FEDERAL COURT OF AUSTRALIA
IN THE FEDERAL COURT OF AUSTRALIA
DATE OF ORDER:
THE COURT ORDERS THAT:
2. The respondent pay the applicant’s costs of and incidental to the proceeding from 29 October 2010, including reserved costs from that date, taxed on an indemnity basis.
Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.
QUEENSLAND DISTRICT REGISTRY
QUD 195 of 2010
AQUA-MARINE MARKETING PTY LTD (ACN 089 242 937)
PACIFIC REEF FISHERIES (AUSTRALIA) PTY LTD (ACN 084 456 931)
21 SEPTEMBER 2012
REASONS FOR JUDGMENT
1 On 24 August 2012 I delivered judgment in Aqua-Marine Marketing Pty Ltd v Pacific Reef Fisheries (Australia) Pty Ltd (No 5)  FCA 908. A minute of order followed on 27 August 2012, so far as relevant in the following terms:
THE COURT ORDERS THAT:
THE COURT DECLARES THAT:
2. On the application filed 3 June 2010, the respondent is liable to the applicant in the sum of $323,421.93 together with interest totalling $101,810.24 pursuant to s 51A of the Federal Court of Australia Act 1976 (Cth), being a total sum of $425,232.17.
3. On the cross-claim filed 17 March 2011, the cross-respondent is liable to the cross-claimant in the sum of $2,290.00 together with interest totalling $932.85 pursuant to s 51A of the Federal Court of Australia Act 1976 (Cth), being a total sum of $3,222.85.
THE COURT FURTHER ORDERS THAT:
4. The amount payable under Declaration 2 be set off against the amount payable under Declaration 1 and judgment be entered in favour of the applicant/cross-respondent for the sum of $422,009.32.
5. Costs of and incidental to the proceeding be reserved and in that respect the matter be adjourned for determination on the papers.
2 In summary, the applicant was successful in its claim against the respondent. The respondent was also successful in its much smaller cross-claim against the applicant, although I note that the cross-claim was not opposed.
3 At the time of delivery of judgment I ordered the parties to file submissions as to costs, and informed the parties that I would make orders as to costs on the papers.
4 The applicant filed submissions on 29 August 2012 and further submissions in reply on 6 September 2012. An affidavit of Mr Daniel Ryan, solicitor for the applicant, and sworn by Mr Ryan on 29 August 2012, was filed on the same day in support of the applicant’s submissions.
5 In summary, the applicant contended that it was entitled to payment of part of its costs on an indemnity basis by reason of refusal of a settlement offer made on 28 October 2010 by the applicant to the respondent. The applicant also submitted that in circumstances where an offer of compromise was made under the Federal Court Rules in operation prior to 1 August 2011 (“the former Rules”), those Rules ought apply to the offer of compromise.
6 In a letter dated 5 September 2012 to my Associate the solicitors for the respondent stated that the respondent did not intend to make any submissions in relation to the applicant’s costs of the application. Rather, in that letter the respondent submitted that because it was successful in respect of its cross-claim against the applicant:
the applicant should pay the respondent’s costs of the cross-claim, taxed on a party and party basis; and
it was appropriate for any order for costs in favour of the respondent to be set-off against any amount of costs which the respondent is required to pay to the applicant.
7 The following background facts are taken from the submissions and Mr Ryan’s affidavit. The respondent does not dispute these facts.
8 The substantive proceedings were commenced by the applicant on 3 June 2010. On 9 July 2010 Dowsett J made directions in anticipation of a four day trial commencing 13 December 2010.
9 On 28 October 2010 Mr Ryan sent an email to Ms Angela Lowe of Ruddy Tomlins Baxter Solicitors, who at that time were the solicitors for the respondent. Attached to that email was a Notice of Offer of Compromise dated 28 October 2010 (“offer of compromise”). The offer of compromise, signed on behalf of the applicant’s solicitors Tucker & Cowen, was in the following form:
NOTICE OF OFFER OF COMPROMISE
(Order 23 rule 3)
Take notice that the Applicant makes an offer of compromise on the following basis:
1. The Respondent pay to the Applicant:
a. $310,000 in full and final satisfaction of:
i. The Applicant’s claim in the Application filed 3 June 2010 for damages for breach of contract;
ii. The Applicant’s alternative claim in the Application filed 3 June 2010 for loss and damage under s.82 of the Trade Practices Act 1974; and
iii. The Respondent’s Cross-claim filed 2 August 2010;
b. $28,674.90 for interest, calculated on the amount of $310,000 at the rate of 8% per annum from 1 September 2009 to 28 October 2010, being 422 days at a daily rate of $67.95; and
c. The Applicant’s costs taxed on a party and party basis.
2. This offer shall remain open for acceptance until 5pm on 12 November 2010.
3. This offer is made under Order 23 of the Federal Court Rules.
10 The offer of compromise was not accepted by the respondent, and the applicant did not receive any response from the respondent as to the offer.
11 The trial was adjourned to commence on 14 March 2011 for 4 days. The trial extended beyond 4 days, and was heard on 14-17 March 2011, 16-18 May 2011, 22-23 June 2011 and 26 July 2011.
Which rules apply?
12 The applicant’s offer of compromise was made pursuant to O 23 r 11(4) of the former Rules. This rule provided as follows:
(a) an offer is made by an applicant and not accepted by the respondent; and
(b) the applicant obtains judgment on the claim to which the offer relates not less favourable than the terms of the offer;
then, unless the court otherwise orders, the applicant is entitled to an order against the respondent for costs incurred in respect of the claim:
(c) up to and including the day the offer was made – taxed on a party and party basis; and
(d) after that day – taxed on an indemnity basis.
13 Under the Federal Court Rules 2011, which commenced on 1 August 2011, the equivalent rule is r 25.14(3) which provides as follows:
(3) If an offer is made by an applicant and not accepted by a respondent, and the applicant obtains a judgment that is more favourable than the terms of the offer, the applicant is entitled to an order that the respondent pay the applicant’s costs:
(a) before 11.00am on the second business day after the offer was served – on a party and party basis; and
(b) after the time mentioned in paragraph (a) – on an indemnity basis.
14 Obvious differences between O 23 r 11(4) and r 25.14(3) which are relevant in the context of the proceedings before me are:
rule 25.14(3) does not include the words “unless the court otherwise orders”, which in O 23 r 11(4) clearly conferred discretion on the Court to refuse to make an order for indemnity costs; and
the rules apply a different time frame to the entitlement to indemnity costs in respect of an offer made under the respective rule (compare O 23 r 11(4)(c) and (d) with r 25.14(3)(a) and (b)).
15 The reference in O 23 r 11(4) to “judgment on the claim to which the offer relates not less favourable than the terms of the offer” is clearly different to “a judgment that is more favourable than the terms of the offer”, but this difference is not material in the context of this case because the ultimate award to the applicant was considerably more than the amount offered in the offer of compromise.
16 In the circumstances of this case, the primary distinction in the effect of the rules of Court is that whereas the applicant appears automatically entitled to an award of indemnity costs in the circumstances prescribed by r 25.14(3), the Court is empowered to order otherwise by O 23 r 11(4).
17 In Barker v Commonwealth Bank of Australia  FCA 890, in a matter where the application was filed under the former Rules but heard on 1 August 2011, Besanko J considered it appropriate to determine the application by reference to the rules of Court as they were when the application was issued. I am inclined, respectfully, to follow his Honour’s reasoning in this respect. This is particularly so in light of the fact that the trial was heard prior to the commencement of the Federal Court Rules 2011, such that all relevant activity in respect of this litigation was completed before 1 August 2011 apart from submissions as to costs. In any event, however, in the interests of completeness it is not inappropriate to consider whether the Court should “otherwise order” should O 23 r 11(4) be applicable.
If Order 23 rule 11(4) applies, should the Court “otherwise order”?
18 Section 43 of the Federal Court of Australia Act 1976 (Cth) (“the Act”) confers a broad discretion on the Court in relation to orders as to costs, and indeed this discretion was recognised in O 23 r 11(4) of the former Rules. However this Court has accepted the principle that once an offer of compromise was made under O 23 of the former Rules, a rebuttable presumption in favour of indemnity costs was created in accordance with the terms of O 23, and it then became incumbent on the unsuccessful party to demonstrate why that presumption should not crystallise. Indeed, the authorities support the proposition that even if an unsuccessful litigant acted reasonably in rejecting an offer of compromise based on its asserted defences, that of itself was not a sufficient reason to displace the prima facie operation of O 23: Port Kembla Coal Terminal Ltd v Braverus Maritime Inc (No 2) (2004) 212 ALR 281 at -, Futuretronics.com.au Pty Ltd v Graphix Labels Pty Ltd  FCAFC 40 at , IFTC Broking Services Ltd v Commissioner of Taxation (2010) 268 ALR 1 at . It is also clear that a court may depart from the presumptive position but only “for proper reasons which, in general, only arise in an exceptional case”: Futuretronics at , IFTC Broking Services at .
19 In this case no exceptional case has been demonstrated by the respondent for departure from the presumptive position that indemnity costs should be awarded for costs incurred after the day on which the offer of compromise was made. The facts demonstrate that an offer of compromise was made in accordance with O 23 r 11 of the former Rules, and that the respondent did not respond to the applicant’s offer. The applicant successfully obtained judgment on the claim to which the offer related, in terms not less favourable than the terms of the offer of compromise. The respondent has filed neither submissions nor supporting evidence to rebut the presumption arising in the circumstances.
Costs incurred in respect of cross-claim
20 The applicant submits that the respondent ought not be entitled to its costs in respect of the cross-claim because, in summary:
the applicant did not dispute the cross-claim;
the offer made by the applicant under the former Rules was to compromise the applicant’s claim and the cross-claim; and
the costs of the cross-claim are negligible, and no evidence concerning it was produced.
21 The applicant contends, therefore, that it is inappropriate for any separate costs order to be made in respect of the cross-claim of the respondent.
22 A proposition generally accepted in respect of costs is that they follow the event in the absence of special circumstances warranting a different order: Hughes v Western Australian Cricket Association (Inc) (1986) ATPR 40-748 at 48,136. In this case the cross-claim was:
not disputed except to the extent of disagreement about the amount owing, which disagreement concerned an amount less than $100.00;
for a very small sum compared with the claim of the applicant;
the subject of simple assertion by the respondent, and the subject of no oral submissions during the course of the hearing and only the most basic written submissions; and
not the subject of any evidence either written or oral.
23 No submissions or evidence have been filed by the respondent in relation to the costs incurred by it in relation to the cross-claim. In the context of this case I consider it highly likely that the costs of the cross-claim are negligible as contended by the applicant. To that extent I am of the view that, even set off against the costs to be awarded to the applicant, an order that the respondent be awarded its costs would, in reality, be a token order. In my view the more appropriate approach to be adopted by the Court in the exercise of its discretion pursuant to s 43 of the Act in the circumstances of this case is to make no separate order in relation to the cross-claim against the applicant.
24 Costs were reserved earlier in the proceedings in relation to interlocutory hearings. No separate submissions have been made by the parties in relation to those costs. In the absence of further submissions, I consider the appropriate order is that the applicant be awarded costs in the terms contemplated by O 23 r 11 of the former Rules, namely costs on a party and party basis up to and including the day the offer of compromise was made, and after that date taxed on an indemnity basis.