FEDERAL COURT OF AUSTRALIA

Brosnan v Katke [2016] FCAFC 156

ORDERS

THE COURT ORDERS THAT:

1.    The appeal be dismissed.

2.    Costs be reserved.

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

REASONS FOR JUDGMENT

DOWSETT J:

1    I agree with the judgment of Gleeson J.

Associate:    

Dated:    15 November 2016

REASONS FOR JUDGMENT

GLEESON J:

2    This is an appeal from a decision to order the appellants to pay costs assessed on an indemnity basis from the date of their rejection of a Calderbank offer: Brosnan v Katke [2016] FCA 717.

3    There were numerous matters which were common ground. The background to the Calderbank offer was common ground. It was recited in the primary judge’s judgment and there is no dispute about that. The parties also are not in dispute about the appropriate legal principles for the award of indemnity costs in this scenario.

4    The appeal is from a discretionary decision. Accordingly, it is necessary for the appellants to identify an error of principle in the decisions of the primary judge: cf House v R [1936] HCA 40; (1936) 55 CLR 499 at 506. The appellants contended that the primary judge had made an error of principle because, they argued, his Honour determined the question whether the appellants had acted unreasonably in rejecting the Calderbank offer by reference to the outcome of the trial. This issue essentially concerns the meaning of a single paragraph ([26]) of the primary judge’s reasons in which the appellants say that the error was made. The appellants contended that it was necessary to consider the circumstances at the time that the offer was rejected and that the primary judge failed to do so.

5    Although the appellants had a number of grounds and sub-grounds of appeal, their counsel conceded that if [26] had been worded in such a way that the primary judge said that he “considered that at the time the offer was made the prospects of success were so low that it was unreasonable to refuse the offer” then there could be no error of principle. This was a necessary and proper concession. However, as I explain below, I consider that this was indeed the effect of the primary judge’s reasons at [26]. For this reason the appeal must be dismissed.

6    As I have explained, the relevant legal principles were not in dispute. Costs will usually be assessed on a party/party basis in the absence of an unusual feature warranting a different approach. In this case, the unusual feature relied upon by the respondents was the rejection of the Calderbank offer. Rejection of a Calderbank offer does not per se warrant an order for indemnity costs: it is necessary to consider whether the offeree’s rejection of the offer was unreasonable in the circumstances in which the rejection occurred: Black v Lipovic [1998] FCA 699; (1998) 217 ALR 386 at [217]-[218]; Szencorp Pty Ltd v Clean Energy Council Limited (No 2) [2009] FCA 196 at [7]; Carey v Freehills [2013] FCA 1258 at [16]; Veda Advantage Limited v Malouf Group Enterprises Pty Limited (No 2) [2016] FCA 470; 118 IPR 156 at [31].

7    The appellants acknowledged that the primary judge had correctly identified the issue for resolution in an earlier judgment: Brosnan v Katke (No 2) [2015] FCA 386. In that judgment, his Honour said, at [4]:

… The applicants oppose any order for indemnity costs against them arising out of a failure to accept the respondents Calderbank offer on the footing that having regard to all of the circumstances at the time the offer was made and rejected, the applicants did not act unreasonably in rejecting the offer.

8    His Honour also correctly identified the issue for resolution in the judgment under appeal, at [10] as follows:

The applicants oppose any order for indemnity costs against them arising out of a failure to accept the Calderbank offer. They say that having regard to all of the circumstances at the time the offer was made and rejected, the applicants did not act unreasonably in rejecting the offer.

9    After deciding that the offer was a genuine Calderbank offer, at [26], the primary judge continued:

The applicants say that the election to reject the offer was not unreasonable because the field of issues in controversy were such that it was reasonable to reject the offer and press the claims before the Court notwithstanding that the applicants were unable to make those claims good.

10    The expression “field of issues in controversy” was not used by the appellants in their submissions to the primary judge and, on the appeal, they submitted that the primary judge had mischaracterised their argument.

11    Relevantly, the appellants noted their submission that, as at December 2013, the appellants did not know, nor ought they to have known, that their case was hopeless.

12    I do not accept that the primary judge was attempting to summarise only this submission at [26] of his Honour’s reasons.

13    The relevant submissions were that the proceeding was “still in its preliminary stages” as at December 2013; the appellants held a “genuine belief” as to the facts upon which their claims were based; documents were available to the appellant which, in their view, supported their claims; the nature of the respondents defence and other matters did “not necessarily mean that any claim … must fail; and there were inaccuracies in the contentions made by the respondents in the Calderbank offer concerning the issues in dispute. In summary, the submissions contended that the circumstances provided the appellants with a “reasonable basis for declining to accept the view that their claim would necessarily fail”.

14    In my view, the primary judge fairly characterised the appellants’ submissions, which were, in essence, that there were issues which the appellants wanted to agitate and which it was reasonable for them to seek to agitate as at December 2013.

15    However, the essence of the respondents’ submissions was that the appellants should have known that their claim was confronted with grave difficulties at every element – including the threshold elements – and was therefore likely to fail. The reference to the “field of issues in controversy” must also be understood in light of the primary point made in the respondents’ submissions which was that the Calderbank offer identified many matters together with detailed explanation as to why they would not be overcome. As senior counsel for the appellants properly conceded, the appellants needed to succeed on many matters in order to succeed at trial. These included establishing representations forming a basis to set aside the 2005 Agreement as well as representations forming a basis to set aside the Settlement Deed which followed the agreement. The first three of the four essential matters identified in submissions were:

(1)    The threshold issue of overcoming the Settlement Deed having regard to, among other things, the various warranties and representations contained within it.

(2)    The question of whether the Business Plan representations and Alticor representations were even made, let alone relied upon.

(3)    The question of whether the alleged representations proceeding the 2005 Agreement were even made, let alone relied upon.

16    At [26], the primary judge continued:

The difficulty I have with that approach is that the applicants were entirely unsuccessful in their various claims giving rise to the causes of action they relied upon in bringing the proceeding. The proceeding was dismissed and the appeal from that decision was also dismissed. The factual and legal enquiry conducted at trial demonstrated that the claims were not able to be made good.

17    Having previously correctly identified the relevant issue as the reasonableness of the appellants’ conduct at the time of rejecting the Calderbank offer, and having addressed himself to the appellants’ position at that time in the first sentence of [26], I do not accept that the primary judge then considered the reasonableness of the conduct on a hindsight basis.

18    I accept that the fact that the appellants ultimately failed to make out their case does not of itself mean that they acted unreasonably in rejecting the offer. However, I disagree that the primary judge reasoned in that manner.

19    In my view, the correct reading of the last three sentences of [26] is that the appellants must be taken to have known, when they rejected the Calderbank offer, the basis for their claims which they made, which claims failed entirely at trial and on appeal. The submissions in favour of indemnity costs by the respondents before the primary judge had focussed very heavily on the elements of the claim which could not be overcome. The conclusion of the primary judge that the claims were not able to be made good, in light of those submissions, was essentially a conclusion that the claim was hopeless. As Mr Sofronoff QC put it, the appellants had a case that they could not prove and they should have realised that in December 2013.

20    Once it accepted that the primary judge did not make the asserted error of principle, the appeal must fail.

21    In support of a contention that the appellants did not know, and should not have realised, that their case was hopeless (as contended by the respondents), the appellants referred to injunctive relief granted by the primary judge at the conclusion of the trial. His Honour’s reasons for granting that relief are in Brosnan v Katke [2014] FCA 974. I do not accept that the grant of this relief assists the appellant’s case. The primary judge made it pellucidly clear in his reasons that he sought to avoid addressing the strengths and weakness of the parties’ cases, having reserved his judgment, in order to avoid prejudice to “the proper discharge of the judicial deliberative function in a litigated controversy before the Court, which is presently reserved for judgment” (at [133]).

Associate:    

Dated:    15 November 2016

REASONS FOR JUDGMENT

EDELMAN J:

22    I agree with the judgment of Gleeson J.

Associate:

Dated:    15 November 2016

SCHEDULE OF PARTIES