FEDERAL COURT OF AUSTRALIA

Fyna Foods Australia Pty Ltd (ACN 004 981 328) v Cobannah Holdings Pty Ltd (ACN 009 310 810) (No 2) [2004] FCA 1212

PRACTICE AND PROCEDURE – costs – whether costs should be assessed on an indemnity or solicitor/client basis – where a Calderbank offer allegedly made by respondents – applicant’s failure to accept the offer not unreasonable - whether a ‘compromise’ in the relevant sense where the offer is for application to be withdrawn and each party to bear its own costs

Federal Court Rules O 23, O 60 rr 12, 19, 31

Colgate-Palmolive Company v Cussons Pty Ltd (1993) 46 FCR 225 cited

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

Vasram v AMP Life Ltd [2002] FCA 1286 cited

FYNA FOODS AUSTRALIA PTY LTD (ACN 004 981 328) v COBANNAH HOLDINGS PTY LTD (ACN 009 310 810)

V 782 of 2004

KENNY J

MELBOURNE

16 SEPTEMBER 2004

THE COURT ORDERS THAT:

1.                  The applicant pay the respondent’s costs of and incidental to the application for an interlocutory injunction, to be assessed on the party/party basis.

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

REASONS FOR JUDGMENT

introduction

1                     On 9 September 2004, I dismissed the applicant’s application for injunctive interlocutory relief.  After I indicated that I proposed to order that the applicant pay the respondent’s costs, the respondent applied for costs on an indemnity basis.  The application for indemnity costs was based on the fact that the respondent had made a “Calderbank” offer, which the applicant had rejected.  The applicant did not oppose an order for costs on the party/party basis, but it did oppose an order for costs on an indemnity basis.

background

2                     The Calderbank offer was contained in a letter dated 30 July 2004, which was exhibited to an affidavit of the respondent’s solicitor.  The letter, which was marked “Without Prejudice Save As to Costs”, offered to settle the interlocutory application on the basis that the applicant withdraw its application for interlocutory injunctive relief, and each party bear its own costs (“the offer”).  The letter stated that the offer was made “in accordance with the principles enunciated in the decision of Calderbank v Calderbank [1975] 1 All ER 333 and Cutts v Head [1984] Ch 290” and that the offer remained open for acceptance until 5.00 pm on 4 August 2004.  Amongst other things, the letter referred to the delay on the applicant’s part in making its application for interlocutory injunctive relief and alleged that the respondent had since established its product in the market.  The letter also referred to the applicant’s failure to demonstrate any actual instances of confusion. 

3                     The respondent’s solicitor has sworn that the respondent received no response to the offer.  The applicant did not contest this.  The respondent’s solicitor has also deposed that between the service of the application (12 July 2004) and the date of the respondent’s offer (30 July 2004), the respondent incurred significant legal costs in relation to the proceeding. 

4                     The Federal Court Rules (“the Rules”) provide that ordinarily costs will be recovered on a party/party basis: see O 62 rr 12, 19 and 31.  In Colgate-Palmolive Company v Cussons Pty Ltd (1993) 46 FCR 225 at 232-4, Sheppard J observed that the settled practice of the Court was to order the payment of costs on a party/party basis and that the Court ought not usually make an order on some other basis unless the circumstances of the case warranted the Court departing from its usual course.  As his Honour noted, at 233, amongst the circumstances that have been thought to warrant departing from the usual course was “an imprudent refusal of an offer to compromise”.

5                     As Goldberg J said in Dr Martens Australia Pty Ltd v Figgins Holdings Pty Ltd (No 2) [2000] FCA 602 (“Dr Martens”) at [15], “[t]here is no rigid demarcation between the circumstances in which the usual order as to party and party costs is made and the circumstances in which it is appropriate to award indemnity costs”.  In Dr Martens, his Honour added, at [16]-[17]:

It does not automatically follow that the making of an offer of compromise or settlement, whether by way of a Calderbank letter of offer or otherwise, and its non-acceptance followed by a result less favourable to the offeree than that contained in the offer, will lead to an order for the payment of costs on an indemnity basis.

…

Thus, whenever a Calderbank offer is made, and is enlivened by a result more favourable to the offeror and less favourable to the offeree, it is necessary to look at all the surrounding circumstances and not simply the fact that an offer was made and rejected and the offeree has achieved a less favourable result than the offer.  It is necessary to look at the genuineness of the offer, whether it was realistic, the point of time at which it was made and that whether, in all the circumstances, it was such a reasonable offer as required the offeree to give careful consideration to it.  If, in all the circumstances, it was unreasonable for the offeree to reject the offer and not accept it then there are strong grounds for the Court ordering indemnity costs on the basis that the offeror has made a fair and reasonable attempt to resolve the proceeding and has given the offeree the opportunity at a relevant point of time in the proceeding to consider the reasonableness of the offer.  The Full Court (Neaves, Ryan and Lee JJ) underscored this approach in Donnelly v Edelsten (1994) 121 ALR 333 where it said at 345:

            “The foundation for the order is the need for the costs order to do equity where a party who has succeeded in the proceeding has made a reasonable attempt to terminate the proceeding by an offer of compromise shown to have been a fair offer in all the circumstances and to have provided appropriate opportunity for the offeree to consider and deal with the offer.”

the parties’ submissions

6                     As the respondent noted in its written submissions, a party may rely upon a Calderbank offer in this Court notwithstanding that the party has not complied with the procedure set out in O 23 of the Rules: see, e.g., Smallacombe v Lockyer Investment Co Pty Ltd (1993) 42 FCR 97 at 101; Alpine Hardwoods (Aust) Pty Ltd v Hardys Pty Ltd (No 2) (2002) 190 ALR 121 at 124-125 per Weinberg J; and Henderson v Amadio Pty Ltd [1996] FCA 184 per Heerey J.  The common law principles concerning Calderbank offers are designed to encourage parties to give careful consideration to reasonable offers of compromise and to encourage such offers of compromise to be made.

7                     The respondent submitted that it should be awarded indemnity costs in respect of the costs incurred by it in opposing the applicant’s claim for interlocutory injunctive relief, bearing in mind, amongst other things:

·                    the reasonableness or otherwise of the offeree in rejecting the offer;

·                    the degree of specificity of reasoning expressed in the offer;

·                    the stage of the proceeding at which the offer was made;

·                    the absence of any response to the offer; and

·                    the public policy considerations relating to the making of offers of compromise.

8                     The applicant submitted that the respondent’s application for indemnity costs should be rejected because:

·                    an offer to settle on the basis that the other party abandon its application and each party bear its own costs was not an offer of ‘compromise’; rather, it was a proposal for capitulation (Bishop v New South Wales (unreported, Supreme Court of New South Wales, Dunford J, 17 November 2000); McKerlie v New South Wales (No 2) [2000] NSWSC 1159 at [9]–[11]; Singh v Singh (No 2) [2004] NSWSC 225 at [10]–[15] per Barrett J; and Hobartville Stud Pty Ltd v Union Insurance Co Ltd (1991) 25 NSWLR 358 at 368 per Giles J); and

·                    the refusal of the so-called offer of compromise was not imprudent or plainly unreasonable because:

-         it was not a genuine proposal to compromise;

-         the offer expired before the applicant was served with the respondent’s affidavit material in opposition to the application; and

-         the application was not hopeless or without any merit whatsoever.

consideration

9                     I would not accede to the respondent’s application for indemnity costs in this case.  In the circumstances of the case, the applicant did not act unreasonably in failing to accept the offer.  As the respondent noted, the offer set out why the respondent considered the application would fail, but, as the applicant observed, the offer was expressed to expire before the applicant had received the respondent’s affidavits in opposition.  The applicant was not, therefore, afforded any realistic opportunity to consider the strength or otherwise of the respondent’s position vis à vis its own. 

10                  Further, I doubt that the offer amounted to a genuine offer of compromise.  In Vasram v AMP Life Ltd [2002] FCA 1286, Stone J held that where a respondent invited an applicant to discontinue upon the basis that the respondent waived its entitlement to costs, there was no Calderbank offer.  Her Honour said at [12]:

The offer made here was merely an invitation to the applicant to discontinue with no costs order being made.  It was not an attempt to resolve the matter by way of compromise.  An offer similar to that made by the respondent was discussed by Hill J in Australian Competition and Consumer Commission v Universal Music Australia Pty Ltd (No 2) [2002] FCA 192.  In that case the applicant had not accepted an offer that the proceedings be dismissed with no order as to costs.  Hill J noted, at [59]-[60], that:

“the weight of authority is against an offer of the kind here made … being regarded as a Calderbank offer. 

In Calderbank itself … the offer to settle divorce proceedings was one whereby the wife in divorce proceedings offered to transfer a house to the husband.  It was an offer of a real compromise for a consideration of real value.  By contrast the offer here made was to terminate the litigation with no cost orders being made.” 

His Honour also noted that the Supreme Court of New South Wales in McKerlie v State of New South Wales (No 2) [2000] NSWSC 1159 had expressly held that an offer to settle a case by dismissing it with no order as to costs did not carry with it the consequences of a Calderbank letter.

11                  Of course, even if the offer was in the nature of a genuine Calderbank offer, the rejection of the offer would be but one factor to be taken into account in the Court’s exercise of its discretion.  As already indicated, I do not think that the applicant acted unreasonably in failing to accept the offer.  Further, I accept, as the applicant submitted, that the application for an interlocutory injunction was not so devoid of merit as to have been improperly brought. 

12                  For the reasons stated, I would refuse the respondent’s application for costs on a solicitor/client basis or indemnity basis.  Bearing in mind the outcome of the applicant’s application for interlocutory injunctive relief, however, I would order that the applicant pay the respondent’s costs of and incidental to the interlocutory application on a party/party basis.

Associate:

Dated:              16 September 2004