FEDERAL COURT OF AUSTRALIA

APD Technology Pty Ltd v Maximo Developments Pty Ltd (No 2) [2021] FCA 858

ORDERS

THE COURT ORDERS THAT:

1.    The applicant pay the first, second and third respondents’ costs on a party and party basis up until 11:00 am on 13 March 2020 and on an indemnity basis thereafter.

2.    The applicant pay the fourth respondent’s costs of the proceeding.

3.    The cross-respondent to the first, second and third cross-claimants’ cross-claim pay the cross-claimants’ costs of the cross-claim on a party and party basis up until 11:00 am on 13 March 2020 and on an indemnity basis thereafter.

4.    The cross-respondent to the first, second and third cross-claimants’ cross-claim indemnify the cross-claimants for their defence costs under the policy of insurance in defending the proceeding brought by the applicant against the cross-claimants.

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

REASONS FOR JUDGMENT

STEWART J:

Introduction

1    This judgment is on costs and the relief on the cross-claim following my judgment and publication of reasons in APD Technology Pty Ltd v Maximo Developments Pty Ltd [2021] FCA 678. These reasons adopt the same definitions used in those reasons.

The costs on the cross-claim

2    Insofar as the cross-claim is concerned, the cross-claimants (i.e., the Maximo parties) and the cross-respondent (i.e., Hamilton) agree that the appropriate orders are that:

(1)    The cross-respondent to the first, second and third cross-claimants’ cross-claim pay the cross-claimants’ costs of the cross-claim on a party and party basis up until 11:00 am on 13 March 2020 and on an indemnity basis thereafter.

(2)    The cross-respondent to the first, second and third cross-claimants’ cross-claim indemnify the cross-claimants for their defence costs under the policy of insurance in defending the proceeding brought by the applicant against the cross-claimants.

The fourth respondent’s costs

3    Insofar as the fourth respondent’s costs are concerned (i.e., Mr Arcuri’s costs), the applicant has not disputed the orders sought by Mr Arcuri, namely that:

(1)    The applicant pay the fourth respondent’s costs of and incidental to the proceeding.

(2)    Within seven days of these orders, the applicant is to take all necessary steps to pay the amounts held as security for costs to the fourth respondent.

4    I will make the first of those orders. However, I explain below why ordering the payment of amounts held as security is premature.

The first to third respondents’ costs

5    Insofar as the first to third respondents’ costs are concerned (i.e., the Maximo parties’ costs on the principal claim), the applicant accepts that it must pay those costs on a party and party basis. However, in reliance on a Form 45 notice of offer to settle the principal proceeding served on 11 March 2020, the Maximo parties seek an order for indemnity costs in respect of costs incurred after 11:00 am on 13 March 2020. The applicant, APD, opposes that on the basis that the offer was not a genuine compromise and that its refusal of the offer was therefore not unreasonable.

6    The Maximo parties’ offer to APD was to pay the sum of $5,000 inclusive of interest and costs in full and final settlement of all claims by APD against them. The offer was made under Pt 25 of the Federal Court Rules 2011 (Cth) which, relevantly, provides as follows:

25.01    Offer to compromise

(1)    A party (the offeror) may make an offer to compromise by serving a notice, in accordance with Form 45, on another party (the offeree). …

25.14    Costs where offer not accepted

…

(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.

7    APD did not respond to the offer. It accordingly failed to accept the offer. The question then is whether that failure was unreasonable so as to attract the operation of r 25.14(2).

8    APD submits, with reference to authority, that the following principles are applicable:

(1)    The offer must involve a real and genuine element of compromise.

(2)    If the amount offered is “properly characterised as trivial or contemptuous” or “derisory”, it will not engage the cost consequences provided for by the relevant rule.

(3)    A successful respondent is not entitled to an order for indemnity costs merely because the applicant’s case has been found to lack merit.

(4)    The offeror bears the onus of establishing that it was unreasonable for the offeree to refuse the offer.

(5)    The failure of the offeree to accept an offer which was not bettered on judgment will not lead to a presumption that the offer was unreasonably rejected.

9    I am prepared to assume in APD’s favour that those are the applicable principles.

10    APD submits that its non-acceptance of the offer was not unreasonable because the offer did not involve a real and genuine element of compromise. APD relies on four factors in support of that submission:

(1)    The primary claim was for damages in excess of $12 million.

(2)    The secondary claim was for $1,283,160.

(3)    The hearing of the proceeding occupied five days.

(4)    The claims could not fairly be characterised as vexatious, particularly having regard to the very large commission paid to Maximo.

11    The difficulty for APD is that its decision-maker was, in effect, Mr Doan. Although Mrs Doan was the sole director, all the relevant conduct on behalf of APD was undertaken by Mr Doan. Moreover, on my findings in the first judgment Mr Doan knew that Mr Rahmani had not made the representations to him on which APD sued. That knowledge must be ascribed to APD. Thus, when APD failed to accept the Maximo parties’ offer it knew that its principal case was false. Its failure to accept the offer was, in those circumstances, inevitably unreasonable.

12    I am accordingly satisfied that the Maximo parties are entitled to their costs on an indemnity basis after 11:00 am on 13 March 2020.

Security for costs

13    APD provided security for the Maximo parties’ costs as follows:

(1)    $60,000 by bank guarantee addressed to the Maximo parties’ solicitors as beneficiary dated 17 September 2019 (which, on its terms, expired on 17 September 2020 but may have been renewed or extended);

(2)    $60,000 paid to its solicitor’s trust account on 7 April 2020 to be held in trust as security for costs.

14    APD was also ordered to provide security for Mr Arcuri’s costs in two tranches of $40,000, although the evidence does not reveal what security was provided.

15    The Maximo parties and Mr Arcuri seek orders in relation to the security that within seven days of the orders, APD is to take all necessary steps to pay the amounts held as security for costs to the respondents in compliance with the costs orders.

16    APD is silent on such an order in relation to Mr Arcuri but opposes the order in relation to the Maximo parties as being premature and submits that no such order should be made until the costs payable by the applicant to the respondents have been quantified by the process of assessment. That seems to me to be inevitably correct because until such time as the costs are quantified they are not due and payable, and there is therefore no basis to order that any amounts held as security be paid, there being no default of any obligation to pay costs: see Scott v Charitopoulos [2008] FCA 1914; 174 FCR 9 at [4] per Finkelstein J; Royal v Nazloomian, in the matter of Royal [2019] FCA 555 at [90]; rr 40.12 and 40.32 of the Rules. Further, the orders of 26 August 2019 which required the applicant to furnish security for costs provided that a condition upon which the security was to be provided was that it would be paid out on the amount of costs being agreed or determined. That condition has not yet been fulfilled.

17    APD also seeks an order that the order that it pay the Maximo parties’ costs be stayed pending the determination of APD’s appeal against the dismissal of its claims in the principal judgment. That is said to be on the basis that Maximo was the trustee of a trust and in that capacity it dispersed the whole of the commission payment which it received on the sale of the Lake Street property to the beneficiaries of the trust. APD submits that it is therefore probable that in the event that the applicant is obliged to pay a substantial sum in costs to Maximo but thereafter succeeds in its appeal, it would have substantial difficulty in recovering any of the money so paid.

18    Given my conclusion that it is premature at this stage to order that the security for costs be paid to APD because the costs have not yet been quantified, it is also premature to deal with the relief sought by APD – since the costs have not yet been quantified there is no payment that is imminent and therefore there is no basis to the relief that is sought. There is certainly no reason why the order for costs, which will entail as its next step the quantification of costs, should be stayed at this stage. I therefore dismiss APD’s application.

Conclusion

19    I will make orders in accordance with the above reasons.

Associate:

Dated:    27 July 2021

SCHEDULE OF PARTIES