FEDERAL COURT OF AUSTRALIA

Australian Executor Trustees Limited v Propell National Valuers (WA) Pty Ltd (No 2) [2011] FCA 966

THE COURT ORDERS THAT:

1.    The respondents pay the applicants’ costs to be taxed on a party and party basis, if not agreed, up to and including 15 February 2011.

2.    The respondents pay the applicants’ costs to be taxed on an indemnity basis from 16 February 2011.

Note:    Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011

REASONS FOR JUDGMENT

SPECIAL COSTS APPLICATION

1    In these proceedings the first applicant, Australian Executor Trustees Limited (AET), sought damages under s 82 of the Trade Practices Act 1974 (Cth) (TPA) and damages at common law in respect of a valuation of a property in Cottesloe issued by the first respondent Propell National Valuers (WA) Pty Ltd (Propell), and made by the second respondent, Mr Travis Coleman.

2    On 18 May 2011 the Court delivered its primary decision: see Australian Executor Trustees Limited v Propell National Valuers (WA) Pty Ltd [2011] FCA 522 (Australian Executor Trustees). Judgment was entered for the first applicant, and counsel were invited to bring forward a minute reflecting findings and damages assessed in the sum of $405,682.15 plus pre-judgment interest. There was also a finding that the applicants would be entitled to their costs of the proceedings.

3    The matter was listed for further hearing on 25 May 2011 when the Court made the following orders:

1.    Judgment be entered for the first applicant as against the first and second respondents in the sum of $405,682.15.

2.    The respondents pay interest on the amount in order 1 above from 4 June 2010 to 25 May 2011 in the sum of $33,724.39, pursuant to s 51A of the Federal Court of Australia Act 1976 (Cth).

3.    As to the costs of the proceeding:

(a)    the applicants are to file and serve any submissions and any affidavits on which they intend to rely on the question of the basis on which the applicants’ costs are to be taxed, by 1 June 2011;

(b)    the respondents are to file and serve any submissions and any affidavits on which they intend to rely on the question of the basis on which the applicants’ costs are to be taxed, by 8 June 2011;

(c)    the question of costs be listed for hearing on a date to be fixed, unless the parties agree that the Court should determine the question of costs without a further hearing on the papers.

4    The applicants filed written submissions on 3 June 2011 and an affidavit of Mr Simon John Duke on 7 June 2011. This affidavit sets out the circumstances in which the applicants’ solicitors sent a ‘without prejudice, save as to costs’ letter to the solicitors for the respondents offering to settle the matter. The respondents filed their written submissions on 8 June 2011.

5    The applicants requested and were granted permission to make submissions in reply to the respondents’ written submissions dated 8 June 2011, which were subsequently provided to the Court on 1 July 2011.

6    The parties elected to have the Court determine the question of costs without a further hearing on the papers by way of letter to the Court dated 1 July 2011.

order sought by the applicants

7    The form of special costs order sought by the applicants is:

    an order that the respondents pay the applicants’ costs to be taxed on a party and party basis, if not agreed, up to and including 15 February 2011; and

    an order that the respondents pay the applicants’ costs to be taxed on an indemnity basis from 16 February 2011.

8    Indemnity costs are sought on the basis that an offer of genuine compromise was made by the applicants on 16 February 2011 and that the respondents’ failure to accept the offer was unreasonable.

9    The offer, which appears at page 55 of exhibit SJD-1 to the affidavit of Mr Duke, is in the following terms:

Our client is prepared to settle the matter on the following terms.

1.    Your clients pay our clients $350,000.00 plus costs as agreed or assessed.

2.    This offer is open for acceptance for 7 days from the date of this letter.

10    The special costs order is sought pursuant to the Court’s broad discretionary power to award costs under s 43 of the Federal Court of Australia Act 1976 (Cth). The application for a special costs order is based on the principles in Calderbank v Calderbank [1975] 3 All ER 333, and is not based on any offer made under Order 23 of the Federal Court Rules.

11    The respondents oppose the applicants’ application for indemnity costs, and consider that costs awarded on a party and party basis for the entirety of the proceedings are more appropriate. The respondents contend that it was reasonable to reject the Offer in circumstances where they had reasonable prospects of successfully defending the proceedings at trial and there was insufficient information available to warrant a compromise of the claim.

RELEVANT PRINCIPLES FOR A SPECIAL COSTS ORDER

12    Section 43 of the Federal Court of Australia Act 1976 (Cth) confers a broad discretion on the Court to award costs in proceedings. In Re Wilcox; Ex parte Venture Industries Pty Ltd (No 2) (1996) 72 FCR 151 at 152, Black CJ stated the principles applicable to a claim for indemnity costs:

it is well established that the starting point for any consideration of an application for indemnity costs is that in the ordinary case costs will follow the event and the Court will order the unsuccessful party to pay the costs of the successful party, on a party and party basis, a basis which will fall short of complete indemnity. Nevertheless, the Court has an absolute and unfettered jurisdiction in awarding costs, although the discretion must be exercised judicially. So, indemnity costs may properly be awarded where there is some special or unusual feature in the case justifying the Court in exercising its discretion in that way.

13    An award of indemnity costs may properly be awarded where there is an imprudent refusal of an offer to compromise: see Colgate-Palmolive Company v Cussons Pty Ltd [1993] FCA 536; (1993) 46 FCR 225 at 233 per Sheppard J. The applicants must show that the conduct of the respondents in not accepting the offer was unreasonable when viewed in light of the circumstances which existed at the time when the offer was rejected: Alpine Hardwood (Aust) Pty Ltd v Hardys Pty Ltd (No 2) [2002] FCA 224; (2002) 190 ALR 121 at 127 per Weinberg J.

14    The circumstances to be taken into account in determining whether the rejection of an offer is ‘unreasonable’ cannot be stated exhaustively: see Hazeldene’s Chicken Farm Pty Ltd v Victorian Workcover Authority (No 2) [2005] VSCA 298 (Hazeldene). However, a Court considering a submission that the rejection of a Calderbank offer was unreasonable will ordinarily have regard to the following matters:

    the stage of the proceeding at which the offer was received;

    the time allowed to the respondents to consider the offer;

    the extent of the compromise offered;

    the respondents’ prospects of success, assessed as at the date of the offer;

    the clarity with which the terms of the offer were expressed; and

    whether the offer foreshadowed an application for indemnity costs in the event of the respondents rejecting it.

See Hazeldene at [25].

15    It follows that a party who is unsuccessful at trial is not liable to pay indemnity costs merely on the basis that it received an offer to settle on terms more favourable than it achieved at trial and rejected that offer: Flemington Properties Pty Ltd v Raine & Horne Commercial Pty Ltd [1998] FCA 53; Australian Competition & Consumer Commission v Amcor Printing Papers Group Ltd [2000] FCA 163.

PROSPECTS OF SUCCEEDING AT TRIAL AS AT 16 FEBRUARY 2011

16    The Court is required to consider whether the rejection of the offer of compromise was unreasonable by considering, among any other relevant circumstances, the strengths and weaknesses of the applicants’ case, looking at the claim prospectively at the time the offer was made: Seven Network Limited v News Limited [2007] FCA 1489; (2007) 244 ALR 374 at [65] per Sackville J.

17    The applicants contend that the primary issue in this case was to determine the market value of the subject property as at the relevant historical date. The applicants say as at the date of making the offer, the evidence relevant to the issue of the market value of the property was Mr Hughes’ expert reports, which did not take account of any post-dated sales evidence and Mr Kish’s expert report, which did rely upon post-dated sales evidence.

18    The applicants contend that the question of whether post-dated sales evidence could be taken into account in the case had been expressly decided by High Court authority well prior to the commencement of the proceedings in HTW Valuers (Central Qld) v Astonland [2004] HCA 2004, and that this was consistent with the applicants’ position that post-dated sales could not be taken into account.

19    The applicants say that the respondents ought to have been aware of this decision, and in any event the decision was expressly drawn to the respondents’ attention prior to the making of the offer. Therefore, the respondents should have proceeded on the basis that 11 of the 13 sales used by Mr Kish would be found at the hearing to be inadmissible, as they post-dated the relevant date, and accepted that they had no expert evidence which supported the direct comparison sales relied on by Mr Coleman in the subject valuation. The applicants contend that a reasonable litigant in the position of the respondents as at 16 February 2011 would have assessed its prospects of succeeding on the question of liability as remote.

20    Although the respondents acknowledge that the value of the subject property at the relevant historical date was a significant issue at trial, the respondents contend that the applicants’ submission over-simplifies the position between the parties as at 16 February 2011, as the applicants’ submissions fail to acknowledge that:

    the trial judge was not limited to considering the evidence of Mr Hughes and Mr Kish in determining the value of the subject property;

    Mr Hughes’ evidence suffered from methodological errors and hence there was no guarantee that it would be accepted at trial;

    there were, at 16 February 2011, conflicting authorities in relation to the admissibility of subsequent sales evidence; and

    there were real issues in dispute between the parties in relation to whether the applicants did, as matters of fact, rely upon the respondents’ valuation of the subject property, or suffer loss as a result.

21    The respondents further say that there was no direct evidence available at the time that the offer was made that the applicants had suffered any loss and damage as alleged or such loss and damage was suffered in reliance upon the valuation provided by the respondents. In this regard, the respondents point to a lack of affidavit evidence provided by the applicants attesting that the funds lent to Mr Pell belonged to either of the applicants, that the applicants’ funding arrangements were advanced purportedly in reliance on the respondents’ valuation, or that any employee or officer of the applicants relied upon the valuation provided by the respondents.

22    The respondents say these findings of fact were ultimately made inferentially, and not on the basis of direct evidence: see Australian Executor Trustees at [202]. The respondents submit that in these circumstances it was not unreasonable to reject an offer in the absence of such fundamental direct evidence.

time for acceptance and information available

23    The offer was open for acceptance for 7 days, which the applicants say is a sufficient period to enable the respondents to properly consider the offer having regard to the circumstances that existed at the time, including the advanced stage of the litigation and the respondents’ knowledge of the matters in dispute.

24    The applicants refer to circumstances where the proceedings were commenced by way of a Fast Track Application and Fast Track Statement on 4 August 2010. The matter was listed for a scheduling conference on 6 October 2010, and the final hearing was listed for 8 March 2011, some 5 months later. The offer was made on 16 February 2011, 12 business days prior to the hearing.

25    The applicants contend that the respondents took extensive steps in the case during the currency of the offer. Those steps included, among other things:

    serving the respondents’ objections to the applicants’ affidavits;

    responding to the applicants’ proposed statement of material agreed facts and material issues in dispute; and

    attending the pre-trail conference on 18 February 2011.

26    The respondents contend that the information available as at 16 February 2011 was not adequate to enable the respondents to properly consider the Offer within the stipulated timeframe and that the filing of the objections referred to above clearly demonstrates that the issues in dispute between the parties were not crystallised as at 16 February 2011. The respondents say this is demonstrated by the fact that the applicants filed further affidavit evidence after 16 February 2011, including 3 affidavits of Mr Ji-Mi Zhang sworn 24 February 2011, 1 March 2011 and 8 March 2011, which the respondents say contained fundamental information required to properly consider the offer and in the absence of which the rejection of the offer was reasonable.

27    The respondents also note that $135,457.52 of the $405,682.15 ultimately was awarded on the basis of the evidence contained within the affidavit of Mr Zhang filed 3 March 2001: see Australian Executor Trustees at [235]. Therefore, in the absence of such evidence, the applicants’ claim would have amounted to no more than $270,224.63.

28    In their submissions in reply, the applicants deny this proposition, and point to the affidavit of Mr Zhang served on 11 February 2011. The applicants say the evidence contained in the affidavit concerning the claim for “costs of funds” in the amount of $135,457.52 was substantially the same as the evidence in the affidavit of Mr Zhang sworn 1 March 2011 ultimately relied on at the hearing on this issue.

29    Further, the applicants contend that at the time of receiving the offer, the respondents held sufficient information to enable proper consideration of the offer and the consequences of rejecting the offer. This information included having access to the applicants’ position paper relied upon at a mediation held in Perth on 8 December 2010, the respondents’ own position paper for the same mediation, the applicants’ expert evidence, and certain affidavits relied on by the applicant at hearing.

consideration

30    In the circumstances I am satisfied that the rejection by the respondents of the applicants’ offer was unreasonable, and that the applicants are therefore entitled to an order for costs on an indemnity basis. The extent of the compromise was substantial, particularly in circumstances where the respondents lacked real prospects of success on the trial on the findings I have made. The valuation of the property was an important aspect of the hearing, and although there were problems with both expert valuations, one only has to look at the gross over-valuation made by the respondent to assess the reasonableness of the settlement offer. I consider the respondents’ contention at material times that evidence of a retrospective valuation, using sales data post-dating the valuation date, was always bound to fail. While issues of loss and reliance involved the making of inferences, it was logical to conclude that the applicants would rely upon the statements made in the valuation, and that loss would result. The terms of the offer expressed were clear, and while it did not foreshadow an application for indemnity costs in the event of the respondents rejecting the offer, this does not militate against a finding that indemnity costs ought to be awarded in the circumstances.

31    I would make orders as proposed by the applicants.

orders

1.    The respondents pay the applicants’ costs to be taxed on a party and party basis, if not agreed, up to and including 15 February 2011.

2.    The respondents pay the applicants’ costs to be taxed on an indemnity basis from 16 February 2011.

Associate:

Dated:    22 August 2011