Federal Court of Australia

Ross, in the matter of Print Mail Logistics (International) Pty Ltd (in liq) v Elias (No 2) [2021] FCA 1334

ORDERS

THE COURT ORDERS THAT:

1.    The plaintiffs pay the defendants’ costs on an indemnity basis from 27 February 2020.

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

REASONS FOR JUDGMENT

REEVES J:

1    In April 2021, I delivered my reasons for judgment in this matter: Ross, in the matter of Print Mail Logistics (International) Pty Ltd (in liq) v Elias [2021] FCA 419 (the primary judgment). Orders 1 and 2 in that judgment directed that the first plaintiff (the Liquidators) and the second plaintiff (Print Mail Logistics) pay the defendants’ (Mr Elias, Mr Garcia and Mr Woods) costs of the proceeding to be taxed failing agreement.

2    In May 2021, the defendants’ lawyer, Mr Bennett Holt, sought leave to file written submissions on the question of costs. The lawyer for the plaintiffs, Mr Ashley Stanton, subsequently agreed to that leave being granted. Accordingly, I made orders directing the parties to prepare and submit to my chambers short written submissions on costs, together with any supporting affidavit material. The sole issue raised in those submissions was whether the defendants ought to be awarded their costs of the proceeding on an indemnity basis from the date on which a Calderbank offer was made. The defendants therefore sought an award of costs under r 40.02 of the Federal Court Rules 2011 (Cth) (the Rules).

THE OFFER OF COMPROMISE

3    In an affidavit filed with the defendants’ submissions, Mr Holt deposed to having sent an email to Mr Stanton on 27 February 2020, approximately eight months prior to the trial in the proceeding, attaching a letter marked “Without prejudice save as to costs”. He explained that the letter contained an offer of settlement in the form of a Calderbank offer, which was open for acceptance until 28 days from the date of the letter (the offer). The terms of the offer were as follows:

We are instructed to make the following offer of settlement to your clients.

In full and final settlement, release and discharge by our respective clients (and their successors and assigns) of each other from all:

1.    court proceedings (including QUD 240/2019 and QUD366/2019);

2.    other suits,

3.    claims,

4.    demands, or

5.    causes of action of whatsoever nature (whether legal, equitable or under statute);

arising from or in connection to the subject matter of QUD 240/2019 or QUD366/2019; and the operation and affairs of Print Mail Logistics (International) Pty Ltd (in liquidation) or Print Mail Logistic [sic] Limited (or any related or associated entity) that our respective clients may have now or at any time in the future; our clients will:

1.    pay your clients the sum of $15,000.00 in cleared funds within 14 days of acceptance; and

2.    release your clients (Messrs. Ross and Pleash) from the personal costs orders made against your clients on 28 October 2019 and 21 November 2019.

We anticipate that those costs orders, which are partly on the indemnity basis, will be assessed within a range of $20,000.00 to $40,000.00.

This offer is made in accordance with the principles of Calderbank v Calderbank (1975) 3 All ER 333 and is open for a period of seven [sic] (28) days from the date of this letter.

(Emphasis in original)

Mr Holt further deposed that no response was received to the offer and that it expired. From its terms, it can be seen that the offer was valued at between $35,000 and $55,000.

THE CONTENTIONS

4    In their written submissions, the defendants contended that the offer was “considerably more favourable to the plaintiffs than they achieved at trial” and it was therefore a genuine offer of compromise. They further contended that the lack of response to the offer on the part of the plaintiffs was an “imprudent refusal of an offer of compromise” and an unreasonable failure for the purposes of the Rules, enlivening this Court’s discretion to award costs on an indemnity basis.

5    The defendants relied upon Hazeldene’s Chicken Farm Pty Ltd v Victorian Workcover Authority (No. 2) (2005) 13 VR 435; [2005] VSCA 298 at [25] per Warren CJ, Maxwell P and Harper AJA (Hazeldene’s), wherein the factors to be considered in assessing the reasonableness of refusing such an offer were canvassed. In particular, they emphasised “the saving of private costs between the parties which can be achieved by settlement, the saving of public costs by avoiding unnecessary use of court resources, and the forcing of a party into avoidable litigation”. They also referred to Nu Line Construction Group Pty Ltd v Fowler (aka Grippaudo) [2012] NSWSC 816 at [9]-[13] and Lukaszewicz v Polish Club Limited [2019] NSWSC 860.

6    To advance their contention that the refusal of the offer was unreasonable, the defendants referred to the findings in the primary judgment that none of “the evidence that [the plaintiffs] adduced at trial was sufficient to discharge their onus on any of [the] issues”. They also referred to the adverse Jones v Dunkel inferences that were drawn, arising from the plaintiffs’ failure to call a key witness, namely the person funding the Liquidators’ costs in the proceeding. Furthermore, they contended that a significant portion of the plaintiffs’ case centred on the existence of an agreement which was ultimately shown to be irrelevant to the resolution of the matter. Finally, they contended that the plaintiffs had failed to establish their case on the insolvency of Print Mail Logistics International (PMLI). They contended that these problems should have been apparent to the plaintiffs at the time of the offer and that it “should have been apparent to [them] at that time that they were very likely to fail at trial”. In these circumstances, the defendants contended that it was unreasonable for the plaintiffs to “force” the continuation of the litigation.

7    For their part, the plaintiffs accepted that the offer was made and that it lapsed without being accepted. They contended, however, that this non-acceptance did not warrant the exercise of the Court’s discretion to award costs against them on an indemnity basis. They contended that, instead, the “critical question” was whether the rejection was unreasonable. They claimed that the onus of establishing that unreasonableness fell on the defendants. They contended that an order for indemnity costs ought not be made unless the Court was satisfied to a high degree that the proceeding was hopeless and that the unsuccessful party ought to have realised that was so before, or during, the proceeding, citing Australian Competition and Consumer Commission v Colgate-Palmolive Pty Ltd (No 5) [2021] FCA 246 at [9]-[10], [17].

8    As well, the plaintiffs contended that the prevailing circumstances at the time of the offer were such that it was not unreasonable for them not to accept the offer. To that end, they referred to the findings in the primary judgment relating to the insolvency of PMLI and claimed that significant expert evidence still had to be obtained on that issue at the time of the offer. They also claimed: that the precise nature of the evidence of the officers of PMLI could not be known at the time of the offer; that the dealings between the various actors the subject of the proceeding were complicated; that there was doubt about the relevant loan arrangements; and that there were factual differences between the witnesses’ recollections of the surrounding events. They further contended that it was in the public interest for liquidators to act in the best interests of an insolvent company.

9    As well, they contended that the offer was made after mediation and in the lead-up to the trial and that it was still unclear at that time which witnesses would be available for trial. They also contended that the offer did not represent a significant compromise and was “close to” a complete capitulation. They also contended that the defendants did not follow the process set out for the making of an offer under Part 25 of the Rules and implied that an order for costs on an indemnity basis would place the defendants in a better position than they would have been if they had made a formal offer under that Part.

10    In advancing this contention, they referred to the observations of Dutney J concerning the corresponding provisions of the Uniform Civil Procedure Rules 1999 (Qld) (the UCPR) in Manwelland Pty Ltd v Dames & Moore Pty Ltd [2000] QSC 432 at [16] (Manwelland) where his Honour observed that: “Practitioners should be encouraged to use [the formal system] … To reward the maker of an informal offer more highly would undermine” the formal system under the UCPR. Finally, the plaintiffs contended that the offer sought to bind parties and unknown future parties and associates that were not subject to the proceeding.

11    In reply, the defendants contended that the findings relating to PMLI’s insolvency did not require the extensive use of expert evidence and that the plaintiffs were well placed to assess that matter as they were the liquidators of PMLI. They further contended that the material the plaintiffs had available to them allowed them to make a reasoned assessment of the risks of the litigation. In any event, they claimed that the evidence that they gave at trial was consistent with that provided in the public examination in August of 2019 and that the relevant dealings were also canvassed during that examination.

ISSUES

12    The following issues are raised by these contentions:

(a)    Was the defendants’ offer a genuine offer?

(b)    If so, did the plaintiffs unreasonably fail to accept that offer?

(c)    If so, does that failure justify an indemnity costs order?

(d)    If so, are there discretionary factors weighing against the making of that order?

THE PRINCIPLES

13    To begin with, it is worth setting out three basic and oft-repeated principles: first, this Court has a broad discretion under s 43 of the Rules to award costs; secondly, costs usually follow the event and; thirdly, while the discretion to award costs is unconfined, it must be exercised judicially and there are well-established principles guiding its exercise (see ALDI Foods Pty Limited as General Partner of ALDI Stores (A Limited Partnership) v Transport Workers’ Union of Australia (2020) 282 FCR 174; [2020] FCAFC 231 at [86]-[88]).

14    In addition, where there has been a refusal of a Calderbank offer, the plaintiffs must identify a “special or unusual feature in the case” justifying an order for indemnity costs (see Associated Steamships Pty Ltd v Seafarers Safety, Rehabilitation and Compensation Authority (No 2) [2020] FCA 853 (Associated Steamships) at [20] and the cases there cited). The rejection of a Calderbank offer may constitute such a feature (see Stewart v Atco Controls Pty Ltd (2014) 252 CLR 331 at [4] per Crennan, Kiefel, Bell, Gageler and Keane JJ). In Trustee for The MTGI Trust v Johnston (No 2) [2016] FCAFC 190 (The MTGI Trust) at [21]-[22], the Full Court explained:

21    It is well-established that a failure to accept a Calderbank offer may justify the exercise of the Court’s discretion to award costs on an indemnity basis. Principles referable to Calderbank offers are well-known. As the Full Court explained in Kooee Communications Pty Ltd v Primus Telecommunications Pty Ltd (No 2) [2011] FCAFC 141:

19.    … The purpose of the principles governing Calderbank offers and offers of compromise in accordance with court rules is to ensure that, when one party makes another an offer that contains a genuine element of compromise, the recipient of the offer is compelled to give real consideration to the costs and benefits of prosecuting its claim by reason of the prospect of suffering an indemnity costs order should its failure to accept the offer prove unreasonable.

22    In determining whether the Court should exercise its discretion and order indemnity costs in light of a rejection by the unsuccessful party of a Calderbank offer, a key question for consideration by the Court is whether the Calderbank offer was reasonable and proposed a genuine compromise of a case brought without a realistic prospect of success: Sagacious Legal Pty Ltd v Wesfarmers General Insurance Ltd [2011] FCAFC 53 at [125].

15    A “walk away” offer may represent a “genuine compromise” where “there is a substantial element of compromise in forgoing a potential entitlement to recover substantial costs that had been incurred by the offeror to the date” of the offer (emphasis in original) (see Verrocchi v Direct Chemist Outlet Pty Ltd (No 2) [2016] FCAFC 162 (Verrocchi) at [8]). See also The MTGI Trust at [23], Barnes v Forty Two International Pty Limited (No 2) [2015] FCAFC 19 (Barnes) at [18] and Sagacious Legal Pty Ltd v Wesfarmers General Insurance Ltd (2011) 16 ANZ Insurance Cases 61-885; [2011] FCAFC 53 (Sagacious Legal) at [129]-[132].

16    In Anchorage Capital Partners Pty Limited v ACPA Pty Ltd (No 2) [2018] FCAFC 112, the Full Court provided the following non-exhaustive list of factors to be taken into account in determining whether the a failure to accept an offer was unreasonable (at [7]):

(a)    the stage of the proceeding at which the offer was received;

(b)    the time allowed to the offeree to consider the offer;

(c)    the extent of the compromise offered;

(d)    the offeree’s prospects of success, assessed as at the date of the offer;

(e)    the clarity with which the terms of the offer were expressed; and

(f)    whether the offer foreshadowed an application for an indemnity costs in the event of the offeree rejecting it.

See also Sagacious Legal at [145]; Barnes at [19]-[20]; The MTGI Trust at [23]; and Verrocchi at [8].

(a)    Was the offer a genuine offer?

17    This issue requires a brief review of the procedural history of the proceeding. The plaintiffs filed their originating application on 10 April 2019, accompanied by a statement of claim. On 27 May 2019, the first, and second, third and fourth defendants filed their defences. Between those dates and 30 January 2020, a second, third and fourth amended statement of claim and associated amended defences and replies were filed. Further, in the course of the proceeding, the parties were engaged in mediation on two occasions during 2019.

18    When the offer was made on 27 February 2020, the proceeding had been on foot for approximately ten months and had been set down for trial multiple times. In those circumstances, I infer that the parties were likely to have been well advanced in their preparations for the trial and likely to have incurred a significant proportion of the costs of that trial. Neither party submitted evidence relating to the quantum of those costs, however it can be inferred that they would not have been insignificant (see Associated Steamships at [31] citing Sagacious Legal at [133]). In light of the procedural history set out above, I am satisfied that the offer represented a significant compromise and constituted a genuine offer.

(b)    Did the plaintiffs unreasonably fail to accept that offer?

19    In order to answer this question, it is necessary to assess the likely prospects of success of the plaintiffs’ claims. I accept the contentions of the defendants that the plaintiffs’ case centred on agreements and arrangements which were irrelevant to the issues as pleaded. I also accept that the evidence adduced by the plaintiffs at trial was insufficient to discharge their onus on any of the issues and that their failure to call a key witness, namely, Ms Jennifer Hutson, was a significant factor.

20    I do not consider that the plaintiffs have adequately explained why they were unable to assess their likely success at the time the offer was made. The proceeding had been on foot for approximately ten months by that time and the parties had attended a mediation on two occasions. In those circumstances, the not-insignificant flaws in the plaintiffs’ case must have been apparent to them. Further, as the defendants note in their contentions, a public examination was conducted in August 2019 during which the key witnesses who later gave evidence at the trial were examined. For these reasons, I consider that the plaintiffs unreasonably failed to accept the offer.

(c)    Does that failure justify an indemnity costs order?

21    As noted earlier, an unreasonable failure to accept a Calderbank offer constitutes a “special or unusual feature in the case” justifying an indemnity costs order. Having regard to the matters outlined above, I consider that the circumstances of the plaintiffs’ failure to accept the offer are sufficiently special or unusual to justify the making of an indemnity costs order.

(d)    If so, are there discretionary factors weighing against the making of that order?

22    The only discretionary factor advanced by the plaintiffs was their claim that the offer should have been made under the “formal system” provided for in Part 25 of the Rules. However, they have not identified how the offer deviated from the requirements of that Part nor, more importantly, how the defendants would be “better off” as a consequence. The paragraph that they cited from Manwelland referred to the period during which the offer was open. In that respect, the offer complied with the requirements of r 25.04 of the Rules. Furthermore, Manwelland involved an award of nominal damages and, as such, an award of indemnity costs could have resulted in a windfall for the plaintiff. That is not the case here. I do not therefore consider this factor weighs against the making of an indemnity costs order.

CONCLUSION

23    For these reasons, I consider the defendants are entitled to an indemnity costs order against the plaintiffs as from the date of the offer, namely 27 February 2020.

Associate:    

Dated:    28 October 2021

SCHEDULE OF PARTIES