FEDERAL COURT OF AUSTRALIA

Rooney v ABB Grain Ltd (No 2) [2011] FCA 231

THE COURT ORDERS THAT:

1.    The respondent and cross-claimant pay 60 per cent of the applicant and crossrespondent’s costs of the proceeding assessed on a party and party basis for the period up to and including 7 April 2010 and the applicant and cross-respondent pay 40 per cent of the respondent and cross-claimant’s costs of the proceeding assessed on a party and party basis for the same period.

2.    The applicant and cross-respondent pay the respondent and cross-claimant’s costs of the proceeding assessed on an indemnity basis for the period on and from 8 April 2010.

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    Each party to this proceeding applies for an order for costs. Following a trial of the proceeding I made the following orders:

THE COURT DECLARES THAT:

1.    On the Amended Application of the Applicant dated 9 April 2009 the 2007/2008 contracts and the 2008/2009 contracts (as defined in paragraphs 18 and 19 of the Reasons for Judgment dated 14 December 2010) were lawfully terminated by the Applicant.

THE COURT ORDERS THAT:

2.    The decision on the question of costs be reserved.

3.    Subject to any order in relation to costs, the Amended Application otherwise be dismissed.

4.    On the Cross-claim of the Respondent:

4.1    In respect of the ninth contract (as defined in paragraph 21 of the Reasons for Judgment dated 14 December 2010) there be judgment for the Respondent in the sum of $112,510.68 plus the sum of $27,648.34 in respect of interest; and

4.2    Subject to any order in relation to costs, the Cross-claim otherwise be dismissed.

2    The proceeding involved a claim and a cross-claim. The applicant and cross-respondent seeks an order that it be paid its costs of the proceeding on a party and party basis. In the alternative, it seeks an order that it be paid its costs on a party and party basis reduced by a small amount (10 per cent was suggested) in order to take into account the fact that it was unsuccessful on some issues. The respondent and cross-claimant seeks an order that there be no order as to costs in relation to costs incurred before 1 April 2010, but that it have its costs on an indemnity basis after 1 April 2010. The significance of 1 April 2010 is that on that date the respondent and cross-claimant made an offer to settle the claim and cross-claim. It is contended by the respondent and cross-claimant that the offer was an offer of compromise within O 23 of the Federal Court Rules or, in the alternative, was an offer in the nature of a Calderbank offer.

3    For reasons I will give, I find that the offer of 1 April 2010 was a Calderbank offer and is to be given effect as such. It is necessary then to consider the costs incurred before the offer separately from the costs incurred after the offer.

Costs incurred before The Offer

4    My reasons for judgment are set out in Rooney v ABB Grain Ltd [2010] FCA 1392 (‘Rooney v ABB Grain Ltd’).

5    There were three major issues in the proceeding and they were as follows:

1.    Had the applicant and cross-respondent lawfully terminated contracts one to eight and, if not, was the respondent and cross-claimant entitled to damages for breach of those contracts?

2.    Had the applicant and cross-respondent lawfully terminated the ninth contract and, if not, was the respondent and cross-claimant entitled to damages for breach of that contract?

3.    Had the respondent and cross-claimant contravened provisions of the Corporations Act 2001 (Cth) (‘Corporations Act’) and, if so, should a declaration of those contraventions be made?

6    The applicant and cross-respondent succeeded on the first issue and obtained a declaration to the effect that contracts one to eight were lawfully terminated by it. It should be noted that the dismissal of the respondent and cross-claimant’s cross-claim with respect to contracts one to eight has the same practical effect as the declaration obtained by the applicant and cross-respondent in that there is a judgment estoppel against the respondent and cross-claimant with respect to contracts one to eight.

7    The applicant and cross-respondent failed on the second issue. The respondent and cross-claimant succeeded on that issue and secured a judgment for a sum of money against the applicant and cross-respondent.

8    The applicant and cross-respondent failed on the third issue and its claim for a declaration of contraventions of the Corporations Act was dismissed.

9    The issues are sufficiently separate that the applicant and cross-respondent’s submission that overall it has been successful and should have its costs of the proceeding must be rejected. Without wishing to be exhaustive, it may be said that this type of submission has force where an applicant has failed on only a relatively minor issue or where an applicant, relying on the same facts, has alleged two causes of action (for example, contract and tort) and succeeds on one but fails on the other. That is not the case here. Not only did the applicant and cross-respondent fail on the second issue, but it had a judgment for a sum of money awarded against it. Furthermore, the allegations involved in the third issue were not minor issues and in fact had serious implications for the respondent and cross-claimant.

10    The costs order which is made must reflect the fact that each party has had success and failure with respect to different issues. In theory, there is more than one appropriate order in such circumstances. One possible approach would be to make different costs orders with respect to the different issues, so that in this case the applicant and cross-respondent would receive its costs with respect to the first issue and pay the respondent and cross-claimant’s costs with respect to the second and third issues. Another approach is to make an assessment in percentage terms of the proportion of the proceeding taken up by the issue and award costs having regard to that percentage. In this case the second approach is clearly preferable. There was considerable overlap in terms of the factual material relevant to each issue and a taxing officer would face an almost impossible task in allocating particular work to a particular issue (see JMVB Enterprises Pty Ltd (Formerly A’Van Campers Pty Ltd) v Camoflag Pty Ltd (No 2) [2007] FCAFC 6 at [8]).

11    I reject the applicant and cross-respondent’s submission that only a small allowance should be made for the issues upon which the respondent and cross-claimant was successful. That does not recognise the substantial nature of those issues.

12    I have had regard to the material on the Court file and the evidence and submissions made at the trial. I think it is appropriate to allocate 60 per cent of the proceeding to the issue upon which the applicant and cross-respondent was successful, and 40 per cent of the proceeding to the issues upon which the respondent and cross-claimant was successful. I do not think it is appropriate to offset those amounts for the same reasons I gave in Blackmagic Design Pty Ltd v Overliese [2011] FCAFC 24 at [133].

13    The respondent and cross-claimant submitted that if I did not accept its submission that each party should bear its own costs before the offer, then I should award it the costs of the applicant’s notice of motion dated 19 March 2010. I decline to do that. I see no sufficient reason to treat the notice of motion any differently from other work carried out before the offer.

14    For the period prior to the offer I would order that the respondent and cross-claimant pay 60 per cent of the applicant and cross-respondent’s costs assessed on a party and party basis and the applicant and cross-respondent pay 40 per cent of the respondent and cross-claimant’s costs also assessed on a party and party basis.

The offer Made by the Respondent and Cross-Claimant and Costs Incurred After the Offer

15    The offer made by the respondent and cross-claimant and dated 1 April 2010 contained a detailed explanation of the basis upon which it was made. It contained statements by the respondent and cross-claimant of what it asserted were weaknesses in the applicant and cross-respondent’s case. There is a detailed statement in relation to the ninth contract which is as follows:

9.    As to Contract 53242 (Ninth Contract), the transcript of the telephone conversation between Margaret Rooney and Natalie Jenkins clearly demonstrates that Margaret Rooney was aware that the Ninth Contract was a multi-grade bin contract. This agreement was confirmed in the terms of the Purchase Contract Confirmation dated 31 May 2007. The Purchase Contract Confirmation Statement (upon which the Applicant relies) is not a document that carries any contractual status; rather it merely confirms the futures order placed by Margaret Rooney on the day she entered into the Ninth Contract.

10.    The argument now sought to be raised in respect of ‘multi-grade’ versus ‘multi-variety grade’ and ‘multi-bin grade’ is inconsistent with the applicant’s conduct to date and has an artificial flavour, having only been recently developed in the reply affidavits of Margaret and Helen Rooney.

11.    The respondent’s claim for $112,510.08 in respect of the ninth contract is straightforward, and is not attended by any of the complexities sought to be raised with respect to the rolling over of December futures prices, nor the alleged artificiality of the basis component used.

The applicant contends (without any apparent contractual justification) that if the ninth contract was not a multi-variety contract, the respondent ought to have terminated the ninth contract and sought to recover a sum from the applicant which merely reflects a reversal of the futures position (that is, an amount of $49,298.64) (see annexure ‘HMR4’ to the affidavit of Helen Rooney sworn on 4 February 2010).

16    The terms of the offer of compromise were as follows:

12.    The respondent and cross-claimant hereby offers to compromise the whole of the proceedings, being the Application and the Cross-Claim, on the basis of a payment to it by the applicant and cross-respondent of the total sum of $49,298.64.

13.    The payment of the sum of $49,298.64 will be in full and final settlement and satisfaction of any and all claims that are made by any party in these proceedings and the parties will thereupon be released from any and all liability which they or but for the compromise would have had against the other arising in any way out of the subject matter of the proceedings.

14.    Upon receipt by the respondent and cross-claimant of the sum of $49,298.64 in cleared funds the proceedings are to be dismissed by consent with no order as to costs.

15,    The above offer is open for acceptance for 14 days from the date of service.

17    Finally, the respondent and cross-claimant sought to explain the reasons it considered the offer to be a reasonable one:

16.    The foregoing offer is reasonable, and rejection of it would be imprudent because, inter alia:

16.1    the offer effectively involves the respondent releasing the applicant from any claim in respect of the first eight contracts, notwithstanding the risks that the applicant faces in respect of those contracts;

16.2    the offer involves the respondent recovering in relation to the ninth contract on the reduced basis put forward by the applicant, and foregoing any claim for interest and costs in respect of the ninth contract.

17.    If the respondent and cross-applicant succeeds in respect of the ninth contract on the basis it contends for (namely $112,510.08 plus interest), but fails in respect of the first to eighth contracts, it is likely to result in a final position which is more advantageous to the respondent and cross-applicant than that represented by this offer, even if orders are made for costs in favour of the applicant and cross-respondent in respect of its success on the first to eighth contracts.

18    There were two possible ways of assessing damages in relation to the ninth contract (Rooney v ABB Grain Ltd: [207]-[211]). In the result I awarded damages on the basis which resulted in the higher award. In the offer dated 1 April 2010 the respondent and cross-claimant was offering to accept damages on the basis resulting in the lower award.

19    The offer of 1 April 2010 does not offer the declaration in favour of the applicant and cross-respondent which was part of my final orders. However, I do not think that is a matter which bears upon the effectiveness of the offer. As I have said, the dismissal of the cross-claim, which was part of the offer, had the same practical effect as the declaration which was made. The declaration in this case is not of the same nature as the injunction considered by Wheeler J in Sunlec International Ltd v Carroll Australasia Pty Ltd [2001] WASC 354 at [16]. In that case the injunction and order for delivery up would have the effect of ‘saving the plaintiff any possible future proceedings, in addition to preventing future damage’. That is not the case here.

20    The offer of 1 April 2010 does not expressly offer the applicant and cross-respondent any amount for its costs to the date of the offer. On my analysis, the applicant and cross-respondent was at that time entitled to 60 per cent of its costs and liable to pay 40 per cent of the respondent and cross-claimant’s costs. The respondent and cross-claimant submits that the value of such an entitlement was more than offset by the saving that would have been achieved by the applicant and cross-respondent had the offer been accepted. That point was made in paragraph 17 of the offer.

21    The respondent and cross-claimant submits and I accept that had the applicant and cross-respondent accepted the offer it would have saved, subject to its entitlement to costs, a sum of $84,000. I have calculated that figure in the following way. Having regard to the final orders, as at 1 April 2010, the respondent and cross-claimant had an entitlement to $112,510.68 plus interest which I accept would have been approximately $21,000. This gives a figure of $133,510.68. Deducting from this figure the amount of the offer (that is, $49,298.64) gives the figure of $84,000 approximately.

22    I am satisfied that the monetary value of the applicant and cross-respondent’s costs entitlement at the time of the offer would have been less than that amount. I have tested the matter by two hypotheticals. Those hypotheticals contain assumptions as favourable to the applicant and cross-respondent as I think is appropriate:

1.    Assume the applicant and cross-respondent’s party and party costs were $100,000 and the respondent and cross-claimant’s costs were two-thirds of that amount -

Applicant and cross-respondent’s entitlement: $33,500 approximately

2.    Assume the applicant and cross-respondent’s party and party costs were $200,000 and the respondent and cross-claimant’s costs were two-thirds of that amount –

Applicant and cross-respondent’s entitlement: $66,667 approximately

In either case, the applicant and cross-respondent’s entitlement is less than the figure of $84,000.

23    By proceeding to trial the applicant and cross-respondent achieved a worse result than that contained in the offer, and the respondent and cross-claimant a better result.

24    It is difficult to bring the offer within the precise terms of O 23 of the Federal Court Rules. For one thing the respondent and cross-claimant does not ask me to give effect to O 23 r 11 as to the costs before the offer. However, even if the offer does not fall within the terms of O 23 the offer was a reasonable one and one the offeror bettered at trial. It is a ‘good start’ and relevant to the discretion as to costs if the offeree’s rejection of the offer at the time it was made was imprudent or (plainly) unreasonable: McDonald v Parnell Laboratories (Aust) (No 2) (2007) 164 FCR 591 (‘McDonald v Parnell Laboratories (Aust) (No 2)’) at 597 [22]-[23] per Buchanan J; APF Properties Pty Ltd v Kestrel Holdings Pty Ltd (No 3) [2007] FCA 2016 at [18]-[25] per Heerey J). Like Buchanan J in McDonald v Parnell Laboratories (Aust) (No 2) I need only consider if the rejection or non-acceptance of the offer was imprudent and I need not consider whether the other limb of the test is unreasonable (see Black v Lipovac (1998) 217 ALR 386 at [217]-[218]), or plainly unreasonable (see The Sanko Steamship Company Ltd v Sumitomo Australia Ltd [1996] FCA 22; Dukemaster Pty Ltd v Bluehive Pty Ltd [2003] FCAFC 1).

25    There is nothing in the surrounding circumstances to suggest that the applicant and cross-respondent’s non-acceptance of the offer was other than imprudent.

26    I will now examine those surrounding circumstances.

27    It is not suggested that as at 1 April 2010 the applicant and cross-respondent did not have the information necessary to assess the risks in relation to the ninth contract. Whether it did so correctly or not is not to the point; the fact is that it had the information.

28    The applicant and cross-respondent did not respond to the offer of 1 April 2010. It had not responded to an earlier offer of compromise made by the respondent and cross-claimant on 24 November 2009. That offer was an offer to compromise the whole of the proceedings, being the claim and the cross-claim, for the sum of $214,815.69 inclusive of interest plus costs to be agreed or taxed, payable by the applicant and cross-respondent to the respondent and cross-claimant. This offer to compromise was for a figure greater than the judgment awarded in favour of the respondent and cross-claimant.

29    On 17 April 2010 (which was two days before the trial started) the applicant and cross-respondent offered to settle the proceeding on the following basis:

Our client is prepared to discontinue its claim in these proceedings with no order as to costs on the basis that your client agrees to:

1.    pay our client the sum of $700,000 in cleared funds within 21 days of acceptance of this offer;

2.    discontinue the Cross-claim in these proceedings within 7 days of acceptance of this offer by consent with no order as to costs;

3.    provide an undertaking to fully indemnify our client in the event that the Australian Taxation Office assesses the settlement sum, or any part thereof, as being subject to GST;

4.    remove our client from its no trade list forthwith.

30    The applicant and cross-respondent did not make a claim for monetary relief in the proceeding other than a claim for costs. The sum of $700,000 is a large amount for costs having regard to the nature of this proceeding and the issues in it.

31    There was a telephone conversation between the respective solicitors for the parties about the offer on the following day, that is, Sunday 18 April 2010. Ms Claire Gitsham, who was acting for the respondent and cross-claimant, spoke with Ms Luisa Georgeff, who was acting for the applicant and cross-respondent. Both Ms Gitsham and Ms Georgeff swore an affidavit which was put before me on these applications for costs. Neither was cross-examined on her affidavit. Ms Georgeff said that although she did not agree with everything Ms Gitsham said about the conversation, she did not disagree with the substance of what she said.

32    Ms Gitsham began the conversation with Ms Georgeff by saying that she would like to discuss with Ms Georgeff on an open basis the offer letter sent the previous evening. She said that she understood that Mr Hoffman QC (counsel for the respondent and cross-claimant) had spoken to Ms Georgeff that morning and that she just wanted to confirm certain matters with Ms Georgeff. She said that she understood from what Mr Hoffman had told her that the offer sum of $700,000 was not a ‘typo’. Ms Georgeff said words to the effect that it was not a ‘typo’ and that it was the correct figure. Ms Gitsham said that she understood that there was no basis for the offer and asked whether that was correct. Ms Georgeff said that there was no basis for the offer other than the majority of it related to costs on an indemnity basis in relation to the NACMA proceedings, the current proceedings and the costs of trial.

33    Ms Georgeff said in her affidavit that what she meant by the statement that she was not instructed to put forward a basis for the offer was that the offer did not constitute a Calderbank offer. I can only assume she means by this that the offer was not being put forward as an offer which might be relevant on the question of costs. Ms Georgeff also said that she told Ms Gitsham that the majority of the sum of $700,000 comprised costs incurred.

34    Ms Gitsham said that Ms Georgeff said words to the effect that her client was not prepared to settle other than on the basis of indemnity costs. Ms Gitsham asked Ms Georgeff if the costs included the costs of the trial listed to commence the following week and Ms Georgeff responded in the affirmative. There was then a discussion as to whether the costs included the costs of the NACMA proceedings or costs associated with the FOS (Financial Ombudsman Services).

35    It seems to me that at the time Ms Georgeff discussed the offer of $700,000 with Ms Gitsham, her state of mind was that the figure of $700,000 included some costs yet to be incurred or costs incurred in relation to matters which were not part of the proceeding or both.

36    In her affidavit Ms Georgeff states that in fact the applicant and cross-respondent’s costs in the proceeding as at 18 April 2010 were in the vicinity of $700,000. It is not for me to comment on the size of that claim for costs other than to say (and this is the important point) that on any view the offer did not amount to a reasonable attempt to compromise the proceeding. It seems to me that this conclusion follows from the terms of the offer itself and from Ms Georgeff’s statement that the offer did not constitute a Calderbank offer.

37    I see no reason not to give effect to the offer of 1 April 2010. It was a reasonable offer and the respondent and cross-claimant exceeded the offer at trial. The applicant and cross-respondent’s non-acceptance of the offer was imprudent.

38    I think that the applicant and cross-respondent was entitled to some time to consider the offer and I will allow a period of seven days including 1 April 2010. In my opinion, it must pay the respondent and cross-claimant’s costs on and after 8 April 2010 assessed on an indemnity basis.

Conclusion

39    For these reasons the appropriate orders as to costs are as follows:

1.    The respondent and cross-claimant pay 60 per cent of the applicant and crossrespondent’s costs of the proceeding assessed on a party and party basis for the period up to and including 7 April 2010 and the and cross-respondent pay 40 per cent of the respondent and cross-claimant’s costs of the proceeding assessed on a party and party basis for the same period.

2.    The applicant and cross-respondent pay the respondent and cross-claimant’s costs of the proceeding assessed on an indemnity basis for the period on and from 8 April 2010.

Associate:

Dated:    18 March 2011