Ruling refuses to order indemnity costs up to expiry of compromise offer
Australia’s Federal Court has ordered a financial regulator to pay the second defendant’s costs of $1,340,998.28; the third and fourth defendants’ costs of $1,398,908.18; and the fifth defendant's costs of $1,082,422.01.
In Australian Securities and Investments Commission v TerraCom Limited (No 2), [2025] FCA 959, the Federal Court issued a 4 July 2025 judgment regarding the Australian Securities and Investments Commission (ASIC)’s claim against the second to fifth defendants in these proceedings.
The court tentatively found that ASIC should have known that the claim against these defendants lacked a realistic chance of success beyond some minor aspects. The court said ASIC provided a flawed pleading and insufficient affidavit evidence.
The second to fifth defendants requested indemnity costs either for the entire proceedings, from the date of the mediation on 24 April 2025 for the second and fifth defendants, or from the date of expiry of a compromise offer on 19 June 2025.
The Federal Court of Australia ordered ASIC to pay the second to fifth defendants $3,822,328.47 in total costs upon finding that the circumstances did not meet the demanding test to justify issuing an indemnity costs order.
The court held that the second to fifth defendants were not entitled to indemnity costs for the period up to the expiry of their compromise offer, given that they failed to identify any weaknesses in ASIC’s claim.
The court noted that wrongly accused defendants did not need to alert ASIC to the deficiencies in its claim because ASIC itself was responsible for the strength of its case, and the defendants could refrain from informing ASIC about the flaws in its pleading and evidence for strategic reasons.
However, the court emphasised that it would more likely issue an indemnity costs order if a party could specifically identify and establish the insurmountable obstacles the opposing party encountered in litigation.
The court concluded that the mediation on 24 April 2025 did not trigger a claim for indemnity costs, as there was no evidence of the parties’ communications during the mediation due to the privileged nature of these communications.
The court noted that ASIC, as a regulator, should:
The court added that indemnity cost orders could help hold ASIC accountable, given that wrongly accused parties might have to undergo monetary expenses, wasted time, personal strain, and business or career progression challenges because of the pending litigation.
