FEDERAL COURT OF AUSTRALIA

Kang v Secretary, Department of Social Services (No 2) [2017] FCA 1173

ORDERS

THE COURT ORDERS THAT:

1.    There be no order as to costs.

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

REASONS FOR JUDGMENT

MCKERRACHER J:

INTRODUCTION

1    In Kang v Secretary, Department of Social Services [2017] FCA 895 (Kang No 1), I allowed the applicant’s appeal and remitted the issue to the Administrative Appeals Tribunal for determination. I was unable to substitute my own determination for that of the Tribunal for the reasons there stated. The applicant seeks costs on the successful appeal. The applicant did lose on the question of whether or not I could make the determination, but argues that the point as to whether the matter could be remitted or not was raised for the Department of Social Services in oral argument after the applicant’s oral submissions and only tangentially raised in the outline of submissions filed prior to the hearing.

2    The Department, on the other hand, contends:

(a)    the applicant should pay the Department’s costs because the Department was successful on the only issue actually disputed; and

(b)    the costs should be fixed in a lump sum ($13,253.32) pursuant to r 40.02(b) of the Federal Court Rules 2011 (Cth) and s 43(3)(d) of the Federal Court of Australia Act 1976 (Cth).

RELEVANT EVENTS

3    The notice of appeal was filed on 18 November 2016, seeking an order that the Tribunal’s decision be set aside, or alternatively, that the matter be remitted to the Tribunal for rehearing according to law.

4    The Department says it conceded at an early stage that the Tribunal’s decision should be set aside. This was by correspondence dated 27 March 2017. In that correspondence, the Department indicated it would consent to an order setting aside the Tribunal’s decision and remitting the case for rehearing, which were the orders ultimately made. It proposed draft consent orders envisaging that the parties bear their own costs of the appeal and the matter being reheard.

5    I pause at this stage to say that it is unclear to me why, even at that point, the applicant should have conceded to an order to bear his own costs, given that the proposal was made about five months after filing the appeal and the applicant was successful, having filed the appeal. But little turns on this.

6    On 3 April 2017, the applicant expressed a view that his social security benefit should be reinstated, rather than have the application remitted. He also proposed that if the matter were to be remitted, there should be no restriction on the evidence and the Department should pay his costs.

7    By correspondence on 24 April 2017, the Department offered to resolve the matter on the basis that the Tribunal’s decision would be set aside, the case would be remitted to the Tribunal to be decided in accordance with law and the Department would pay the applicant’s costs incurred up until the date of the offer. It was expressed to have been made in accordance with the principles in Calderbank v Calderbank [1975] 3 All ER 333. The offer was open until 4.00 pm on 8 May 2017.

8    On 8 May 2017, the applicant advised the Department that the offer was not accepted and that he intended to seek final orders from this Court to the effect that his benefit be reinstated.

9    Eleven days later, the applicant’s written submissions were filed, maintaining the contention that the Court should make the order reinstating the applicant’s social security payments. On 25 May 2017, the Department filed submissions, maintaining its consent to an order remitting the matter to the Tribunal for rehearing, but opposing the order that the applicant’s payments be reinstated.

10    Additionally, on that date, the Department renewed its offer to consent to orders that the Tribunal’s decision be set aside, that the case be remitted to the Tribunal to be decided in accordance with the law and that the Department pay the applicant’s costs up to the date of its previous offer of 24 April 2017. On 30 May 2017, the applicant rejected that offer.

11    The matter proceeded to hearing shortly after on 1 June 2017. The Department says the hearing was limited to the issue of whether or not the case should be remitted to the Tribunal as sought by the Department. The Department says it was entirely successful on that issue and that costs should follow the event in accordance with the usual orders. It does not seek an order for indemnity costs after the date of expiry of its offer.

12    The Department points out that the very reason the matter was remitted to the Tribunal was because of its argument in its written submissions that there was residual discretion yet to be exercised by the Tribunal, where it said (at [33] and [34]):

33.    The [Department] submits that the Applicant's “appeal” to this Court does not establish an entitlement to relief of that nature, nor that such relief would be appropriate. It is submitted that the resolution of any question of law in the Applicant's “appeal” still leaves a broad discretion yet to be exercised by the Tribunal:

(a)    Sub-section 1207X(2) of the Social Security Act establishes two significant issues in respect of which the Tribunal has a broad discretion: first, whether to determine the Applicant should not be an attributable stakeholder of the Kang Family Trust, and secondly, whether to otherwise determine that a lower percentage than 100% is to be the Applicant's asset attribution percentage. [Secretary, Department of Family and Community Services v Wall [2006] FCA 863, [80]].

(b)    The discretions arising from sub-s 1207X(2) are to be guided by the considerations set out in the Attribution Principles, but no single consideration is itself determinative. That is, whatever facts have been found (or might yet be found), none of those are made determinative by the Social Security Act or by the Attribution Principles. It is a matter for the Tribunal, within the bounds of legality, to accord such weight as it sees fit to those considerations in the exercise of the sub-s 1207X(2) discretions.

(c)    The Applicant’s disability support pension was cancelled (and the resulting debt calculated) on the basis that the value of his assets was to include the value of the Kang Family Trust’s assets pursuant to Part 3.18 of the Social Security Act. The correctness of that decision depends upon whether (and, if so, how) the discretions regarding the attribution of trust assets are to be exercised. Contrary to the Applicant’s contention that “the only possible outcome is that the original cancellation of the Applicant’s benefit will be set aside” (Outline of Submissions, para 53), that outcome in truth depends upon the exercise of the discretions vested in the Tribunal pursuant to sub-s 1207X(2).

34.    Accordingly, it is submitted that the case should be remitted to the Tribunal for re-hearing. [Minister for Immigration and Ethnic Affairs v Conyngham (1986) 68 ALR 441, 453; Minister for Immigration & Ethnic Affairs v Guo (1997) 191 CLR 559; Repatriation Commission v Butcher [2007] FCAFC 36; Selway v Minister for Infrastructure, Transport, Regional Development and Local Government [2011] FCA 43; Comcare v Broadhurst [2011] FCAFC 39; Pocketful of Tunes Pty Ltd v Copyright Tribunal [2015] FCAFC 146, [54].

13    In a subsequent submission, the applicant has raised some unnecessary and, in my view, with respect, inappropriate complaints about the Department’s failure to comply with the model litigant policy. I do not accept that contention, nor do I think that the contentions are presently relevant in any way to determining who should bear the costs of the appeal and in what amount. I do not propose to address them in any detail.

Legal principles

14    There is helpful Full Court guidance on the relevant principles concerning Calderbank offers and offers under the Rules in Kooee Communications Pty Ltd v Primus Telecommunications Pty Ltd (No 2) [2011] FCAFC 141, per Gilmour, Jagot and Nicholas JJ, from which I extract and follow the passages below (at [14]-[19]):

14    As will be apparent from Rule 25.14(2) above, the new Rules expressly deal with the situation where a respondent makes an offer to an applicant (which is not accepted) and the applicant’s proceeding is dismissed. In that event, the presumption that an order for indemnity costs will be made applies if (but only if) the applicant “unreasonably” failed to accept the offer. We use the term “presumption” here because Rule 1.35 of the new Rules provides that the “Court may make an order that is inconsistent with these Rules and in that event the order will prevail”, which is equivalent to the “otherwise orders” provision that appeared in O 23 r 11(6) of the old Rules.

15    It should also be noted that, although the old Rules did not expressly deal with the situation where a respondent makes an offer to an applicant (which is not accepted) and the applicant’s proceeding is dismissed, Rule 25.14(2) of the new Rules largely reflects the principles which had been developed under the old Rules and in accordance with which the discretion as to costs was to be exercised. For example, in Coshott v Learoyd [1999] FCA 276 at [37] Wilcox J noted that:

Where an applicant makes an offer which is not accepted by the respondent and the applicant obtains a judgment not less favourable than the terms of the offer, the applicant is prima facie entitled to have costs on an indemnity basis as from the date of the offer. Where a respondent makes an offer that is not accepted and the applicant obtains a judgment not more favourable than the terms of the offer, the applicant is prima facie entitled to party-party costs until the day after the offer and the respondent to party-party costs thereafter. However, rule 11 does not cover the situation that occurred in this case, where a respondent’s offer is rejected and the applicant is wholly unsuccessful. […]

16    Following a review of relevant decisions, Wilcox J at [46] observed that:

Everybody agrees there can be no fixed rule; a proposition established for this Court by the terms of s 43 of the Federal Court of Australia Act 1976 conferring on the Court a discretionary jurisdiction in relation to costs. Everybody also agrees that, while the ordinary practice is to award costs on a party-party basis, it is sometimes appropriate to take a different course, including ordering indemnity costs against a party who has acted unreasonably.

17    More recently, in McDonald v Parnell Laboratories (Aust) (No 2) (2007) 165 FCR 591; [2007] FCA 2086 Buchanan J dealt with another case in which a respondent had made an offer of compromise which was not accepted and the applicant ultimately failed entirely in its claims. He also reviewed the relevant decisions and at [23] concluded in these terms:

If an offer is made under O 23 and an applicant is partially successful, although falling short of the offer, there is a presumptive right in the respondent to indemnity costs (see O 23 r 11(5)). In the present case the offer was a substantial one. Had Ms McDonald had a good measure of success, but not achieved a result exceeding the offer, the respondent’s presumptive right would have been enlivened. The absence of some provision accommodating the circumstance that an applicant fails altogether is anomalous (see also Seven Network v News Limited [2007] FCA 1489] at [57]-[59]). Like Sackville J in Seven Network, I regard myself as bound by Dukemaster Pty Ltd v Bluehive Pty Ltd [2003] FCAFC 1] not to approach the matter on the basis of a presumption, despite the anomaly. Nevertheless, I do not regard it as inconsistent with authority to follow the approach indicated by Wilcox J in Coshott v Learoyd [1999] FCA 276] which was also referred to with apparent approval in Dukemaster. The respondents therefore have a ‘good start’ but I must also consider whether Ms McDonald was imprudent or (plainly) unreasonable to reject the offer at the time it was made.

18    If there is any material difference between the effect of the old and new Rules, it is that the new Rules make clear that the presumption of indemnity costs is not enlivened in these circumstances unless an applicant has “unreasonably” failed to accept a respondent’s offer of compromise. As we consider this to be effectively the same position as prevailed under the old Rules (despite the concern of some that this might be anomalous), we do not propose to make any order under Rule 1.04(3) displacing any part of the new Rules. Accordingly, the relevant question – at least insofar as the offer of compromise under O 23 is concerned – is whether, having regard to all the circumstances, Primus unreasonably failed to accept Kooee’s offer. As a matter of principle, the same criterion of unreasonableness governs the question whether rejection of the Calderbank offer should result in an order for indemnity costs against an unsuccessful party.

19    In the present case, three circumstances indicate to us that it was not unreasonable for Primus to fail to accept Kooee’s offers of 21 January and 4 March 2008. …

(emphasis added)

15    The question is whether the applicant was unreasonable in declining to accept the offers made by the Department. Whether the offer is unreasonably rejected must be evaluated in the context of the circumstances when the offer was rejected: Hazeldene’s Chicken Farm Pty Ltd v Victorian Workcover Authority (No 2) (2005) 13 VR 435 (at [23]). In that case the Victorian Court of Appeal provided some guidelines for deciding whether an offer was unreasonably rejected. The Court cited factors relevant to assessing reasonableness including the stage at which the offer was made, the time allowed to consider the offer, the extent of the compromise and the clarity of the terms of the offer: Hazeldene’s Chicken Farm (at [25]).

16    It is also necessary to consider whether the offer sets out, with some reasonable specificity, the basis for the offeror's contention that the offeree should accept the compromise. In Romero v Farstad Shipping (Indian Pacific) Pty Ltd (No 4) [2017] FCAFC 126, Allsop CJ, Rares and McKerracher JJ said (at [17]):

… Nor was there any reasoned exposition as to why [the costs] were wrong within the language of Dukemaster Pty Ltd v Bluehive Pty Ltd [2003] FCAFC 1 per Sundberg and Emmett JJ (at [8]) (Conti J dissenting, but not on this point), where their Honours followed the reasoning of Lindgren J in NMFM Property Pty Ltd v Citibank Ltd (No 2) [2001] FCA 480; (2001) 109 FCR 77, saying:

Whatever the position may be with an offer made under Order 23, a Calderbank offer, or any offer of compromise outside the regime in Order 23, is unlikely to serve its purpose of attracting an indemnity award of costs if the rejecting applicant fails to recover more than what is offered, unless the offer is a reasonable one and contains a statement of the reasons the offeror maintains that the application will fail. In NMFM at [87][88] Lindgren J said:

“No doubt where a party puts with sufficient particularity to the opposing party the reasons why the latter must fail, yet the latter does not recognise the inevitable, this will be a factor pointing to an award of indemnity costs. ...

The requirements of ‘sufficient particularity’ and ‘inevitability of failure’ are important. In their absence, it would be open to parties to put their respective cases to the opposing party urging it to recognise the merit of what is put in the hope that if it ultimately finds favour with the Court, an award of indemnity costs will follow. If this were correct, one might ask rhetorically, ‘Why write a letter as distinct from simply relying on the pleadings?’.”

(emphasis added)

CONSIDERATION

17    As I have already indicated, it was not unreasonable to reject the first offer by correspondence of 27 March 2017 (March offer), which did not offer to pay the costs to that point of the applicant. However, the offer of 24 April 2017 (April offer) was an offer to pay costs, but only until the date of the offer:

…

24 April 2017

…

Dear Colleagues

Ho II Kang v Secretary, Department of Social Services

AAT application no: WAD547/2016

Our ref: APB:COM026-01112

We are instructed to make an offer of settlement in accordance with the principles of Calderbank v Calderbank (1976) as follows:

•    The parties agree to sign consent orders seeking orders from the Court that:

1.    The decision of the Administrative Appeals Tribunal ("the Tribunal") dated 21 October 2016 is set aside.

2.    The case is remitted to the Tribunal to be decided in accordance with law.

3.    The [Department] is to pay the applicant's costs.

The [Department] is prepared to accept that the Tribunal made two errors of law in reaching its decision, namely the Tribunal 'failed to give a statement of reasons in compliance with s 43 of the Administrative Appeals Act 1975' and 'failed to take into account a mandatory relevant consideration', both errors being referrable to the failure of the Tribunal to consider (or give reasons regarding its consideration) of Part 2 of the Social Security (Attributable Stakeholders and Attribution Percentages) Principles 2000 (the Principles).

This offer will remain open until 4pm on 8 May 2017.

Please note that the [Department] intends to rely on the terms of this letter if the matter proceeds to taxation of costs. In particular, if the offer is not accepted and the applicant does not achieve an outcome at the hearing which is materially better than the terms of the [Department]'s offer, as set out in this letter, the [Department] will, in due course:

•    Oppose the applicant being awarded costs on and from the date of this letter; and

•    Apply to have any costs the applicant would otherwise be awarded up to the date of this letter reduced by the amount of costs the [Department] incurs from the date of this letter.

…

This letter is made in accordance with the principles of Calderbank v Calderbank (1976) and without any admission on the part of our client.

…

(emphasis added)

18    Rejection of the award of costs only from the date of the letter would not be unreasonable. There has to be an opportunity for legal advice to be taken and given, such that costs should be offered to the date of failure to accept the offer within the time given or a reasonable time limit: see Meldov Pty Ltd v Bank of Queensland (No 2) [2015] NSWSC 740 per Slattery J (at [5]). Further, at that stage, no attempt had been made in the offer, or elsewhere on the evidence, to explain the reasons why the matter had to go back to the Tribunal.

19    The third observation is that the orders foreshadowed do not accord with the orders now sought. The Department seeks a lump sum order, which does not appear to take into account the costs that would have been incurred by the applicant up to the date of expiry of the April offer, namely, 4.00 pm on 8 May 2017.

20    The applicant should have had his costs, at least up until 8 May 2017 on the strength of the April offer alone.

21    The matter was listed for trial and heard on 1 June 2017, when the point was made that there had been two hearings in the Tribunal, and both set aside. For those reasons, it was entirely understandable, and, I tend to think, perhaps reasonable, that the applicant wished to have the matter resolved in this Court, if that were possible, rather than in the Tribunal.

22    In any event, the April offer was replaced by an offer of 25 May 2017 (May offer) in these terms:

…

25 May 2017

…

Dear Colleagues

Ho II Kang v Secretary, Department of Social Services

AAT application no: WAD547/2016

Our ref: APB:COM026-01112

We refer to our offer dated 24 April 2017 to resolve this matter.

We have now filed and served the [Department’s] submissions and are instructed to reopen the offer of settlement in accordance with the principles of Calderbank v Calderbank (1976) as follows:

•    The parties agree to sign consent orders seeking orders from the Court that:

1.    The decision of the Administrative Appeals Tribunal ("the Tribunal") dated 21 October 2016 is set aside.

2.    The case is remitted to the Tribunal to be decided in accordance with law.

3.    The [Department] is to pay the applicant's costs incurred up to the date of the last offer on 24 April 2017.

Given the pending hearing in this matter, the offer will remain open until 4pm on Tuesday, 30 May 2017.

Please note that the [Department] intends to rely on the terms of this letter if the matter on the issue of costs. In particular, if the offer is not accepted and the applicant does not achieve an outcome at the hearing which is materially better than the terms of the [Department’s] offer, as set out in this letter, the [Department] will, in due course:

•    Oppose the applicant being awarded costs on and from 24 April 2017; and

•    Apply to have any costs the applicant would otherwise be awarded up to 24 April 2017 reduced by the amount of costs the [Department] incurs from that date.

This letter is made in accordance with the principles of Calderbank v Calderbank (1976) and without any admission on the part of our client.

…

23    The May offer was open until two days before the hearing of 1 June 2017. This offer must be taken to replace the April offer, which had expired, otherwise there would be two offers existing. It is said to be a reopening of the April offer and it is true that it is on the same terms, except that it was open to accept the offer until 4.00 pm on 30 May 2017, two days before the hearing. By this date, but not at the date of the April offer, the Department’s substantive submissions had been filed and served.

24    In its submissions, the Department had spelt out the basis on which it contended that it was not open for the Court to substitute its decision, but rather, the matter had to be remitted to the Tribunal. I refer to [33] and [34] of the Department’s submissions above (at [12]). As I have previously noted, those submissions set out the basis on which the matter was remitted.

25    However, it is not entirely correct to say that once the matter was in the hands of the Court on the hearing, that this was the only issue. While it may be that the parties were in agreement as to at least one ground on which the appeal should succeed, it was still necessary for the Court to be satisfied as to the correctness of that ground and each of the parties addressed the Court on that topic. It is true that the applicant also addressed, particularly in written submissions, other grounds which did not need to be determined and would not have played any further part in a costs determination. But these factors are generally neutral on the question of the reasonableness of rejection of the May offer.

26    In my view, there are only two things which could be said, at this point, to be in favour of the applicant’s position. The first is that, given the problems which had been encountered, it is easy to understand why the applicant would wish to finalise the matter rather than remit it, yet again, for a third hearing before the Tribunal. The other factor, more importantly, is that the offer to pay costs was only until the date of the April offer, namely, 24 April 2017. As already indicated, I believe the April offer should have offered to pay costs to the date of expiry of that offer, rather than the date of the offer. The May offer appears to suffer from the same difficulty, even more so, given the hearing was imminent.

27    Notwithstanding the concessions I have identified in favour of the applicant, it seems to me that by this date the applicant did know the basis on which the matter had to be remitted to the Tribunal.

28    From that date, it seems to me the Department is fairly entitled to its costs and the applicant is entitled to costs to that date

29    The Department has not sought its costs on an indemnity basis. I note from the Department’s own affidavit that it suggests that the breakup of its costs is in the following proportions:

9.    Having regard to the Elite records, the categories of work undertaken in this matter may be summarised as:

(a)    Responding to the [applicant’s] appeal up to and including the case management hearing - about 15% of the total legal costs.

(b)    Taking instructions, liaising with Counsel and advising the [Department] in respect of the appeal - about 35% of the total legal costs.

(c)    Preparing documents for use in the appeal and briefing Counsel in respect of the written submissions - about 30% of the total legal costs.

(d)    Preparing for and appearing at the final hearing - about 17.5% of the total legal costs.

(e)    Receiving judgment - about 2.5% of the total legal costs.

30    The Department also says in addition to professional fees, it has incurred and claims disbursements in the total of $5,419.54 (excluding GST) for counsel's fees in connection with this matter for all work up to and including the final hearing. Counsel's fees were charged at $197.27 per hour or $1,181.82 per day as appropriate (both figures excluding GST). Counsel's rates are within the the Court's National Guide to Counsel's Fees.

31    The Department seeks payment of its costs and disbursements in the lump sum of $13,253.32, consisting of:

(a)    $7,833.78 (excluding GST), being about 75% of the professional costs incurred; and

(b)    $5,419.54 (excluding GST), being 100% of Counsel's fees.

32    The Department believes that the claim falls within the range of costs that might be allowed upon taxation of costs in this matter.

CONCLUSION

33    From the foregoing, it appears to me that there is an approximately equal division of time and costs up to 30 May 2017 and for the period beyond. The work on, and even during, the hearing is likely to be more intensive than prior to this time. The hearing was for a half day only. In my view, taking all the preceding matters into account, the division of costs prior to 30 May 2017 would be approximately equal to that after that time. I note that the Department has only claimed 70% of its own costs and, as noted, has not claimed indemnity costs.

34    It follows, in the interests of finality, that the costs to which each party would be entitled would be balanced out against each other and, in those circumstances, in my opinion, the appropriate disposition of the matter is that there be no order as to costs.

Associate:

Dated:    2 October 2017