FEDERAL COURT OF AUSTRALIA

Danaris Pty Ltd v J & M United Pty Ltd (No 2) [2011] FCA 281

THE COURT ORDERS THAT:

1.    The appellants pay the respondent’s costs of the appeal as agreed or taxed.

2.    The cross-appellant pay the cross-respondents’ costs of the cross-appeal as agreed or taxed.

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

BACKGROUND

1    On 16 March 2011, I made orders in this matter dismissing the appeal and cross-appeal and reserving costs. The parties were directed to file short written submissions as to costs within seven days.

2    The appellants and cross-respondents, Danaris Pty Ltd (Danaris) and Avedis Varvarian (Mr Varvarian), submitted that each party should pay its own costs of the appeal or cross-appeal as relevant. The respondent and cross-claimant, J & M United Pty Ltd (J & M United), submitted that costs should follow the event in relation to both the appeal and cross-appeal. The respondent further contended that the costs of the cross-appeal should be assessed as not more that 20% of the overall costs of the proceeding. The respondent also submitted that the costs of the appeal should be awarded on an indemnity basis by reason of the offer of compromise made in relation to the proceeding below. The appellants opposed the making of an indemnity costs order.

CONSIDERATION

Apportionment

3    There are no special circumstances in this matter which would justify a departure from the normal order as to costs (that is, that costs should follow the event: see Ruddock v Vadarlis (2001) 115 FCR 229; [2001] FCA 1865 per French J at [11]). As such, costs should follow the event in relation to both the appeal and the cross-appeal.

4    As to the question of the apportionment of costs between the appeal and the cross-appeal, the respondent submitted that:

to reflect that the entire appeal book was necessary for the appeal in any event and that the time and effort in relation to the cross-appeal was a small part of the proceedings, those costs should be no more than 20% of the overall costs.

5    The appellants in their written submissions resisted any claim for apportionment, but submitted that if such an order were made then the appropriate figures would be 50% for the appeal and 50% for the cross-appeal.

6    I consider that these are ultimately questions relating to taxation of costs of the appeal and cross-appeal, and should be dealt with in that context rather than by way of an order for apportionment.

Indemnity costs

7    There remains the question whether the costs awarded to the respondent in respect of the appeal should be awarded on an indemnity basis.

8    The respondent’s submissions on this point turned on the fact that, in relation to the primary proceeding, the Federal Magistrate ordered that Danaris and Mr Varvarian pay J & M United’s costs on an indemnity basis on the grounds that (see J & M United Pty Ltd v Danaris Pty Ltd & Anor (No 2) [2010] FMCA 756):

    J & M United had before trial made an offer of compromise pursuant to O 23 r 3 of the Federal Court Rules (an O 23 offer);

    the offer was refused by Danaris and Mr Varvarian;

    the judgment obtained by Danaris and Mr Varvarian was not less favourable than the terms of the offer; and therefore

    pursuant to O 23 r 11(4), J & M United was (subject to the Court otherwise ordering) entitled to indemnity costs from the date of the offer.

9    The respondent submitted that the decision in Digga Australia Pty Ltd v Norm Engineering Pty Ltd (No 2) [2008] FCAFC 76 (Digga) provides at least some authority for the proposition that, in circumstances where an O 23 offer has been made in relation to the primary proceeding, an order for indemnity costs is appropriate not only in relation to that proceeding but also in relation to the appeal. In Digga, an O 23 offer had been made in relation to the primary proceeding, but had not been raised in the context of that proceeding. The issue arose only in relation to the question of costs of the appeal. The Full Court, citing the presumption raised by O 23 r 11(5) (similar to that raised by r 11(4) but applicable where the relevant offer has been made by a respondent rather than an applicant), ordered that costs of the appeal be awarded on an indemnity basis from the date of the offer.

10    The respondent acknowledged that the decision in Digga is in apparent conflict with a later decision of the Full Court of the Federal Court in IMF (Australia) Ltd v Meadow Springs Fairway Resort Ltd (in liq) (No 2) [2009] FCAFC 69 (IMF). In IMF, the Full Court (differently constituted) held that an application and an appeal are separate proceedings, so that an O 23 offer in relation to a primary proceeding can have no relevance to the costs of a subsequent appeal (see [34]-[36]). The Full Court (at [36]) stated that:

the better view is that, once a proceeding in which an offer of compromise in accordance with O 23 has been disposed of, the offer of compromise should be regarded as spent.

11    The corollary of this conclusion was that the presumption raised by O 23 r 11(4)-(5) (of an entitlement to indemnity costs where an O 23 offer has been rejected in particular circumstances) is raised only in the context of the proceeding in which the offer is made (see [34] and [37]).

12    The Full Court in IMF recognised that an unaccepted O 23 offer in relation to a primary proceeding may be relevant to the exercise of the Court’s discretion in regard to the costs of an appeal (at [34]). However, in the circumstances of that case – where no offer of compromise had been made by either side in relation to the appeal proceeding itself, and no other circumstances were cited in favour of an order of indemnity costs – the Full Court considered that there was no reason for departing from the usual order as to costs in relation to the appeal (see [38]-[39]).

13    No reference was made in IMF to the decision in Digga. However, and as the respondent submitted, given that no costs orders were made in relation to the primary proceeding in Digga, it is possible to reconcile the two decisions by reading the Full Court’s reasons in IMF as applying only in circumstances where an O 23 offer and its potential costs consequences have been determined in the primary proceeding.

14    The present case, in which an order for indemnity costs was made pursuant to O 23 r 11(4) in the primary proceeding, falls into the IMF rather than the Digga category. As such, no presumption under O 23 arises in relation to the appeal, which is a separate proceeding. Accordingly, the only question is whether there is in this case any “special or unusual feature” which would justify the Court in exercising its general discretion to award costs on an indemnity basis (see Graham Barclay Oysters Pty Ltd v Ryan (No 2) [2000] FCA 1220 at [4]).

15    I consider that, in circumstances where no offer of compromise was made by any party in relation to the appeal proceeding, and the respondent has not pointed to any circumstance other than the making of an O 23 offer made in relation to the primary proceeding in support of its application for indemnity costs, the Court should not depart in the exercise of its discretion from the usual order that costs be awarded on a party and party basis.

Associate:

Dated:    29 March 2011