FEDERAL COURT OF AUSTRALIA

Alpine Beef Pty Ltd v Trycill Pty Ltd (No. 2) [2010] FCA 286

THE COURT ORDERS THAT:

1.                  Order 2 as made on 1 March 2010 is varied such that the Applicant is to pay the costs of the Respondents, with such costs as have been incurred as from 5 August 2009 to be paid on an indemnity basis.

Note:Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.
The text of entered orders can be located using Federal Law Search on the Court’s website.

REASONS FOR JUDGMENT

1                     On 1 March 2010 reasons for judgment in this proceeding were published: Alpine Beef Pty Ltd v Trycill Pty Ltd [2010] FCA 136. Orders were then made dismissing the proceeding and ordering the Applicant to pay the costs of the Respondents.

2                     Thereafter, an application was made on behalf of the Respondents seeking an order that costs be paid on an indemnity basis. The Respondents contend in summary form that costs should be paid on an indemnity basis:

·                    from the outset of the proceeding; or

·                    from 5 August 2009 when an offer of compromise was made.

Written submissions were provided by the Respondents on 11 March 2010; the Applicant provided its written submissions on 19 March 2010.

3                     It is considered that the Order as to costs as made on 1 March 2010 should be varied such that costs should be paid on an indemnity basis — but only as from 5 August 2009.

4                     The primary source of the power of the Court to award costs is that conferred by s 43 of the Federal Court of Australia Act 1976 (Cth). Ordinarily it is recognised that costs “follow the event”: Ruddock v Vadarlis (No 2) (2001) 115 FCR 229 at 234 to 235 per Black CJ, and French JJ. It is also well-recognised that s 43 confers a discretion which is absolute and unfettered, except that it must be exercised judicially and not arbitrarily or capriciously: Trade Practices Commission v Nicholas Enterprises Pty Ltd (No 3) (1979) 42 FLR 213 at 218 to 219 per Fisher J. Attempts to narrow the discretion by the specification of criteria have been resisted: Gladstone Park Shopping Centre Pty Ltd v Ross Wills (1984) 6 FCR 496 at 505 per Davies J.

5                     The width of the discretion conferred by s 43 extends to a power to award indemnity costs: Colgate-Palmolive Pty Ltd v Cussons Pty Ltd (1993) 46 FCR 225. Sheppard J there reviewed the authorities. With reference to an order that costs be paid on an indemnity basis, His Honour noted, as French J had noted in Tetijo Holdings Pty Ltd v Keeprite Australia Pty Ltd (unreported, Federal Court of Australia, 3 May 1991), that the “categories in which the discretion may be exercised are not closed” and went on to observe (at 233 to 234):

5. Notwithstanding the fact that that is so, it is useful to note some of the circumstances which have been thought to warrant the exercise of the discretion. I instance the making of allegations of fraud knowing them to be false and the making of irrelevant allegations of fraud …; evidence of particular misconduct that causes loss of time to the Court and to other parties …; the fact that the proceedings were commenced or continued for some ulterior motive … or in wilful disregard of known facts or clearly established law …;  the making of allegations which ought never to have been made or the undue prolongation of a case by groundless contentions … and an award of costs on an indemnity basis against a contemnor … Other categories of cases are to be found in the reports. Yet others to arise in the future will have different features about them which may justify an order for costs on the indemnity basis. The question must always be whether the particular facts and circumstances of the case in question warrant the making of an order for payment of costs other than on a party and party basis.

6. It remains to say that the existence of particular facts and circumstances capable of warranting the making of an order for payment of costs, for instance, on the indemnity basis, does not mean that judges are necessarily obliged to exercise their discretion to make such an order. The costs are always in the discretion of the trial judge. Provided that discretion is exercised having regard to the applicable principles and the particular circumstances of the instant case its exercise will not be found to have miscarried unless it appears that the order which has been made involves a manifest error or injustice.

More recently, in Sony Computer Entertainment Australia Pty Ltd v Dannoun (No 2) [2001] FCA 1530 Lindgren J at [4] referred to the “various judicial formulations to date of the grounds on which it is proper to award costs on an indemnity basis” and continued to “acknowledge that the circumstances must be ‘special’, must take the case out of the ‘ordinary’ category of case, and must involve behaviour associated with the conduct of the proceeding by the person sought to be made liable which is so unreasonable as to make it unjust that the other party should be limited in its recovery to party and party costs”.

6                     In seeking an order that costs be paid on an indemnity basis from the outset, the Respondents place considerable reliance upon the conclusion that has been reached that the Applicant in the proceeding was not a party to the contract for the purchase of the China Grove 11. The identity of the correct party to the contract, it is said, had been raised both in correspondence and during the course of the proceeding. Reliance is also placed upon the conclusion reached that the relevant limitation periods within which causes of action should have been commenced had expired. And that issue, too, had been raised in correspondence.

7                     But it is not considered that such factors warrant an order that costs be paid on anything other than what is described as a “party/party” basis. Although the decision on the part of the Applicant to pursue the forensic course it did is perhaps inexplicable in some respects, it is not considered that there are such “special” circumstances as to warrant an order that the Applicant pay costs on an indemnity basis from the outset.

8                     Although the power of the Court to award costs is that conferred by s 43, s 59(1) of the Federal Court of Australia Act 1976 (Cth) further provides that the “Judges of the Court or a majority of them may make Rules of Court, not inconsistent with this Act, making provision for or in relation to the practice and procedure to be followed in the Court …”. Section 59(2)(o) provides that, “[i]n particular, the Rules of Court may make provision for or in relation to: … the costs of proceedings in the Court …”. Pursuant to the power conferred by s 59(1) and s 59(2)(o), O 23 rr 2 to 4 of the Federal Court Rules has been enacted and provides as follows:

2       Application

(1)     In any proceeding, 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.

(2)     If an offer to compromise the separate claims of several parties to the proceeding is in a single notice of offer, the notice of offer must specify separately the offer made to each party.

3       Form of offer

(1)     An offer of compromise is made to a party by serving a notice of the offer on the party.

(2)     A notice of offer must:

(a)     be prepared in accordance with Order 41; and

(b)    bear a statement to the effect that the offer is made under this Order; and

(c)     be signed by the party making the offer or by the solicitor appearing for that party.

(3)     Until an offer has been accepted, notice of the offer must not be filed.

4       Further requirements of offer

(1)     If:

(a)     a sum of money is offered; and

(b)    that sum is inclusive of the costs of the proceeding;

the notice of offer may specify the amount that is in respect of costs.

(2)     If:

(a)     a sum of money is offered; and

(b)    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.

(3)     An offer to pay a sum of money is, unless a notice of offer otherwise provides, taken to be an offer to pay that sum within 28 days after acceptance of the offer.

The evolution of these Rules, and in particular the inclusion of O 23 r 11, has been helpfully traced by Logan J in Olivaylle Pty Ltd v Flottweg GMBH and Co KGAA (No 5) [2009] FCA 571 at [6] to [8].

9                     On 5 August 2009 the solicitors representing the Respondents sent a letter enclosing what was described as “an offer of compromise pursuant to Order 23 of the Rules of the Federal Court” to the solicitors for the Applicant. The enclosed offer was in the following terms:

OFFER OF COMPROMISE

The Respondents offer to compromise the claim against them as follows:

The Respondents will pay the Applicant the sum of $100,000.00 with respect to all of the claims brought against them in these proceedings.

This offer is made pursuant to Order 23; and remains open for acceptance until close of business on 19 August 2009.

Date: 5 August 2009

10                  The written submissions provided on behalf of the Respondents “acknowledge that the offer fails to comply with Order 23 (4) (2) of the Federal Court Rules, which says that if a sum of money is offered inclusive of interest, the notice of offer must specify the amount that is in respect of interest, and the basis of its calculation”. The only indication as to those sums which were intended to be included within the offer was the statement that the offer was made “with respect to all of the claims brought against them”.

11                  The written submissions of the Respondents, however, further correctly contend that an offer of compromise – even one which fails to comply with the requirements of O 23 – remains relevant to the manner of the exercise of the discretion conferred by s 43: DSE (Holdings) Pty Ltd v InterTAN Inc [2004] FCA 1251; Ruaro v Ferrari (“Ruaro”) [2008] FCA 307. In Ruaro Emmett J observed:

[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.

12                  Although the reasons for the lack of success of the Applicant do not in themselves warrant an indemnity costs order as from the outset of the proceeding, those reasons — when taken together with the offer of compromise made on 5 August 2009 — warrant an order that costs be paid on an indemnity basis as from that date. Well prior to that date the Applicant had been alerted to (for example) the potential difficulty of the expiration of a limitation period and also the further difficulty confronted by then naming as the Applicant corporation an entity which did not exist as at the date of contract.

13                  Viewed as at 5 August 2009, the offer then made cannot be characterised as anything other than a genuine assessment as to risks inevitably confronted in any litigation; it cannot be characterised as an attempt to force upon the Applicant what has been referred to in other litigation as an invitation “to capitulate”: Szencorp Pty Ltd v Clean Energy Council Ltd (No 2) [2009] FCA 196 at [14] per Goldberg J. As at 5 August 2009, it is considered that the Applicant should have been in a position where it could assess its prospects of success — any assessment taking into account such strengths as were perceived to be present together with an assessment of the difficulties, including those which had previously been raised in correspondence.

14                  Although it remained a matter for the Applicant to thereafter plot its own forensic course, it was most imprudent and unreasonable for the Applicant not to have accepted the offer of compromise as made on 5 August 2009.

15                  A subsequent invitation extended by the solicitors for the Respondent by letter dated 17 September 2009 “to discontinue these proceedings now and to pay our clients’ costs as assessed or as agreed” does not impact upon the order to be made.

ORDER

16                  The Order of the Court is:

1.                  Order 2 as made on 1 March 2010 is varied such that the Applicant is to pay the costs of the Respondents, with such costs as have been incurred as from 5 August 2009 to be paid on an indemnity basis.

Associate:

Dated:         25 March 2010