CATCHWORDS
COSTS - Federal Court Rules, Order 23 rule 11 - offer of compromise - offer inclusive of costs of proceeding - acceptance before trial - delay in acceptance - whether offeror entitled to tax costs for work performed after offer.
Federal Court Rules O 23 rr 2, 3, 4 and 11
Henderson v Simon Engineering (Australia) Pty Ltd (1988) VR 867, discussed
Whitehead v Maas (1991) 56 SASR 362
Maitland Hospital v Fisher [No2] (1992) 27 NSWLR 721
Associated Confectionery (Aust) Ltd v Mineral and Chemical Traders Pty Ltd (1991) 25 NSWLR 349, discussed
Henderson v Amadio Pty Ltd (Heerey J, 22 March 1996, unreported, Judgment 184 of 1996)
Wills v Bigmac Pty Ltd (Heerey J, 9 December 1994, unreported, Judgment 949 of 1994), applied
No SG 3201 of 1995
IN THE MATTER OF AUSTRALIAN COMPANY NUMBER 007 764 249
(IN LIQUIDATION)
ANTHONY STEVENS SMITH v 600 MACHINERY AUSTRALIA PTY LTD
(ACN 000 161 106)
Mansfield J
Adelaide
19 November 1996
IN THE FEDERAL COURT OF AUSTRALIA)
)
SOUTH AUSTRALIA DISTRICT REGISTRY) No SG 3201 of 1995
)
GENERAL DIVISION )
IN THE MATTER OF
AUSTRALIAN COMPANY NUMBER
007 764 249
(IN LIQUIDATION)
BETWEEN:
ANTHONY STEVENS SMITH
Applicant
- and -
600 MACHINERY AUSTRALIA
PTY LTD (ACN 000 161 106)
Respondent
REASONS FOR DECISION
CORAM: Mansfield J
PLACE: Adelaide
DATE: 19 November 1996
The point at issue is a short but difficult one arising under O23 of the Federal Court Rules ("the Rules").
The applicant, as liquidator of Australian Company Number 007 764 249 ("the Company"), sought to recover from the respondent $30,617.32 paid to it as a creditor of the Company within the six month period prior to its liquidation pursuant to s588FF of the Corporations Law ("the Law"), together with interest and costs. The proceedings commenced on 31 October 1995. They were defended. Certain affidavits proposed to be relied on at trial had been filed and served. On 8 July 1996 directions were given extending to 22 July 1996 the time for the exchange of any further affidavits for use at trial; certain further affidavits were then filed and served. The matter was then listed for hearing, ultimately on 10 October 1996. The parties reported that the matter had resolved under O23 by the acceptance by the respondent of an offer made by the applicant, but subject to an issue as to costs.
The offer was made on 4 June 1996 in the following terms:
"The Applicant will accept the sum of $30,617.32 together with interest of $3,574.01 (from 5 April 1995 to 4 June 1996 at the rate of 10% per annum) plus costs of $3,000.00 in satisfaction of its claim against the respondent.
THIS OFFER is made pursuant to Order 23 of the Federal Court Rules."
The acceptance was given on 8 October 1996 in the following terms:
"The Respondent accepts the Offer filed by the Applicant dated 4 June 1996.
THIS NOTICE OF ACCEPTANCE is made pursuant to Order 23 Rule 5 of the Federal Court Rules."
The acceptance was of course only two days prior to the trial, and inevitably the applicant would have incurred further costs between 4 June 1996 and 8 October 1996.
The practical dispute between the parties in the light of the above events is whether the applicant can tax his costs under O23 r11 for work done during that period as well as recover the $3000 costs specified in the offer, or whether he can recover only the specified sum of $3000 for costs although he has incurred further costs since the date of the offer in preparing for trial. He accepts that the figure of $3000 would be the limit of recoverable taxed costs for the work done up to the date of the offer. There has been no evidence that the applicant's costs to 4 June 1996 would, on taxation at that time, have been greater (or less) than $3000 but there is no submission that that figure was not a genuine estimate of costs to that date.
The submissions focussed on rr2(1), 3, 4 and 11(1) and (2) of O23. They provide:
"2(1) [Party may make an offer to compromise by notice] In any proceeding, a party may make to another party an offer to compromise any claim in the proceeding on the terms set out in the notice of offer.
. . . . . .
3(1) [Requirement of service] An offer of compromise is made to a party by serving a notice of the offer on the party.
3(2) [Form of notice] A notice of offer must:
(a) be prepared in accordance with Order 41; and
(b) bear a statement to the effect that the offer is made under this Order; and
(c) be signed by the party making the offer or by the solicitor appearing for that party.
3(3) [Limit on filing] Until an offer has been accepted, notice of the offer must not be filed.
4(1) [Where offer is inclusive of costs] If:
(a) a sum of money is offered; and
(b) that sum is inclusive of the costs of the proceeding;
the notice of offer may specify the amount that is in respect of costs.
4(2) [Where offer is inclusive of interest] If:
(a) a sum of money is offered; and
(b) that sum is inclusive of interest;
the notice of offer must specify the amount that is in respect of interest and how it is calculated.
4(3) [Time to pay] An offer to pay a sum of money is, unless a notice of offer otherwise provides, taken to be an offer to pay that sum within 28 days after acceptance of the offer.
. . . . . .
11(1) [Taxing of costs where acceptance] On the acceptance of an offer of compromise in accordance with subrule 5(4), the applicant may, unless the Court otherwise orders, or the offer is inclusive of the costs of the proceeding:
(a) tax costs on a party and party basis in respect of the claim against the respondent incurred up to and including the day the offer was accepted; and
(b) if the costs are not paid within 4 days after the signing of a certificate of taxation - enter judgment against that respondent for the taxed costs.
11(2) [Non-effectiveness of negative term] If a notice of offer contains a term that purports to negative or limit the operation of subrule (1), that term is of no effect for any purpose of this Order.
. . . . . .".
Order 23 enables either an applicant or a respondent to make an offer. An offer, once made, may not be withdrawn within 14 days without leave of the Court, unless a further offer more favourable to the offer is made: r5(5) and, if not withdrawn, may be accepted either within any time specified in the offer being not less than 14 days after it was made or, if no time is specified, up to the time the decision is announced or reasons for the decision are begun: rr5(3), (4) and (7).
Rule 11 (3)-(6) provides consequences for the non-acceptance of an offer where the judgment is less favourable to the offeree than the offer. If an applicant is the offeror, the applicant's costs from the date of the offer are recoverable on an indemnity basis. If a respondent is the offeror, the applicant recovers costs only until the day succeeding the offer and the respondent recovers costs thereafter. Those consequences are subject to any order of the Court to the contrary.
Those matters are noteworthy as the proper application of the Rules directly relevant to the present issue must be in the context of O23 generally. The purpose of the Rule, as with its ancestors both in the Federal Court Rules and in other jurisdictions, is to provide a structure which encourages the parties throughout a proceeding to present and consider a fair and reasonable compromise so as to bring those proceedings to a satisfactory end, and to provide a party with a means of protecting that party's position in relation to costs in the face of any perception that the other party's position is unrealistic. The incentive offered to encourage that process is the costs consequences provided for in r11. Order 23 reflects, as do similar rules in other jurisdictions (see O26, General Rules of Procedure in Civil Proceedings (Vic); Pt 22, Supreme Court Rules (New South Wales); R40 and R41, Supreme Court Rules (South Australia); O26, Rules of the Supreme Court (Qld); O26, Rules of the Supreme Court of the Northern Territory of Australia; O24A, Rules of the Supreme Court of Western Australia; O24A Rules of the Supreme Court (Tas)), the evolutionary process of providing flexibility and removing formality from the processes designed to effect that purpose. Thus, as Murphy J said in Henderson v Simon Engineering (Australia) Pty Ltd (1988) VR 867 at 872, in approaching the construction of such Rules the Court:
"... will approach the matter attempting to give effect to the spirit of the rule, rather than by slavishly applying its words as a code, within the precise terms of which an applicant must bring himself ...".
See also the remarks of King CJ in Whitehead v Maas (1991) 56 SASR 362 and of the Court (Kirby P, Mahoney JA and Samuels A-JA) in Maitland Hospital v Fisher [No2] (1992) 27 NSWLR 721.
So far as my researches reveal, there is no precise parallel to O23 rr3, 4 and 11 of the Federal Court Rules in other jurisdictions. Each jurisdiction deals differently with the question of whether an offer of compromise may include an offer in relation to costs, and the costs consequences of acceptance of such an offer if an offer of compromise includes reference to costs in some way. Consequently I do not find specific assistance in resolution of the present issue from decisions under other similar but not identical rules. However, the Supreme Court of New South Wales appears to have had a somewhat similar problem: Associated Confectionery (Aust) Ltd v Mineral and Chemical Traders Pty Ltd (1991) 25 NSWLR 349. The defendant in the action which was also the cross plaintiff by cross-claim had made an offer of compromise to accept payment from the plaintiff of a specified sum "inclusive of costs". Unlike r4 of the Rules, there was no rule in New South Wales to facilitate an offer of compromise dealing also with the issue of costs. The offer was not accepted and judgment ultimately entered for the defendant for a lesser sum than it had offered to accept plus costs; the costs payable would (it was argued) have led to a payment ultimately to the defendant of more than its offer. The defendant therefore sought under Pt52, r17 of the Supreme Court Rules (NSW) an order for indemnity costs from the date of its offer (the provision of the rule in that regard being to the same effect as r11(3)-(7) of the Federal Court Rules). By reason of r17(2) (which was effectively in the same terms as r11(2) of the Rules), Giles J treated the offer made as one made at large and without the words "inclusive of costs", so the ultimate result was that the defendant had recovered a sum less than its offer, and therefore was not entitled to indemnity costs. His Honour also, as an alternative route to the same result, treated the offer expressed as "inclusive of costs" as not one properly made under Pt52, r17 despite an apparently common practice to make offers in such terms so the defendant could not invoke the rule at all. As he explained, that avoided the consequence of the court having to tax costs to determine whether an offer was more favourable or less favourable than the result of the proceedings.
It is, no doubt, that very type of difficulty which led to the Federal Court Rules providing, as they do, for offers to express an amount for costs and for the costs consequences of accepting an offer where costs are so included in an offer of compromise. It is clearly desirable, as is common practice informally, that offers of compromise should be able to address the question of costs.
The applicant in this matter contends that, the respondent having accepted his offer, he is entitled under r11(1) to proceed to tax costs. It is submitted that the offer was not one falling within the description of an offer "inclusive of the costs of the proceeding" which would then exclude the right to tax costs under r11(1) upon acceptance of the offer, firstly because that description applies only to offers under r4(1) and this offer did not because it was not one where "a sum of money is offered" and in any event because, on its proper construction, it was an offer to accept a sum of costs for work done only to the date of the offer. The respondent asserts that the offer in its terms having been accepted, albeit well after the offer was made and just before trial, the applicant cannot tax his costs as his offer was one which was inclusive of the costs of the proceeding, whether or not it fell within r4.
The questions for decision are, therefore:
(1) does an offer to accept a sum of money made by an applicant, and which includes an amount specified for costs, constitute an offer under r4;
(2) if not, do the words of r11 referring to an offer "... inclusive of the costs of the proceeding ..." apply to this offer in any event;
(3) if not, does the specification of a sum for costs affect the status of the offer having regard to r11(2), cp. the Associated Confectionery case (above), and
(4) if the answer to (3) is that the offer was capable of acceptance and has been accepted, what entitlement if any to costs under r11 does the applicant have in the events which have happened.
In approaching the resolution of those questions, it is important to bear in mind the object of O23. In Henderson v Amadio Pty Ltd (22 March 1996, unreported, Judgment 184 of 1996) Heerey J at 506 of that judgment decided that the use of Calderbank letters in appropriate circumstances had not been excluded by O23 as they were a "... flexible weapon for litigants who want to achieve reasonable settlement ...". In my view, that is also an apt and pithy way of describing the purpose of O23.
Rule 4 cannot be construed in isolation. Its content is both the purposive content of O23 generally, and the evolutionary context of both encouraging or facilitating offers by applicants as well as respondents, and of encouraging or facilitating in offers the specification of amounts for costs and interest whilst avoiding the difficulties adverted to by Giles J in the Associated Confectionery case (above). There is no particular reason evident to me why the considerations relevant to the making of an offer including a sum specified for costs should not apply equally to an applicant as to a respondent. The fact that r4(2) deals with an offer which is inclusive of interest, and thereafter r11(7) also provides for the adjustment of interest back to the date of that offer against any judgment to determine the costs consequences of the offer allowing for further interest after the offer to be considered, also suggests that r4(2) in its intent was not to operate only on offers made by respondents but also on offers made by applicants. If it were otherwise, different consequences could flow depending upon which party was the offeror, and I do not think that was intended by the Rule. Rule 4(3) is, in contrast to r4(1) and (2), expressed in the active voice. To a minor extent, that difference also supports the conclusion that the focus in r4(1) and (2) is upon the subject "the sum of money" rather than upon the questions of whether it is the applicant or the respondent who is the actor in the making of the offer. "Offered" in those subrules must also take its meaning from its context, including rr2 and 3, and indeed the whole of O23, which relates to an "offer of compromise". In that context, it is capable of bearing the meaning: a sum of money included in or specified in an offer of compromise, rather than limited to the meaning: a sum of money offered to be paid. The range of meanings of the verb "offer" includes "Bring or put forward for consideration, propound" and "Put in place, hold up, or display to test or assess appearance or correctness" and "Of a thing: present to sight, notice etc.; ..." (The New Shorter Oxford English Dictionary (1993), Vol 2, at 1983). The meaning I discern for r4(2) and (3) from contextual considerations does not do violence to a normal use of the word "offer".
Consequently, it is my conclusion that the offer made in this matter was an offer which accorded with r4(1), and provided that on its proper construction it was in fact an offer inclusive of the costs of the proceedings, then r11(1) would - by reason of its exclusionary provisions - not entitle the applicant to tax its costs in the matter.
If I am in error on that conclusion, I would nevertheless conclude that r11(1) can apply to an offer made by an applicant which otherwise constitutes an offer inclusive of the costs of the proceeding, despite the potential difficulty adverted to by Giles J in the Associated Confectionary case (above). Rule 4(1) is permissive only that an offer inclusive of costs include specifying the amount of those costs. Thus, it contemplates an offer inclusive of costs which does not specify the amount of those costs. It contrasts with the obligation, if an offer includes interest, to specify the amount of that interest: r4(2).
There may arise circumstances where an applicant makes an offer, including and specifying an amount for costs, at an early stage of proceedings and then is confronted with acceptance of that offer only when very considerable costs have been incurred, even perhaps at the completion of a long trial. To a degree, that is what has happened here. The Rules should not discourage applicants from making such offers by reason of such consequences. I do not think they do so. An offer may be routinely withdrawn after 14 days: r5(5). An offer may specify a period during which it may be accepted: r5(3) and (4). A party may make more than one offer: r5(2), so an offer could be made and remain available relating to the primary amount in issue, with or without interest, and a separate offer made in the same terms but also inclusive of an amount for costs limited by time. I do not think those options are too limiting, nor need they lead to a multitude of offers as the amount of costs changes. In such a circumstance, if it were through oversight that the costs component of the offer remained open to the hearing, the Court does have power under r11(1) to order that the consequences of r11(1) do not operate according to its terms. I think that power exists both where r11(1) otherwise would enable costs to be taxed and where it precludes costs from being taxed. It is a power which should be exercised only in compelling and exceptional circumstances: Wills v Bigmac Pty Ltd (Heerey J, 9 December 1994, unreported, Judgment 949 of 1994). Here, it may be that the respondent's acceptance of the offer may have been made by reference to the overall risk in the proceeding, assessed differently at different points in time. The possible reasons are legion. One can however envisage circumstances where such an application might successfully be made, so it is appropriate simply to note the existence of the power. The applicant has expressly indicated that it makes no such application in this matter.
The offer in this matter was unequivocal. It specified an amount for costs. Had it been accepted promptly, I do not think it would have been open to the applicant to argue that it was not an offer inclusive of costs, and to proceed to tax costs under r11(1). An offer could specify an amount of costs to its date or in some other qualified way, although it might not then fall under O23 at all as it may then not constitute an offer inclusive of the costs of the proceeding, or it might fall foul of r11(2); its significance for costs then, if otherwise accepted, might have to be determined as if it were a Calderbank offer. However, this offer was in express terms that the applicant "... will accept ... (a sum) plus costs of $3000 in satisfaction of its claim against the respondent". It was expressed to be made under O23, and was accepted on that basis. The only circumstances in which O23 provides for costs to be included in an offer are if the amount is "inclusive of the costs of the proceeding". Consequently, I find that the offer on its proper construction was inclusive of the costs of the proceedings.
In my view, in the circumstances, the applicant is not entitled to tax its costs under r11(1).
I certify that this and the proceeding pages are a true copy of the Reasons for Decision of the Honourable Justice Mansfield.
Associate:
Date:
Counsel for the Applicant : Mr R D Ross-Smith
Solicitors for the Applicant: Thomsons
Counsel for the Respondent : Ms A S Videon
Solicitors for the Respondent : Finlaysons
Hearing Date : 6 November 1996
