 109 of the Police Integrity Act 2008 (Vic) provided, in effect, that the delegate's decisions were not subject to judicial review, unless the decision was made in bad faith. Clauses of this type are known as 'privative clauses', and are used in a variety of regulatory schemes to restrict the grounds on which a decision can be challenged. However, there are limitations on their effectiveness. In particular, some defects in a decision will be regarded as 'jurisdictional errors' – in practical terms, an error so fundamental that the decision cannot be regarded as properly within the decision-maker's power. In those cases, a privative clause will not prevent the decision from being set aside by a court.

The Director's delegate argued that, even if a decision was 'unlawful' pursuant to section 38 of the Charter, the privative clause in the Police Integrity Act meant it could not be set aside by a court on that basis. Mr Bare argued that a decision made contrary to section 38 of the Charter involved jurisdictional error, and could be challenged despite any privative clause. Accordingly, Mr Bare's proceeding raised a fundamental question regarding the reach and effect of the Charter – can any decision that breaches section 38 be set aside by a court, or can the effect of section 38 be excluded by a privative clause?

At trial, Justice Williams of the Supreme Court held that section 109 of the Police Integrity Act prevented a party in Mr Bare's position from successfully challenging the delegate's decision – in effect, the privative clause trumped section 38 of the Charter. Mr Bare subsequently applied to the Court of Appeal, and applied for a protective costs order, pursuant to section 65C of the Civil Procedure Act 2010 (Vic), capping his exposure to costs in relation to the appeal.

Considering the relevant factors, the Court noted that Mr Bare:

• was 21 years of age
• was represented on a pro bono basis, and was supported by a public interest law clinic willing to provide $5,000 towards payment of a costs order if Mr Bare was unsuccessful
• was unemployed with limited financial means, and would likely become bankrupt if forced to pay an adverse costs order
• would discontinue his appeal if he could not obtain protection in advance from an adverse costs order.

Further, the Court noted that the Charter imposed new obligations on all public authorities in Victoria, and that there was a 'clear public interest' in determining the consequences of a breach of section 38.

Accordingly, the Court granted a protective costs order in relation to Mr Bare's appeal, limiting the maximum costs that could be awarded against any party to the amount of $5,000.

Khalid v Secretary, Department of Transport, Planning and Local Infrastructure [2014] VSCA 115

Muhammad Khalid was a New Zealand citizen studying in Australia, and commuting to class. Mr Khalid held a 'special category visa' applying only to New Zealand citizens, which entitled him to remain in Australia so long as he continued to hold New Zealand citizenship.

Mr Khalid applied to Public Transport Victoria to obtain a student concession card, and his application was refused. Pursuant to relevant provisions of the Transport (Compliance and Miscellaneous) Act 1983 (Vic) the Secretary of the Department of Transport, Planning and Local Infrastructure had declared that overseas students were not eligible for student concession. However, the Act also provided that a person who was a permanent resident of Australia would not be considered an overseas student.

Mr Khalid brought a proceeding in VCAT pursuant to section 44 of the Equal Opportunity Act 2010 (Vic), alleging that the decision discriminated against people who were from New Zealand by not recognising his special category visa as a form of permanent residency.

Mr Khalid was unsuccessful at trial. VCAT found that the special category visa did not make Mr Khalid a permanent resident for the purposes of the Transport (Compliance and Miscellaneous) Act 1983. He appealed the decision, and applied for a protective costs order in respect of the appeal.

The Court of Appeal rejected Mr Khalid's application for a protective costs order, for the following reasons:

• Although there was a question of law involved, it had already been addressed in detail by the President of VCAT, who was also a judge of the Supreme Court
• Mr Khalid was seeking damages against the Secretary, rather than simply an order that the Secretary's decision be overturned – this suggested strongly against the grant of a protective costs order
• Mr Khalid was no longer personally affected by the decision under appeal – he had become entitled to concessional travel in any event by reason of holding a health care card
• There was no evidence of the number of other people who would be affected by the determination
• The case did not raise public interest concerns of the same magnitude as were raised in Bare v Small – i.e. concessional public transport was of less concern than the fundamental questions raised in Bare v Small concerning the Charter of Human Rights and Responsibilities.

Summary - When will a protective costs order be granted?

It appears from the three decisions discussed above that a protective costs order will only be granted in exceptional cases where there is a pressing question of public interest to be determined, and it is in the public interest that the risk of an adverse costs order should not cause a party to abandon a reasonably arguable case. The question must be a pressing one, which has not otherwise been resolved, and the applicant must ordinarily have a real personal interest at stake.
It should also be noted that protective costs orders to date have been granted pursuant to specific legislation, rather than generally at the discretion of the Court – this power may not exist in all courts or tribunals.
The factors which will be taken into account do not appear to be limited, but will include:

• fundamentally, whether there is a public interest issue that needs to be determined, and the magnitude of that issue
• the applicant's financial ability to pay an adverse costs order, and whether he or she would reasonably abandon the proceeding if a protective costs order were not made
• whether a significant number of members of the public would be affected by the issue in dispute, and the significance of that issue
• whether the applicant is seeking damages – based on the decisions to date, an applicant seeking damages is unlikely to obtain a protective costs order
• the extent to which the applicant's personal rights and interests are at stake
• whether the application for a protective costs order was made promptly and within a reasonable time
• whether the applicant has a reasonably arguable case
• the extent to which the issue has already been satisfactorily determined by a lower court or tribunal
• the costs likely to be incurred by the parties
• the conduct of the parties in the litigation prior to the application for a protective costs order.

1 [2008] FCA 864