FEDERAL COURT OF AUSTRALIA

Chapman v Wickman Ryan Pty Ltd [2000] FCA 536

COSTS – indemnity costs sought by respondents after judgment was delivered – in the primary proceeding the applicants were wholly unsuccessful – respondents had written to the applicants prior to the hearing suggesting that they discontinue the proceedings and that each party should pay its own costs – whether this was an offer of compromise which might carry costs consequences – whether the applicants’ case in the primary proceedings was a “hopeless” one.

Federal Court Rules O 23 r 11, O 62 r 3

Federal Court of Australia Act 1976 (Cth) s 43

J-Corp Pty Ltd v Australian Builders Labourers Federation Union of Workers (No 2) (1993) 46 IR 301 considered

Colgate-Palmolive Company v Cussons Pty Limited (1993) 46 FCR 225 referred to

Fountain Selected Meats (Sales) Pty Ltd v International Produce Merchants Pty Ltd (1988) 81 ALR 397 considered

Multicon Engineering Pty Ltd v Federal Airports Corporation (1996) 138 ALR 425 considered

Hayes & Associates Pty Limited v Kimberly-Clarke Australia Pty Limited (1994) 52 FCR 201 considered

Black v Lipovac (Miles, Heerey and Madgwick JJ, 4 June 1998, unreported) referred to

Coshott v Learoyd [1999] FCA 276 considered

WILLIAM LUDLOW CHAPMAN & JEAN CHAPMAN v WICKMAN RYAN PTY LTD, WESFARMERS DALGETY LTD & AGREVO PTY LIMITED

NG 77 of 1998

MATHEWS J

SYDNEY

28 APRIL 2000

THE COURT ORDERS THAT:

1.      The notice of motion is dismissed.

2.      The applicants to this notice of motion are to pay the respondents’ costs of the motion.

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

REASONS FOR JUDGMENT

Background

1                     On 29 March 2000, at the end of a lengthy judgment on this matter, I ordered that the application be dismissed and that the applicants pay the costs of the respondents and the cross-respondent.  The respondents now seek an order that part of those costs be paid on an indemnity basis.

2                     The matter has a long and complex background, which I shall describe as succinctly as possible.  The applicants in the present proceedings (“the Chapmans”) were also represented parties in parallel proceedings (“the representative proceedings”) commenced by David Louis Schneider against Hoechst Schering Agrevo Pty Limited (“Hoechst”).  The representative proceedings were brought on behalf of all wheatgrowers in the north-west of New South Wales who claimed losses arising out of the application of a particular herbicide, Puma S, onto their wheat crops in 1996.  There were ten identified members of this class, including the Chapmans.  The proceedings sought damages from Hoechst, as the manufacturer of Puma S, for negligence and for engaging in misleading or deceptive conduct in contravention of s 52 of the Trade Practices Act 1974 (Cth) (“the Trade Practices Act”).

3                     At much the same time six of the represented parties, including the Chapmans, commenced separate proceedings against the companies or organisations from which they had purchased Puma S (“the distributors”), seeking damages for losses arising from the application of Puma S onto their 1996 wheat crops.  In the case of the Chapmans the respondents were Wickman Ryan Pty Limited and Wesfarmers Dalgety Pty Limited (jointly known as “Wesfarmers”).  The proceedings were based on breach of contract, negligence, breach of implied conditions under ss 70 and 71 of the Trade Practices Act and ss 18 and 19 of the Sale of Goods Act 1924 (NSW) (“the Sale of Goods Act”), and engaging in misleading or deceptive conduct contrary to s 52 of the Trade Practices Act and s 42 of the Fair Trading Act 1987 (NSW) (“the Fair Trading Act”).  Wesfarmers cross-claimed against Hoechst, claiming that Hoechst had made negligent misrepresentations as to the suitability of Puma S for its declared use and that it had contravened s 52 of the Trade Practices Act.  Hoechst in turn cross-claimed against Wesfarmers claiming that it was in breach of an implied term of the agreement between them whereby it was to provide agronomic advice to the Chapmans.

4                     By order of the Court (and by consent) the representative proceedings were heard together with the six separate proceedings against the distributors.  The applicants in all cases had the same legal representation at the hearing.  In other words, the Chapmans were represented by the lawyers who represented Mr Schneider and the other five individual applicants.  Before the matter came to hearing, the cross-claims between the distributors and Hoechst were settled in two of the six individual proceedings. In each of these cases, the distributors were represented at the hearing by the solicitors and counsel who appeared for Hoechst.  Three of the remaining cases involved the same distributor (“AG-N-Vet”) which was separately represented at the hearing.  Only in the Chapmans’ case against Wesfarmers was the respondent singly represented, in this case by Mr Ryan of senior counsel.

5                     The hearing of the combined actions lasted for three weeks, at the end of which I reserved judgment in all cases.  Each of the seven applicants, including Mr Chapman, gave evidence at the hearing.  Apart from Mr Schneider (whose evidence was relevant only in the representative proceeding) the evidence of each of these witnesses was relevant both to the representative action against Hoechst and also to the witness’s own action against his or her distributor.  In Mr Chapman’s case he was cross-examined by counsel for both Hoechst and Wesfarmers.

6                     Between the end of the hearing and the delivery of judgment, the three actions against AG-N-Vet were settled.  This left outstanding, as separate proceedings, only the Chapmans’ case against Wesfarmers and the two cases in which the distributors had settled their cross-claims with Hoechst and were represented by Hoechst’s legal advisers.  This meant that the action commenced by the Chapmans was the only remaining action in which the respondent was separately represented.

7                     On 29 March 2000 I delivered judgment in all cases and dismissed all applications.  The representative proceeding against Hoechst was the primary matter discussed in the judgment.  In that case I found that the applicants had failed to establish that Puma S was the relevant “cause” of damage to the growers’ wheat crops.  I also found that they had failed to establish, against Hoechst, that it should have foreseen the possibility that Puma S might be damaging to wheat crops.

8                     My findings on causation meant that the claims of the individual growers, including the Chapmans, against the distributors from whom they had purchased Puma S, could not succeed.  As Puma S was not a relevant “cause” of the damage to their crops, no breaches had been established under the Trade Practices Act, the Sale of Goods Act, or pursuant to any of the other counts relied upon in those proceedings.  It was on this basis that I dismissed all applications.  In the circumstances, it was unnecessary to consider the merits of the individual counts in those actions.

9                     As to the issue of costs, no party had intimated, during the course of the proceedings, that any special costs order would be sought.  Accordingly I made standard orders indicating that costs should follow the event.  In the Chapmans’ action against Wesfarmers, the order I made was that the applicants pay the respondents’ and cross-respondents’ costs of the proceedings.  In accordance with normal principles, these costs are to be paid on a party – party basis.

10                  On 3 April 2000 the respondents filed a notice of motion seeking the following primary orders:

1.                  That the costs order in the primary proceeding be set aside;

2.                  That the applicants pay the respondents’ costs:

(a)                up to and including 17 March 1998 on a party – party basis; and

(b)               from 18 March 1998 on an indemnity basis;

Or, in the alternative:

3.                  That the applicants pay the respondents’ costs:

(a)                up to and including 1 March 1999 on a party – party basis; and

(b)               from 2 March 1999 on an indemnity basis.

11                  In an affidavit in support of the notice of motion, Wesfarmers’ solicitor, Ms Kim O’Connell, annexed two letters from Wesfarmers’ solicitors to the Chapmans’ solicitors, dated respectively 17 March 1998 and 1 March 1999.  The first letter pointed out a number of respects in which it was suggested that the statement of claim was defective.  It asserted that the separate proceedings would not give the Chapmans any relief in addition to that which they claimed in the representative proceedings, and pointed out that in maintaining the separate proceedings they were increasing their exposure to costs in the event that they were unsuccessful.  The letter, which was a lengthy one, discussed each of the causes of action relied upon by the Chapmans and argued that they were, in the circumstances, unsustainable.  The letter concluded in the following terms:

“For the reasons outlined at the commencement of this letter our clients invite you to withdraw the proceedings against them.  Our clients will not seek any payment of their costs if your clients withdraw the claim prior to the Directions Heading [sic] scheduled in this matter for 7 April 1998.

If your clients do not withdraw then our clients will seek to bring application to have the matter dismissed or alternatively the statement of claim struck out.”

12                  The second letter, dated 1 March 1999, raised similar issues.  The letter enclosed a copy of the previous letter of 17 March 1998 and concluded in the following terms:

“We are instructed by our clients to repeat their offer to pay their own costs if the Applicants agree to discontinue the action.  In the event that this offer is not accepted and the matter proceeds to hearing and your clients fail to recover a judgement against our clients which is substantially better than this offer, we put you on notice that this letter and the letter of 17 March 1998 will be tendered and costs sought on an indemnity basis.”

13                  There is no evidence of any reply to either of these letters.  Certainly the suggestion that the Chapmans should discontinue the proceedings was not taken up.  Wesfarmers now claim that, at least since receipt of the second letter, the Chapmans should pay the respondents’ costs on an indemnity basis.

Discussion

14                  No issue has been taken as to the timing of this application or the fact that it was not foreshadowed in the course of the hearing.  In this regard Wesfarmers relies upon O 62 r 3(1) of the Federal Court Rules which provides as follows:

“Time for dealing with costs

3 (1) The Court may in any proceeding exercise its powers and discretions as to costs at any stage of the proceeding or after the conclusion of the proceeding.”

15                  It is acknowledged that the Court has a very wide discretion as to the nature of its costs orders.  Section 43 of the Federal Court of Australia Act 1976 (Cth) provides as follows:

“Costs

43 (1) Subject to subsection (1A), the Court or a Judge has jurisdiction to award costs in all proceedings before the Court (including proceedings dismissed for want of jurisdiction) other than proceedings in respect of which any other Act provides that costs shall not be awarded.

    (1A) ……...

    (2) Except as provided by an other Act, the award of costs is in the discretion of the court or Judge.”

16                  Ms O’Connell, who appeared for Wesfarmers on this application, referred to two categories of situations in which the courts have ordered that costs be paid on an indemnity basis. The first was succinctly described by French J in J-Corp Pty Ltd v Australian Builders Labourers Federation Union of Workers (No 2) (1993) 46 IR 301 (“J-Corp”) as applying when a party “persists in what should on proper consideration be seen to be a hopeless case”.  The second is enlivened when there has been "an imprudent refusal of an offer to compromise” (see Colgate-Palmolive Company v Cussons Pty Limited (1993) 46 FCR 225 at 233).  These two lines of authority are said to come together in the circumstances of this case:  the letters of 17 March 1998 and 1 March 1999 are said to have alerted the Chapmans to the insuperable defects in their case against Wesfarmers.  In refusing to accept Wesfarmers’ offer of compromise, and in pursuing their case notwithstanding the criticisms contained in those letters, the Chapmans were, it is said, persisting in what they should, at least by then, have realised was a hopeless case.  In this regard, reliance was placed on the observations of Woodward J in  Fountain Selected Meats (Sales) Pty Ltd v International Produce Merchants Pty Ltd (1988) 81 ALR 397 (“Fountain Selected Meats”) at 401:

“I believe that it is appropriate to consider awarding ‘solicitor and client’ or ‘indemnity’ costs, whenever it appears that an action has been commenced or continued in circumstances where the applicant, properly advised, should have known that he had no chance of success.  In such cases the action must be presumed to have been commenced or continued for some ulterior motive, or because of some wilful disregard of the known facts or the clearly established law.  Such cases are, fortunately, rare.  But when they occur, the court will need to consider how it should exercise its unfettered discretion.”

17                  There is no suggestion, nor could there be, that the Chapmans pursued their case against Wesfarmers for some ulterior or improper motive.  It is however urged that they did so in wilful disregard of the fact, which was clearly pointed out to them in the two letters, that their case against Wesfarmers could not succeed.  In this regard reliance was placed upon the following observations of French J in J-Corp.  His Honour, having referred to Woodward J’s comments in Fountain Selected Meats, proceeded:

‘Although there is said to be a presumption in such cases that the action was commenced or continued for some ulterior motive or in wilful disregard of known facts or clearly established law, it is not a necessary condition of the power to award such costs that a collateral purpose or some species of fraud be established.  It is sufficient, in my opinion, to enliven the discretion to award such costs that, for whatever reason, a party persists in what should on proper consideration be seen to be a hopeless case.’

18                  Wesfarmers also relies upon the Chapmans’ failure to accept the offer contained in each of the two letters, namely that they should discontinue the proceedings at that stage with each party to pay their own costs.  It is submitted that the failure to accept this offer was, at best, imprudent.

19                  Order 23 of the Federal Court Rules relates to offers of compromise made by parties to proceedings in the Court.  Order 23 rule 11 specifies the costs consequences of accepting or failing to accept an offer of compromise.  The failure to accept an offer of compromise will, in some circumstances, lead to the offeree being prima facie liable to pay costs on an indemnity basis if the outcome is less favourable than the offer.  However rule 11 does not cover the situation, as occurred here, where the respondents’ offer was rejected and the applicants were wholly unsuccessful.  The same omission exists in the rules of the New South Wales Supreme Court, as was noted by Rolfe J in Multicon Engineering Pty Ltd v Federal Airports Corporation (1996) 138 ALR 425 (“Multicon”).  In that case Rolfe J awarded costs to the defendant on an indemnity basis as from the date that the plaintiff had rejected the defendant’s offer of compromise.  His Honour discussed the considerations underlying the assumption, in Part 52 of the Supreme Court Rules (and Order 23 of the Federal Court Rules) that in the circumstances specified in the rules a party’s refusal of an offer of compromise will prima facie result in that party being liable to pay indemnity costs if the outcome is less favourable than the offer suggested.  His Honour concluded that even in situations where Part 52 does not apply, there should be a prima facie presumption that in the event of an offer contained in a Calderbank letter not being accepted, and in the event of the recipient of the offer not receiving a result more favourable than the offer, then that party should pay the other party’s costs on an indemnity basis from the date of the making of the offer.  This prima facie presumption can be displaced by the party showing that its action in refusing the offer was not unreasonable.

20                  There has been an apparent diversion of views on this issue between judges of the Supreme Court and judges of this Court.  The Supreme Court approach was epitomised by the remarks of Rolfe J in Multicon, namely that the failure to accept an offer of compromise will, without more, lead to a prima facie liability to pay costs on an indemnity basis if the outcome is less favourable than the offer.  The unreasonableness of the offeree’s approach is presumed from the fact of the outcome.  Judges of this court, on the other hand, have generally tended to require something more than the mere failure to accept an offer of compromise combined with a less favourable outcome.  As Hill J said in Hayes & Associates Pty Limited v Kimberly-Clarke Australia Pty Limited (1994) 52 FCR 201 (“Hayes”) at 206:

“The making of an offer of compromise is but one of the many factors which may be taken into account by the Court in exercising its judicial discretion.  It goes too far, in my opinion, with respect, to say that the mere making of a Calderbank letter and its rejection grounds, without more, an order for costs on an indemnity basis.”

21                  Hayes predated Multicon.  In the latter case Rolfe J discussed Hill J’s judgment and concluded that the difference between them was likely to be one of emphasis only.  This also has emerged from the more recent cases of this court (see Black v Lipovac (Miles, Heerey and Madgwick JJ, 4 June 1998, unreported) and Coshott v Learoyd [1999] FCA 276).  In the latter case Wilcox J made the following observations at paragraphs 46-48:

“As the Full Court suggested in Black, the difference between the approach propounded by Rolfe J and that adopted in this Court may be more apparent than real.  Everybody agrees there can be no fixed rule; a proposition established for this Court by the terms of s 43 of the Federal Court of Australia Act conferring on the Court a discretionary jurisdiction in relation to costs.  Everybody also agrees that, while the ordinary practice is to award costs on a party-party basis, it is sometimes appropriate to take a different course, including ordering indemnity costs against a party who has acted unreasonably.  The difference between Rolfe J and the Federal Court decisions seems to turn on whether there should be ‘prima facie presumption’ of indemnity costs against a party who has not accepted an offer of compromise made pursuant to the Rules or a Calderbankletter and achieved no better result at trial, or whether this is only a factor to be taken into account in determining whether the offeree acted unreasonably.  On either view, the Court has to look at the whole situation, including the circumstances that applied at the time of non-acceptance of the offer.

Where an offer is made pursuant to Order 23, with the safeguards to the offeree that are thereby imported, it seems to me its non-acceptance should be given considerable weight; otherwise, there is not much point in offerors using the Order.  And the purpose of the Order is a salutary one; it is to enable a party to ‘raise the stakes’ in the litigation, and thereby encourage the opposing party to give more anxious consideration to the desirability of a settlement.  This was the point made by the Full Court in Black, in adopting the comments of Byrne J in Mutual Community Ltd v Lorden Holdings Pty Ltdand rejecting the standard ‘plainly unreasonable’.

As Black itself demonstrates, it does not follow that non-acceptance of a Calderbankoffer (or even an Order 23 offer) must lead to an order for indemnity costs; the Court must still consider the whole of the circumstances.  However, whether or not it is correct to talk about a ‘prima facie presumption’, non-acceptance of an Order 23 offer should at least be regarded as providing to the offeror a good start in the task of persuading the Court to award more than party -party costs.”

22                  I return to the circumstances of this case.  It is difficult to categorise the offer made by Wesfarmers in its two letters as an “offer of compromise”.  Rather it was a suggestion that the Chapmans should capitulate entirely.  The only concession suggested in the letters was that Wesfarmers would pay its own costs up to that stage.  Bearing in mind that the second letter was written approximately seven months before the hearing, it must be assumed that the vast majority of costs have been incurred since then.  Relatively speaking, it was a very minor concession.

23                  None of the cases involving a party’s failure to accept a Calderbank offer have involved a suggestion that the applicant should discontinue the proceedings entirely.  The failure to accept an offer of this kind should not, in fairness, carry any significant costs consequences.

24                  There remains, however, Wesfarmers’ contention that the Chapmans, having been alerted by these letters to the clear difficulties facing their action, should in any event have discontinued rather than pursuing an obviously hopeless case.  A major difficulty with this proposition is that the ground upon which the respondents ultimately succeeded, both in the representative proceedings and in the proceedings commenced by the Chapmans, was not amongst the matters referred in either of the letters relied upon by Wesfarmers.  My adverse findings as to causation made it unnecessary to deal with the individual heads of claim which were the subject of these two letters. There may well have been real substance in the matters raised in these letters.  By and large, the same matters were raised by Mr Ryan at the hearing, and they appeared to be very persuasive.  But as I did not have to rule upon them, it is very difficult for me to say that the Chapmans’ case in relation to those matters was a “hopeless” one.  Nor is it appropriate, at this stage, to enter into a detailed inquiry as to this aspect of the matter.

25                  This was a complex piece of litigation involving expert testimony which, to a large extent, was determinative of the major issues in the case.  It would require strong grounds in circumstances such as this to conclude that a party was unreasonable in seeking to pursue its claim.  Those grounds have not been shown here.

26                  It follows that no basis has been established for varying the normal costs rule, namely that costs are to be paid on a party - party basis.  I accordingly decline to make the primary order sought in the notice of motion.  The formal orders I make are as follows:

1.      The notice of motion is dismissed.

2.      The applicants to this notice of motion are to pay the respondents’ costs of the motion.

Associate:

Dated:              28 April 2000