FEDERAL COURT OF AUSTRALIA

Linke v TT Builders Pty Ltd [2015] FCA 111

THE COURT ORDERS THAT:

1.    The First and Second Respondents are to pay the Applicant’s costs of the proceedings, including the costs of the Applicant in the proceedings in the Federal Circuit Court, in accordance with cll 2.2 and 2.3 of the Notice of Offer of Compromise of 5 September 2014 (the Offer) which was accepted by the Applicant on 3 October 2014;

2.    The costs of the Applicant pursuant to cl 2.2 of the Offer, and the costs of the First and Second Respondents pursuant to cl 2.3 of the Offer, are to be taxed;

3.    In the event that the First and Second Respondents do not by 25 March 2015 lodge a bill for taxation of their costs under cl 2.3 of the Offer, the Registrar may tax the Applicant’s costs at the figure determined pursuant to cl 2.2 of the Offer;

4.    The Applicant has leave pursuant to r 26.12(2)(c) to discontinue the proceedings.

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

REASONS FOR JUDGMENT

1    This decision concerns the costs payable in consequence of the applicant’s acceptance of an offer of compromise made by the first and second respondents pursuant to Pt 25 of the Federal Court Rules 2011 (the FCR).

2    The proceedings, which had been transferred to this Court by the Federal Circuit Court, concerned the applicant’s claim for damages in respect of defective building work said to have been carried out by the first and second respondents and his claim for damages for misrepresentation by the third respondent, a land agent involved in the sale of the property by the first respondent to the applicant. The circumstances of the litigation and of their transfer to this Court are set out in more detail in Linke v TT Builders Pty Ltd [2014] FCA 672.

3    The proceedings were listed for trial on 8 October 2014. However, the parties agreed on a compromise of the matter with the effect that the trial was not necessary. It is not necessary to mention the third respondent again as no issue with respect to the applicant’s compromise with that respondent arises for determination.

4    Rule 25.01 of the FCR provides for the making of an offer of compromise and r 25.08 for its acceptance.

25.01    Offer to compromise

(1)    A party (the offeror) may make an offer to compromise by serving a notice, in accordance with Form 45, on another party (the offeree).

(2)    The notice must not be filed in the Court.

…

25.08    Acceptance of offer

(1)    An offer is open to be accepted within the time stated in the notice, which must not be less than 14 days after the offer has been made.

(2)    If no time for acceptance is stated in the notice, an offeree may accept the offer at any time before judgment is given.

(3)    An offeree may accept the offer by serving a notice of acceptance, in accordance with Form 46 on the offeror, at any time while the offer is open.

5    On 5 September 2014, the first and second respondents made the following offer to the applicant:

To the Applicant

The First and Second Respondents offer to compromise this proceeding.

1.    If this offer of compromise is accepted within 14 days of the date of service, the First and Second Respondents are to pay to the Applicant:

1.1    $80,000.00 in respect of quantum, including interest; and

1.2    the Applicant’s costs to the date of service of this offer, to be agreed or taxed.

2.    If this offer is accepted after 14 days of the date of service of this offer, the First and Second Respondents are pay to the Applicant:

2.1    $80,000.00 in respect of quantum, including interest; and

2.2    the Applicant’s costs to the date of service of this offer, to be agreed or taxed; less

2.3    the First and Second Respondents’ costs on a solicitor/client basis incurred from the 15th day after service of this offer.

This offer is made without prejudice.

Date: 5 September 2014

No issue was taken as to the form or content of this Notice of Offer.

6    The applicant accepted the offer on 3 October 2014 by serving an acceptance in terms of Form 46, as required by r 25.08. The Court was informed that a settlement had been achieved (but not its terms) and, on 8 October 2014, vacated the trial. The matter was then adjourned to 12 November 2014 so as to permit the terms of settlement to be carried out. As that had not been achieved by 12 November, the matter was then adjourned again to 6 February 2015.

7    On that day, the Court was provided with copies of the Notice of Offer and of the Notice of Acceptance. Counsel agreed that cl 2 governs the situation, as the offer had been accepted by the applicant more than 14 days after the service of the offer on him on 5 September 2014. This meant that, in addition to the sum of $80,000.00, the applicant was entitled to his costs to 5 September 2014, to be agreed or taxed less the first and second respondents’ costs on a solicitor/client basis incurred from 20 September 2014. Counsel also agreed that the applicant has been paid the sum of $80,000.00 and that the first and second respondents have not yet paid the costs contemplated by the Notice of Offer of Compromise.

8    On 23 December 2014, the applicant’s solicitors wrote to the solicitors for the first and second respondents. The letter stated (relevantly):

Pursuant to the terms of the settlement, your clients are to pay our client’s costs to the date of service of your clients’ offer, ie, to 5 September 2014. We enclose a detailed Bill of Costs in respect of those costs, totalling $179,158.82. Payment can be made to our trust account: … In the event payment is not made within 14 days, we will apply for an order directing taxation.

We note that pursuant to the terms of the settlement, the amount your clients are to pay our client is less your clients’ costs on a solicitor/client basis incurred from the 15th day after service of the offer. We have not heard from you in respect of such costs. If your clients intend to claim such costs so as to bring them into account when paying our client’s costs, we invite them to do so promptly, including details and copies of invoices.

9    The solicitors for the first and second respondents replied on 5 January 2015. They said that they had provided both the letter and the bill of costs to their clients, had sought instructions, and sought further time in which to respond. The solicitors also said that they would supply the claim of the first and respondents for costs under cl 2.2 of the Notice of Offer by way of letter. However, the first and second respondents have taken no further action since 5 January. Their solicitor (Mr Mills) informed the Court on 6 February “I simply don’t have instructions”. Later, Mr Mills said that he had been unable to participate in any negotiation with the applicant’s solicitors because he had not received any instructions at all from the first and second respondents since 5 January.

10    In those circumstances, counsel for the applicant submitted that the Court should make orders pursuant to r 25.10. That rule provides:

25.10    Failure to comply with offer

If, after acceptance of an offer by an offeree, an offeror fails to comply with the offer’s terms, the offeree may apply to the Court for an order:

(a)    giving effect to the accepted offer; or

….

Counsel submitted that the Court should make orders with respect to the taxation of the costs to which each of the applicant and the first and second respondents were entitled pursuant to compromise.

11    The Court’s power to make an order giving effect to the accepted offer under subpara (a) of r 25.10 depends upon it being satisfied that the offeror has failed to comply with the offer’s terms. It could be said that, to date, there has not been any failure by the first and second respondents to comply with the terms of their offer. Their obligation is to pay the applicant’s costs in an amount to be agreed or taxed less a deduction for their own costs after 20 September 2014. As the applicant’s costs have not yet been agreed or taxed, there cannot have been any failure on their part to meet their liability with respect to costs.

12    However, r 25.10 is to be construed in its context. The purpose of Pt 25 and its counterparts in other jurisdictions is to provide a means for the encouragement of steps by parties to litigation to achieve negotiated compromises and to provide some means of protection to those litigants whose opponents do not behave reasonably in that respect. That protection is provided in the form of cost consequences in the event of a failure by a litigant to accept a reasonable offer of compromise.

13    Rule 25.10 recognises that some further orders of the Court may be necessary if, despite the compromise having been reached, effect is not given to its terms by one or other of the parties. It is intended to provide a ready means by which the Court may enforce, or assist in the implementation of, accepted offers so that the parties are not otherwise obliged to rely upon the remedies in contract to which the acceptance of an offer may give rise. It contemplates some degree of supervision by the Court in the implementation of a compromise.

14    I also consider that r 25.10 is to be construed having regard to the Court’s expectation that parties who have achieved a compromise will cooperate with one another so as to ensure that the offeree obtains its benefits in a timely way. In particular, in the absence of any express stipulation in a notice of offer of compromise to the contrary, it is appropriate to understand an offer of compromise pursuant to r 25.01 as conveying by implication the offeror’s acceptance of a duty, akin to the duty of cooperation to which Mason J referred in Secured Income Real Estate (Australia) Ltd v St Martins Investments Pty Ltd (1979) 144 CLR 596 at 607, namely, to do all such things as are necessary on its part to enable the other party to have the benefit of the offer, if accepted. See also Byrne v Australian Airlines Ltd (1995) 185 CLR 410 at 448-9.

15    In the present case, it is reasonable to suppose that the first and second respondents’ offer contained, by implication, a commitment by them to consider expeditiously a claim for costs put forward by the applicant pursuant to cl 2.2 and, in the absence of agreement, to do all such things as are reasonably necessary to permit a timely taxation of those costs by the Court. Likewise, it is reasonable to suppose that the offer contained, by implication, a commitment by the first and second respondents to act expeditiously in quantifying the costs, if any, incurred by them after the date 20 September 2014 to which cl 2.3 of the offer refers. Again, it is reasonable to conclude that the first and second respondents agreed, by implication, that, in the event the parties could not agree on the quantum of those costs, they would do all such things as are reasonably necessary to achieve a timely quantification by taxation of the costs to be offset as against the applicant’s costs under cl 2.2.

16    Mr Mill’s statement that he has not had any response from the first and second respondents to correspondence sent to them on 5 January 2015 and that he is without instructions is indicative of a failure by those respondents to comply with the implied terms just outlined. The first and second respondents have now had more than four months in which to formulate their costs pursuant to cl 2.3 of the offer and more than six weeks in which to respond to the applicant’s formulation of his costs. This is not a case of a party actively addressing an opponent’s claim but seeking more time in which to do so. Mr Mills did not contend that the first and second respondents have had insufficient time in which to consider the applicant’s formulation of costs or in which to prepare a formulation of their own costs. He did not seek an adjournment of the hearing so as to allow steps of this kind to occur.

17    In these circumstances, I consider it appropriate to conclude that the first and second respondents have failed to comply with the implied terms of their offer made on 5 September 2014 such that the discretion of the Court under r 25.10 is enlivened.

18    It is not desirable that the process of quantification of the applicant’s costs be prolonged. He is entitled to the benefit of the compromise in a timely way. It is also in the public interest that all outstanding matters in this protracted litigation should be finalised as soon as practicable.

19    In those circumstances, I consider it appropriate to make orders for the quantification of the parties’ costs and in addition to order that, in the event that the first and second respondents have not, by 25 March 2015, lodged a bill for taxation of their costs, the Registrar may tax the applicant’s costs at the figure determined for those costs without deduction in respect of the costs of the first and second respondents.

20    In addition to making those orders, it is appropriate to accede to the applicant’s request for leave pursuant to r 26.12(2)(c) that he be granted leave to discontinue the proceedings.

21    The orders of the Court are as follows:

(1)    The first and second respondents are to pay the applicant’s costs of the proceedings, including the costs of the applicant in the proceedings in the Federal Circuit Court, in accordance with cll 2.2 and 2.3 of the Notice of Offer of Compromise of 5 September 2014 (the Offer) which was accepted by the applicant on 3 October 2014;

(2)    The costs of the applicant pursuant to cl 2.2 of the Offer, and the costs of the first and second respondents pursuant to cl 2.3 of the Offer, are to be taxed;

(3)    In the event that the first and second respondents do not by 25 March 2015 lodge a bill for taxation of their costs under cl 2.3 of the Offer, the Registrar may tax the applicant’s costs at the figure determined pursuant to cl 2.2 of the Offer;

(4)    The applicant has leave pursuant to r 26.12(2)(c) to discontinue the proceedings.

Associate:

Dated:    23 February 2015