Federal Court of Australia

Softmed Manufacturing Pty Ltd v Secretary, Department of Health and Aged Care (Costs) [2024] FCA 857

ORDERS

THE COURT ORDERS THAT:

1.    The Respondent’s application for costs to be paid on an indemnity basis is dismissed.

2.    The orders made 13 May 2024 are otherwise affirmed.

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

REASONS FOR JUDGMENT

HESPE J:

Introduction

1    On 13 May 2024, I delivered judgment in this proceeding. Terms defined in that judgment have the same meaning as this judgment.

2    In my reasons for judgment, I dismissed Softmed’s application for judicial review and I ordered Softmed to pay the Secretary’s costs to be taxed if not agreed: Softmed Manufacturing Pty Ltd v Secretary, Department of Health and Aged Care [2024] FCA 491. Following the delivery of judgment, the Secretary made an application for costs on an indemnity basis. Each of the parties was directed to file written submissions outlining its position with respect to this issue.

3    The Secretary submits that he is entitled to indemnity costs following an offer he made on 25 January 2023, to settle the proceeding by Softmed discontinuing the proceeding and each party bearing its own costs (walk away offer). Softmed did not accept the walk away offer. The Secretary submits that Softmed’s failure to accept the walk away offer was unreasonable and that indemnity costs should therefore be ordered, on the basis of the principles in Calderbank v Calderbank [1975] All ER 333 (Cairns and Scarman LJJ and Sir Gordon Willmer). It was not contended that an offer to compromise had been made in accordance with r 25.01 of the Federal Court Rules 2011 (Cth).

Principles

4    Pursuant to s 43 of the Federal Court of Australia Act 1976 (Cth), this Court has a broad discretion to make orders with respect to costs.

5    Outside of an offer made under r 25.01, the ordinary rule that costs be awarded on a party-party basis may be displaced in favour of an award on an indemnity basis if there has been an unreasonable rejection of an informal offer to settle.

6    For the principle to be engaged, there must be a genuine offer of compromise in the context of the proceeding. Depending on the circumstances, a low offer or a “walk away” offer can amount to a genuine offer: Brookfield Multiplex Limited v International Litigation Funding Partners Pte Ltd (No 4) [2009] FCA 803 at [13] (Finkelstein J); Rakman International Pty Limited v Boss Fire & Safety Pty Ltd [2023] FCAFC 202 at [159]–[161].

7    If a genuine offer of compromise has been made, the issue is whether non-acceptance of the offer was unreasonable when viewed in light of the circumstances as they existed at the time the offer was made. The relevant factors in considering whether rejecting a Calderbank offer was unreasonable have been identified as including: (a) the stage of the proceeding at which the offer was received; (b) the time allowed for 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 indemnity costs in the event of the offeree rejecting it: Hazeldene’s Chicken Farm Pty Ltd v Victorian Workcover Authority (No 2) [2005] VSCA 298; (2005) 13 VR 435 at [25] (Warren CJ, Maxwell P and Harper AJA); Lehrmann v Network Ten Pty Ltd (Costs) [2024] FCA 486 at [30] (Lee J).

8    The question of whether indemnity costs should flow from a rejected offer turns on whether, given the information then available to the offeree, the offeree should have known that its case was likely to fail. The question of the unreasonableness of the rejection is to be analysed utilising the perspective at the time of the offer: State Street Global Advisors Trust Company v Maurice Blackburn Pty Ltd (No 3) [2021] FCA 568; 159 IPR 281 at [38] (Beach J), affirmed on appeal (State Street Global Advisors Trust Company v Maurice Blackburn Pty Ltd [2022] FCAFC 57; (2022) 399 ALR 704 at [123]–[126]).

9    The Court will generally take into account the stage of the proceeding at which the offer was received, whether discovery was made and the evidence filed, and whether the offeror provided a reasoned explanation of the weakness of the offeree’s case.

Submissions

10    The Secretary submits that he is entitled to indemnity costs because Softmed’s decision not to accept the walk away offer was unreasonable in the circumstances. It was submitted that by the time the walk away offer was made, Softmed had received favourable review testing results which had been circulated to the relevant health authority recipients of the failed test information. Having received those review testing results, it ought to have been apparent that any relief sought by Softmed at the time the walk away offer was made would lack utility. Although the walk away offer was only open for acceptance for six working days, Softmed had been told by the Court at a case management hearing on 29 September 2022 that (emphasis added):

Any statement made by the federal court about setting aside the decision would [not] carry much weight at all. The decision being to communicate, not the testing. If it were a decision which was to the effect that the testing was set aside – the original testing, there’s something wrong with the original testing, I can understand that would make sense to the applicant’s commercial interests. But a decision to communicate, even if made in breach of procedural fairness, when there’s no denial – no one’s taking issue with what was actually said. There’s no factually wrong statement, as I understand it, in the information communicated. I can’t understand why that’s going to advantage the applicant at all, and I say why are the courts wasting time over it?

11    The Secretary submits that he set out, in clear terms, the weaknesses in Softmed’s case such that it should have been readily apparent that Softmed’s claims were likely to fail. The Secretary had foreshadowed in its walk away offer the lack of utility in the relief Softmed had sought.

12    The Secretary submits that the walk away offer was a genuine offer of compromise in a proceeding that had no reasonable prospects of success and in respect of which it had incurred significant costs at the date of the walk away offer.

Consideration

13    Whilst the claims were ultimately dismissed, the question of reasonableness is assessed “prospectively at the time the offer was made”: Seven Network Limited v News Limited [2007] FCA 1489 at 389; 244 ALR 374 at [65] (Sackville J); Gretton v Commonwealth [2007] NSWSC 149 at [24] (Studdert J); Equity 8 Pty Ltd v Shaw Stockbroking Ltd [2007] NSWSC 503 at [33] (Barrett J).

14    For the reasons that follow, I am not satisfied that Softmed unreasonably failed to accept the Secretary’s walk away offer made on 25 January 2023.

15    At the time the walk away offer was made, the primary relief sought by Softmed was an order under s 16(1)(a) of the Administrative Decisions (Judicial Review) Act 1977 (Cth) in the nature of certiorari quashing the decision to release the information. The Secretary’s walk away offer was based on a reasoned explanation of the weaknesses of Softmed’s claim for that relief.

16    Having sought further advice following the receipt of the walk away offer, Softmed sought leave to amend its application, to seek additional relief in the form of declaratory relief and filed further evidence in an effort to demonstrate the utility of the relief sought. The Secretary did not revisit or reinstate its walk away offer following Softmed’s revised claim. By the close of the hearing, Softmed abandoned its claim for an order in the nature of certiorari.

17    In my view, on 25 January 2023, it was not unreasonable for Softmed to have formed the view that it ought to obtain further advice from Counsel as to whether it might remedy the defects in the relief it had sought, as identified by the Secretary, by amending its application rather than accepting the walk away offer.

18    The fact is that the application for review in respect of which the walk away offer was made was substantially revised following receipt of the walk away offer. It would have been open to the Secretary to reissue the walk away offer with an explanation of why the prayers for relief in the amended application continued to lack utility. The Secretary did not do so.

19    I am not satisfied that, as at 25 January 2023, it was unreasonable for Softmed to reject a walk away offer for a claim that was yet to be amended.

20    For these reasons, I dismiss the Secretary’s application for an order for indemnity costs. Softmed shall pay the Secretary’s costs on a party-party basis as agreed or assessed.

Associate:

Dated:    1 August 2024