FEDERAL COURT OF AUSTRALIA

 

GEC Marconi Systems Pty Limited v BHP Information

Technology Pty Limited [2003] FCA 688

 

 

INTEREST – s 51A of the Federal Court of Australia Act 1976 (Cth) – rate of interest – the Court’s usual practice – the purposes of prejudgment interest awards – “ordinary commercial rates” – difference between investment and borrowing bases of compensation.

INTEREST – rates of interest – guidance from Practice Direction of ACT Supreme Court – opinion evidence adduced of how the parent company of the successful party would have used the judgment monies – not a Hungerfords claim – lower rates proposed than those in Practice Direction – Practice Direction followed.

COSTS – purported Calderbank offer – offer inclusive of interest and costs – practice of Court in relation to such offers.

COSTS – discounting costs of successful party – unsuccessful on a number of issues.

COSTS – third party claim – rendered of no consequence because of cross-claimant’s successful defence of application against it – whether third party entitled to its costs.

COSTS – third party claim – whether unsuccessful cross-claimant entitled to pass on its third party costs liability to the unsuccessful applicant – applicable principles in such third party cases.

COSTS – subpoena – Commonwealth policing agreement with party served – confidentiality and public interest immunity – whether costs incurred recoverable under s 43 of the Federal Court of Australia Act 1976 (Cth).

GEC Marconi Systems Pty Ltd v BHP Information Technology Pty Ltd [2003] FCA 50 cited

Namol Pty Ltd v A W Baulderstone Pty Ltd (No 2) (1993) 47 FCR 388 cited

Kettle Chip Company Pty Ltd v Apand Pty Ltd (No 2) (1998) 83 FCR 466 cited

HK Frost Holdings Pty Ltd (in liq) v Darvall McCutcheon (a firm) [1999] FCA 795 cited

McCormick v Riverwood International (Australia) Pty Ltd [2000] FCA 32 cited

EMCL Pty Ltd v ESANDA Finance Corp Ltd [1999] FCA 978 cited

White Industries (Qld) Pty Ltd (in liq) v Flower & Hart (2000) 103 FCR 559 cited

Grincelis v House (2000) 201 CLR 321 applied

J S Hill & Associates v Dawn [2001] ACTSC 28 cited

Gould v Vaggelas (1985) 157 CLR 215 cited

Serisier Investments Pty Ltd v English [1989] 1 Qd R 678 applied

Cremer v General Carriers SA [1974] 1 WLR 341 cited

Smith v In Shoppe Pty Ltd [1976] 2 NSWLR 175 cited

R W Miller & Co Pty Ltd v The Ship Patris [1975] 1 NSWLR 704 cited

Hungerfords v Walker (1990) 171 CLR 125 cited

Oshlack v Richmond River Council (1998) 193 CLR 72 cited

MGICA (1992) Pty Ltd v Kenny & Good Pty Ltd (No 2) (1996) 72 FCR 236 applied

Re Wilcox; Ex parte Venture Industries Pty Ltd (No 2) (1996) 72 FCR 151 applied

Smallacombe v Lockyer Investment Co Pty Ltd (1993) 42 FCR 97 cited

Hanave Pty Ltd v LFOT Pty Ltd [1998] FCA 1429 cited

Dr Martens Australia Pty Ltd v Figgins Holdings Pty Ltd (No 2) [2000] FCA 602 followed

MT Associates Pty Ltd v Aqua-Max Pty Ltd (No 3) [2000] VSC 163 cited

Black v Lipovac [1998] FCA 699 applied

Alpine Hardwoods (Aust) Pty Ltd v Hardys Pty Ltd (No 2) (2002) 190 ALR 121 applied

Multicon Engineering Pty Ltd v Federal Airports Corporation (unreported, Rolfe J, 20 June 1996) cited

Australian Competition and Consumer Commission v Amcor Printing Papers Group Ltd [2000] FCA 163 applied

Hughes v Western Australian Cricket Association (Inc) (1986) 8 ATPR 40-748 followed

Inn Leisure Industries Pty Ltd v D F McCloy Pty Ltd (No 2) (1991) 28 FCR 172 cited

Gibbett v Forwood Products Pty Ltd (No 2) [2001] FCA 434 cited

Australian Prudential Regulation Authority v Holloway (2000) 35 ACSR 276 followed

Gladstone Park Shopping Centre Pty Ltd v Ross Wills (1984) 6 FCR 496 cited

Mifsud v ICT Pty Ltd (1997) 7 Tas R 148 cited

Latoudis v Casey (1990) 170 CLR 534 cited

Lombard Insurance Co (Australia) Ltd v Pastro (unreported, FC of SA, 30 March 1994) applied

Allman v Daly (No 2) [1959] VR 614 cited

Johnson v Ribbins [1977] 1 WLR 1458 applied

Victoria University of Technology v Tulleth and Tokyo (Victoria) Ltd (unreported, Supreme Court of Victoria, Beach K, 29 August 1994) cited

Australian Guarantee Corporation Ltd v De Jager [1994] VR 483 applied

Gold Coast Bakeries (Qld) Pty Ltd v Heat and Control Pty Ltd [1992] 1 Qd R 162 cited

Paron v Fry (No 2) [1990] 1 Qd R 550 cited

Thomas v Times Book Co Ltd [1966] 1 WLR 911 cited

Fertinova Australia Pty Ltd v Samardzija (unreported, Supreme Court of Queensland, MacKenzie J, 10 July 1995) cited

L E Cattan Ltd v A Michaelides & Co [1985] 2 All ER 125 followed

Henry v Australian Guarantee Corporation Ltd [1985] WAR 137 cited

Tristas Pty Ltd v Rohn (unreported, Supreme Court of NSW, 20 May 1993) cited

Knight v F P Special Assets Ltd (1992) 174 CLR 178 applied

Supreme Court Act 1933 (ACT) s 69

Evidence Act 1995 (Cth) ss 135(b), 135(c)

Federal Court of Australia Act 1976 (Cth) ss 43, 51A

Trade Practices Act 1974 (Cth)

Fair Trading Act 1997 (ACT)

Hon JJ Spigelman, ‘Negligence: The Last Outpost of the Welfare State’ (2002) 76 ALJ 432

Edelman and Cassidy, Interest Awards in Australia (2003)

Tilbury, Civil Remedies, Vol 1 (1990)

Dal Pont, The Law of Costs (2003)

GEC MARCONI SYSTEMS PTY LIMITED trading as EASAMS AUSTRALIA v BHP INFORMATION TECHNOLOGY PTY LIMITED and OTHERS

NG733 of 1997

 

FINN J

14 JULY 2003

ADELAIDE (HEARD IN CANBERRA)

IN THE FEDERAL COURT OF AUSTRALIA
NEW SOUTH WALES DISTRICT REGISTRY		NG733 OF 1997

 

BETWEEN:	GEC MARCONI SYSTEMS PTY LIMITED (ACN 003 890 515) Trading as EASAMS AUSTRALIA APPLICANT
AND:	BHP INFORMATION TECHNOLOGY PTY LIMITED (ACN 006 476 213) RESPONDENT   BHP INFORMATION TECHNOLOGY PTY LIMITED (ACN 006 476 213) FIRST CROSS-CLAIMANT   GEC MARCONI SYSTEMS PTY LIMITED (ACN 003 890 515) trading as EASAMS AUSTRALIA FIRST CROSS-RESPONDENT   GEC MARCONI AUSTRALIA PTY LIMITED (ACN 000 287 614) SECOND CROSS-RESPONDENT   THE COMMONWEALTH OF AUSTRALIA THIRD CROSS-RESPONDENT   THE COMMONWEALTH OF AUSTRALIA SECOND CROSS-CLAIMANT   BHP INFORMATION TECHNOLOGY PTY LIMITED (ACN 006 476 213) FOURTH CROSS-RESPONDENT
JUDGE:	FINN J
DATE OF ORDER:	14 JULY 2003
WHERE MADE:	ADELAIDE (HEARD IN CANBERRA)

 

THE COURT ORDERS THAT:

 

 

(1)        Interest is payable on awards made in favour of BHP-IT at the rates specified in the 2001 Practice Direction of the Supreme Court of the Australian Capital Territory.

(2)        Interest is payable to BHP-IT on its judgment against GEC Marconi for the periods agreed by the parties.

(3)        Interest is payable to BHP-IT on its judgment against the Commonwealth from 1 November 2001.

(4)        GEC Marconi pay BHP-IT’s costs of the application.

(5)        GEC Marconi pay BHP-IT 80 per cent of BHP-IT’s costs of the first cross-claim.

(6)        GEC Marconi Australia pay BHP-IT’s costs of the claim made against GEC Marconi Australia.

(7)        BHP-IT pay the Commonwealth’s costs of the second cross-claim to the extent that those costs relate to matters other than (a) the “reflexive” claims as described in these reasons for judgment and (b) CR3053 as to which there will be no order as to costs.

(8)        GEC Marconi pay the Commonwealth’s costs of the second cross-claim to the extent that those costs relate to the “reflexive” claims.

(9)        GEC Marconi pay the Commonwealth’s costs on the Notices to Produce served on the Commonwealth on a party and party basis.

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

IN THE FEDERAL COURT OF AUSTRALIA
NEW SOUTH WALES DISTRICT REGISTRY		NG733 OF 1997

 

BETWEEN:

GEC MARCONI SYSTEMS PTY LIMITED (ACN 003 890 515) trading as EASAMS AUSTRALIA APPLICANT

AND:

BHP INFORMATION TECHNOLOGY PTY LIMITED (ACN 006 476 213) RESPONDENT   BHP INFORMATION TECHNOLOGY PTY LIMITED (ACN 006 476 213) FIRST CROSS-CLAIMANT   GEC MARCONI SYSTEMS PTY LIMITED (ACN 003 890 515) trading as EASAMS AUSTRALIA FIRST CROSS-RESPONDENT   GEC MARCONI AUSTRALIA PTY LIMITED (ACN 000 287 614) SECOND CROSS-RESPONDENT   THE COMMONWEALTH OF AUSTRALIA THIRD CROSS-RESPONDENT   THE COMMONWEALTH OF AUSTRALIA SECOND CROSS-CLAIMANT   BHP INFORMATION TECHNOLOGY PTY LIMITED (ACN 006 476 213) FOURTH CROSS-RESPONDENT

 

JUDGE:	FINN J
DATE:	14 JULY 2003
PLACE:	ADELAIDE (HEARD IN CANBERRA)

REASONS FOR JUDGMENT

1                     It was to be expected as a result of my reasons and proposed orders in the principal proceeding in this matter – see GEC Marconi Systems Pty Ltd v BHP Information Technology Pty Ltd [2003] FCA 50 – that complex and contentious submissions would be made on the award of prejudgment interests and of costs.  I have not been disappointed.  Almost 100 pages of written submission have been filed and oral submissions took place over two days.

2                     These reasons should be taken as incorporating by reference those referred to above which are far too lengthy to admit of sensible précis.  All I need note for present purposes is that the proceedings involved –

(i)         an unsuccessful claim by GEC Marconi against BHP-IT;

(ii)        a successful cross-claim by BHP-IT against GEC Marconi and against GEC Marconi Australia (the parent company);

(iii)       a cross-claim by BHP-IT against the Commonwealth, the true effect of which is in dispute for present purposes;  and

(iv)       a successful cross-claim by the Commonwealth against BHP-IT.

3                     Because the litigation involved back-to-back contracts between the Commonwealth and BHP-IT and BHP-IT and GEC Marconi, there is a distinct issue as to the extent to which costs payable in respect of the cross-claims between the Commonwealth and BHP-IT should be passed on to GEC Marconi.

4                     Some measure of agreement emerged at the present hearing, primarily between GEC Marconi and the Commonwealth, which has somewhat reduced the matters now in issue.  For convenience in exposition I will deal first with the two remaining issues that have arisen in relation to pre-judgment interest.

INTEREST

5                     I should say by way of preface that, save in relation to BHP-IT’s monetary award against the Commonwealth (relating to payment for Change Request 3053), the parties are in agreement as to the dates from which interest should run in respect of the various damages awards made.  I will deal later in these reasons with the question of interest in relation to CR3053 in conjunction with the issue of costs.

(i)        The Rate of Interest

6                     This Court’s power to award pre-judgment interest is conferred by s 51A of the Federal Court of Australia Act 1976 (Cth) (“the Act”).  I need only refer to the following provisions of it:

“(1)     In any proceedings for the recovery of any money (including any debt or damages or the value of any goods) in respect of a cause of action that arises after the commencement of this section, the Court or the Judge shall, upon application, unless good cause is shown to the contrary, either:

            (a)     order that there be included in the sum for which judgment is given interest at such rate as the Court or the Judge, as the case may be, thinks fit on the whole or any part of the money for the whole or ay part of the period between the date when the cause of action arose and the date as of which judgment is entered;

…

(2)       Subsection (1) does not:

            (a)     authorize the giving of interest upon interest or of a sum in lieu of such interest.”

7                     No rate of interest is fixed or prescribed by the section and the Court has not, by Practice Direction or otherwise, sought to provide guidance on what might be considered an appropriate rate to be applied.  Though the matter is, and remains, one of judicial discretion, the usual practice that has been followed in applying s 51A has been to adopt the rates of interest applied by the Supreme Court of the State or Territory in which this Court is dealing with the matter:  Namol Pty Ltd v A W Baulderstone Pty Ltd (No 2) (1993) 47 FCR 388;  Kettle Chip Company Pty Ltd v Apand Pty Ltd (No 2) (1998) 83 FCR 466;  H K Frost Holdings Pty Ltd (in liq) v Darvall McCutcheon (a firm) [1999] FCA 795;  McCormick v Riverwood International (Australia) Pty Ltd [2000] FCA 32;  unless there is evidence that those rates are penal or not commercial:  EMCL Pty Ltd v ESANDA Finance Corp Ltd [1999] FCA 978.  The practice itself is one from which there has been occasional departure:  see eg White Industries (Qld) Pty Ltd v Flower & Hart (2000) 103 FCR 559.

8                     Notwithstanding that this matter was heard in the Australian Capital Territory, BHP-IT has advanced the hopeful submission that, as it was originally set down for trial in New South Wales, the rates of interest to be applied should be those provided by the Rules of the Supreme Court of New South Wales.  Needless to say those rates were higher than their ACT counterparts.

9                     If the practice noted above is to be followed in this matter, the ACT rates are clearly the appropriate ones to be considered.  The matter was transferred by consent to the ACT;  it was heard there over many weeks;  it was substantively a Canberra matter and Canberra was the proper place in which it should have been heard.

10                  The ACT has a statutory provision equivalent to s 51A of the Act:  see s 69 of the Supreme Court Act 1933 (ACT).  In March 2001 a Practice Direction was issued by order of the Judges of the ACT Supreme Court for the purposes of s 69 of the ACT Act.  It indicated, for present purposes:

“When computing interest for the purposes of s 69 of the Australian Capital Territory Supreme Court Act 1933, subject to any evidence adduced, it may be taken that the following yearly rates of interest are appropriate to guide the Court: 

                        Period                                                             Per cent

…

            (i)         1 July 1993 to 30 April 2001                              10

            (j)        After 1 May 2001                                                 9”

Emphasis added.

As I will note below GEC Marconi has sought to adduce evidence on this question.

11                  Commenting on the Practice Direction superseded by the above, the majority judgment in Grincelis v House (2000) 201 CLR 321 at 331 noted that it was accepted that the Direction had no statutory force or effect and that:

“in its terms, it acknowledges, not only that its application is “subject to any evidence adduced”, but also that the rates stated in it are rates that are “appropriate to guide the Court” (emphasis added).  Although the parties, and the Full Court of the Federal Court of Australia, referred to these rates as “commercial” rates of interest, we were taken to no evidence which would reveal the basis upon which they were struck.  But there being no evidence about rates of interest, and litigants being on notice from the Practice Direction that the published rates will be taken to be appropriate to guide the Court in fixing interest under s 69, there would ordinarily be no reason to do other than apply those rates to damages of the kind now in question.”

12                  Before turning to the evidence adduced and its significance, I should comment, first, on the policies, purpose and character of pre-judgment interest.

13                  (i)         First and foremost interest has a compensatory purpose.  To quote again from Grincelis at 328-329:

“As was noted in Gogic [(1991) 171 CLR 657 at 663]

            “The function of an award of interest is to compensate a plaintiff for the loss or detriment which he or she has suffered by being kept out of his or her money during the relevant period.”

There is no doubt that this is a very important purpose of statutory provisions providing for the award of interest on the amount of a debt or damages in respect of the period between the cause of action accruing (or, in some statutory provisions, the commencement of the proceedings …) and the date of judgment.  It may be, however, that statutory provisions for interest serve not only that purpose, but also a purpose of encouraging early resolution of litigation.”

See also on encouraging dispute resolution, Hon JJ Spigelman, “Negligence: the Last Outpost of the Welfare State” (2002) 76 ALJ 432 at 449-450;  J S Hill & Associates Ltd v Dawn [2001] ACTSC 28 at [23];  and see generally on interest Edelman and Cassidy, Interest Awards in Australia,§7.13 (2003);  Tilbury, Civil Remedies, Vol 1, 3226ff (1990).

14                  (ii)        While the courts characteristically have referred to the rates which are appropriate to be applied as “commercial” or “ordinary commercial” rates:  see eg Gould v Vaggelas (1985) 157 CLR 215 at 275;  EMCL Pty Ltd v ESAND Corp Ltd (above) at [59]ff;  it has justly been said that these terms appear “deliberately to have been left at large by the courts”:  Serisier Investments Pty Ltd v English [1989] 1 Qd R 678 at 681.  There seems to be a variety of reasons for this.  First, as noted in Serisier at 681:

“Obviously the courts do not adopt a totally commercial approach, because whatever rate is adopted, it is simple interest, not compound.  An assessment on a compound basis, even on yearly rests, would make a considerable difference, but plainly the courts see the merit of keeping the assessment simple.”

Secondly, there is no uniformly agreed view as to the basis on which interest is to be awarded.  Accepting that a person is to be compensated for the loss suffered by being kept out of his or her money, should that person be compensated on the basis of (a) what he or she could earn if he or she had the money to invest or (b) what that person would have to pay if he or she wished to borrow?  As Spigelman CJ noted extracurially in “Negligence” (above) at 449, that differentiation alone “would amount to several percentage points”.  It is also reflected in the varying sources of interest rates (ie for investment and for borrowing) to which resort is had on occasion by the judges:  see eg Cremer v General Carriers SA [1974] 1 WLR 341 at 355ff;  Smith v In Shoppe Pty Ltd [1976] 2 NSWLR 175 at 177.  Thirdly, it has been said, and the practice has been followed on occasion (when a borrowing rate is used), that something should be added to the rate to be adopted to reflect the cost of borrowing over the relevant period (eg a one per cent addition:  see Cremer’s case (above) at 355).  Fourthly, courts have been conscious in selecting appropriate rates in individual cases of the desirability (a) of there being uniformity in the practice followed within a court;  cf R W Miller & Co Pty Ltd v The Ship Patris [1975] 1 NSWLR 704 at 716;  and (b) of there being relative continuity in the rates applied:

“it [being] undesirable to encourage the calling of accountants to give evidence on applicable rates of interest in every case or even frequently”:  Serisier at 681 and note the cases referred to therein.

15                  In this matter GEC Marconi sought to read a report prepared by an accountant, Craig Edwards, the purposes of which were stated to be (inter alia):

“(i)      provide my opinion as to an appropriate rate of interest to apply to the damages so as to fairly and reasonably compensate BHP-IT for the loss it has incurred

(ii)       provide my opinion on whether the interest rates adopted by the Supreme Courts of NSW and the ACT are appropriate rates of interest to apply to the damages so as to fairly and reasonably compensate BHP-IT for the loss it has incurred.”

16                  The first of these he estimated by engaging in a counterfactual (a pervasive and largely unhelpful phenomenon in this proceeding) as to how in his view BHP – not BHP-IT – would have dealt with the money had it had it in its hands.  His favoured assumption was that it would have held it as cash rather than use it to retire debt and so he proposed an interest rate based on the 90 day bank bill interest rate.  Because he applied what he considered to be “commercial interest rates” he assumed both to compound interest (notwithstanding the prohibition in s 51A(2)) and to deduct tax.  He also proposed as an (unfavoured) alternative that BHP might have used the money to retire debt and he purported to calculate the “average interest rate paid on the large majority of BHP’s interest bearing debt as at balance date”.  He regarded that rate as appearing to be “commercially reasonable”.  His report, unsurprisingly, did not refer to BHP’s “Weighted Average Cost of Capital”, an in-house figure that was advanced in BHP-IT’s unsuccessful claim for loss of use of moneys (a claim advanced as an alternative to its s 51A claim).

17                  BHP-IT objected to the admission of Mr Edward’s affidavit save as to those paragraphs that narrated matter on the public record.  The objection was based both on the ground that the task engaged in by Mr Edwards misconceived what s 51A mandated and on the ground of relevance.

18                  My own view is that the objection is properly taken, but that in any event I would not admit the evidence under ss 135(b) and (c) given its speculative character, the form of inquiry it conjures up purely for the purposes of the Evidence Act 1995 (Cth)of costs and the nature of the proceeding in which it is advanced.

19                  The court should not as a rule, for the purposes of applying s 51A, engage in an inquiry as to how a given individual may have used the money out of which he or she had been kept.  Hungerfords v Walker (1990) 171 CLR 125 now permits a party to make a damages claim for loss of use of money.  Putting to one side the inquiry such a claim would raise, the clear and intelligible purpose behind following a practice of applying generalised rates is to avoid the necessity for any such individualisation of an interest award.  The form of speculation engaged in by Mr Edwards ought positively to be discouraged.

20                  Provided (in the context of the ACT Practice Direction) evidence is not adduced that demonstrates that the rates to be applied are not commercial and are penal, those rates ought be applied for the reasons given in Grincelis. 

21                  Accepting the predominant compensatory purpose of interest awards, their aim is not to reflect exactly any particular type of interest rate be it on investment or for borrowing which may be able to be described as an “ordinary commercial rate”.  I agree, with respect, with the views expressed in Serisier’s case on the “at large” signification of this description.

22                  While Mr Edwards has given some evidence of general interest rates for cash funds (ie the 90 day bank bill rate and the “11am Call cash rate”), he has not referred to general borrowing rates and in particular to base overdraft rates offered by banks.  These are not matters about which I consider I should take judicial notice, the more so given the Practice Directions’ reference to adducing evidence.  I am satisfied that, absent evidence on borrowing rates which would show the ACT rates to be non-commercial I should proceed to apply those rates.

23                  Given the ambiguity as to the foundation for selecting the appropriate basis for awarding interest by way of compensation (ie investment or borrowing), and with the very significant endorsement of a borrowing basis in many decisions, I am not satisfied that the evidence adduced provides reason for not accepting that the ACT rates are nonetheless “commercial” ones given, as I have noted above, what can be encompassed by that description.

24                  The parties having agreed the various dates upon which interest is to run on the sums awarded BHP-IT, I will order that GEC Marconi pay interest thereon at the rates specified from time to time in the Practice Direction of the Supreme Court of the Australian Capital Territory.

COSTS

25                  The power of this Court to award costs in proceedings before the Court is conferred by s 43 of the Federal Court of Australia Act 1976 (Cth).  It is well accepted that the discretion given is unfettered but that it must be exercised judicially:  Oshlack v Richmond River Council (1998) 193 CLR 72 at 96.  As the parties have raised a variety of issues relating to the proper exercise of that discretion, I will defer further comment on the discretion itself until those issues are considered individually.

1.         GEC Marconi’s claim and BHP-IT’s cross-claim

26                  BHP-IT successfully defended GEC Marconi’s claim and had judgment in its favour on its cross-claim.  It seeks costs in respect of each of these on a party and party basis until 29 June 2001 and thereafter on an indemnity basis on account of GEC Marconi’s unreasonable and imprudent refusal of a Calderbank offer.

27                  For its part GEC Marconi not only denies that its refusal of the compromise offer made was unreasonable, it also contends that the costs to be awarded on BHP-IT’s cross-claim should be apportioned or discounted in light of its very limited success and the manner in which it adduced evidence in support of its damages claim.

28                  I will consider these matters in turn.

(i)         The Calderbank offer

29                  On 22 June 2001 (after four days of hearing devoted primarily to the parties’ openings) BHP-IT’s solicitors wrote to GEC Marconi’s making an offer to settle all claims in the proceeding.  The terms were (inter alia) that (i) GEC Marconi’s application be dismissed;  and (ii) that GEC Marconi pay “the sum of $5 million inclusive of interest and costs to [BHP-IT]” in full satisfaction of BHP-IT’s cross-claim.  This was to remain open until 29 June 2001.

30                  The letter described the offer and its effect in the following terms:

“As you will appreciate, the attached offer is made pursuant to Calderbank v Calderbank (1975) 3 All ER 333.  Accordingly, should your client fail to accept this offer within the time specified, and our client obtains a judgment against your client for any amount in excess of the proposed settlement sum, then your client will also be responsible for indemnity costs for the remainder of the trial.”

31                  I would merely note in passing the in terrorem character of the above comments.  The offer made did not conform to the “Offer of Compromise” rules of the Federal Court Rules (esp O 23 rr 3-5) and for that reason BHP-IT did not enjoy a presumptive entitlement to indemnity costs.  As Lindgren J observed in MGICA (1992) Pty Ltd v Kenny & Good Pty Ltd (No 2) (1996) 70 FCR 236 of 239:

“It is important … to appreciate that the mere making of an offer by a Calderbank letter and its non-acceptance followed by a result more favourable to the offeror (less favourable to the offeree) than that represented by the offer will not automatically lead to the making of an order for payment of costs on an indemnity basis:  WCW Pty Ltd v Charthill Ltd (unreported, Federal Court, Olney J, 7 July 1992);  John S Hayes & Associates Pty Ltd v Kimberly-Clark Australia Pty Ltd (1994) 52 FCR 201 at 204-206.”

See also NMFM Property Pty Ltd v Citibank Ltd (No 2) (2001) 109 FCR 77 at 98; and see generally Dal Pont, Law of Costs [13.45]-[13.47] (2003).  I will return below to this matter.

32                  On 30 June GEC Marconi rejected BHP-IT’s offer.  Its letter set out at some length its reason for so doing:  the offer did not reflect “any reasonable assessment of the strengths and weaknesses of our respective … positions”;  BHP-IT did not make the slightest attempt to support its offer “as reasonable”;  there were serious legal and factual issues.  GEC Marconi in turn renewed an offer of settlement of its own.  BHP-IT rejected that offer.

33                  The principles generally applied in this Court in exercising the s 43 discretion judicially are well established.  They have been conveniently stated in the joint judgment of Cooper and Merkel JJ in Re Wilcox;  Ex parte Venture Industries Pty Ltd (No 2) (1996) 72 FCR 151 at 156-157:

“(a)     the Court ought not to depart from the rule that costs be ordered on a party and party basis unless the circumstances of the case warrant the Court in departing from the usual course;

(b)       the circumstances which may warrant departure from the usual course arise as and when the justice of the case so requires or where there may be some special or unusual feature in the case to justify the Court in departing from the usual course;

(c)        whilst the circumstances in cases in which indemnity costs have been ordered offer a guide, the question must always be whether the particular facts and circumstances of the case in question warrant the making of an order for costs other than on a party and party basis.”

34                  The significance to be ascribed to the non-acceptance of a Calderbank offer for indemnity costs purposes where the ultimate result is less favourable to the offeree than that contained in the offer, differs somewhat in this Court’s jurisprudence from that in State Supreme Courts.  First, it has been held in first instance decisions of the Court that where the offer made is not one that relates to the claim alone, but is an “all-up” one (ie the offer relates to the claim and to interest and/or costs), that offer “ought not to be a relevant consideration on the question of costs and does not fall to be considered in the same way as a Calderbank letter”:  Smallacombe v Lockyer Investment Co Pty Ltd (1993) 42 FCR 97 at 102;  Hanave Pty Ltd v LFOT Pty Ltd [1998] FCA 1429;  Dr Martens Australia Pty Ltd v Figgins Holdings Pty Ltd (No 2) [2000] FCA 602.  This contrasts, for example, with the view that has been taken in the Supreme Court of Victoria that “any form of offer assuming it can be adduced into evidence should be considered by the court on the question of costs”:  M T Associates Pty Ltd v Aqua-Max Pty Ltd (No 3) [2000] VSC 163.  Secondly, and there is a long line of authority to this effect endorsed by the Full Court:  see Black v Lipovac [1998] FCA 699 at [217];  the mere refusal of a Calderbank does not of itself warrant an order for indemnity costs.  The offeror needs to show the conduct of the offeree was unreasonable:  Alpine Hardwoods (Aust) Pty Ltd v Hardys Pty Ltd (No 2) (2002) 190 ALR 121 and the cases referred to herein;  cf in NSW, Multicon Engineering Pty Ltd v Federal Airports Corporation (unreported Supreme Court of NSW, Rolfe J, 20 June 1996).  The reasonableness of the rejection of an offer is to be considered in light of the circumstances which existed at the time of the rejection.  And, relevant in that consideration are the terms of the offer and the circumstances of the litigation, “including the time at which the offer is made and the understanding of the parties as to the strengths and weaknesses of their respective cases”:  Australian Competition and Consumer Commission v Amcor Printing Papers Group Ltd [2000] FCA 163.

35                  I have been invited by BHP-IT to disregard the body of case law that has held that an offer of the type made by it should not “be considered in the same way as a Calderbank letter”:  cf Smallacombe’s case, above;  in that it is clearly wrong.  It was suggested instead that I should follow the approach exemplified in Victoria in MT Associates case.

36                  Whatever view I may have taken of how an “all-up” offer should be treated in the absence of authority on the matter in this Court, I am not prepared to say that the approach that has been taken is clearly wrong – I refer in this regard particularly to the views expressed by Goldberg J in Dr Martens’ case at [24].

37                  In any event I would not in the circumstances have reached the conclusion that it was unreasonable or imprudent for GEC Marconi to have rejected the offer.  Put shortly, my reasons for that conclusion are as follows.  The fact that the offer gave no indication at all of the breakdown of the $5 million between the claim, interest and costs blunts significantly the weight to be given the offer.  When one has regard to the offer being related both to the claim and to BHP-IT’s cross-claim, that deficiency becomes the more significant.  Such an offer could, in fact, be no more than a vehicle to recover costs despite the weakness of a cross-claim.

38                  Distinctly, it may have been the case, particularly in light of my findings as to the intentions and actions of officers of GEC Marconi prior to its purported termination of Sub-Contract, that GEC Marconi realised (despite its letter of rejection) that its claim faced formidable obstacles.  Such was not the case at the time of the offer with its defence of the cross-claim.  There had been no opening on the cross-claim.  The evidence that had been put on in support of it (given the magnitude of the claim made which was around $13 million) provided a less than satisfactory basis upon which GEC Marconi could properly be required to make a judgment at the risk of exposing itself to a claim that it acted unreasonably.

39                  It do not consider that BHP-IT has demonstrated that GEC Marconi acted unreasonably.

(ii)        The discounting of BHP-IT’s costs

40                  BHP-IT’S contention is that it was successful both in relation to its defence of GEC Marconi’s claim and in prosecuting its cross-claim.  The Court should in consequence adhere to its usual practice of ordering that costs follow the event.

41                  GEC Marconi, while accepting that BHP-IT is entitled to costs in respect both of its successful defence and of the cross-claim, has submitted that the costs of the damages component of the cross-claim should be discounted for the following reasons.  While there was dispute between the parties as to the amount of damages that were being claimed by BHP-IT (the affidavits it put on computed the loss at between $13 million and $14.5 million:  Mr Hammond’s Witness Statement and Supplementary Witness Statement), it was the case that BHP-IT was in considerable measure unsuccessful in its recovery under the various heads of damage it propounded.  Its total recovery was only $2,747,446.  It had failed on a number of “issues”.  Equally the manner in which it tendered its evidence (particularly Mr Hammond’s) and the need for its later elaboration (particularly to render intelligible and accessible how BHP-IT’s charge codes were calculated) impacted on the costs incurred by GEC Marconi in attempting to understand and then to challenge the claim for damages as it was originally, then finally, put.  A discount in the order of 30-40 per cent is said to be appropriate in the circumstances.

42                  BHP-IT in contrast contends it did not act unreasonably in its prosecution of the cross-claim.  The evidence it adduced on its damages claim was necessary and was in large degree accepted.  The case was one of considerable complexity and BHP-IT was hampered, as it made known at the time, by no longer having access to its own primary documentation because of inability to now retrieve it.  In any event the time spent on the cross-claim at the hearing was small relative to the other claims.  No case for apportionment had been made out.

43                  The particular line of principle relied upon by GEC Marconi to justify the discount sought is as well accepted as it is cautiously exercised.  It inheres in two of the regularly cited propositions of Toohey J in Hughes v Western Australian Cricket Association (Inc) (1986) 8 ATPR 40-748 at 48,136.

(1)        Where a litigant has succeeded only upon a portion of his or her claim, the circumstances may make it reasonable that he or she bear the expense of litigating that portion on which he or she has failed:  see Foster v Farquhar [1893] 1 QB 564.

(2)        A successful party who has failed on certain issues may not only be deprived of the costs of those issues but may be ordered as well to pay the other party’s costs of them.  In this sense, “issue” does not mean a precise issue in the technical pleading sense but any disputed question of fact or law:  Cretazzo v Lombardi (1975) 13 SASR 4 at 12.

See also Inn Leisure Industries Pty Ltd v D F McCloy Pty Ltd (No 2) (1991) 28 FCR 172;  Gibbett v Forwood Products Pty Ltd (No 2) [2001] FCA 434;  and see generally, Dal Pont, above, [8.2]ff.

44                  I am satisfied that there ought be some discounting of BHP-IT’s costs in respect of its cross-claim consistent with the justice of the case:  Australian Prudential Regulation Authority v Holloway (2000) 35 ACSR 276 at [45].  BHP-IT pursued multiple, distinct heads of damage:  see [943] of the reasons in [2003] FCA 50;  though it needs to be said that some, but not all, of those heads had interconnected factual foundations and could be dealt with as a group:  see [955], [1087].  Some of the lost heads clearly constituted distinct issues in the sense noted above:  [1090]ff;  [1103]ff;  [1126]ff;  [1047]ff.  BHP-IT’s lack of success should reflect that loss in some degree.

45                  It is neither sensible nor desirable to seek to make something like a precise calculation of the costs of each such issue.  A just and equitable solution here is not “reached simply as a matter of arithmetic”:  Australian Prudential Regulation Authority v Holloway (above) at 291.  The hearing of the evidence on damages was of relatively short duration in the scheme of the trial.  This said, the factual and legal complexity of the issues raised and the time necessary to evaluate and to respond to them as they evolved (or were reformulated) needs to be taken into account.  The lengthy submissions (written and oral) made at the end of the hearing and argument during the hearing illustrate the reason for this.

46                  I do not accept completely GEC Marconi’s contention that, for practical purposes, the costs of the counterclaim were the costs of proving damage.  Liability, it was said, was largely established in BHP-IT’s defence to GEC Marconi’s claim.  I am satisfied, though, that some relatively small part of the costs of the cross-claim were attributable to liability.

47                  I do consider that some impediment to the preparation of a defence to BHP-IT’s claim was caused, initially, by the manner in which Mr Hammond’s evidence in particular was brought forth.  This is a small factor of which account should be taken in the exercise of my discretion.

48                  Discounting BHP-IT’s costs on the cross-claim by twenty per cent would, in the circumstances, be fair and just between the parties.  Accordingly I will order that GEC Marconi pay 80 per cent of BHP-IT’s costs of the first cross-claim.

2.         BHP-IT’s claim against GEC Marconi Australia

49                  BHP-IT was successful in its indemnity claim against GEC Marconi Australia.  It is entitled, as GEC Marconi accepts, to its costs of that claim.

50                  However BHP-IT submits that the appropriate orders would be (a) a global order for costs covering all BHP-IT’s costs arising out of its defence of GEC Marconi’s claim and its own cross-claims and (b) an order that those costs be paid by both GEC Marconi and GEC Marconi Australia.  There is no basis for my making such an order.

51                  Alternatively BHP-IT seeks, in effect, a declaration that GEC Marconi Australia’s performance guarantee requires it to indemnify BHP-IT against all costs orders that are to be paid by GEC Marconi.

52                  GEC Marconi has submitted that such costs are not “costs and expenses directly incurred” for the purposes of the guarantee.

53                  I agree with GEC Marconi.  I have considered the construction of the indemnity given in [1167]ff of the principal reasons.  Given that the setting of the indemnity presupposes that there has been a breach of contract and that that indemnity is being given in the context of a performance guarantee, I consider that the costs and expenses referred to are those incurred by BHP-IT in performing (or in having performed) the contract repudiated by GEC Marconi.  I am satisfied that the expression “costs and expenses directly incurred by reason of such breach” do not extend to, and were not intended to extend to, legal costs arising from proceedings between BHP-IT and GEC Marconi.  If such an indemnity was wanted, express provision needed to be made to that effect.

54                  I will order that GEC Marconi Australia pay BHP-IT its costs of the claim made against GEC Marconi Australia.

3.         BHP-IT’s cross-claim against the Commonwealth

55                  The most contentious issues on costs arise under this heading.  The costs in question fall into three classes. 

56                  BHP-IT’s cross-claim had at least two purposes.  First it made similar claims against the Commonwealth to those made against it by GEC Marconi in relation to the non-provision of STUBS and to the failure to make the Milestone 4000 payment.  Those claims were, and were well understood to be, reflexive of GEC Marconi’s claims against BHP-IT and I will for convenience refer to them as “the reflexive claims”.  The claims were successfully defended by the Commonwealth (as they were by BHP-IT against GEC Marconi) and the Commonwealth seeks costs for that defence against BHP-IT.  GEC Marconi accepts that it in turn will have to meet that costs order and has agreed to an order for those costs being made against it directly.  I will make an order accordingly.

57                  Secondly and independently, BHP-IT claimed damages from the Commonwealth (a) under the Trade Practices Act 1974 (Cth) and the Fair Trading Act 1997 (ACT) on account of four misrepresentations, two of which were not ultimately pursued;  (b) for negligent misrepresentation;  and (c) for breach of contract.  The damages claimed in respect of the above were identical.  A separate indemnity order was sought in respect of cl 36.1A of the Head Contract in the event that BHP-IT was held liable to GEC Marconi.  I will for convenience refer to the damages claims as the “non-disclosure claims” as they were founded in part on allegations of non-disclosure by the Commonwealth.  The indemnity order is not of present concern.

58                  As I indicated in my principal reasons at [1174], while the purpose of the three damages claims may have been defensive, the claims made were not wholly contingent upon BHP-IT being found liable to GEC Marconi.  In the event BHP-IT has not sought to exploit what I might call the non-contingent dimension of these claims.  I should add that I should not be taken as suggesting that I would have permitted BHP-IT to do otherwise, given the manner in which it has conducted its case.

59                  In relation to these claims BHP-IT had findings in its favour in relation to breaches of contract by the Commonwealth but no findings were made as to whether those breaches caused any loss to BHP-IT.  The Trade Practices Act/Fair Trading Act claims were dismissed on the basis that, as the Commonwealth was not relevantly “carrying on a business” it was not bound by this legislation.  I did not consider the tort claim.

60                  BHP-IT contends that it was, nonetheless, successful in this dimension of its cross-claim and should be awarded the costs of the cross-claim.  The Commonwealth for its part contends that for all practical purposes BHP-IT lost on its cross-claim and should be ordered to pay the Commonwealth’s costs.  While disputing the Commonwealth’s contention, BHP-IT has submitted additionally that if it is required to pay the Commonwealth’s cost it can pass these on to GEC Marconi.  GEC Marconi in turn resists the making of any order against it and submits, furthermore, that having to sit out the very lengthy hearing of this cross-claim in which it had no direct interest, it should have its overall costs liability to BHP-IT discounted in consequence.

61                  The third class of costs relates to the sum of $45,503, the amount that had not been paid for CR3053 and for which an order has been made against the Commonwealth.  For reasons later mentioned, the Commonwealth contends it should not be ordered to pay costs in respect of this claim.

(a)        The Commonwealth’s claim

62                  The Commonwealth’s contention can be shortly put.  Unlike with the reflexive claim which it acknowledges were properly brought against it, the Commonwealth contends that the “non disclosure claims” were unnecessary and in the event raised a hypothetical question.  BHP-IT did not, and could not have, succeeded on its Trade Practices Act claim and the successful defence raised against it by the Commonwealth was signalled from the start.  The tort action in the circumstances was rightly not determined.  And insofar as the breach of contract claim was concerned, though several breaches were found (being breaches far less pervasive than BHP-IT alleged), not only could BHP-IT prove no loss but the Court did not even consider whether the breaches mattered in how BHP-IT conducted itself in light of the misrepresentations and non-disclosure giving rise to the breach.  The Commonwealth, moreover, had a strongly arguable defence on the question of causation.  The cross-claim was one that failed.  It was devoid of consequence notwithstanding the breach of contract found.  Even if it could be said that BHP-IT acted reasonably in bringing the claim, that provided no answer to its being subjected to a costs liability in favour of the Commonwealth given the Commonwealth’s success.  That BHP-IT had a minor success in being awarded $45,503 in respect of CR3053 has, it is said, no bearing on the matter.  That was a separate and distinct claim.  The claims made were widely cast and were pursued in the fashion of a roving inquiry.  The Commonwealth acted reasonably in its own defence.  It should have its costs.

63                  BHP-IT contends that whatever the scope of the non-disclosure claims, they were nonetheless necessary because of the position in which BHP-IT stood vis-à-vis GEC Marconi on the one hand and the Commonwealth on the other.  It was essential that it make these claims against the contingency that the Court found that the Sub-Contract had not relevantly been varied but that the Head Contract had.  The claims provided the vehicle to pass on any liability in damages that it may have incurred vis-à-vis GEC Marconi.  In this sense the claim formed part of the essential fabric of the proceeding.  Though the Court in the event decided it need not consider the issues of causation and damages, BHP-IT adduced evidence of reliance and of the course that it would have taken but for the misrepresentations and non-disclosure.  The cross-claim was reasonably brought and it was successful.  BHP-IT, it is contended, should have its costs.

64                  There is a large body of case law formulating what are appropriate, if not always easily applied, principles for use in the award of costs in third party proceedings where the respondent cross-claimant is unsuccessful because the applicant was unsuccessful in its claim against the respondent.  I will refer to those principles below in considering BHP-IT’s alternate contention that, if it is obliged to pay the Commonwealth’s costs, that liability can be passed on to GEC Marconi.  I need only recall that in the Federal Court for the purposes of costs, a third party claim such as here is generally regarded as a separate action:  Gladstone Park Shopping Centre Pty Ltd v Ross Wills (1984) 6 FCR 496.

65                  As I will indicate again when considering BHP-IT’s alternate claim, I consider the appropriate principle to be applied in relation to the “reflexive claims” differs from that applicable to the present claims.  The reason for this inheres in the nature of the respective sets of claims.  The present claims as they have been advanced proceed upon a premise that makes the claim between BHP-IT and the Commonwealth a private matter between them to which GEC Marconi is a stranger.  That premise is that BHP-IT so conducted itself vis-à-vis the Commonwealth as to bring about a variation of the Head Contract in relation to the obligation to provide STUBS, though it did not so conduct itself vis-à-vis GEC Marconi.  Having thus left itself exposed to GEC Marconi, it asserts this claim on grounds that are peculiar to the Commonwealth-BHP-IT relationship.

66                  The claims themselves were not determined finally on the merits in the principal proceeding (although significant parts of them were found untenable in any event).  Rather, they were determined by the failure of GEC Marconi’s claim against BHP-IT:  cf Mifsud v ICT Pty Ltd (1997) 7 Tas R 148.  They were rendered claims without consequence.  And I would emphasise that the findings of breach of contract as such cannot for present purposes be said to be of consequence.  No findings were made on reliance and damages.  On those matters BHP-IT may well have failed if the claims had been determined on the merits.  It may have been reasonable to have had these claims heard together with the reflexive claims.  But that of itself provides no basis for denying the Commonwealth its costs of defending an action against it rendered unnecessary because of GEC Marconi’s failure on its claim:  cf Latoudis v Casey (1990) 170 CLR 534.  The costs of the non-disclosure claims should follow the event.

67                  The Commonwealth ought be paid its costs.  I would add that no claim was made suggesting those costs should be apportioned in some way.

68                  The remaining question is by whom those costs should be paid.  This leads to BHP-IT’s alternate submission.

(b)        BHP-IT’s alternative submission/GEC Marconi’s response

69                  As I have already indicated, GEC Marconi has accepted that it is liable to pay the costs of the Commonwealth’s successful defence of BHP-IT’s reflexive claim in what is, in effect, a third party costs award.  This concession was undoubtedly a correct one to make.  What GEC Marconi does not concede, but what BHP-IT contends, is that if BHP-IT is required to pay the Commonwealth’s costs, BHP-IT can recover those costs from GEC Marconi.

70                  I have foreshadowed there is a body of somewhat complex principle dealing with the incidence of costs in unsuccessful third party proceedings:  see generally Dal Pont (above) [11.31]ff.  They start with the basic guiding principle that costs ordinarily follow the event:  Gladstone Park Shopping Centre Pty Ltd v Wills (above).  But as King CJ observed in Lombard Insurance Co (Australia) Ltd v Pastro (unreported, FC of SA, 30 March 1994):

“The application of that principle to unsuccessful third party proceedings presents difficulties as the diverse outcomes of the decided cases indicate.  There is no great difficulty where a third party claim by a defendant is unsuccessful because the defendant has failed to establish its right to recover from the third party the amount which it is required to pay to the plaintiff, or the amount which it would have been required to pay if the plaintiff’s claim had been successful.  In such cases the defendant is ordinarily required to pay the costs of the third party and cannot recoup them from the plaintiff.  Where, however, the third party claim fails solely because the plaintiff has failed in its claim against the defendant, the position is more complex.  The principle that costs follow the event dictates that ordinarily the defendant is liable for the costs of the successful third party.  It does not assist, however, in my opinion, to resolve the question whether the defendant is to be allowed to recoup those costs from the plaintiff.  The third party claim has not been an issue between the plaintiff and the defendant and there has therefore been no “event” in relation to it as between the plaintiff and defendant.  Other guiding principles must be sought.”

71                  Divining those other guiding principles is by no means a straightforward task – the more so because inconsistent outcomes can reflect either or both differing evaluations of discretionary considerations or differing appreciations of the applicable principles:  see eg Allman v Daly (No 2) [1959] VR 614 and its treatment in Mifsud v ICT Pty Ltd (above) at 150ff.

72                  Accepting that the ultimate question is whether in the circumstances the costs of the successful third party “ought fairly to be borne” by the unsuccessful applicant:  Johnson v Ribbins [1977] 1 WLR 1458 at 1464;  a variety of factors has been relied upon as being indicative of whether or not such is the case.  Care, though, needs to be taken with several of these in that they are capable of misleading.

73                  A common consideration in the cases is whether it was “reasonable” or “appropriate” for a respondent to make the third party claim:  cf Victoria University of Technology v Tulleth and Tokyo (Victoria) Ltd (unreported, SC of Vic, Beach J, 29 August 1994);  Lombard Insurance Co (Australia) Ltd v Pastro (above) per Bollen J.  The care that needs to be taken with this is that, while the making of the third party claim may have been justifiable, it may nonetheless be quite inappropriate to pass on the costs of a successful third party to the original applicant.  As was observed by Tadgell J in Australian Guarantee Corporation Ltd v De Jager [1994] VR 483 at 500, “[i]t cannot be the inevitable rule that every successful plaintiff will be required to bear the costs of any third party the defendant sees fit to join”.  A common instance of where the third party costs will not be passed on is where the third party claim raised “private issues” and the third party was not necessarily joined because of the applicant’s claim:  eg Gold Coast Bakeries (Qld) Pty Ltd v Heat and Control Pty Ltd [1992] 1 Qd R 162 at 175;  see also Paron v Fry (No 2) [1990] 1 Qd R 550.

74                  A distinct consideration has been whether the applicant’s claim was the catalyst for the third party claim.  In Thomas v Times Book Co Ltd [1966] 1 WLR 911 at 920,  Plowman J considered that the plaintiff’s claim rendered the third party proceedings “inevitable”:  see also Fertinova Australia Pty Ltd v Samardzija (unreported, SC of Qld, MacKenzie J, 10 July 1995).  The caution to be sounded with this consideration is that causation alone without regard to the nature of the cross-claim itself seems hardly sufficient to justify a pass on order.

75                  The third, and perhaps the most significant, consideration is the relationship of the nature of the original application to that of the cross-claim being brought.  This nexus has been expressed in various ways:  for example, does the nature of an applicant’s claim, or do allegations in support of it render it reasonable for the respondent to make in turn the cross-claim that it does:  cf the Lombard Insurance Co (Australia) Ltd case, per King CJ;  or does the third party claim raise issues private to the parties to it:  Gold Coast Bakeries (Qld) Pty Ltd v Heat and Control Pty Ltd (above).  Illustrative of the significance of this consideration are the observations made about “string of contracts cases” in L E Cattan Ltd v A Michaelides & Co [1958] 2 All ER 125 at 128:

“In the ordinary way, however, where damages are claimed for breach of contract on one contract in a string of contracts, and the seller brings in his immediate seller as a third party, and the third party brings in his immediate seller as a fourth party, then, provided that the contracts are the same or substantially the same so that the issue whether the goods comply with a description is the same, the defendant (in this case it was the plaintiffs, because it was a counterclaim), if successful, should recover against the plaintiffs not only his costs but any costs of the third party which he has been ordered to pay:  the third party in like manner should recover from the defendant his own costs and any costs of the fourth party which he has been compelled to pay, and so on down the string.  That is the normal way in which costs should be dealt with in this kind of action where there is a string of contracts in substantially the same terms.”

See also Henry v Australian Guarantee Corporation Ltd [1985] WAR 137.

76                  GEC Marconi’s resistance to any “pass on” order is based on the contentions (i) that the non-disclosure cross-claim against the Commonwealth was, as pleaded, one to recover sums above and beyond any amount for which it might be liable to GEC Marconi so that it cannot be characterised, as BHP-IT attempts to do, as a protection against the possibility that the Head Contract may have been varied;  and (ii) the conduct of which complaint is made in the non-disclosure claims is quite distinct from anything for which GEC Marconi was responsible.  One cannot fairly say that the non-disclosure claim was a reasonable response to GEC Marconi’s application.  It was quite disproportionate to anything which ought properly to have been the product of GEC Marconi’s claim.

77                  BHP-IT relies upon the defensive purpose of the cross-claim which, on its case as put, made the non-disclosure cross-claim contingent upon a finding that the Sub-Contract had not been varied but that the Head Contract had.  It was not a claim that was separate, distinct and divorced from the claim GEC Marconi made against it.  Moreover GEC Marconi had itself pleaded non-disclosure claims against BHP-IT that were, vis-à-vis BHP-IT, similar in character to those BHP-IT has made against the Commonwealth.  It contends that those claims were persisted in throughout the proceeding though they were abandoned in submissions.

78                  GEC Marconi accepts that it pleaded non-disclosure but contends those claims were not opened or cross-examined on and were not part of GEC Marconi’s case as prosecuted.  Even if GEC Marconi had maintained its non-disclosure claims, they were directed at what was BHP-IT’s state of mind and not the Commonwealth’s.  They certainly did not require some kind of counterpart claim against the Commonwealth inquiring into the state of mind of quite different people and into representations made by them.

79                  For my own part I am not satisfied that the Commonwealth’s costs of its defence of the non-disclosure claims ought fairly to be borne by GEC Marconi.  The justice of the case does not require this.

80                  I am satisfied both that it was reasonable for BHP-IT to join the Commonwealth for the purpose of pursuing the reflexive claim and that it was appropriate that the costs of BHP-IT’s defence of those claims are to be passed on to GEC Marconi as GEC Marconi concedes.  Those claims in their setting, and the costs consequences flowing from them reflected what is accepted practice in what have been called “string of contracts cases”:  L E Cattan Ltd v A Michaelides & Co (above) at 128.  I am equally prepared to accept that it was appropriate, having made those claims, for BHP-IT to have included its non-disclosure claims as well in the cross-claim.  I am not satisfied, for the reasons I give below, that the appropriateness of including those latter claims in the circumstances provides reason for a “pass on” order.

81                  Distinctly I am satisfied that GEC Marconi’s application provided the reason for BHP-IT making the non-disclosure claims.  BHP-IT has emphasised that this was so.  But I likewise am not satisfied that that would justify a pass on order and this is because of the character of the claims themselves.

82                  I have earlier indicated that, on the basis on which they have been pressed in this proceeding, the non-disclosure claims were based on a contingency.  That contingency was that while BHP-IT had so conducted itself in its relationship with the Commonwealth as to be bound by a variation to the Head Contract, it had not so conducted itself in its relationship with GEC Marconi so as to vary the Sub-Contract.  That difference which is crucial to the claim as pressed, takes the case outside of the principle of the “string of contracts cases” to which I have referred.  The premise of the claim is that the Head Contract and the Sub-Contract were not in this “the same or substantially the same”:  Cattan’s case (above) at 128.

83                  On the assumed basis of a difference between the contracts referable to BHP-IT’s own actions, the non-disclosure claims then attack conduct which (if it had occurred) would have been distinctive to the BHP-IT-Commonwealth relationship.  The claims to which that conduct gave rise may have been suggested by GEC Marconi’s application particularly as pleaded (I refer to GEC Marconi’s own non-disclosure claims).  But they related to matters separate and distinct from any claim or allegation made by GEC Marconi.  They raised issues peculiar to the Commonwealth-BHP-IT relationship.  It is not to the point, that GEC Marconi asserted in its pleadings that BHP-IT perpetrated is own and like deception on GEC Marconi.  That would, if fully prosecuted, have raised a quite different inquiry from that raised and pursued by BHP-IT.  I should add that even if BHP-IT was unaware that GEC Marconi was not pressing these claims, they were mute presences in GEC Marconi’s case.  I would also add that such comfort as BHP-IT seeks to derive from them seems strangely inconsistent with the premise upon which it claims the non-disclosure claims were pressed by it.

84                  GEC Marconi was compelled to be an observer over many days to a claim in which it had no interest and which served a distinct purpose of BHP-IT alone.  Having regard to this and to the manner in which the non-disclosure claims were pursued, I am not prepared to make the order sought by BHP-IT.  I am satisfied that to do so would be unfair in the circumstances.

85                  I will order that BHP-IT pay the Commonwealth’s costs of the non-disclosure claims.

86                  GEC Marconi has sought in addition an order that, because of the time taken in BHP-IT’s prosecution of those claims and because it was practically necessary for GEC Marconi to be at the hearing for that period, its own costs liability to BHP-IT should be abated in some measure.

87                  I am unprepared to accede to this.  Fairness in this matter requires that no pass on order be made in favour of  BHP-IT, but no more.

(c)        CR3053

88                  It is the Commonwealth’s submission that it should not pay interest on the judgment sum of $45,503 (this being the unpaid amount for the contract change request (CR3053) nor should any costs be awarded in respect of the claim for that amount.  The reason for the Commonwealth’s submission is tied to the unusual way in which this claim was brought forward.

89                  The Commonwealth raised CR3053 on 11 October 1995.  It was agreed to, including as to price ($45,503);  the relevant work was done;  and the Commonwealth did not dispute it was liable to pay for that work.  BHP-IT has never been paid.  No claim for the price was made when BHP-IT made its original cross-claim against the Commonwealth.  Despite several occasions on which amendments were made to the cross-claim, it was not formally amended to include this claim until after I had delivered my reasons for judgment.  The leave to amend was given on 24 March 2003.

90                  It first became apparent that the price of CR3053 may be being pursued in the proceeding when Mr Hammond’s first statement was served in June 2001.  The Commonwealth requested that further information be provided with information supporting the claim.  This was provided in November 2001.  Both BHP-IT (1 page) and the Commonwealth (1 paragraph) put on very brief written submissions at the end of the hearing relating to the claim.  The Commonwealth’s submissions accepted liability for the price and indicated it had not disputed its liability in the course of the proceedings.

91                  The Commonwealth in these circumstances disputes that it should pay interest at all because of BHP-IT’s delay in bringing proceedings for the price, it being within my discretion to refuse an interest award under s 51A of the Federal Court of Australia Act 1976 (Cth).  Reliance was placed on my judgment in H K Frost Holdings Pty Ltd (in liq) v Darvall McCutcheon (a firm) [1999] FCA 795.

92                  Further, the Commonwealth resists any order for costs because of delay in advancing the claim;  the brevity of the submissions on it;  the Commonwealth’s acceptance of liability;  and the fact that the sum of $45,503 has been deducted from the award made to the Commonwealth on its cross-claim against BHP-IT.

93                  BHP-IT contends it is entitled to interest from January 1996 when the debt was acknowledged by the Commonwealth or else from June 2001 when Mr Hammond’s statement was served.  And I understand it to press its costs claim because of the award made to it.

94                  As to interest, there is no doubt that the discretion conferred by s 51A can properly be exercised so as to adjust the period for which an interest award should be made to avert such injustice to the unsuccessful party as would result from the successful party’s unreasonable delay in prosecuting its claim:  see H K Frost Holdings Pty Ltd (above).  BHP-IT clearly has delayed unreasonably in claiming this sum.  It arises out of a separate and discrete matter.  It was first raised as a subject of claim by BHP-IT when Mr Hammond’s statement was served in 2001.  After the Commonwealth received further information about the claim in November 2001 it made no protest then about its being part of the proceeding.  I consider that, on and from that time, despite the formal state of the pleadings the claim was in issue in the proceedings.

95                  I consider that an award of interest from November 2001 would avoid unfairness to the Commonwealth.  Accordingly I will order that the Commonwealth pay interest on the sum of $45,503 at the rates specified from time to time in the Practice Direction of the Supreme Court of the ACT from 1 November 2001.

96                  As to costs, the Commonwealth has not disputed its liability;  the claim has been a silent presence in the proceedings;  and it attracted almost no attention at all in either party’s submissions.  I consider despite BHP-IT’s “success” that it is appropriate that no order as to costs be made.  In the conduct and scale of this litigation this was a de minimis matter in more ways than one.

(d)        Costs Generally

97                  There are two comments I should make which arise out of my consideration of costs and of submissions that have been made.

98                  The first is that while I have, for understandable reasons, dealt with costs in a disaggregated way, I have also considered whether so treating the parts produces a distortion of the whole.  I am satisfied it does not.  The overall incidence of costs as I have found them reflects my own appreciation of a litigation I have had to observe over a very long period.

99                  The second comment is this.  Criticism could be, and was, properly made of the Commonwealth’s identification, discovery and production of some important documents in the proceeding.  Given some of the criticisms made, I should, as a matter of fairness indicate that counsel for the Commonwealth representing DFAT were in my view not to be held responsible in any way for that state of affairs.  I have no criticism of their conduct in this complex matter.  On the contrary.

4.         The costs claims of the Commonwealth (as the Department of Defence)

100               The Commonwealth’s legal personality was put under strain on a number of occasions in this proceeding.  These claims reflect this in a minor way.  Some of the costs claims made by the Commonwealth on account of Department of Defence (“DoD”) have been resolved.  Two remain outstanding.  One relates to the costs of compliance with Notices to Produce served on DoD by GEC Marconi.  The other concerns the costs of the steps taken by DoD to ensure that the confidentiality and the public interest immunity was maintained on certain documents in the hands of AWADI and ADI Ltd that fell within the scope of subpoenas served on them by GEC Marconi.

(a)        The Notices to Produce

101               GEC Marconi made no claim against the Commonwealth.  In these circumstances the Commonwealth contends that the Notices served were in substance subpoenas and should be treated as such.  The documents sought in the Notices were unrelated to issues in the cross-claim between BHP-IT and the Commonwealth.  In such circumstances it would have been more appropriate for GEC Marconi to have secured the issue of a subpoena or to have sought an order for preliminary information discovery under O 15A.  The reason the Commonwealth wishes to analogise what was done to a subpoena is that the usual order made under O 27 r 4A in respect of complying with a subpoena is that a party’s reasonable costs be paid and that its legal costs therein be paid on a solicitor and client basis.  In this matter, in exercising its discretion to award costs against GEC Marconi under s 43 of the Federal Court of Australia Act 1976 (Cth) in respect of the Notices, it submits that the Court should adopt the subpoena practice in relation to legal costs.

102               GEC Marconi has contended, first, that the rules relating to subpoenas are more concerned with parties which are truly strangers to proceedings.  Here the Commonwealth clearly was a party in this matter though not, given the back to back contracts, the object of a direct claim by GEC Marconi.  Secondly, the Commonwealth did not object at the time to the use made of Notices by GEC Marconi.  The costs should be awarded on a party and party basis.

103               I would have to say I am somewhat surprised in the circumstances of this litigation that the Commonwealth has seen fit even to argue this point.  Objection was not taken at the time.  The Commonwealth was a central actor in the proceedings.  It was not a stranger and ought not be treated as such.

104               I order that the costs of complying with the Notices to Produce be paid on a party and party basis.

(b)        Overseeing subpoenaed documents

105               The claim is put in the following way in the Commonwealth’s submissions.

106               GEC Marconi caused subpoenas to be served on two third parties, British Aerospace Australia Defence Industries Pty Limited (“AWADI”) and ADI Limited (“ADI”).

107               By a memorandum of understanding dated 13 October 1992 (subsequently renewed) the Commonwealth and AWADI bound themselves to keep all proprietary material, defined to include the STUBS technology, confidential and to disclose it only to those people approved in writing who had executed an undertaking of non-disclosure.  Where proprietary material bore a national security classification, the parties agreed to treat it in accordance with current guidelines, which included the requirements of the Defence Industrial Security Manual.  That manual mandated, amongst other things, that management undertake not to disclose any classified material to any unauthorised person without the prior approval of the Commonwealth.  Annexure B to that manual was an extract from the Crimes Act 1914 (Cth) summarising Commonwealth laws relevant to personnel having access to classified material.  ADI had similar agreements in respect of other DoD projects with the Commonwealth.

108               Where the claim of secrecy, privilege or confidentiality was that of the Commonwealth, it would have been inappropriate for the recipients of the subpoenas to undertake a review of the documents.  In fact those recipients observed their statutory and contractual obligations.  DoD examined the documents and made decisions as to whether any confidentiality issues arose and whether or not public interest immunity should be claimed over any of the documents or parts of the documents.

109               The Commonwealth is entitled to claim its costs under s 43 of the Federal Court of Australia Act 1976 (Cth), the issue of a subpoena being an “incidental proceeding” for the purposes of s 43.  Reliance in this was placed on the decision of Moore J in King v GIO Australia Holdings Ltd (2001) 116 FCR 509. 

110               GEC Marconi submits that not only is the Commonwealth a stranger to the subpoenas, its intervention in the matter was to protect its own rights secured under its arrangements with AWADI and ADI.  Reliance was placed on the decision of Young J in Tristas Pty Ltd v Rohn (unreported, SC of NSW, 20 May 1993).

111               It is clear that the Commonwealth cannot seek its costs under the rules relating to subpoenas.  O 27 r 4A only confers a power to make a costs order in favour of the person to which the subpoena is addressed:  King’s case, above.  If a costs order can be made at all in the Commonwealth’s favour this could only be under s 43 of the Federal Court of Australia Act.  I am prepared to assume that the issue of a subpoena can properly be characterised as a proceeding for the purposes of s 43:  see the assumption made by Moore J in King’s case, above.  It is clear that under s 43 the Court has power to make third party costs orders:  Knight v FP Special Assets Ltd (1992) 174 CLR 178;  and I am prepared to assume that this may permit an order being made for the benefit of a non-party.

112               However, even making these assumptions, I am not satisfied that costs should be ordered in the Commonwealth’s favour.  It acted to police its own arrangement with AWADI and ADI.  Vis-à-vis GEC Marconi it then asserted, as it was entitled to, its right to claim public interest immunity and to protect confidentiality in respect of documents embraced by the subpoenas.  I do not consider that costs thereby incurred by it were costs that ought be subsumed within the “subpoena proceedings”.  They do not reflect any cost incurred by AWADI and ADI in its relationship with the Commonwealth which they could “pass on” to GEC Marconi.  They were costs preliminary to the assertion of its own rights if necessary.  They have not been claimed as such.

113               I would make no order in favour of the Commonwealth in relation to these subpoenas.

CONCLUSIONS

114               I will make the following orders:

(1)        Interest is payable on awards made in favour of BHP-IT at the rates specified in the 2001 Practice Direction of the Supreme Court of the Australian Capital Territory.

(2)        Interest is payable to BHP-IT on its judgment against GEC Marconi for the periods agreed by the parties.

(3)        Interest is payable to BHP-IT on its judgment against the Commonwealth from 1 November 2001.

(4)        GEC Marconi to pay BHP-IT’s costs of the application.

(5)        GEC Marconi to pay BHP-IT 80 per cent of BHP-IT’s costs of the first cross-claim.

(6)        GEC Marconi Australia to pay BHP-IT’s costs of the claim made against GEC Marconi Australia.

(7)        BHP-IT to pay the Commonwealth’s costs of the second cross-claim to the extent that those costs relate to matters other than (a) the “reflexive” claims as described in these reasons for judgment and (b) CR3053 as to which there will be no order as to costs.

(8)        GEC Marconi to pay the Commonwealth’s costs of the second cross-claim to the extent that those costs relate to the “reflexive” claims.

(9)        GEC Marconi to pay the Commonwealth’s costs on the Notices to Produce served on the Commonwealth on a party and party basis.

I certify that the preceding one hundred and fourteen (114) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Finn.

Associate:

Dated:              10 July 2003

Counsel for the Applicant, First Cross-Respondent, Second Cross-Respondent:	Mr J B Simpkins SC, Mr N A Nicholls
Solicitor for the Applicant, First Cross-Respondent, Second Cross-Respondent:	Colin Biggers & Paisley
Counsel for the Respondent, First Cross-Claimant, Fourth Cross-Respondent:	Mr S E Marks
Solicitor for the Respondent, First Cross-Claimant, Fourth Cross-Respondent:	Corrs Chambers Westgarth
Counsel for the Third Cross-Respondent, Second Cross-Claimant:	Mr J S Hilton SC, Mr R Vivekananda
Counsel for the Third Cross-Respondent, Second Cross-Claimant (Department of Defence):	Mr F W Redmond
Solicitor for the Third Cross-Respondent, Second Cross-Claimant:	Australian Government Solicitor
Dates of Hearing:	26-27 June 2003
Date of Judgment:	14 July 2003