FEDERAL COURT OF AUSTRALIA

Ruaro v Ferrari [2008] FCA 307

COSTS – notice of offer of compromise – notice fails to comply with requirements of order 23 – judgment in favour of party making offer – whether party making offer entitled to costs on an indemnity basis

Federal Court Rules, Orders 11 and 23

MARK RUARO AND ANOR v CATHERINE FERRARI AND ANOR

ACN 062 320 870

NSD 936 OF 2005

EMMETT J

8 FEBRUARY 2008

SYDNEY

THE COURT ORDERS THAT:

1.                  Orders 1 and 2 made on 19 December 2007 be rescinded;

2.                  There be judgment in favour of Holcomm Marine Pty Limited and the proceeding be dismissed as against Holcomm Marine Pty Limited;

3.                  The Cross-claim by Holcomm Marine Pty Limited against Mark Ruaro and Secilia Ruaro be dismissed;

4.                  The Plaintiffs pay the costs incurred by Holcomm Marine Pty Limited in relation to the proceeding other than the Cross-claims and other than the costs referred to in order 5:

4.1              Up to and including 10 April 2007 on the party-party basis, and

4.2              After 10 April 2007 on the indemnity basis; and

5.                  Holcomm Marine Pty Limited pay the Plaintiffs’ costs of the Cross-claim referred to in order 3 and the proof of the facts set out at paragraphs 1, 4, 5, 6, and 7 of the notice disputing facts dated 22 March 2006.

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

REASONS FOR JUDGMENT

1                     On 19 December 2007, I ordered that this proceeding be dismissed and that the plaintiffs pay the costs of the second defendant (Holcomm Marine) of the proceeding.  However, when I pronounced those orders, the solicitor for Holcomm Marine indicated that it proposed to make an application for a special order as to the costs of the proceeding.  Accordingly, I directed that those orders not be entered before 11 February 2008, directed the parties to make any further submissions regarding costs no later then 1 February 2008 and stood the matter over for further directions today.  Subsequently, written submissions were made, although not in accordance with the direction that I gave on 19 December 2007.  In any event, written submissions have now been received on behalf of both the plaintiffs and Holcomm Marine.  I have also had further oral submissions on behalf of both parties concerning the question of costs. 

2                     The issues in the proceeding as it went to trial are discernible from the reasons that I published on 19 December 2007.  Those reasons were published after a full hearing and detailed submissions on behalf of the parties. 

3                     The basis for Holcomm Marine’s present application is that it made two offers, purportedly in compliance with O 23 of the Federal Court Rules.  Order 23 r 2 provides that a party may make to another party an offer to compromise any claim in the proceeding on the terms set out in the notice of offer.  Under O 23 r 3, an offer of compromise is to be made to a party by serving notice of the offer on the party.  The notice of offer must be in accordance with O 41.  Order 23 r 4(2) provides that, if a sum of money is offered and that sum is inclusive of interest, the notice of offer must specify the amount that is in respect of interest and how it is calculated.  Rule 5 provides that an offer may be made at any time before the time prescribed by r 5(7).  Rule 5(4) provides that an offeree may accept an offer by serving notice of acceptance in writing before the time prescribed by r 5(7).  Rule 5(7) relevantly provides that the time prescribed for both of those provisions is when the court pronounces the decision or begins to give reasons for the decision. 

4                     Rule 11(5) provides that, if an offer is made by a respondent and not accepted by the applicant and the applicant obtains judgment on the claim to which the offer relates not more favourable than the terms of the offer then, unless the Court otherwise orders, the applicant is entitled to an order that the respondent pay the applicant's costs in respect of the claim incurred up to 11 am on the day after the day when the offer was made, taxed on a party-party basis, and the respondent is entitled to an order that the applicant pay the respondent's costs in respect of the claim incurred after that time, taxed on an indemnity basis.

5                     Holcomm Marine made two offers to the plaintiffs.  The first was made on 13 February 2007 and consisted of an offer to compromise the action on terms that Holcomm Marine pay to the plaintiffs the sum of $125,000, inclusive of interest, plus the plaintiffs’ party-party costs.  The offer was expressed to remain open until 13 March 2007.  On that day, Holcomm Marine made another offer to compromise the action on terms that it would pay to the plaintiffs the sum of $250,000, inclusive of interest, plus the plaintiffs’ party-party costs.  That offer was to remain open to be accepted until 10 April 2007.  The plaintiffs accepted neither offer. 

6                     Neither offer satisfied the requirement of O 23 r 4(2) that the notice specify the amount that is in respect of interest and how it is calculated.  On the other hand, both offers did specify that the offer was exclusive of the plaintiffs’ party-party costs.  That is to say the offer made was of a fixed sum, plus those costs.

7                     The failure to comply with r 4(2) is not insignificant.  It may be that Holcomm Marine was intending to make an offer that involved no interest.  It does not say that.  Bearing in mind the date upon which Seaquest was lost, if the plaintiffs had succeeded, there would have been quite a substantial sum to be included in any judgment for interest from the time either when the cause of action arose or perhaps when the proceeding commenced, up to the time of judgment.  Thus the lump sums that were offered must be treated as including some amount of interest that was not specified. 

8                     In the event, I concluded that there was no liability on the part of Holcomm Marine to the plaintiffs.  Accordingly, I indicated that there should be judgment for Holcomm Marine and that the proceeding should be dismissed.

9                     The proceeding was conducted on the basis that the liability of Holcomm Marine to the plaintiffs was hotly contested.  In addition, there was a significant issue as to the quantum of damages to which the plaintiffs would be entitled if they succeeded.  Although it was not necessary to assess damages, having regard to the view that I formed about liability, I indicated the basis upon which I would have assessed damages had the plaintiffs succeeded.  In round terms, that figure would have been approximately three-hundred thousand dollars ($300,000).  On the other hand, the plaintiffs had claimed a figure closer to five-hundred thousand dollars ($500,000) and evidence had been filed prior to the making of the offers indicating that the latter figure was the quantum of the plaintiff’s claim. 

10                  The plaintiffs had previously propounded a different basis for the assessment of damages, namely the cost of replacing Seaquest by rebuilding.  That claim for damages, somewhere in excess of $1 million, was very substantially greater than the figure that was propounded at the trial.  However, that claim was abandoned following a detailed directions hearing conducted during 2006. 

11                  At the time of the offers, Holcomm Marine had filed its evidence of value indicating in round terms a value of approximately $200,000.  As I indicated in my reasons, Seaquest had been insured for a figure not much in excess of $100,000, although, for the reasons I indicated, that was not decisive as to its value at the time of loss.  The proceeding continued and was conducted at the hearing on the basis that the appropriate measure was the value of Seaquest at the place and time of its loss, namely Rose Bay, New South Wales, on 24 August 2003. 

12                  The second offer of $250,000 can be seen to be a compromise in two respects.  In one sense, so far as the case of Holcomm Marine is concerned, it was a very slight compromise in the sense that on its case, if it were held liable, the judgment would be in the vicinity of $200,000 plus interest.  That figure may not have been very much greater than $250,000 or, even if it was, the figure of $250,000 would represent a significant part of the judgment to be obtained on that basis.  On the other hand, the plaintiffs’ case, at its highest, would have put the judgment at approximately $500,000 plus interest.   Even then, the sum of $250,000 represented a substantial part of the judgment that the plaintiffs would have been entitled to recover, had they been successful on liability.  Thus, putting aside the question of liability, the sum of $250,000 was a fair compromise of the damages claim. 

13                  However, when one takes into account the fact that liability was significantly in issue, it seems to me that the sum of $250,000 was a very fair compromise from the plaintiffs’ point of view.  They had already received payment of the amount insured, although that is irrelevant in terms of assessing the position as between plaintiffs and Holcomm Marine.

14                  The question, however, is whether, as Holcomm Marine now contends, I should make an order for the costs of the proceeding that departs from the ordinary or usual order namely, that the plaintiffs pay Holcomm Marine’s costs on a party-party basis.  Rather, they say, there should be an order that the plaintiffs pay Holcomm Marine’s costs on an indemnity basis.  Such an order will ordinarily not be made unless the conduct of the unsuccessful party, the offeree, in not accepting a compromise offer is at least imprudent.  The plaintiffs contend that this entails a conclusion, on the Court’s part, that it was plainly unreasonable for them to have rejected the offer on the assumption, as the plaintiffs contend, that the regime contemplated by O 23 does not apply. 

15                  I accept that there was no compliance with the regime contemplated by O 23 and that the failure to comply with that regime was not insignificant.  On the other hand, the fact that a formal offer was made is, I consider, a relevant factor in determining whether the conduct of the plaintiffs was unreasonable or imprudent.  The offers that were made were, apart from the failure to specify an amount of interest, in accordance with the form contemplated by O 23.  On the other hand, there was nothing in the letters accompanying either offer to indicate to the plaintiffs why it would be unreasonable for them to reject or fail to accept the offers.  However, the parties had explored the question of valuation at some length and all of the evidence concerning liability was available to the parties at the time when the offers were made. 

16                  It may be fair to say that the plaintiffs’ case was not such that they had no chance of success.  On the other hand, as I have said, liability was clearly contested and, ultimately, for the reasons I have indicated, I concluded that Holcomm Marine had no liability in respect of the loss of Seaquest. 

17                  In all of the circumstances, I am persuaded that it was not reasonable for the plaintiffs not to accept the offer of $250,000 plus costs.  That is not to say, of course, that it was not reasonable for them to conduct the proceeding.  Had there been no offer, there would be no question of the basis of any order for costs.  However, the fact that an offer was made, being one that I consider to be a very fair compromise, leads me to the conclusion that it was imprudent and unreasonable for the plaintiffs not to have accepted the offer of $250,000.

18                  The offer was made on 13 March 2007 and was expressed to remain open until 10 April 2007.  It was not unreasonable for the plaintiffs to take time to consider the offer and to take advice as to what their prospects were and the reasonableness of the offer.  In the circumstances, I consider that it is appropriate that the plaintiffs be required to pay Holcomm Marine’s costs incurred after 10 April 2007 on an indemnity basis.  The plaintiffs should be ordered to pay Holcomm Marine’s costs up to and including that day on the party-party basis, subject to one caveat. 

19                  The plaintiffs served a notice on Holcomm Marine to admit a number of facts.  By notice dated 22 March 2006, Holcomm Marine disputed a number of facts, including the following:

(1)        that Pavana started to drag its mooring between 1400 and 1600 hours on 24 August 2003;

(2)        between 1630 and 1730 hours, the bowsprit chain of Pavana sawed against the mooring line of Seaquest;

(3)        at approximately 1730 hours, Pavana cut the mooring line of Seaquest;

(4)        Seaquest was destroyed;

(5)        Seaquest was composed of various materials identified in the notice to admit.

20                  Shortly after the trial began, Holcomm Marine admitted all of those matters.  They are matters to which the plaintiffs were put to proof and incurred costs.  I have seen no indication as to why the admissions were not made when the notice was given.  In the circumstances, I consider that it is appropriate that Holcomm Marine pay the plaintiffs’ costs of proving those matters.  I am conscious of the fact that that will entail some complexity in any taxation if that becomes necessary.  One would expect, however, that the parties would adopt a reasonable approach in endeavouring to make estimates of those matters so that one can be set off against the other. 

21                  There were cross-claims involving other parties, which have been previously disposed of.  There was still current, at the hearing, a cross-claim by Holcomm Marine against the plaintiffs, seeking indemnity in respect of their claim against it.  The remaining cross-claim no longer sought indemnity in respect of the other cross-claims.  As I indicated in my earlier reasons, the cross-claim should be dismissed.  I propose to rescind the orders that I made on 19 December 2007 and make fresh orders disposing of the proceeding insofar as it still remains outstanding. 

Associate:

Dated:         11 March 2008