FEDERAL COURT OF AUSTRALIA

Chapman Marine Pty Ltd v Wilhelmsen Lines A/S [1999] FCA 241

CHAPMAN MARINE PTY LIMITED v WILHELMSEN LINES A/S & Anor

NG 287 OF 1997

EMMETT J

11 MARCH 1999

SYDNEY

THE COURT ORDERS THAT:

1.                  The parties bring in short minutes of order to give effect to these reasons.

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

EX TEMPORE REASONS FOR JUDGMENT

1                     On 5 March 1999 I gave reasons for the conclusions which I had reached in relation to the issues which were argued before me in these proceedings.  I concluded that Chapman is entitled to recover damages from Wilhelmsen in the sum of $US500 or the equivalent of that sum in Australian currency and that Wilhelmsen is entitled to be indemnified by Conaust in respect of that liability.  I also indicated that I had concluded that Chapman’s claim against Conaust should be stayed. 

2                     The matter came back before me today for the purposes of argument on costs.  However, when the matter was called on, counsel for Chapman indicated that he wished to make a submission that there should not be a stay in respect of Chapman’s claim against Conaust because I had now decided the issues that were raised in that claim. 

3                     In paragraphs 31 to 33 of my reasons I indicated the conclusions which I had reached concerning the liability of Conaust in respect of the damage which had been done to the Cruiser.  However, those conclusions were stated expressly to be subject to the limitation provisions and the Himalaya clause.  I then considered the effect of those provisions.  Chapman’s contention today was that it is now too late for a stay because I have, in effect, determined that Conaust is liable to Chapman. 

4                     That contention demonstrates a misconception as to what I did on 5 March 1999.  I made no orders other than to stand the matter over for further argument.  It would be within my power, if I chose to, to withdraw the reasons which I then gave because I have not yet made any substantive orders.  I have simply indicated what I propose to do and why I propose to do it. 

5                     Because I accepted the contentions of the defendants as to the effect of the limitation provisions and the Himalaya clause, there was strictly no need to make any findings concerning breach of duty by Conaust or the consequences of that breach of duty.  However, because of the possibility of the matter going further by way of appeal, I considered that it was appropriate to indicate the views which I had formed and which would be relevant if I had acceded to Chapman’s contentions concerning the effect of the limitation provisions and the Himalaya clause.  I do not regard the observations which I made in paragraphs 31 to 33 as in any way precluding the conclusion that there ought to be a stay of Chapman's claim against Conaust. 

6                     The questions which now remain are concerned with the costs of the proceeding.  In my reasons I indicated that my provisional view was that there should be no order for costs.  My reason for that view was that, while Chapman had succeeded in obtaining a verdict and costs should normally follow the event, the reality of the matter is that Chapman was substantially unsuccessful in its contentions.  However, I now have before me evidence of communications between the parties which preceded the commencement of the trial.  Those communications bear on the question of costs.

7                     On 1 September 1997, Conaust’s solicitors wrote to Chapman’s solicitors a letter headed “Without Prejudice save as to costs”.  In the letter, the following appears:

“In denying the claim our client relies in part on clause 6(b) of the Bill of Lading by which your client has agreed not to make any claim or allegation against our client.  We are of the view our client is entitled to a stay of the proceedings as far as they relate to our client.  In the alternative, our client relies upon the liability limitation provisions contained in clause 11 of the Bill of Lading which limits any liability our client may have to your client to US$500.”

………………………………

However with a view to extricating itself in this matter at an early stage and saving legal costs, our client is prepared to settle this matter by paying the sum of A$30,000 to your client.”

8                     The response, on 8 September, rejected that offer.  The letter went on to say:

“You have referred to the circular indemnity clause 6(b) in the Bill of Lading and have suggested that your client is entitled to the stay of proceedings.  In our view, the only person entitled to enforce that clause would be Wilhelmsen, but more importantly the circular indemnity clause only applies when the sub-contractor is carrying out a function under the Bill of Lading in which the circular indemnity clause appears.  In this case, your client as stevedore was not carrying out any function with regard to the subject Bill of Lading but was involved in the unloading of third party cargo.”

9                     On 22 January 1998, Wilhelmsen’s solicitors served a notice of offer of compromise on the solicitors for Chapman.  By the notice of offer of compromise, Wilhelmsen offered Chapman the sum of US$600 plus payment of Chapman's party and party costs as agreed or taxed.  The offer was expressed to be open for a period of 28 days.  On 2 March 1998, Wilhelmsen's solicitors indicated to Chapman's solicitors that the offer contained in the notice of compromise would remain open for a further seven days.  The letter also indicated that the terms of the offer would be relied upon in arguments as to costs. 

10                  On 16 March 1998, Conaust’s solicitors wrote to Chapman's solicitors a letter also headed “Without Prejudice except as to costs”.  After referring to earlier offers and the contentions of the defendants in the proceedings, the letter said:

“Notwithstanding the above, for commercial reasons on behalf of both our client and Wilhelmsen Lines, we are instructed to make a joint offer to settle this claim by payment of A$56,500 inclusive of costs and interest.”

11                  By letter, 31 March 1998, Chapman’s solicitors indicated that Chapman was not prepared to settle the matter for $56,500 inclusive of interest and costs but reiterated that it was prepared to settle for its previous offer of $100,000, inclusive of interest and costs.  It is against that background that I must consider the submissions now made on behalf of the parties concerning costs.

12                  Chapman contended that my provisional view should stand and that there should be no order as to costs.  Wilhelmsen contended that there should be no order as to the costs of the proceedings up to the date of the offers but that Chapman should bear Wilhelmsen's costs of the proceedings from that time on.  Wilhelmsen also contended that it was entitled to its costs of its cross-claim against Conaust seeking indemnity in respect of its liability to Chapman and that its indemnity should include any order for the costs of defending Chapman's claim.  Wilhelmsen also contended that since it had been successful in its stay application it should be entitled to its costs of its cross-claim against Chapman.

13                  Conaust contended that, in the light of the correspondence, it was entitled to an order for indemnity costs against Chapman.  Conaust relied on the observations made by Sheppard J in Colgate-Palmolive Co v Cussons Pty Ltd (1993) 46 FCR 225 at 232 to 233.  Sheppard J endeavoured to distil a number of principles or guidelines which are applicable in the exercise of the discretion to order costs.  The ordinary rule is that where the court orders the cost of one party to litigation be paid by another, the order is for payment of those costs on a party-party basis.  However, there is a discretion to order costs on a special basis involving complete indemnity. 

14                  The principle relied on by Conaust is that it may be appropriate to make a special order where there has been an imprudent refusal of an offer to compromise.  Counsel for Conaust contended that that concept involves a consideration of the quantum involved, the extent to which the offer recognised the risks and the extent to which the offer went towards meeting the claim as a whole.  The original offer was $30,000 against a claim in the vicinity of $100,000.  The second offer, so far as Conaust was concerned, involved an offer of $56,500 in the same context although each offer was inclusive of costs and interest.  Conaust contended that it was imprudent in the circumstances for Chapman to reject such offers.

15                  It is material that offers were made and rejected by Chapman and the fact of the making of offers without prejudice save as to costs is a significant factor which I should take into account in considering the exercise of discretion as to the costs of the proceedings.  However, there were difficult questions involved in the proceeding.  Conaust, as I have found, was solely responsible for the damage which was occasioned to Chapman's cruiser.  I do not consider that it was so imprudent for Chapman to prosecute the proceedings that any question of indemnity costs arises.

16                  One matter which complicates the question of costs is the application for a stay in the cross-claim brought by Wilhelmsen.  On one view, it would have been possible for that question to be resolved without the involvement of Conaust in the proceedings.  Wilhelmsen claimed that it was entitled, under clause 6 of the bill of lading, to a stay of Chapman’s claim against Conaust.  Had that question been raised and resolved at an early stage, there would have been no involvement of Conaust.  At least the involvement of Conaust would have been substantially restricted. 

17                  On the other hand, issues raised in the cross-claim for a stay involved the determination of substantive matters, some of which would have overlapped with the issues raised in the proceedings themselves.  In the circumstances, it was reasonable not to have sought the hearing of the stay prior to the other issues.  Nevertheless, it is a matter that should be taken into account in determining appropriate and fair orders for costs.  I am mindful of the fact that although I have found that the effect of the limitation provisions and the Himalaya clause is to excuse Wilhelmsen and also has the effect of excusing Conaust, the proceedings themselves have been occasioned by the conduct of Conaust.

18                  In the circumstances, I consider that it is appropriate that Chapman bear Wilhelmsen’s costs of the proceedings as and from 31 March 1998, that being the date of rejection of the offer.  It would be reasonable for Chapman to have had a reasonable time to consider the offer made by Wilhelmsen.  I consider that it would be appropriate that there be no order as to the cost of the proceedings prior to that time.  I also consider that it is appropriate that Wilhelmsen be entitled to its costs of the cross claim against Chapman for a stay.  There is no reason why there should be any limit on those costs.  Wilhelmsen is entitled to its costs of its cross claim against Conaust and there should also be, in relation to the indemnity, an order that Conaust indemnify Wilhelmsen in respect of its costs of defending Chapman's claim.  So far as the cross claim by Conaust against Wilhelmsen is concerned, it is appropriate that Conaust bear the costs of that cross claim.

19                  So far as the issue as between Chapman and Conaust is concerned, I consider that it is appropriate that Chapman pay one half of Conaust’s costs incurred after 8 September 1997.  I have fixed that order by reference to the rejection of the offer of 1 September 1997 but I have taken into account the fact that Chapman may not have had to pay the costs of Conaust had some further action been taken in relation to the question of the stay.  I do not intend that exercise of discretion to reflect adversely in any way on the conduct of the parties in not bringing the stay on earlier but reflects what I consider to be a fair and equitable adjustment as between the parties.

20                  Thus, there will be judgment for Chapman against Wilhelmsen in the sum of US$500, together with interest under section 51A of the Federal Court of Australia Act 1976.  There will be a stay of the proceeding as against Conaust.  Wilhelmsen is entitled to be indemnified by Conaust in respect of its liability to Chapman including its costs of defending Chapman’s claim and the orders for costs will be as I have foreshadowed.

Associate:

Dated:              11 March 1999