THE COURT ORDERS THAT:

1.         The first defendant pay the first plaintiff’s costs on a party-party basis.

2.         The application for indemnity costs is dismissed.

3.         The first plaintiff pay the first defendant’s costs of this application for indemnity costs.

Note:                Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.

REASONS FOR JUDGMENT

On 11 May 1998 I gave judgment in this matter in favour of the plaintiff (“Pacific”) in the sum of AUD38,570 together with interest and costs.

Pacific now applies to the Court for an order that the first defendant (“BAL”) pay Pacific’s cost on an indemnity basis from the date of the letter of offer, sent by Pacific on 10 December 1996.  It also seeks an order that BAL pay the costs of Pacific in respect of the proceedings against the second defendant (“ANL”), including the cost of ANL which Pacific agreed to pay in discontinuing proceedings against ANL.

Pacific says that it is entitled to costs on an indemnity basis because on 10 December 1996 it wrote a letter making an offer of settlement in an amount of $32,000 plus costs, when in fact, the amount of the judgment, including interest, is substantially in excess of that amount.

The letter sent by Conway O’Reilly, solicitors for Pacific, on 10 December 1996 reads:

“WITHOUT PREJUDICE

Dear Sirs

PACIFIC COMPOSITES PTY LIMITED & ANOR

V

BLUE ANCHOR LINE & ORS

We refer to previous correspondence in this matter.

In particular we refer to the Statement of Gerd Ramming, filed on behalf of the First defendant in these proceedings.

The assertions in paragraphs 14 and 15 of that statement reveal that the Bill of Lading issued by the First Defendant was issued fraudulently.  As a consequence, the Plaintiffs suffered the loss, the subject of these proceedings.  In light of this new evidence as to the cause of the loss, we request that you seek your client’s instructions as to settling this matter.

Our client claims the amount of $38,570.12 plus interest on the loss to date, calculated at the rate of 12% p.a., which amounts to $5,756.99.

On a without prejudice basis, except as to costs, we are instructed to offer to settle this matter for a sum of $32,000.00 plus costs.

If the matter does not settle on the above basis and the Court awards a judgment sum in excess of the sum sought, we will seek costs on an indemnity basis as from today’s date.

This offer will be expire at 5 p.m. on Friday, 27 December 1996, unless withdrawn prior to that time.  We look forward to receiving your response.

Yours faithfully

CONWAY O’REILLY” 

Two submissions are advanced on behalf of Pacific.  The first is that the above letter is a Calderbank letter and refusal to accept the offer will justify an award of solicitor-client costs.  The second is that even if the letter is not properly described as a Calderbank letter, nevertheless, it amounts to an offer of settlement at a lower figure than that actually recovered and, therefore, on wider general principles indemnity costs ought to be awarded.

The case of Calderbank v Calderbank (1975) 3 WLR 586 is a decision of the Court of Appeal Cairns LJ, with whom Scarman LJ and Sir Gordon Wilmer agreed, said at 596, in relation to an offer of compromise:

“I have reached the conclusion that that was an offer which in the circumstances of this case the husband ought to have accepted and that, as he persisted in these proceedings and recovered a lump sum of a smaller amount than the value of that house, the right order would be that he should have the costs up to August 14 and thereafter the wife should have her costs of the proceedings in the court below.”

The jurisdiction of this Court to award costs on an indemnity basis was considered in Colgate-Palmolive Company v Cussons Pty Limited (1993) 46 FCR 225.  In that case, Sheppard J said at 233-234:

“… the Court ought not usually make an order for the payment of costs on some basis other than the party and party basis.  The circumstances of the case must be such as to warrant the Court in departing from the usual course … there should be some special or unusual feature in the case to justify the Court in departing from the ordinary practice….

5… it is useful to note some of the circumstances which have been thought to warrant the exercise of discretion. I instance the making of allegations of fraud knowing them to be false and the making of irrelevant allegations of fraud … evidence of particular misconduct that causes loss of time to the Court and to other parties … the fact that the proceedings were commenced or continued for some ulterior motive…or in wilful disregard of known facts or clearly established law… an imprudent refusal of an offer to compromise”  (Emphasis added).

The Court has a wide discretion in relation to the award of costs.  The relevant general jurisdiction to award costs is found in s 43 of the Federal Court Act of Australia 1976 (Cth) and in particular O 23 r 11(4) of the Federal Court Rules.

In the present case, Pacific did not make an offer which complied with the formal requirements of O 23 but it sent the above letter.

Speaking generally, the Calderbank principle is a salutary one, being designed to bring home to the parties the need to carefully consider the consequences of proceeding further with their dispute.  Like O 23 r 11, the purpose of the letter is to promote early settlement wherever possible by encouraging the saving of costs and the avoidance of the inherent risks, delays and uncertainties which are part of litigation.  Another important consideration is the public interest; saving the public purse from costs incurred in litigation, which may prove unnecessary.  A third consideration is to indemnify the plaintiff, who has made the offer of compromise, against the costs thereafter incurred.

In the present case, however, given the exceptional circumstances, I am persuaded that solicitor-client costs should not be awarded.

The letter of 10 December 1996 refers to a statement of Mr Gerd Ramming, which is said to justify an allegation of fraud against the first defendant.  It is apparent from the peremptory terms of the letter that the allegation of fraud is being used to pressure BAL to compromise the matter.  Three days after this letter, Conway O’Reilly wrote to the solicitors for BAL stating:

“Given the allegations contained in our client’s Amended Statement of Claim and in light of the decision of Sheppard J in Hunter Grain Pty Ltd v Hyundai Merchant Marine Co. Ltd (1993) 117 ALR 507, your client may wish to reconsider our client’s offer to settle this matter on the terms set out in our letter dated 10 December 1996.

Kindly seek instructions and revert by 4 pm on Tuesday, 17 December 1996.”

This letter is peremptory in tone and again reflects an attempt to bring pressure to bear by imposing a shorter deadline.  The reference to the Hunter Grain case is to an observation by his Honour that a Bill of Lading is a solemn document.  He referred to it as a document of “dignity”.

The reference to the Amended Statement of Claim is clearly a reference to a proposed amendment raising fraud, which Pacific Composites sought to make in its notice of motion filed on 30 January 1997.  That Notice of Motion sought to allege fraud in seven paragraphs.  The amendment was opposed by BAL and in an interlocutory judgment delivered on 30 June 1997, I refused leave to make the amendment sought in respect of allegations of fraud or recklessness.  This was because there was no evidence before me to indicate that a fraud case could be made out.

Subsequently, on 2 September 1997, an amended statement of claim was filed but the only amendment permitted in that Statement of Claim related to allegations of negligence.  After refusal of leave to amend on 30 June 1997 no subsequent offer of compromise was forthcoming from the solicitors for Pacific.

An allegation of fraud or the threatened use of an allegation of fraud in Court proceedings where there is no proper evidentiary foundation is not looked on favourably by the Courts: see Minister Administering the Crown Lands (Consolidation) Act and Western Lands Act v Tweed Byron Aboriginal Land Council (1990) 71 LGRA 201 at 203; White Industries Qld Pty Ltd v Flower & Hunt (1998) 156 ALR 169 at 231-242 and the authorities there cited.  In the present case such an assertion is made in the letter of 10 December 1996 and in the draft Amended Statement of Claim referred to in the letter of 13 December 1996.  These assertions were held to be without any proper foundation.  No appeal was taken against this finding.  In my view, this is an important matter to take into consideration in exercising a discretion whether to award solicitor-client costs.

Furthermore, as was stated by Sheppard J in Sanko Steamship Co Limited and Grandslam Enterprise Corporation v Sumitomo Australia Limited (Unreported, 7 February 1996), even where a Calderbank letter has been served, the normal rule as to costs should only be departed from where the conduct of the party against whom the order is sought is plainly unreasonable.  In the present case, I am not persuaded that the defendant’s decision to resist the action was plainly unreasonable.  Although it was not successful, I am satisfied in the present case that the litigation arose largely because there were multiple parties involved and no sufficient overall attention was paid to the proper documentation of the contractual arrangements.  I was not satisfied that there was any intention to mislead.  There is ambiguity in the documentation.  Moreover, the container was stuffed with the goods at its premises in Korea and then delivered to BAL.  There was also inconsistency on the face of the contractual documents and in the relevant bill of lading.  There were a number of different bills of lading and they were executed in ambiguous terms. In these circumstances it cannot be said that BAL acted in a plainly unreasonable manner in pursuing its defence.

Accordingly, I direct the first defendant to pay the first plaintiff’s costs in the principal action on a party-party basis.  I dismiss the application for indemnity costs.  The first plaintiff is to pay the first defendant’s costs of this application.

Associate:

Dated:              25 September 1998