FEDERAL COURT OF AUSTRALIA

Dennis v Chambers Investment Planners Pty Ltd (Administrators Appointed) (No 4) [2014] FCA 784

THE COURT ORDERS THAT:

1.    The application be dismissed

2.    The applicant pay the respondents’ costs of the proceedings including any reserved costs to be taxed if not agreed.

3.    The respondents be granted a certificate for transcript of trial.

Note:    Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

REASONS FOR JUDGMENT

1    On 20 June 2014, the Court dismissed Mr Dennis’ application for damages against the respondents for alleged deficient financial planning advice. See Dennis v Chambers Investment Planners Pty Ltd (Administrators Appointed) (No 3) [2014] FCA 648.

2    The respondents contend that they should have the costs of the proceeding before about late January 2013, just before the trial of this proceeding was due to commence, as well as the costs after that time, but the latter to be paid on an indemnity basis.

3    In that regard, the respondents rely on two offers to resolve the proceedings made by way of letters to Mr Dennis dated 28 February 2012 and 21 December 2012. The second letter not long before trial proposed a payment to Mr Dennis of $150,000 plus costs to be taxed if not agreed. It is this second offer that the respondents particularly rely on in seeking the indemnity costs order.

4    While the offer was made on 21 December 2012, the respondents recognise that having been made towards the end of the calendar year, it is appropriate to allow a period to just before the trial which was due to start in late January 2013, for Mr Dennis finally to have considered his position in relation to the offer made.

5    The respondents say, in short, that this offer to settle was in quite some detail and at a very advanced stage of the proceeding, following two mediations and at a point where the proceeding was ready for trial and in those circumstances, it was unreasonable for Mr Dennis not to accept the offer.

6    The question now is whether indemnity costs should be ordered.

Should indemnity costs be ordered?

7    In seeking indemnity costs, the respondents rely on R 25.14(2) of the Federal Court Rules 2011 (Cth) and contend that there is a strong presumption that indemnity costs should be paid in circumstances such as those now before the Court.

8    Rule 25.14(2) provides that:

(2)     If an offer is made by a respondent and an applicant unreasonably fails to accept the offer and the applicant’s proceeding is dismissed, the respondent is entitled to an order that the applicant pay the respondent’s costs:

(a)     before 11.00 am on the second business day after the offer was served – on a party and party basis; and

(b)     after the time mentioned in paragraph (a) – on an indemnity basis.

9    While R 25.14(2) appears to lay down a prescriptive rule, such that the successful party is entitled to its costs on an indemnity basis where it applies, the Full Court in Kooee Communications Pty Ltd v Primus Telecommunications Pty Ltd (No 2) [2011] FCAFC 141 pointed out that, because R 1.35 provides that the Court may make an order that is inconsistent with the Rules and in that event such order will prevail, there is, in effect, a presumption that R 25.14 will apply if the applicant has unreasonably failed to accept the offer.

10    The point made by the Full Court in Kooee Communications is particularly relevant in the case of R 25.14(1) which provides for costs to be ordered on an indemnity basis in circumstances where an offer has been made and the applicant obtains a judgment that is less favourable than the terms of the offer. Unlike R 25.14(2), sub-rule (1) does not refer to a standard of reasonableness in relation to the failure to accept the offer. It makes sense therefore to speak of R 25.14(1) creating a presumptive entitlement to indemnity costs where the relevant circumstances exist and the failure to accept the offer was unreasonable. Rule 25.14(2), however, has the unreasonable failure to accept requirement explicitly built in.

11    Such an approach to the question of indemnity costs where offers of settlement have been made accords with general authority that applied prior to the introduction of R 25.14. See generally Coshott v Learoyd [1999] FCA 276 at [37]-[46] (Wilcox J); McDonald v Parnell Laboratories (Aust) (No 2) (2007) 164 FCR 591; [2007] FCA 2086 at [23] (Buchanan J); both cases referred to with approval in Kooee Communications. Here Mr Dennis accepts he needs to show it was not unreasonable for him to fail to accept the second offer before trial, in order to avoid the making of an indemnity costs order.

12    The question then is whether Mr Dennis, in the period concluding in late January 2013, just before the trial was due to commence, unreasonably failed to accept the offer to settle made by the respondents to him by letter dated 21 December 2012.

13    Mr Dennis generally submits that it was not unreasonable for him to not respond to the offer on the basis that various claims made as to the alleged deficient financial planning advice he received from the respondents, including not only in respect of particular financial products that he invested in but also in relation to the South Perth unit that he purchased, were all open to be argued as a matter of fact and law.

14    At the time the 21 December 2012 offer was made, Mr Dennis submits he had substantially completed all of his obligations in preparation for trial, and had received the respondents’ evidence but not the respondents’ submissions before trial.

15    Mr Dennis submits the trial was largely determined by the Court’s preference of the evidence of the respondents and their expert witness. He says the weighing of that evidence was no easy task and he submits it was not unreasonable in all of those circumstances for him not to have accepted the offer made.

16    He further submits that in light of the amounts claimed at trial, in the result about $1.3 million, even if only considered in relation to the debts owed on managed investments schemes (MISs), and given his difficult financial circumstances, the offer of $150,000 and taxed costs provided no inducement to settle.

17    The respondents submit, on the other hand, that the offer made was carefully structured so that it attempted to identify the deficiencies in each of the causes of action, facts and manner in which the damages claims had been formulated by Mr Dennis.

18    In that regard, the respondents by their solicitor’s letter of 21 December 2012 challenged the pleading that they were under any obligation to advise “as to the most suitable” investments. That is an issue on which the respondents say they expressly succeeded at trial.

19    They also contended by the letter that the appropriateness of the advice given on each occasion in which advice was given needed to be considered in light of the informed consent of Mr Dennis to enter into particular investments. The respondents say they succeeded on that point at trial.

20    The respondents by the letter also challenged the calculation of the estimated loss from investing in MISs, another issue on which they say they largely succeeded at trial.

21    They also expressly put it to Mr Dennis in the letter that the loss of opportunity claim had no prospects of success and would fail, challenging as well the relevance of the proposed expert evidence of Mr Barber in that regard. The respondents say they also succeeded on that point at trial.

22    The respondents by the letter expressly recognised that Mr Dennis’ strongest case was with respect to the MIS investments entered into after 2004, and put it to Mr Dennis that the maximum loss likely to flow from those investments was likely to be $395,000.

23    In all of those circumstances, they say the offer made on 21 December 2012 to settle for $150,000 plus costs to be taxed, was a reasonable offer and the fact that Mr Dennis, at that point, had invested in taking the case to trial and was ready with his witnesses to commence trial, did not remove the need for him seriously to consider the offer made, which he did not.

24    The question then is whether the offer of $150,000 plus costs as agreed or to be taxed made about six weeks before the trial was due to commence (taking into account the Christmas/New Year period) was an offer that Mr Dennis unreasonably failed to accept.

25    It plainly was not unreasonable for him not to have accepted the offer made immediately after it was made, given that the offer was made just before the Christmas/New Year period when, as the respondents accept, Mr Dennis was unlikely to receive considered advice about the offer from his lawyers. The question is whether by the end of January, just before the trial was due to commence, it was unreasonable for him not to have accepted the offer made.

26    There is no doubt, as the respondents contend, that the offer made explained the basis upon which it was made. The various bases upon which the claim for damages was advanced by Mr Dennis were individually addressed, as set out above. In relation to the plea of an implied term of the contract that the respondents were under an obligation to advise “as to the most suitable” investments, the respondents succeeded at trial. No such term was found to exist.

27    They also succeeded in refuting the broader negligence claim. In that regard, as Mr Dennis submits, the Court largely preferred the evidence of Mr Takla and the expert witness called by the respondents over the expert evidence of the expert called by Mr Dennis, in relation to what a reasonably competent financial planner should have done at material times. That expert evidence critically went to the question of MIS investments, particularly in the period after 2004. The Court rejected a proposition that MISs should not have been recommended where they would comprise more than 10% of the investment portfolio.

28    In my view, while Mr Dennis did not succeed on that part of his claim, it was not, only a few weeks out from the commencement of the trial, unreasonable for him to fail to accept the offer made and press on to trial. While I also accept the submission made on behalf of the respondents that the loss of opportunity claim had serious defects, as did the proposed evidence of Mr Dennis’ expert in relation to the calculation of that claim, the prospects that Mr Dennis considered he had in relation to the negligent advice claim concerning the MIS investments no doubt drove him to pursue the claim and to consider that an offer to settle for $150,000 plus costs was inadequate.

29    In the result, the offer made may be considered to have been a reasonable one. The question, however, is not simply whether the offer made was reasonable, but whether the failure to accept the offer was unreasonable. The fact that a reasonable offer, in the result, was made is one factor to consider. So too, in my view, is the timing of the offer and the relevant matters in dispute in the MIS negligence claim.

30    Accepting that the offer made of $150,000 plus costs may, in all the circumstances, be characterised as a reasonable offer, in my view it was not, in all the circumstances, unreasonable for Mr Dennis not to accept that offer. This is because the offer was made quite close to the commencement of the trial. The MIS debts and the claims for damages made in respect of the MIS investments, based on the negligent advice claim, well exceeded the $150,000 claimed. The matter was finally the subject of disputed facts and expert evidence. While the Court ultimately accepted the expert evidence of the respondents’ expert, to the effect that there was no rule of thumb that only about 10% of an investment portfolio should comprise MIS investments, that was not, in my view, a clear-cut position at the time Mr Dennis was required to consider the offer made.

31    In all of the circumstances, I do not consider that it was unreasonable for Mr Dennis to fail to accept the offer made close to trial.

32    In these circumstances I would not accede to the indemnity costs submissions made on behalf of the respondents.

33    The following costs order should be made in the proceeding:

1.    The applicant pay the respondents’ costs of the proceedings including any reserved costs to be taxed if not agreed.

Associate:

Dated:    29 July 2014