FEDERAL COURT OF AUSTRALIA

Visscher v Teekay Shipping (Australia) Pty Ltd (No 5) [2013] FCA 28

THE COURT ORDERS THAT:

1.    The applicant pay the respondent’s costs (with the exception of the costs of the respondent’s motion for summary judgment) on a party and party basis from 2 March 2007 to 11.00 am on 9 March 2012 and thereafter on an indemnity basis.

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

REASONS FOR JUDGMENT

1    Timothy Visscher is a merchant seaman who was formerly employed by Teekay Shipping (Australia) Pty Ltd (“Teekay”) on an oil tanker called the Broadwater. He was first employed as Third Officer and later promoted to Chief Officer. Teekay purported to rescind the promotion. Mr Visscher claimed that he never accepted the rescission and that at all material times he continued to work as Chief Officer and to be paid as such. Teekay maintained that after it rescinded the promotion he worked for a time as Third Officer until he was promoted to Second Officer but that he acted as Chief Officer and was paid a higher duties allowance on top of his base grade pay to reflect this. When in January 2004 Teekay signified an intention that he sail as Second Officer on his forthcoming voyage, Mr Visscher treated this as a constructive dismissal and asked Teekay to pay him the wages due to him on his discharge from the Broadwater the following month.

2    Teekay did not accept that Mr Visscher was constructively dismissed. A dispute ensued. Mr Visscher sought reinstatement in the Australian Industrial Relations Commission (“AIRC”). The AIRC found in favour of Teekay. Mr Visscher appealed to the Full Bench and then to the Full Court of this Court but was unsuccessful on each occasion. He prevailed, however, in the High Court: Visscher v Giudice (2009) 239 CLR 361, which then remitted the proceeding to the AIRC (since replaced by Fair Work Australia (“FWA”)) to be determined according to law. By this time Mr Visscher had begun this proceeding. Here, he claimed that Teekay owed him wages and was required to pay him both the outstanding wages and a penalty due to him under s 78 of the Navigation Act 1912 (Cth) because Teekay had not paid the wages due to him on discharge, contrary to s 75 of the Act. His claim related to two voyages. The first followed his discharge from the Broadwater on 3 March 2004 and concerned an alleged non-payment of three days’ pay and accrued leave. The second followed his discharge on 26 May 2004 after a voyage he contended he sailed as a casual employee but for which he was not paid a casual loading. He said that the amount Teekay was obliged to pay him exceeded $7.4 million. Teekay maintained that it had paid Mr Visscher all that he was due by 4 June 2004 at the latest, disputed that the Navigation Act applied, and, on the assumption that it did, raised a number of defences contained in s 78 of the Act.

3    On 9 November 2012 I dismissed Mr Visscher’s originating application and ordered that he pay Teekay’s costs: Visscher v Teekay Shipping (Australia) Pty Ltd (No 4) [2012] FCA 1247 (“Visscher No 4”). In the case of the claim for relating to the failure to pay a casual loading arising out of the second voyage I found that Mr Visscher had not been employed as a casual. In the case of the claim relating to the first voyage I found that Teekay had made out its defence that the delay in payment was due to a reasonable dispute as to liability for the wages. I also held that, had that defence failed, Mr Visscher’s entitlement under s 78 would not have been anything like $7.4 million. Rather, he would have been entitled to just over $53,760.

4    Rule 40.01 of the Federal Court Rules 2011 (Cth) (“the current rules”) provides that if an order is made that a party pay costs, without any further description of the costs, the costs are to be costs as between party and party (defined in Sch 1 as the costs that have been fairly and reasonably incurred by the party in the conduct of the litigation). But r 40.02 enables a party who is entitled to costs to apply to the Court for an order that costs be awarded other than as between party and party. Teekay seeks such an order. The order it seeks is that Mr Visscher pay its costs on a party and party basis from 2 March 2007 to 11.00 am on 4 December 2009 and thereafter on an indemnity basis. Alternatively, it seeks an order that Mr Visscher pay its costs on a party and party basis from 2 March 2007 to 11.00 am on 9 March 2012 and thereafter on an indemnity basis.

5    After the application was made but before the time for submissions to be filed had elapsed Mr Visscher entered judgment for the purpose of enabling him to appeal. The Court has the power to vary a judgment or order after it has been entered in certain circumstances set out in r 39.05. One of those circumstances is that the party in whose favour the judgment or offer is made consents: r 39.05(f). Plainly this is such a case.

6    The application is based on two offers of compromise Teekay made to Mr Visscher. Evidence of the offers was contained in an affidavit affirmed on behalf of Teekay by a solicitor, Nicola Martin. The evidence is silent about whether Mr Visscher responded to either offer but he obviously accepted neither.

7    The first offer was made on 3 December 2009. The terms of the offer were that the application be dismissed and that there be no order as to costs. The offer was open for a period of 14 days. The second offer, made pursuant to r 25 of the current rules on 7 March 2012, and which was open for 21 days, was an offer to pay Mr Visscher $200,000 plus costs in exchange for him discontinuing the proceeding and all interlocutory applications and appeals with no order as to costs. The notice provided that the amount of the offer would be paid within 28 days of acceptance.

The relevant principles

8    The first offer of compromise was made under O 23 r 11(6) of the Federal Court Rules 1979 (“the former rules”), the second under the current rules.

9    O 23 r 11(6) of the former rules provided that if:

(a)    an offer is made by a respondent and not accepted by the applicant; and

(b)    the respondent obtains an order or judgment on the claim to which the offer relates as favourable to the respondent, or more favourable to the respondent, than the terms of the offer;

then, unless the Court otherwise orders:

(c)    the respondent is entitled to an order that the applicant pay the respondent’s costs in respect of the claim incurred up to 11 am on the day after the day the offer was made, taxed on a party and party basis; and

(d)    the respondent is entitled to an order that the applicant pay the respondent’s costs in respect of the claim incurred after that time, taxed on an indemnity basis.

10    The reference to an “offer” is to an offer made in conformity with the procedure for making an offer of compromise set out in the rules. There appears to be no dispute that both offers were offers of compromise under the rules (or offers to compromise as they are now called in the current rules) and in any event I am independently satisfied that they were.

11    I discussed the principles relating to the operation O 23 r 11(6) and the first offer itself in one of my earlier judgments in this matter: Visscher v Teekay Shipping (Australia) Pty Ltd (No 2) [2011] FCA 278 (“Visscher No 2”). This judgment should be read with that judgment as well as Visscher No 4.

12    The current rules repealed the former rules on 1 August 2011 (r 1.03). Unless the Court orders that the former rules apply, the current rules apply to a step in a proceeding started before 1 August 2011 if the step is taken on or after that date (r 1.04).

13    Teekay submits that the former rules apply to the first offer (presumably because the relevant step is the making of the offer) and the current rules to the second.

14    The relevant current rule is r 25.14, more precisely r 25.14(2). It is in the following terms.

(1)    If an offer is made by a respondent and not accepted by an applicant, and the applicant obtains a judgment that is less favourable than the terms of the offer:

(a)    the applicant is not entitled to any costs after 11.00 am on the second business day after the offer was served; and

(b)    the respondent is entitled to an order that the applicant pay the respondent’s costs after that time on an indemnity basis.

(2)    If an offer is made by a respondent and an applicant unreasonably fails to accept the offer and the applicant’s proceeding is dismissed, the respondent is entitled to an order that the applicant pay the respondent’s costs:

(a)    before 11.00 am 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.

15    In Kooee Communications Pty Ltd v Primus Telecommunications Pty Ltd (No 2) [2011] FCAFC 141 (“Kooee”) at [18] a Full Court stated that if there is any material difference between the former and the current rule, the current rule makes it clear that the presumption in favour of indemnity costs is not enlivened unless an applicant has “unreasonably” failed to accept a respondent’s offer of compromise. The Court, however, considered that this was effectively the position prevailing under the former rules and for this reason made no order under r 1.04(3) displacing any part of the new rules. With great respect I have real doubts about whether this is right. It is at odds with what the Full Court said in Futuretronics.com.au Pty Ltd v Graphix Labels Pty Ltd [2009] FCAFC 40 (“Futuretronics”) and IFTC Broking Services Ltd v Federal Commissioner of Taxation (2010) 268 ALR 1; [2010] FCAFC 31 (“IFTC”), which I can only assume were not brought to the Court’s attention. In Kooee the Full Court cited two authorities, both decisions of single judges that predated Futuretronics. In Futuretronics (an application for indemnity costs by the successful respondent to an appeal) the Full Court said at [10]–[11]:

[10]    In dealing with rule 11(4), which also uses the expression appearing in r 11(6) — “unless the court otherwise orders” — Hely J in Port Kembla Coal Terminal Ltd v Braverus Maritime Inc (No 2) (2004) 212 ALR 281 at [17], after referring to Heerey J’s observation in an earlier case that “compelling and exceptional circumstances” must exist before the court would “otherwise order”, said:

Once an offer is made, and a judgment no less favourable obtained, a rebuttable presumption in favour of indemnity costs is created. It then becomes incumbent on the defendant to show reason why the presumption should not crystallise. Correctly understood, Heerey J was explaining the operation of the Rule, rather than impermissibly attempting to place a fetter on the exercise of the court’s discretion … [H]is Honour was not seeking to do more than to convey that the prima facie position should only be departed from for proper reasons which, in general, only arise in an exceptional case …

We agree with these remarks about rule 11(4) which in our view are applicable to rule 11(6).

[11]     … If the present question was whether the rejection of the later offer was unreasonable, we would have said it was not. However, it is established that the fact that an unsuccessful litigant acted reasonably in rejecting an offer under rule 11(4) (and its counterparts in other jurisdictions) is not of itself a sufficient reason to displace the operation of the rule: New South Wales Insurance Ministerial Corporation v Reeve (1993) 42 NSWLR 100 at 102; Morgan v Johnson (1998) 44 NSWLR 58 at 582; Port Kembla 212 ALR at [18].

[Emphasis added.]

16    In IFTC at [9] the Full Court followed Futuretronics and also observed:

The requirement for “proper reasons” for any departure from the prima facie position of indemnity costs reflects the purpose of the rule. As explained by Mason P in Morgan v Johnson (1998) 44 NSWLR 578 at 581F–582E the rule is intended to encourage the compromise of litigation (such compromise being in both the private and the public interest) and to oblige parties “to give serious thought to the risk involved in non-acceptance” on the basis that “litigation is inescapably chancy”: Maitland Hospital v Fisher (No 2) (1992) 27 NSWLR 721 at 725. For these reasons “the ordinary provision is expected to apply in the ordinary case” (referring to New South Wales Insurance Ministerial Corporation v Reeve (1993) 42 NSWLR 100 at 102–103).

17    In Visscher No 2, which was decided before Kooee, I applied both these judgments. It is true, as the Full Court pointed out in Kooee at [15], that the former rules did not expressly provide for a case in which an application is dismissed. But in the light of the authorities as they stood at the time the current rules were made, the proper inference, it seems to me, is that the effect of inserting “unreasonably” into r 25.14 is to change the law in cases where the proceeding is dismissed. Despite what I may think, however, I am now bound to follow Kooee. See Proctor v Jetway Aviation Pty Ltd [1984] 1 NSWLR 166 at 177 per Moffitt P, Glass JA agreeing at 180–1; MacAdam A and Pyke J, Judicial Reasoning and the Doctrine of Precedent in Australia (Butterworths, 1998) [5.26]–[5.28]. The question, then, in each instance is whether Mr Visscher unreasonably failed to accept the offer.

The respondent’s case

18    With respect to the first offer Teekay primarily relies on my reasons in Visscher No 2. It submits that the offer afforded Mr Visscher a valuable opportunity to have the proceeding dismissed with no costs consequences and, for this reason, was an offer of significant value to him, significantly more favourable than the final outcome. I would point out, however, that in Visscher No 2 I said nothing about whether Mr Visscher acted unreasonably in not accepting the offer. Although Teekay referred to Kooee, it did so only in the context of the second offer. To the extent that it said anything about whether Mr Visscher was unreasonable not to have accepted the first offer, it referred to what Mason P said in Morgan v Johnson (1998) 44 NSWLR 578 at 581 about the importance of disposing of cases promptly and economically. Yet, Morgan v Johnson (which concerned the operation of one of the District Court Rules 1973 (NSW) concerning costs) is also authority for the proposition that the mere fact that it was reasonable for a litigant to reject an offer of compromise is not sufficient to displace the prima facie operation of the rule (see 582).

19    With respect to the second offer Teekay accepts that Mr Visscher may have been buoyed by the Full Court’s decision but submits that it was unreasonable for him not to have accepted it because, on its face, it was substantially more than he could reasonably have expected to recover had he been successful.

The applicant’s arguments

20    Mr Visscher contends that it was not unreasonable for him not to have accepted either offer.

21    First, he argues that the case was concerned with the “operation” of various provisions of the Navigation Act which have not been the subject of previous judicial interpretation and of the articles of agreement “the operation” of which “could” have been decided in his favour. Secondly, he claims that it was “open” to the Court to find that cl 15 of the contract of employment operated in such a way that, should employment resume after termination, no prior service would be recognised and so the Court “could” have found that his employment on the second voyage beginning on 8 April 2004 must have been as a new employee for a single voyage of six weeks’ duration attracting the casual loading he claimed. Thirdly, he relies on what the Full Court said in Visscher v Teekay Shipping (Australia) Pty Ltd (2011) 198 FCR 575 at [59]–[68]. Fourthly, he points to my order of 15 December 2011 in the wake of the Full Court judgment directing the parties to mediation. Fifthly, he states that the parties agreed to a stay of the proceedings in FWA which he says was “contingent upon the Court’s findings of fact with regard to [his] claim that his employment was terminated by [Teekay] when he left the … Broadwater on 3 March 2004”. In this respect, he points to findings in his favour in Visscher No 4 at [183]. Sixthly, he states that Teekay failed to put its entire case to him at the time it made the offer. He refers in particular to what he says is significant evidence from Stephen Bertram (in a second affidavit) and Capt John McLellan (the captain of the Broadwater and the person who gave him his discharge certificate on 3 March 2004) not served before the offer was made. Consequently, he submits that he “could not take into account the full weight of the evidence against him and was thus unable to make a fully informed decision”. Finally, he argues that the two offers of compromise cannot both remain on foot. He submits that the second offer must have the effect of extinguishing the first; otherwise the respondent could make multiple offers and pursue the most advantageous one after judgment.

22    Quite apart from these arguments, Mr Visscher submits that the principal application (which I understand to be Teekay’s application for indemnity costs arising out of the first offer of compromise) should be dismissed because I dismissed Teekay’s earlier application for indemnity costs on 25 March 2011 in Visscher No 2, which was based on the same offer of compromise, and because I made an order for costs in Mr Visscher’s favour on 13 March 2012: Visscher v Teekay Shipping (Australia) Pty Ltd (No 3) [2012] FCA 212 (“Visscher No 3”). It is convenient to deal with this submission first.

What is the effect of the earlier costs judgments?

23    These two decisions related to the costs of Teekay’s motion for summary judgment. Teekay was initially successful. I made an order summarily dismissing Mr Visscher’s originating application on 4 January 2011 and ordered Mr Visscher to pay Teekay’s costs: Visscher v Teekay Shipping (Australia) Pty Ltd [2011] FCA 1. But I refused Teekay’s application for indemnity costs because of the delay in making it. There is no good reason, however, why Teekay cannot renew the application at this point. My order for summary dismissal was set aside after Mr Visscher appealed and the Full Court allowed the appeal. The costs order made in Mr Visscher’s favour on 13 March 2012 only related to the costs of Teekay’s motion for summary judgment. The present application is not an application for costs relating to the motion for summary judgment but for the costs of the proceeding generally.

Does the fact that a second offer was made mean that Teekay cannot rely on the first?

24    The mere fact that two offers were made is neither here nor there. Rule 25.05(2) expressly provides that more than one offer can be made. So did O 23 r 5(2) of the former rules. It is not uncommon for multiple offers of compromise to be made in a long-running dispute. The second offer does not extinguish the first. If it is a valid offer under the rules, Teekay is entitled to rely on it.

Did Mr Visscher unreasonably fail to accept either offer?

25    The first offer did not provide for the payment to Mr Visscher of any money. It was what is commonly referred to as a “walk away” offer. Nevertheless, for the reasons I gave in Visscher No 2, it was a genuine offer of compromise. (See also Sagacious Legal Pty Ltd v Wesfarmers General Insurance Ltd [2011] FCAFC 53 at [129]–[140]). But for the delay in making the application, I would have granted it. This time, however, there is an additional issue and Mr Visscher’s arguments are appropriately different. They are focussed on the question of whether he acted unreasonably in declining to accept the offers.

26    The purpose of the rules relating to offers of compromise is to encourage early settlement. The fact that it might have been open to the Court to find in Mr Visscher’s favour does not mean that it was not unreasonable for him not to accept the offer of compromise. The same might be said of most offers of compromise.

27    It is immaterial that after the Full Court had overturned the summary judgment I directed the parties to attend a mediation. Furthermore, the reasons of the Full Court at [59]–[67] and the orders it made at [68] must be read in context. The Full Court was dealing only with the judgment on the motion for summary judgment. Its decision was that summary dismissal should not have been ordered. Occasionally, however, (for example at [65]) the Full Court expressed itself in such an emphatic way as to imply that Teekay could have no defence to the claim for wages for the first voyage regardless of what evidence Teekay might call in a final hearing. This is unfortunate as the motion for summary judgment was based only on Mr Visscher’s evidence taken at its highest. Teekay’s evidence was not before the Court at the time and Mr Visscher’s evidence was untested. Yet, in the light of some of the Full Court’s observations I can understand why Mr Visscher would have been encouraged by the Full Court’s judgment to think that he was bound to succeed, regardless of the evidence that Teekay might call.

28    I am aware that the parties agreed to a temporary stay of the proceeding in FWA but there is no evidence as to its terms. In any case, it was open to the parties to settle the proceeding in this Court at any time. It is arguable that it would have been an abuse of the Court’s processes to maintain them merely to obtain findings for use in other proceedings.

29    It is true that at the time the offers were made Mr Bertram’s second affidavit had not been filed and Capt McLellan had put on no evidence. Mr Bertram’s second affidavit was of no real moment. Capt McLellan’s evidence, on the other hand, was certainly significant, though not decisive. There is nothing to indicate why Capt McLellan’s evidence was not filed until 2012, although it seems likely that Teekay did not appreciate the need to adduce evidence from him until it read the Full Court’s judgment. Yet, as I observed in Visscher No 2, the rules envisage that offers of compromise may be served at any time, including before any evidence is served. Hely J made the same observation in Port Kembla Coal Terminal v Bravurus Maritime Inc (No. 2) (2004) 212 ALR 281; [2004] FCA 1437 at [22]:

Under the Rules, an offer of compromise may be made at any time prior to the giving of a decision in the matter, but the time in which the offer is open to be accepted must be not less than 14 days beginning on the day after the offer is made. There is nothing in the Rules which requires that the proceedings should have reached any particular stage of development before an offer of compromise may be made which

will attract the costs consequences for which the Rules provide. For example, there is no reason why an offer of compromise may not be made with the filing of the statement of claim, and there is every reason for encouraging offers of compromise to be made as early as the circumstances reasonably permit.

30    Section 37M of the Federal Court of Australia Act 1976 (Cth) provides that the rules must be interpreted and applied and the powers conferred or duties imposed by them exercised or carried out in the way that best promotes their overarching purpose of facilitating the just resolution of disputes according to law and as quickly, inexpensively and efficiently as possible. The sooner a dispute is resolved, the greater the benefits in cost and efficiency.

31    Taking all these matters into account, it cannot be reasonable for a litigant not to accept an offer simply because he or she has not seen all of the other side’s evidence.

32    Be this as it may, I am not persuaded that Mr Visscher was unreasonable in failing to accept the first offer. Underlying it was the notion that he was bound to fail. At the time it was made, however, his case was not self-evidently hopeless. The offer was not accompanied by a letter explaining why it was in Mr Visscher’s interests to accept it. No application for summary judgment was foreshadowed. Difficult questions of law arose for determination.

33    I have, however reached a different conclusion about Mr Visscher’s conduct in relation to the second offer.

34    What is important about the second offer is that it was almost four times what I calculated to be the true value of Mr Visscher’s claim had Teekay not made out a defence. Whatever encouragement Mr Visscher may have derived from the Full Court’s judgment, it cannot explain his failure to accept this offer; the Full Court said nothing about the potential value of the claim. For this reason alone it was unreasonable for him not to have accepted it.

Conclusion

35    Mr Visscher should therefore pay Teekay’s costs on a party and party basis from 2 March 2007 to 11.00 am on 9 March 2012 and thereafter on an indemnity basis. To the extent that it might be thought that Teekay’s current application includes the costs of the motion for summary dismissal, I make it clear that the order I make is not intended to include the costs of that motion.

Associate:

Dated:    29 January 2013