Ginnivan, Eliza --- "Public interest litigation: mitigating adverse costs order risk" [2016] PrecedentAULA 62; (2016) 136 Precedent 22

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PUBLIC INTEREST LITIGATION: MITIGATING ADVERSE COSTS ORDER RISK

By Eliza Ginnivan

The term ‘public interest litigation’ has largely evaded judicial elucidation or legislative definition.

PUBLIC INTEREST LITIGATION AS A PUBLIC GOOD

Whether a case has been brought ‘in the public interest’ depends on the particular circumstances of the matter and largely on your point of view. A decision overturning approvals for a $16.5 billion coal mine is both a climate change victory for environmental groups and an egregious example of ‘vigilante litigation’ for the federal attorney-general.^[1]

For the purposes of this article, public interest litigation involves proceedings where the benefits of a successful outcome extend beyond the parties and have positive consequences for a broader section of society. As a part of the toolkit for individuals or community organisations seeking to uphold their rights or protect their communities, public interest litigation can trigger social or legal change where there is no political will to do so, and obtain redress for injustices experienced by disadvantaged groups.

Public interest litigation serves a critical democratic function by allowing citizens to hold power to account. It allows individuals to challenge illegal government activities, curtail overreach of executive power, and ensure compliance with the rule of law. While the government is often the defendant in these types of claims, governments also benefit from cases that clarify the law, thereby leading to greater certainty in its application and executive decision-making capable of withstanding scrutiny.^[2]

BARRIERS TO ENTRY

Despite the benefits of meritorious public interest litigation to society at large, hostility towards these cases in the area of costs remains across Australian jurisdictions.^[3] The indemnity rule that ‘costs follow the event’, whereby the winning party is entitled to have their costs of the litigation paid by the losing party, applies equally to cases brought in the public interest. While judicial discretion allows departures from this indemnity rule, exceptions to the rule are rare and consequently public interest litigants risk costs orders against them if they lose their case.

In the experience of the Public Interest Advocacy Centre (PIAC), this exposure to adverse costs orders arising from the application of the indemnity rule has been the greatest deterrent to public interest litigation.^[4] In many public interest cases, the litigant is an individual or not-for-profit organisation with limited means. In these circumstances, in the words of Toohey J, ‘[t]he fear, if unsuccessful, of having to pay the costs of the other side (often a government instrumentality or wealthy private corporation), with devastating consequences to the individual or environmental group bringing the action, must inhibit the taking of cases to court. In any event, it will be a factor that looms large in any consideration to initiate litigation.’^[5]

Justifications given for the indemnity rule include compensating the other side for their time and effort spent advancing or defending the claim, deterring frivolous or vexatious litigation, and ensuring settlement at the earliest opportunity. However, these reasons often do not apply in public interest litigation. Unlike in general civil actions, the public interest litigant is not generally motivated by monetary concerns – they commence proceedings to advance a public good rather than to obtain a financial windfall.

Settlement between the parties is an unsatisfactory resolution if the litigant seeks that a law be declared unconstitutional or a ministerial decision overturned. The principle that costs should compensate the winning party assumes an equality of arms, but in many public interest cases paying adverse costs will be catastrophic for one party and a mere inconvenience to the other.

ADVERSE CONSEQUENCES OF THE INDEMNITY RULE

The risk of having to pay an adverse costs order can have a chilling effect on meritorious claims from the first client interview. Many cases are abandoned due to this risk, particularly when there is no monetary compensation involved.^[6] The exposure to adverse costs orders can dwarf other litigation costs. While a dedicated individual can fundraise for expert reports and other disbursements and obtain pro bono legal representation, the legal costs for well-resourced government or corporate defendants can run into the millions.

For brave litigants with little to lose, or organisations with few assets, the risk of an adverse cost order may not be such an insurmountable obstacle. But for the ‘missing middle’ litigant – ordinary Australians who may earn an income or own a house but have limited capacity to manage large and unexpected costs – this cost risk is particularly problematic.^[7] When faced with the possibility of being pursued for costs and being made bankrupt or wound up, litigants may have no choice but to abandon their case, despite having a strong claim that could bring widespread systemic change if successful. If these proceedings cannot get off the ground, the community misses out on the benefits of having them heard.

OPTIONS FOR FACILITATING PUBLIC INTEREST LITIGATION

The exceptional nature of public interest proceedings and the importance of removing costs obstacles has long been recognised. In 1995, the Australian Law Reform Commission concluded that, due to the significant benefit to the community, public interest litigation should not be impeded by costs allocation rules.^[8] Subsequent law reform recommendations in this vein have largely been ignored.^[9] Despite the continued reluctance of governments and the judiciary to encourage departure from the indemnity rule, there have been some significant and positive developments in the law and the broader justice system. Below is an overview of mechanisms and initiatives that currently support public interest litigation in some Australian jurisdictions.

1. Protective costs orders

The most effective mechanism to limit the risk of an adverse cost order are protective cost orders (PCOs). PCOs, or cost-capping orders, set a maximum limit on costs recoverable from the proceeding, either wholly or partially protecting a party from being liable to pay the other side’s full costs. Applications for PCOs are generally made by the public interest litigant at the commencement of proceedings before parties have incurred significant costs and the matter can be discontinued with minimal cost consequences if the application is unsuccessful.

To date, only NSW, Victoria, the Federal Court and Queensland have introduced PCO rules.^[10] The terms and availability of PCOs vary between jurisdictions. In NSW, PCOs can be ordered for the benefit of only one party; however, in the Federal Court PCOs apply to all parties equally, limiting the ability of a public interest litigant to recover their costs.^[11] In Victoria, a court can make any order it considers appropriate to further the ‘overarching purpose’; the just, efficient, timely and cost-effective resolution of the real issues in dispute.^[12]

In the leading case of Corcoran v Virgin Blue Airlines Pty Ltd,^[13] Bennett J identified factors to be considered in the exercise of a court’s discretion to make a PCO. These include the complexity of the factual or legal issues raised, the undesirability of forcing the applicant to abandon the proceedings, and whether there is a public interest element to the case.^[14] Although in most jurisdictions a ‘public interest’ element is not determinative, it is often taken into account and PCOs are often made when the case concerns matters of public interest that affect classes of people beyond the litigant themselves.^[15]

Despite the transformative power of PCOs to facilitate access to justice, the grant of PCOs remains rare and Australia lags behind the UK and Canada in this area. As noted by Michael Kirby, despite ‘glimmerings of hope’ in the adoption of PCOs, ‘the overwhelming practice of costs in Australia remains conventional, unreformed and largely unsympathetic’.^[16] In a submission made in 2012, the National Pro Bono Resource Centre (now the Australian Pro Bono Centre) noted that Australian PCO jurisprudence was in ‘early stages of development’ and a culture of seeking such orders among people dealing in public interest litigation was yet to develop.^[17]

Yet despite this slow start, PCOs have facilitated important disability discrimination claims^[18] and enabled civil enforcement proceedings to protect the environment.^[19] The 2014 Australian Productivity Commission’s recommendation that courts should grant PCOs in accordance with set criteria in public interest matters that would otherwise not proceed to trial should be adopted.^[20]

Other tactics that limit cost exposure up front include initiating public interest litigation in a costs-friendly jurisdiction, or negotiating an agreement about costs at the commencement of proceedings.

2. Public interest costs orders

Public interest costs orders (PICOs), such as dispensing with the need for security for costs or ruling that a losing party does not need to pay costs, allow departure from the indemnity rule in some circumstances. The recognition of the public interest in costs orders was highlighted by the High Court in Oshlack v Richmond River Council, where the Court affirmed that the fact that proceedings are brought in the public interest is a relevant consideration in the question of costs.^[21] Disappointingly, since Oshlack this discretion has been narrowly interpreted and rarely applied, with some notable exceptions.^[22] When considering if a departure from the indemnity rule is warranted in a particular case, courts have assessed the following factors:

● the extent to which the plaintiff and defendant were successful in the action;

● where the plaintiff is an individual, whether he or she had any personal, private or financial gain to make from the litigation;

● where the plaintiff is an association, whether its objects have a public character, and whether the litigation was pursued in accordance with those objects and for the purpose of fulfilling them;

● whether there was widespread public interest in the litigation and its outcome, or the case was otherwise designed to effectuate important public policies;

● whether, if the plaintiff had succeeded, numerous people would have benefited from the action; and

● whether the plaintiff would have had sufficient economic incentive to file suit even had the action involved only narrow issues lacking general importance.^[23]

The NSW Land and Environment Court is one of few jurisdictions with the explicit power to make public interest costs orders. Under rule 4.2 of the Land and Environment Court Rules (NSW), the court can make no order as to costs if it is satisfied that the proceedings have been brought in the public interest. Instances of PICOs being made without affirming legislation are rare, and in order to encourage courts to make such orders, the NSW Law Reform Commission has recommended that the Uniform Civil Procedure Rules (NSW) adopt a rule 4.2 equivalent to extend this power to all NSW courts.^[24] These orders are generally made at the conclusion of proceedings, which only partly lessens the deterrent element of adverse cost order risk.

3. Government initiatives

The federal government provides some limited financial assistance for Commonwealth cases via its Commonwealth Public Interest and Test Case Scheme. To be eligible, the case must be of ‘public importance’ which, in the opinion of the attorney-general, must settle an uncertain area of Commonwealth law or resolve an important question that affects the rights of individuals who are socially or economically disadvantaged.^[25]

However, the protection offered by this scheme is limited. Adverse cost order protection is explicitly excluded.^[26] Already small from inception, the scheme’s funding was cut in 2011, and it now mainly funds disbursements, with legal representation costs paid only in exceptional circumstances.^[27]

Some government agencies operate their own litigation funding schemes. The Australian Tax Office’s (ATO) Test Case Litigation Program funds claimants in taxation, superannuation and debt disputes against the ATO that ‘involve issues where there is uncertainty or contention about how the law operates and must be in the public interest to be litigated’.^[28] The ATO assists the taxpayer to meet some or all of their reasonable litigation and in some circumstances pre-litigation costs.^[29]

4. Legal aid commissions

Some legal aid commissions can provide adverse cost order protection in public interest and strategic litigation before the proceeding begins.^[30] Victoria Legal Aid can indemnify a public interest plaintiff against costs if the legal proceedings are a test case, and the litigation will test or challenge the law or its application.^[31] In NSW, legal aid is available for ‘public interest human rights matters’^[32] and for test cases within its usual legally aided areas.^[33] This legal aid can include an indemnity provided by the commission against adverse cost orders, which caps the amount recoverable against the commission currently at $15,000. However, in both states the strict means test still applies, meaning that many people with meritorious claims will be deemed ineligible for assistance.

5. Commercial litigation funders

Adverse cost order protection is a standard offering in third-party litigation funding packages. Yet as commercial enterprises, litigation funders seek to profit from the cases they fund. In return for funding a case, they usually require repayment of project costs and a success fee from the resolution sum.^[34] There is little commercial incentive to fund public interest litigation, as it rarely involves monetary compensation or damages, and is focused on judicial review and declaratory relief.

However, some Australian litigation funders are supporting worthy public causes, alongside their commercial practice, as a form of pro bono service and as part of their professional obligations. The market leader is IMF Bentham, which has a dedicated investment manager overseeing this discrete practice area.^[35] IMF Bentham has provided adverse costs order protection to clients of PIAC in a series of successful high-profile discrimination cases^[36] and a civil false imprisonment and assault claim brought by an Indigenous minor against NSW Police.^[37] Partnerships between commercial litigation and the public interest sector is an area of great promise as the litigation funding market becomes more established in Australia.

6. Public interest litigation fund

In the absence of meaningful costs reforms, the creation of a public interest litigation fund (PILF) to provide funding support and protection against adverse costs orders has been recommended by law reform commissions and the justice sector alike over the past 20 years. These proposals envisage a PILF established and funded by government. But government support for this initiative is unlikely, given diminishing support for strategic advocacy and litigation across all levels of government, demonstrated through funding cuts to community legal centres and the knee-jerk proposal to tighten standing provisions in environmental legislation to limit public interest litigation.^[38] Indeed, recent law reform reports, while acknowledging the stultifying effect of cost risks, have not recommended that a PILF be established, citing the set-up and maintenance expense in the context of scarce resources across the sector.^[39] The NSW Law Reform Commission’s recommendation that support be provided through existing bodies such as Legal Aid ignores the financial and structural limitations on Legal Aid’s ability to assist the public interest litigants in the ‘missing middle’ – people who have both means and a meritorious case.

Grata Fund was established in 2015 in response to this gap. Grata is an independent, not-for-profit public interest litigation fund that supports significant public interest litigation. Its mission is to allow individuals and community organisations to agitate on important issues without fear of financial ruin. As a charity, it is funded entirely by donations from the community. This structure frees Grata from government resource constraints and allows it to support cases that seek to rectify social injustices. Grata capitalises on the wealth of public interest advocacy already being conducted pro bono by specialist legal centres, corporate firms and barristers and combines smart legal challenges with broad-based community campaigns for maximum impact.

CONCLUSION

The risk of an adverse costs order is a consideration for all litigants. In most public interest litigation, there is no prospect of monetary compensation to mitigate this risk. Many public interest litigation matters proceed only with the reassurance that a costs order will not be enforced, as the negative publicity and reputational consequences of bankrupting an individual or forcing a community organisation to close its doors would far outstrip the amount recovered.^[40] Often this proves true, and in many cases the government declines to pursue costs. But for litigants with a lot to lose, relying on the goodwill of the other side not to enforce their legal rights provides little comfort. Greater structural changes are needed to improve access to justice for brave litigants with meritorious claims that defend rights, protect communities, hold governments accountable and bring about positive change for society.

Eliza Ginnivan is a lawyer and Executive Officer of the Grata Fund. WEBSITE www.gratafund.org.au EMAIL [e-mail].

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^[1] These comments were made in response to the decision in the ‘Adani Carmichael case’, Mackay Conservation Group v Commonwealth of Australia (unreported, 4 July 2015).

^[2] Australian Law Reform Commission (ALRC), Costs Shifting - Who Pays for Litigation? Report 75 (1995), [13.6].

^[3] Michael Kirby, ‘Deconstructing the Law’s Hostility to Costs’, Law Quarterly Review (2011), 2.

^[4] Public Interest Advocacy Centre, A public interest approach to costs: submission to the NSW Law Reform Commission inquiry into security for costs and associated orders’ (19 August 2011) 2.

^[5] Justice Toohey, cited in ALRC, see above note 2, [13.9].

^[6] National Pro Bono Resource Centre, ‘Re: Security for costs – request for further information’ (letter to NSW Law Reform Commission), (4 September 2012), 1.

^[7] Productivity Commission, Inquiry Report: Access to Justice Arrangements (No. 72, 5 September 2014), 20.

^[8] ALRC, see above note 2, [13.1].

^[9] For instance, Victorian Law Reform Commission, Civil Justice Report (2008) [5.6].

^[10] NSW: Uniform Civil Procedure Rules (NSW), r42.4 (applies to all NSW courts); Federal Court: Federal Court Rules 2011, r40.51; Federal Circuit Court Rules 2001, r21.03; Victoria: s65C of the Civil Procedure Act 2010 (Vic) and Queensland: s49 of the Judicial Review Act 1991 (Qld).

^[11] Justice Connect, ‘Protective Costs Orders in Public Interest Litigation: Jurisprudence Review 2013’, 18.

^[12] Civil Procedure Act 2010 (Vic), ss7, 65C.

^[13] [2008] FCA 864 (17 June 2008).

^[14] Ibid, [6].

^[15] See Bare v Small [2013] VSCA 204 [43].

^[16] Michael Kirby, ‘see above note 3, 31.

^[17] National Pro Bono Resource Centre, see above note 5, 2.

^[18] See Haraksin v Murrays Australia Ltd [2010] FCA 1133.

^[19] See Blue Mountains Conservation Society Inc v Delta Electricity [2009] NSWLEC 150; (2009) 170 LGERA 1.

^[20] Productivity Commission, see above note 7, 453.

^[21] [1998] HCA 11; 193 CLR 72.

^[22] For example, Ruddock v Vadarlis (No. 2) (2001) 115 FCR 229.

^[23] Halsbury’s Laws of Australia, Costs in public interest litigation, [325-9450].

^[24] NSW Law Reform Commission, Security for costs and associated costs orders: Report 137 (2012), 85.

^[25] Attorney-General’s Department, Commonwealth Guidelines for Legal Financial Assistance 2012, cl1.3.

^[26] Ibid, cl7.5(e).

^[27] Ibid, cl1.3.

^[28] Australian Taxation Office, ‘Test Case Litigation Program’, https://www.ato.gov.au/Tax-professionals/TP/Test-case-litigation-program (15 July 2016).

^[29] Ibid.

^[30] Victoria Legal Aid, Handbook – 8. Public Interest and Strategic Litigation, http://handbook.vla.vic.gov.au/handbook/8-public-interest-and-strategic-litigation (15 July 2016).

^[31] Victorian Legal Aid, Handbook – 17. Decision to Grant or Refuse Assistance, https://handbook.vla.vic.gov.au/handbook/17-decision-to-grant-or-refuse-assistance/limits-on-costs-payable-by-vla, 15 July 2016.

^[32] Legal Aid NSW, ‘6.14 – Public Interest and Human Rights Matters’, http://www.legalaid.nsw.gov.au/for-lawyers/policyonline/policies/6.-civil-law-matters-when-legal-aid-is-available/6.14.-public-interest-human-rights-matters, (15 July 2016).

^[33] Legal Aid NSW, ‘3.8 Test Cases’ <http://www.legalaid.nsw.gov.au/for-lawyers/policyonline/guidelines/3.-civil-law-matters/3.8.-test-cases> .

^[34] IMF Bentham, ‘The Funding Process’ http://www.imf.com.au/funding#the-funding-process (15 July 2016).

^[35] IMF Bentham, ‘Public Interest’, http://www.imf.com.au/practice-areas/public-interest (15 July 2016).

^[36] PIAC newsletter, ‘Walking the Talk: Bentham IMF and PIAC’, https://www.imf.com.au/docs/default-source/site-documents/walking-the-talk---bentham-imf-and-piac (15 July 2016).

^[37] IMF Bentham, ‘IMF Bentham helps young indigenous man finally get justice’ http://www.imf.com.au/docs/default-source/site-documents/imf-bentham-helps-young-man-indigenous-finally-get-justice (15 July 2016).

^[38] Emily Howie, ‘Safeguarding the Community’s Voice: Anti-Protest Laws and the Chilling of Free Speech’ (2016) 136 Precedent, ppxx-xx.

^[39] Productivity Commission, see above note 7, p484; NSW Law Reform Commission, see above note 24, [4.81].

^[40] National Pro Bono Resource Centre, see above note 6, 2.