FEDERAL COURT OF AUSTRALIA

Port Kembla Coal Terminal Ltd v Braverus Maritime Inc (No 2)

[2004] FCA 1437

COSTS – offer of compromise – application for indemnity costs – circumstances in which the Court should ‘otherwise order’ – defendant asserted that it had insufficient time and information to be able to consider the offer – no direct evidence to support assertions – no reason to ‘otherwise order’ – indemnity costs ordered

COSTS – without prejudice offer – application for indemnity costs – consideration of Calderbank principles – cross-defendant required to show that defendant’s failure to accept the offer was unreasonable in all the circumstances – whether unreasonable to reject a small offer when success in cause of action doubtful – not unreasonable to pursue a claim in an untested area of the law – indemnity costs not appropriate – costs awarded on party/party basis

Federal Court Rules Order 23 rule 11(4), Order 23 rule 5(3)

Navigation Act 1912 (Cth) s 410B

Ports Corporatisation and Waterways Management Act 1995 (NSW) ss 85, 86

Alpine Hardwoods (Australia) Pty Ltd v Hardys Pty Ltd (No 2) (2002) 190 ALR 121 cited

Black v Lipovac [1998] FCA 699 cited

Calderbank v Calderbank [1976] Fam 93 cited

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

Flemington Properties Pty Ltd v Raine & Horne Commercial Property Pty Ltd [1998] FCA 53 approved

Fowles v Eastern & Australian Shipping Co Ltd (1913) 17 CLR 149 cited

Hillier v Sheather (1995) 36 NSWLR 414 cited

Houatchanthara v Bednarczyk (unreported, NSWCA, Clarke and Handley JJA, Santow AJA, 14 October 1996, BC 9604998) cited

Manly Council v Burn (No 2) [2004] NSWCA 227 cited

MGICA (1992) Pty Ltd v Kenny & Good Pty Ltd (No 2) (1996) 70 FCR 236 cited

Morgan v Johnson (1998) 44 NSWLR 578 cited

NSW Insurance Ministerial Corporation v Reeve (1993) 42 NSWLR 100 applied

Oceangas (Gibraltar) Ltd v Port of London Authority [1993] 2 Lloyd’s Rep 202 cited

Oceanic Crest Shipping Pty Ltd v Pilbara Harbour Services Ltd (1986) 160 CLR 626 cited

Port Kembla Coal Terminal v Braverus Maritime Inc [2004] FCA 1211 cited

Smith v 600 Machinery Australia Pty Ltd [1996] FCA 1029 cited

Sydney Markets Limited v Sydney Flower Market Pty Ltd [2002] FCA 283 cited

Wills v Bigmac Pty Ltd [1994] FCA 949 discussed

Workington Harbour & Dock Board v Towerfield (Owners) [1951] AC 112 cited

Halsbury’s Laws of Australia

PORT KEMBLA COAL TERMINAL LTD v BRAVERUS MARITIME INC

N 1397 OF 2002

HELY J

5 NOVEMBER 2004

SYDNEY

THE COURT ORDERS THAT:

1.                  The defendant pay the plaintiff’s costs of these proceedings:

(a)                up to and including 12 March 2003, taxed on a party/party basis; and

(b)               after 12 March 2003, taxed on an indemnity basis.

2.                  The defendant pay the Corporation’s costs of these proceedings on a party/party basis.

3.                  The defendant pay the plaintiff’s costs of the plaintiff’s motion.

4.                  The Corporation’s motion is dismissed with costs.

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

REASONS FOR JUDGMENT

1                     I have before me two Notices of Motion, one by Port Kembla Coal Terminal (‘the plaintiff’) and the other by the Port Kembla Port Corporation (‘the Corporation’) in which each seeks a special order as to costs in the light of the orders which I made on 21 October 2004.  Those orders were for the entry of judgment in favour of the plaintiff against Braverus Maritime Inc (‘the defendant’) in the sum of $19,067,479.21 (being $16,097,548.17 plus interest at Schedule J rates of $2,969,931.04), and that the defendant’s cross claim against the Corporation be dismissed.

Costs as between the plaintiff and the defendant

2                     The plaintiff seeks an order that the defendant pay the plaintiff’s costs of the proceedings up to and including 12 March 2003 on a party/party basis, and after 12 March 2003 on an indemnity basis.  In making the application for a special order as to costs, the plaintiff relies upon Order 23 rule 11(4) of the Federal Court Rules (‘the Rules’) which provides:

‘(4)      If:

            (a)        an offer is made by an applicant and not accepted by the respondent; and

            (b)        the applicant obtains judgment on the claim to which the offer relates not less favourable than the terms of the offer;

then, unless the Court otherwise orders, the applicant is entitled to an order against the respondent for costs incurred in respect of the claim:

            (c)        up to an including the day the offer was made – taxed on a party and party basis; and

            (d)        after that day – taxed on an indemnity basis.’

3                     The Federal Court Rules do not contain any explication in relation to taxation of costs ‘on an indemnity basis’, but it is not uncommon for courts to make an order for taxation of costs in those terms: see Colgate-Palmolive Company v Cussons Pty Ltd (1993) 46 FCR 225 at 229.

Background

4                     On 15 April 2002 the SA Fortius (‘the Fortius’) a cape size vessel owned by the defendant, collided with Coal Berth No 2 in Port Kembla Harbour.  Significant damage was caused by the collision, and the plaintiff commenced action against the defendant on 20 December 2002 (see generally Port Kembla Coal Terminal v Braverus Maritime Inc [2004] FCA 1211).

5                     On 5 March 2003 the plaintiff’s solicitors suggested that the parties should get together to address issues relating to quantum, but on 17 April 2003 they indicated to the defendant’s solicitors their disappointment that they had received no response to the proposition that the technical experts should meet with a view to reaching agreement on the issue of quantum.

6                     On 12 March 2003 the plaintiff served on the defendant a document entitled ‘Notice of Offer of Compromise’ (‘the offer’).  The offer stated that the plaintiff was prepared to accept ‘the sum of $15,000,000 plus interest and costs in full settlement of all claims made by [the plaintiff] in these proceedings’.  The offer was expressed to remain open for 28 days, which was twice the period of time required by the Rules (Order 23 rule 5(3)).

7                     On 28 March 2003 directions were given for the further conduct of these proceedings.  Those directions provided (inter alia) for the plaintiff and the defendant to serve verified lists of documents on or before 30 April 2003 and for the plaintiff and the defendant to complete inspection of documents on or before 27 June 2003.

8                     On 17 April 2003 the plaintiff’s solicitors extended the period for acceptance of the offer until 4 July 2003, by which date the defendant ‘will have had 7 days to digest the contents of the plaintiff’s discovery, as the parties are required to have completed inspection by 27 June 2003’.

9                     On 9 May 2003 the plaintiff served its first list of documents on the defendant itemising some 7,395 documents.  This was not the first occasion on which the defendant was provided with some information as to the plaintiff’s claim, as representatives of the defendant were regularly afforded access to the damaged berth during the repair and restoration works, and some informal explanation of the plaintiff’s claim had also earlier been provided to the defendant.

10                  On 24 June 2003 the plaintiff served an unverified supplementary list discovering a further 186 documents, which were said to be ‘available for your immediate inspection’.

11                  On 3 July 2003 the plaintiff served a verified supplementary list of the further 186 documents.  On 4 July 2003 the plaintiff’s offer expired.  The defendant did not at any stage seek an extension of the offer, nor is there any evidence of any contemporaneous protest on the part of the defendant as to any inability on its part to ‘digest’ the plaintiff’s discovery in time for it to decide whether or not to accept the offer of compromise.  The offer lapsed by effluxion of time.

12                  On 25 February 2004 the defendant made a ‘Calderbank offer’ to settle the plaintiff’s claim for $10 million, which was expressed to be open until 5 March 2004.  That sum was apparently arrived by deducting from the plaintiff’s pleaded claim of $17.5 million a component of $2 million for loss of profits and wasted expenses, as well as a sum of about $1.7 million for repair costs and expenses, and an allowance of a 50 per cent reduction in the $6 million costs associated with the coal loader for alleged contributory negligence.

13                  On 16 March 2004 the plaintiff rejected the defendant’s offer.  The plaintiff also repeated its earlier offer of $15 million plus interest and costs which was expressed to remain open until 26 March 2004.

14                  On 18 March 2004 the plaintiff’s solicitors orally informed the defendant’s solicitors that the plaintiff’s claim was now $16,270,000 after excluding the claim for loss of profits.  On 19 March 2004 the defendant increased its offer to $12.5 million.  On 23 March 2004 the plaintiff provided new particulars of its claim of $16,171,898.24.  On 26 March 2004 the plaintiff’s offer of compromise expired.

15                  On 5 April 2004 the hearing of the proceedings before me commenced.  On 21 October 2004 the plaintiff received judgment ‘no less favourable’ than the amount set out in the offer, and is, pursuant to Order 23 rule 11(4), presumptively entitled to indemnity costs post 12 March 2003.  This prima facie entitlement will only be dislodged if the defendant is able to demonstrate that there are sufficient reasons for the Court to ‘otherwise order’.  Alternatively, the plaintiff asserts that it should receive costs on an indemnity basis from an after 16 March 2004 by reason of the defendant’s unreasonable rejection of the offer which the plaintiff then made.  It is common ground that the offer of 16 March 2004 was not made in accordance with Order 23, but it was accepted in the course of argument that the Court nonetheless had a discretion to make a special order for costs having regard to the defendant’s non-acceptance of that offer in the light of Calderbank principles.

Offers of compromise

16                  In Wills v Bigmac Pty Ltd [1994] FCA 949 Heerey J made the following comments about when it would be appropriate for a court to ‘otherwise order’ (at [13]):

‘It would in my opinion require compelling and exceptional circumstances before a court “otherwise orders”.  Were this not so, applicants might be inhibited in accepting otherwise reasonable offers because of uncertainty as to the costs consequences.  The effectiveness of Order 23 in promoting settlement of litigation would be diminished.’

Heerey J’s comments were cited with approval by Mansfield J in Smith v 600 Machinery Australia Pty Ltd [1996] FCA 1029. 

17                  The defendant submitted that Heerey J’s use of the language ‘compelling and exceptional circumstances’ places an unexpressed gloss on Order 23 which is both unnecessary and undesirable, and which acts as an unjustified fetter on the Court’s discretion.  I disagree.  Heerey J’s statement is no more than a description of the predicament created for defendants by the operation of the Rules.  Once an offer is made, and a judgment no less favourable obtained, a rebuttable presumption in favour of indemnity costs is created.  It then becomes incumbent on the defendant to show reason why the presumption should not crystallise.  Correctly understood, Heerey J was explaining the operation of the Rule, rather than impermissibly attempting to place a fetter on the exercise of the Court’s discretion.  There has been some criticism of the use by Heerey J of the expression ‘compelling … circumstances’ (see Hillier v Sheather (1995) 36 NSWLR 414 at 422), but in my respectful opinion his Honour was not seeking to do more than to convey that the prima facie position should only be departed from for proper reasons which, in general, only arise in an exceptional case (see Houatchanthara v Bednarczyk (unreported, NSWCA, Clarke and Handley JJA, Santow AJA, 14 October 1996, BC 9604998)).

18                  Even if an unsuccessful litigant acted reasonably in rejecting an offer of compromise based on its asserted defences, the authorities establish this of itself is not a sufficient reason to displace the presumptive or prima face operation of the Rules.  As Gleeson CJ (with whom Clarke and Cripps JJA agreed) stated in NSW Insurance Ministerial Corporation v Reeve (1993) 42 NSWLR 100 at 102:

‘It is impossible exhaustively to state the circumstances in which a discretion to contrary effect might be exercised, and it would be imprudent to attempt any such exhaustive statement.  However, I do not read Maitland Hospital v Fisher (No 2) [(1992) 27 NSWLR 720] as authority for the proposition that discretion should be exercised against making an order for indemnity costs in any case in which it was reasonable for the defendant to take the view that it had a good chance of successfully defending the action.  The prima facie consequence, which will apply in the ordinary case, is that in the circumstances postulated by the rule an order for indemnity costs will be made.’

This approach was endorsed in Morgan v Johnson (1998) 44 NSWLR 578 by Mason P (with whom Sheller JA agreed) who said (at 582):

‘The mere fact that it was reasonable for the litigant to take the view that he or she did in rejecting the offer is not enough to displace the rule: NSW Insurance Ministerial Corporation v Reeve (at 102).’

Did the plaintiff make an offer of compromise?

19                  The first question is whether the offer was an ‘offer of compromise’ within the meaning of Order 23: see Manly Council v Burn (No 2) [2004] NSWCA 227.

20                  The defendant’s submissions implicitly accept that the offer was an ‘offer of compromise’ within the meaning of Order 23, as the focus of the defendant’s submissions is upon whether the Court should ‘otherwise order’ in terms of Order 23 rule 11(4).  The defendant’s approach is, in my view, the correct one, because, in a formal sense, the offer complies with the Rule, and the discount which the plaintiff offered in relation to its claim as ultimately formulated and found was in excess of a million dollars.  The discount offered was real and not trivial or contemptuous, and the offer was really a ‘compromise’.  That is particularly so as the prospects of the defendant succeeding on the issue of liability were remote, a fact which is implicitly recognised by the defendant in quantum of the defendant’s Calderbank offers, and the explanations given by the defendant’s solicitors as to how the sums offered were struck.

Exceptional circumstances claimed by the defendant

21                  The first matter on which the defendant relies in support of its contention that special circumstances exist which make it just that the Court should ‘otherwise order’ is that during the period in which the offer was open, the plaintiff had not filed any evidence in relation to either liability or quantum.  It was not until 3 March 2004 that the defendant filed a statement by Mr Bullock dealing with the particular issues of quantum that were disputed by the defendant, and it was not until 2 and 5 April 2004 that this statement was answered by the plaintiff’s experts.  The defendant also points to the fact that the plaintiff’s discovery was of some magnitude, with over 7000 documents being produced for inspection on 30 April 2003, and a further 186 documents produced on 24 June 2003.

22                  Under the Rules, an offer of compromise may be made at any time prior to the giving of a decision in the matter, but the time in which the offer is open to be accepted must be not less than 14 days beginning on the day after the offer is made.  There is nothing in the Rules which requires that the proceedings should have reached any particular stage of development before an offer of compromise may be made which will attract the costs consequences for which the Rules provide.  For example, there is no reason why an offer of compromise may not be made with the filing of the Statement of Claim, and there is every reason for encouraging offers of compromise to be made as early as the circumstances reasonably permit.

23                  The defendant’s submissions imply that the defendant was in possession of insufficient information at the time when the offer was open to make an informed choice as to whether or not to accept the offer, and that this is a sufficient reason for the Court to ‘otherwise order’.  My attention was not directed to any case which establishes any general principle to this effect.  There are a number of other problems associated with the submission.  First, the defendant does not contend, nor could it successfully contend, that any informational deficiency from which it was suffering at the relevant time was due to any default on the part of the plaintiff.  Orders for discovery, inspection and the provision of witness statements were only made later in the piece.  Second, the defendant invites me to infer that it had insufficient information in the period when the offer was open, and, in particular, insufficient information in relation to the cost of repairs to the damaged berth, to make an informed choice as to whether to accept the offer or not, but without adducing any direct evidence to that effect.   I am not prepared to draw inference to that effect without direct evidence, particularly having regard to the fact that Sinclair Knight, Merz (‘SKM’), a firm of engineers appointed by the defendant, were closely involved with the repair project from shortly after the collision took place, and from April 2002 SKM staff were allowed by the plaintiff to visit the terminal three times a week, and were briefed weekly as to the progress of the remedial work.  Between June and December 2002 the defendant’s solicitors were provided with various reports and other documents in relation to the repair work and the cost of undertaking that work.  A number of these documents were provided in response to requests from both the defendant’s engineers and solicitors.  In addition, in January 2003 the defendant’s solicitors were given, and took advantage of, an opportunity to inspect documents held by the plaintiff’s site manager, and a meeting occurred at which the defendant’s solicitors and SKM were briefed as to the manner in which the repair and restoration works at the terminal were undertaken. 

24                  Third, the defendant’s submission implies that any informational deficiency from which it was suffering was not referable to any failure on its part to make a realistic assessment of the case which it had to meet, on the basis of the best information then available to the defendant.  Again, the evidence does not establish the matter on which the defendant now relies.  There is no direct evidence to this effect, nor is there any evidence that at the relevant time the defendant sought any further information from the plaintiff in order to enable the defendant to assess the plaintiff’s claim properly.  So far as the evidence goes, the defendant simply ignored the plaintiff’s proposals that the technical experts should meet with a view to reaching agreement on the issue of quantum.

25                  The defendant has failed to demonstrate that its non-acceptance of the offer was referable to any informational deficiency, let alone that any such deficiency was caused by the plaintiff, or not contributed to by the defendant.

26                  The second argument on which the defendant relies is that the plaintiff’s claim changed during the relevant period.  The plaintiff originally particularised its damages claim at $17,496,000 of which $2 million was described as ‘loss of profits and related expenses’.  The defendant contended that the $2 million component of the claim was not maintainable, which position was ultimately accepted by the plaintiff on 23 March 2004, when it provided new particulars of its claim which was reduced to $16,171,894.24.  The defendant’s submissions do not explain why it is that this change in the plaintiff’s claim to accommodate an objection raised by the defendant provides a sufficient foundation for the Court to ‘otherwise order’, particularly as the defendant does not assert that its response to the offer was in any way influenced by the fact of this claim.  As a consequence, I find this argument to be without merit.

27                  The defendant also made two subsidiary arguments.  The first pointed to the fact that there was only a 6.8 per cent difference between the offered amount and the amount ultimately awarded.  In the defendant’s submission, the premium would have disappeared had it been successful in its claim for betterment or contributory negligence.  The second argument, which was only advanced in oral submissions, was that this was a test case, and that for some reason this bears upon the exercise of the Court’s discretion.

28                  The first argument blurs the distinction between an offer of compromise under Order 53, and a Calderbank offer.  In the case of a Calderbank offer, the issue is whether the conduct of the defendant in failing to accept the offer was unreasonable in all of the circumstances, so as to justify a departure from the usual rule as to costs.  However, as the authorities referred to above decide, in the case of an offer of compromise, the mere fact that the defendant’s case was ‘bona fide and arguable’, to adopt the language used in the defendant’s submissions, is not of itself sufficient to displace the operation of the Rule.  In any event, even if such an argument was capable of assisting the defendant, the plaintiff’s claim only failed to the extent of $13,000; hardly an amount capable of making good an argument that the defendant came close to bettering the offer.

29                  The second argument should also not be accepted.  The plaintiff’s case against the defendant was principally a facts case involving an allegation of negligence on the part of the defendant arising from a collision between a ship and a berth.  No issue of general principle arose between the plaintiff and the defendant.  The fact that both parties made offers of compromise is consistent with this proposition.

30                  A costs order should be made in the terms sought by the plaintiff.

Costs as of the defendant’s cross claim against the Corporation

31                  The Corporation’s motion seeks an order that the defendant pay the Corporation’s costs in relation to the defendant’s cross claim up to and including 3 March 2004 on a party/party basis, and after 3 March 2003 on an indemnity basis.

32                  In support of its motion the Corporation relies upon a ‘without prejudice’ offer that it made on 3 March 2004 (‘the Calderbank offer’) (see Calderbank v Calderbank [1976] Fam 93 at 105).  The Calderbank offer was for $250,000, and was expressed to be in settlement of ‘all issues between [the defendant and the Corporation] … including the cross claim and the counter cross claim, and interest and costs’.  The offer remained open until 10 March 2004.  The defendant did not accept the Calderbank offer. 

33                  The Calderbank offer was not an offer of compromise in terms of Order 23, but the defendant did not submit that indemnity costs should be denied to the Corporation for that reason, or that this was a relevant factor to take into account in the exercise of the Court’s discretion (see Halsbury’s Laws of Australia at [325-6705]).

34                  The Corporation accepted that the rejection of a Calderbank offer that is not bettered by the offeree at trial does not in itself warrant an order for indemnity costs.  The authorities require the Corporation to go further and demonstrate that the conduct of the defendant in failing to accept the Calderbank offer was unreasonable in all of the circumstances, so as to justify a departure from the normal rule as to costs (Sydney Markets Limited v Sydney Flower Market Pty Ltd [2002] FCA 283 at [16] – [18]; Black v Lipovac [1998] FCA 699 (FC) at [213] – [223]; Alpine Hardwoods (Australia) Pty Ltd v Hardys Pty Ltd (No 2) (2002) 190 ALR 121 at [21] – [38]; MGICA (1992) Pty Ltd v Kenny & Good Pty Ltd (No 2) (1996) 70 FCR 236 at 238 – 240).

35                  The Corporation submitted that the defendant’s failure to accept the Calderbank offer was unreasonable because of the doubtful prospects of success for the defendant’s legal arguments on its cross claim.  In particular, the Corporation pointed to the failure of the defendant’s claims in tort, contract, under the Constitution, and s 52 and Part IV of the Trade Practices Act 1974 (Cth) (‘the TPA’).  These claims were submitted to be ‘in many respects contrary to the highest authority, and … made doubtful by statutory provisions whose meaning is clear’.  The imposition of a lengthy hearing in order to make those claims, combined with the refusal of the $250,000 Calderbank offer, were submitted to be a sufficient basis for the making of an indemnity costs order.

36                  The defendant submitted that its refusal of the Calderbank offer was not unreasonable, for the following reasons:

-                     although the defendant was ultimately unsuccessful, its case against the Corporation was far from hopeless, and had reasonable prospects of success.  The Court found that the pilot provided by the Corporation to the defendant was unlicensed, and that he was 60 per cent responsible for the collision.  Had any of the defendant’s claims succeeded, the defendant would have been able to claim significant contribution from the Corporation; (the strength of argument reasons)

-                     the Calderbank offer was made only four and a half weeks prior to the commencement of the trial, at a time when the Corporation had only just filed its primary affidavit evidence.  As the offer was only open for seven days, the defendant therefore only had a short period of time to examine the evidence and consult its own witnesses, some of which were overseas or at sea; (the timing reasons) and

-                     the $250,000 Calderbank offer did not represent any genuine attempt at compromise, as it was only slightly more than 1.5 per cent of the $16,097,548.17 ultimately awarded to the plaintiff, and only about 2.5 per cent of 60 per cent of that figure (60 per cent being the relative responsibility that was ultimately apportioned to the pilot) (the quantum reasons).

37                  The defendant also raised a number of matters that were said to be discretionary factors militating against an order for indemnity costs.  Chief amongst these were the late production by the Corporation of evidence relating to the pilot’s licensing status; the persistence by the Corporation with claims for privilege which were ultimately determined to be unsustainable; and, an elongation of the trial said to be due to the stance and actions of the Corporation.

Consideration

38                  It is convenient for me to consider each of the defendant’s reasons in turn.  In doing so, I do not mean to imply that the defendant is required to discharge any burden of proof.  The Corporation, as the party seeking the special costs order, is the one who is required to show that the rejection of the offer was unreasonable in all of the circumstances.

39                  First, in relation to the strength of argument reasons, the mere fact that the defendant was only held to be 40 per cent liable as a pure issue of negligence does not tell the entire story.  Whilst it is true that I found that the pilot was 60 per cent responsible for the collision, that finding was of no benefit to the defendant unless I rejected the Corporation’s claim that it was entitled to the benefit of the statutory immunities to defeat the defendant’s claim.

40                  The issue of statutory immunities thus became the principal issue between the defendant and the Corporation. The relevant statutory immunities were contained in s 410B of the Navigation Act 1912 (Cth) and ss 85 and 86 of the Ports Corporatisation and Waterways Management Act 1995 (NSW) (‘the PCWM Act’).  A construction of s 410B adverse to the defendant’s claims was adopted by the majority of the High Court in Oceanic Crest Shipping Pty Ltd v Pilbara Harbour Services Ltd (1986) 160 CLR 626 (‘Oceanic Crest’), and the decision of the High Court could have been expected to be equally applicable to s 85, since that section is couched in terms similar to s 410B.

41                  The essential difference between this case and Oceanic Crest is that here the pilot was found to have been unlicensed.  The defendant relies heavily upon this fact, and upon the Corporation’s conduct in failing to produce documents relevant to the licensing issue until after the trial had commenced.  Reliance on the second of these matters is misplaced.  The only relevant consideration is whether the lack of a licence could have provided a reasonable basis for the defendant’s rejection of the Corporation’s offer.  Late production of documents which tended to establish that the pilot was not licensed had no bearing on that question.

42                    When the matter came on for hearing the defendant brought considerable ingenuity to bear in raising legal arguments designed to rebut the prima facie position established by the statutory immunities.  However, all of the arguments ultimately failed, and none of them had any significant merit.  In particular, for the reasons given in the judgment, the absence of a licence required under State law could not overcome the protection afforded to the Corporation by s 410B, and the decision in Oceanic Crest.

43                  In relation to the claim in contract, the defendant needed to establish that, contrary to prior judicial comments (including by the West Australian Supreme Court (at (1986) WAR 99) and Brennan J (at (1986) 160 CLR 656) in Oceanic Crest, by Barton ACJ in Fowles v Eastern & Australian Shipping Co Ltd (1913) 17 CLR 149 at 167-168, and by Clarke J in Oceangas (Gibraltar) Ltd v Port of London Authority [1993] 2 Lloyd’s Rep 202 at 299) a contract existed between the defendant and the Corporation.  I found that the defendant failed to establish such a contract.  Further, even if such a contract existed, the defendant would then have had to show (contrary to the decision in Workington Harbour & Dock Board v Towerfield (Owners) [1951] AC 112) that claims in contract escape the operation of s 410B and ss 85 and 86 (given my conclusion on the absence of a contract, it was unnecessary for me to decide this issue).

44                  The balance of the defendant’s case against the Corporation, including the claims of invalidation through constitutional inconsistency, invalidation through lack of provision of just terms, misleading and deceptive conduct, and inconsistency with Part IV of the TPA, all faced fundamental obstacles, and were ultimately given scant attention in the defendant’s submissions.

45                  However, the strength of argument reasons cannot be considered in isolation from the quantum reasons.  Clearly, the Calderbank offer was only a small fraction of the sum in dispute, although I would not characterise the offer as derisory, or uphold the reasonableness of the defendant’s rejection of the offer purely on that basis. 

46                  The question then is whether the defendant acted unreasonably in rejecting a small offer in a context where it had devised arguments by which it sought to overcome the prima facie effect of the statutory immunities.  Whilst the policy of the law favours the sensible compromise of disputes, as Lehane J observed in Flemington Properties Pty Ltd v Raine & Horne Commercial Property Pty Ltd [1998] FCA 53 there is also a policy against deterring parties from pursuing claims to which they reasonably believe themselves entitled.

47                  Ultimately, I have come to the conclusion that I should not make an order for the payment of the Corporation’s costs on an indemnity basis, because although its case for avoiding the operation of the statutory immunities was not a strong one, it would be an exaggeration to describe it as one which the defendant should have appreciated was hopeless at the time when the offer was made.  The fact that the pilot was unlicensed was at least a point of distinction between the present case and Oceanic Crest, and there was no prior judicial decision on the effect of an unlicensed pilot on what would otherwise be the effect of the relevant statutory provisions.

48                  For completeness I add that I find the timing reasons unconvincing.  The primary basis upon which the offer was proffered, namely that the Corporation was protected by statutory immunities, was a purely legal issue that did not require consultation with witnesses, overseas or otherwise.  In any event, even if consultation was necessary, there is no evidence that the defendant asked for an extension to the Calderbank offer, or expressed concerns as to its ability to adequately consider the Calderbank offer within the stated time limit.

49                  In the result, the Corporation’s motion is dismissed with costs.  The defendant should pay the Corporation’s costs in the proceedings on a party/party basis.

Orders

50                  The following orders should be made:

1.         The defendant pay the plaintiff’s costs of these proceedings:

(a)        up to and including 12 March 2003, taxed on a party/party basis; and

(b)        after 12 March 2003, taxed on an indemnity basis.

2.         The defendant pay the Corporation’s costs of these proceedings on a party/party basis.

3.         The defendant pay the plaintiff’s costs of the plaintiff’s motion.

4.         The Corporation’s motion is dismissed with costs.

Associate:

Dated:              5 November 2004