Federal Court of Australia

Kane’s Hire Pty Ltd v Anderson Aviation Australia Pty Ltd (No 2) [2023] FCA 461

ORDERS

THE COURT ORDERS THAT:

1.    The applicant pay the respondents’ costs on the basis as between party and party until 14 October 2021, 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

JACKMAN J

1    In my judgment delivered on 27 April 2023, which may be found at [2023] FCA 381, I indicated that I would give the parties an opportunity to address me on the question of costs by way of written submissions with any affidavit in support. The applicant submits that my preliminary view expressed at [131]-[133] should stand, namely that the applicant should pay the respondents’ costs. The respondents seek an order pursuant to r 40.02 of the Federal Court Rules 2011 (Cth) that the applicant pay their costs on an indemnity basis for the whole of the proceeding, alternatively on the party and party basis until 14 October 2021 and thereafter on an indemnity basis, by reason of having rejected an offer of $50,000 plus costs.

2    The respondents rely on an affidavit by their solicitor, Mr Maitland, dated 2 May 2023. In the first place, that affidavit annexes a letter dated 12 February 2020 by the then solicitor for Anderson Aviation, pointing out that the email from Mr Anderson to Mr Kane dated 3 July 2018 and the attached price list were not represented to be the final documents which contained the specifications of the aircraft to be purchased, and the price list left blank a number of items in the weight column which could not be computed at that time and which were subject to further instructions, either from the manufacturer or from Mr Kane, who was still deciding on some items. The letter also pointed out that Annexure 1 to the Contract did not contain the columns for weights because at the time of execution of the Contract, the actual weights were not known as the aircraft was not ready. At that point, proceedings had not commenced, but a letter of demand had been sent on behalf of Kane’s Hire insisting on return of the full purchase price and saying that Anderson Aviation should accept the return of the aircraft. The letter pointed out that despite having first complained about the weight of the aircraft on 4 April 2019, Kane’s Hire had retained the aircraft and continued to fly it.

3    On 21 October 2020, the applicant commenced the proceedings. On 21 July 2021, a request for particulars of the damages sought was made, and a response was given on 26 July 2021 in which the applicant quantified its claim at an amount in excess of $350,000. That figure included the purchase price of the aircraft, together with a number of other items that appear to have proceeded on the basis that, but for the alleged wrongdoing, the applicant would not have entered into the transaction to purchase the aircraft at all. As I have noted in the principal judgment, there was no attempt at the trial to prove a “no transaction” case of that kind.

4    On 13 October 2021, a letter was sent on behalf of all three respondents, and marked “without prejudice save as to costs”. The letter made three alternative offers, the first of which was that the respondents would pay the applicant the sum of $50,000 plus the applicant’s costs. The letter contained a statement of reasons why the offer should be accepted, which focused on difficulties the applicant faced in establishing causation of loss which was not too remote. The offer was expressed to be open for acceptance until 28 October 2021, being a period of a little over two weeks, at which time it would lapse. The offer was also expressed to be made on Calderbank v Calderbank [1975] 3 All ER 333 principles, such that if the applicant did not accept the offer and obtained an outcome at the trial which was less favourable than the offer, then the respondents may tender the letter in support of an application for indemnity costs against the applicant.

5    I do not accept the respondents’ submission that the applicant should pay their costs on the indemnity basis for the whole of the proceeding. That submission is based on the observations of Woodward J in Fountain Selected Meats (Sales) Pty Ltd v International Produce Merchants Pty Ltd [1988] FCA 202 at [21], which refer to indemnity costs being appropriate when it appears that the applicant, properly advised, should have known that it had no chance of success, giving rise to a presumption that the proceedings were commenced or continued for some ulterior motive or because of some wilful disregard of the known facts or the clearly established law. In my view, while the applicant’s case was a difficult one, it could not be described as hopeless or one in which the applicant had no chance of success, particularly in circumstances where I have found that one misleading representation was made by the third respondent (albeit awarding an insubstantial sum).

6    However, in my view indemnity costs should be awarded for the period after 14 October 2021, by reason of the rejection of the offer made on 13 October 2021 of $50,000 plus costs. In Anchorage Capital Partners Pty Ltd v ACPA Pty Ltd (No 2) [2018] FCAFC 117 at [7], Nicholas, Yates and Beach JJ set out a non-exhaustive list of circumstances to be taken into account in determining whether the rejection of an offer was unreasonable, as follows:

(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 order in the event of the offeree rejecting it.

7    The Full Court pointed out at [8] that an unsuccessful party is not liable to indemnity costs merely because it received an offer to settle on terms more favourable than it achieved at trial and rejected that offer. The Court pointed out that the assessment of the unreasonableness of an offeree’s refusal of a settlement offer is a broad-ranging enquiry that is not restricted to consideration of the extent or quantum of the compromise offered.

8    The applicant relies on the first of those circumstances and submits that the offer was made before either party had commenced or completed discovery in the proceedings, served any outlines of lay evidence in the proceedings, or served any expert valuation evidence regarding the value of the aircraft the subject of the proceedings. While I accept that the offer was made at a relatively early stage in the proceedings, the applicant had the benefit of the letter of 12 February 2020, pointing out some fundamental weaknesses in the applicant’s case, together with the reasoning contained in the 13 October 2021 letter, focusing on problems with causation and remoteness. In addition, Mr Maitland proves that a mediation had been conducted on 12 October 2021, the day before the offer was made, which would have provided an opportunity for the applicant to debate, and reflect upon, the relative merits of its case and the defences of the respondents.

9    In my opinion, the applicant had sufficient information at that time to assess the reasonableness of the offer. It may well be that the applicant needed some expert guidance as to the extent (if any) to which the value of the aircraft was diminished by the fact that it had an experimental certificate of airworthiness rather than a certificate of airworthiness pursuant to reg 21.186 of the Civil Aviation Safety Regulations 1998 (Cth). However, there is nothing to indicate that the applicant could not readily have obtained some advice from an expert, such as Mr Crick, on that question, without the need for formal expert evidence to be prepared. If Mr Crick had been consulted at that point, then in light of the evidence given by Mr Crick, the applicant would have become aware that $50,000 was within a reasonable range that could be anticipated as the damages available for the difference in the certificates of airworthiness. The applicant would then have been able to seek legal advice as to the extent to which that figure should be discounted to reflect the prospects of success in the litigation. Further, the applicant appears to at least have been aware that an aircraft having an experimental certificate of airworthiness could still be flown, and Mr Kane did fly it until 2 October 2020. Accordingly, in my opinion, the stage of the proceeding when the offer was received, in the circumstances of the present case, is not a substantial factor against the award of indemnity costs. No complaint is made by the applicant as to the time allowed to the offeree to consider the offer, the extent of the compromise offered, the offeree’s prospects of success assessed as at the date of the offer, the clarity with which the terms of the offer were expressed, or whether the offeror foreshadowed an application for indemnity costs in the event of the rejection of its offer. The applicant does not suggest that there is any other factor which is relevant and should be taken into account on the question of indemnity costs.

10    An additional factor of relevance is raised by the respondents, namely that the overarching purpose in s 37M of the Federal Court of Australia Act 1976 (Cth) of facilitating the just resolution of disputes as quickly, inexpensively and efficiently as possible, includes the objective of the resolution of disputes at a cost that is proportionate to the importance and complexity of the matters in dispute: subs 37M(2)(e). Parties have an obligation to conduct the proceeding, including negotiations for settlement, consistently with the overarching purpose: subs 37N(1). In an affidavit dated 19 April 2021, the applicant’s solicitor estimated the cost of a three-day hearing at $100,000. That affidavit was made in relation to the respondents’ security for costs application which Rares J heard on 23 April 2021, at which (according to Mr Maitland’s affidavit) Rares J stated that the quantum of the applicant’s claim appeared to be quite small. In my view, the applicant’s own estimate of costs exceeded a reasonable expectation of recovery by way of damages. In my opinion, that evidence strengthens the conclusion that the applicant acted unreasonably in rejecting the offer made on 13 October 2021.

11    Accordingly, I will make the alternative order for costs sought by the respondents, namely that the applicant pay the respondents’ costs on the basis as between party and party until 14 October 2021, and thereafter on an indemnity basis.

Associate:

Dated:    11 May 2023