Federal Court of Australia

Electrical Data and Fibre Optic Systems Pty Ltd v Utech Pty Ltd; in the matter of Utech Pty Ltd (costs) [2024] FCA 1037

ORDERS

THE COURT ORDERS THAT:

1.    The plaintiff pay the defendant’s costs assessed on a lump-sum basis in the sum of $30,000.00.

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

REASONS FOR JUDGMENT

WIGNEY J:

1    On 7 August 2024, I handed down a judgment which resulted in the dismissal of an application by the plaintiff, Electrical Data and Fibre Optic Systems Pty Ltd, to wind up the defendant, Utech Pty Ltd: see Electrical Data and Fibre Optic Systems v Utech Pty Ltd, in the matter of Utech Pty Ltd [2024] FCA 874. Electrical Data’s winding up application was based on Utech’s alleged failure to comply with a statutory demand. In my judgment, I found that Electrical Data had failed to prove that the statutory demand had been served on Utech. That finding was fatal to Electrical Data’s winding up application. I initially proposed to simply order that Electrical Data pay Utech’s costs. Both parties, however, sought to make further submissions in respect of costs. I directed the parties to file short written submissions and indicated that I would determine the question of costs on the papers.

2    Electrical Data conceded that costs should follow the event, but submitted that the Court should make a lump-sum costs order in Utech’s favour in the amount of $15,000. The essential basis of that submission was that, given the nature of the proceeding, the parties should not be put to the additional expense involved in having Utech’s costs taxed. Electrical Data noted, in that context, that the debt which was the subject of the statutory demand was less than $10,000 and that its application ultimately failed because of a “technicality in the process of service”. It should perhaps also be observed that the issue concerning the service of the statutory demand was determined as a separate and preliminary issue and that the hearing took less than two hours.

3    Utech also submitted that the Court should make a lump-sum costs order. It contended, however, that the appropriate lump-sum costs order should be determined on the basis that it was entitled to have its costs assessed on an indemnity basis. Utech relied on the fact that it had made two offers to settle the proceeding, neither of which was accepted by Electrical Data. It submitted that Electrical Data’s failure to accept either offer was unreasonable and that it was therefore entitled to indemnity costs on the basis of the principles enunciated in Calderbank v Calderbank [1976] Fam 93. As for the quantum of the appropriate lump-sum costs order, Utech relied on evidence that its solicitor had issued a draft bill of costs for $76,753.20, though it submitted that applying a “broadbrush approach”, the appropriate lump-sum costs order would be $64,000 or $65,000, depending on the date from which indemnity costs would be considered appropriate.

4    I will first address whether it would be appropriate for an order for indemnity costs be made in Utech’s favour. I will then consider whether it is appropriate to make a lump-sum costs order and, if so, what the appropriate lump-sum should be.

Should Utech’s costs be assessed on an indemnity basis?

5    The principles that should be applied when determining whether indemnity costs are appropriate in circumstances where the unsuccessful party had refused or failed to accept a settlement offer were summarised in the following terms in Edwards v Nine Network Australia Pty Ltd (No 6) [2024] FCA 758 at [5]-[10]:

The Court’s discretionary power to award costs derives from s 43 of the Federal Court of Australia Act 1976 (Cth) (FCA Act). The usual rule is that an order for costs means costs “as between party and party”: r 40.01 of the Federal Court Rules 2011; see also the definition of “costs” in the Dictionary in Sch 1 of the Rules; Mango Boulevard Pty Ltd v Whitton [2015] FCA 1352 at [12]. A party or person who is entitled to costs may, however, apply for an order that costs be awarded in their favour “other than as between party and party”: r 40.02(a) of the Rules. That includes an order that costs be awarded on an indemnity basis.

The discretion to award costs on a basis other than as between party and party, including on an indemnity basis, is “unfettered, save that it must be exercised judicially and not arbitrarily or capriciously”: Australian Competition and Consumer Commission v The Construction, Forestry, Mining and Energy Union (No 4) [2018] FCA 684 at [96]. The discretion must also be exercised in light of the requirement that the Court consider any failure by a party to comply with the overarching purpose of the civil practice and procedure provisions to facilitate the just resolution of disputes according to law as quickly, inexpensively and efficiently as possible: see ss 37N(4), 37M(1) of the FCA Act; LFDB v SM (No 2) [2017] FCAFC 207 at [7].

The discretion to depart from an order for party and party costs will not be exercised unless there is some special or unusual feature or the justice of the case so requires: Cirillo v Consolidated Press Property Ltd (formerly known as Citicorp Australia Ltd) (No 2) [2007] FCA 179 at [3]; Seven Network Ltd v News Ltd (2009) 182 FCR 160; [2009] FCAFC 166 at [1102]; Melbourne City Investments Pty Ltd v Treasury Wine Estates Limited (No 2) [2017] FCAFC 116 at [5].

The purpose of a costs order is to compensate the successful party, not to punish the unsuccessful one: King v Yurisich (No 2) [2007] FCAFC 51 at [19], citing Latoudis v Casey (1990) 170 CLR 534; Seven Network at [1099]. An award of indemnity costs is to “serve the purpose of compensating a party fully for costs incurred, as a normal costs order could not be expected to do, when the court takes the view that it was unreasonable for the party against whom the order is made to have subjected the innocent party to the expenditure of costs”: Hamod v New South Wales (2002) 188 ALR 659; [2002] FCAFC 97 at [20]; see also Kazal v Independent Commission Against Corruption and Ors (No 2) [2020] NSWSC 17 at [60]-[62]; Cirillo at [4]-[5]; Melbourne City Investments at [5].

One circumstance in which an order for indemnity costs may be appropriate is where the unsuccessful party unreasonably or imprudently refused or failed to accept an offer by the successful party to settle the proceeding: Calderbank v Calderbank [1976] Fam 93; Hazeldene's Chicken Farm Pty Ltd v Victorian WorkCover Authority (No 2) (2005) 13 VR 435; [2005] VSCA 298; Black v Lipovac [1998] FCA 699 at [217]-[223]; Dukemaster Pty Ltd v Bluehive Pty Ltd [2003] FCAFC 1 at [7]; Hardingham v RP Data Pty Ltd (No 2) [2021] FCAFC 175 at [19]; Hill v Forteng Pty Ltd [2019] FCAFC 105 at [76].

In considering whether the rejection of the offer to settle was unreasonable, the matters that the Court may have regard to include: the stage of the proceeding at which the offer was received; 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; and whether the offer foreshadowed an application for indemnity costs in the event of the offeree rejecting it: Anchorage Capital Partners Pty Limited v ACPA Pty Ltd (No 2) [2018] FCAFC 112 at [7]. It may also be necessary to have regard to the likely party and party costs incurred at the time the offer was made: Hill v Forteng at [80].

6    The first issue to consider is whether it was unreasonable for Electrical Data to refuse or fail to accept either of the two offers made by Utech.

7    The first offer was initially made on a without prejudice basis on 26 February 2024. It was “re-put” on an open basis by an email which was sent at 11.47 am on 28 February 2024. The terms of the offer were that Utech would pay Electrical Data the sum of $9,606.42 (the amount referred to in Electrical Data’s statutory demand), less Utech’s costs, in return for Electrical Data withdrawing its winding-up application. The settlement offer was said to be “in full and final settlement of [Electrical Data’s] statutory demand and alleged debt”. Utech noted that its costs were “in the order of $3,600 ex GST”. The offer was available for acceptance until 5.00 pm on 28 February 2024.

8    I do not consider that it was unreasonable for Electrical Data to fail to accept the first settlement offer in all the circumstances. That is so for a number of reasons. First, the offer was made at a very early stage of the proceeding. Utech’s position was that service was defective because the statutory demand was sent to its previous place of business, not its registered office. Utech did not clearly or expressly assert that the statutory demand had not come to its attention. Second, while the letter which conveyed the offer indicated that Utech’s costs were in the order of $3,600, that figure was at large, in the sense that the offer was that Electrical Data would have to pay Utech’s costs in full, however they may ultimately be assessed. Third, given the very early stage of the proceeding, it is surprising indeed that Utech’s costs were said to be in the order of $3,600. Fourth, the offer, when put on an open basis, was only available for acceptance for a period of just over five hours. It is difficult to see why such a short period was allowed for acceptance.

9    The second settlement offer was made by way of email sent to Electrical Data’s solicitor at 11.10 am on 1 May 2024. By that stage the proceeding had progressed. Electrical Data had served affidavit evidence the general thrust of which was that, while the statutory demand had initially been sent to Utech’s former business address, it had been re-sent by prepaid post to Utech’s registered office. Electrical Data had also filed written submissions explaining that it was relying on s 109X of the Corporations Act 2001 (Cth). Utech, on the other hand, maintained that it had not received the statutory demand and had served affidavit evidence to the effect that the statutory demand had not been received at its registered office. Utech also indicated that it disputed Electrical Data’s evidence that it had re-sent the statutory demand to Utech’s registered office. Indeed, that appeared to be the main basis upon which Utech disputed service.

10    The terms of the settlement offer were, in substance, that Electrical Data would consent to an order that its application be dismissed and would pay Utech $15,493.50 in respect of its costs. That figure was said to be the total amount set out in a bill of costs that Utech had provided to the Court on 10 April 2024 when the proceeding was listed before a Registrar. On that day, the Registrar ordered that the question of service of the statutory demand be determined separately and in advance of other issues in the proceeding. The hearing of the separate question was listed for hearing before the Registrar on 3 May 2024 with an estimate of 30 to 60 minutes. The settlement offer was stated to be open for acceptance until 10.00 am on 2 May 2024.

11    I am not persuaded that it was unreasonable for Electrical Data to fail to accept the second settlement offer. That is so for several reasons.

12    First, I am not satisfied, in all the circumstances, that the time allowed to Electrical Data to consider and respond to the offer was reasonable. The offer, which was sent very shortly before the next listing before the Registrar, effectively allowed Electrical Data only six or seven business hours (less than a full business day) in which to consider and seek advice concerning the offer. There was no evidence justifying such a short window for acceptance in the circumstances.

13    Second, the offer did not involve much compromise on the part of Utech. Indeed, it effectively required Electrical Data to capitulate. Unlike the first settlement offer, the offer did not involve any offer in respect of the debt alleged in the statutory demand, which was a debt said to arise pursuant to an adjudication certificate made under s 24 of the Building and Construction Industry Security of Payment Act 1999 (Cth). Electrical Data was required to consent to the dismissal of its winding up application and pay the entirety of Utech’s costs incurred as of 10 April 2024, without the resolution of the issue surrounding the underlying debt, or alleged debt. Utech maintained that it was foregoing the costs that it had incurred after 10 April 2024, which it asserted were in excess of $8,000. It is, however, difficult to see how a further $8,000 in costs could have been incurred in the short period between 10 April 2024 and 1 May 2024 in circumstances where all that was required to be done during that period pursuant to the orders made by the Registrar was the filing of short written submissions not exceeding 5 pages. The hearing before the Registrar had been estimated as being as short as 30 minutes. Having regard to the nature of the matter, the costs that Utech maintained that it had incurred in the intervening period appear to be rather excessive. In all the circumstances, I consider that the terms of Utech’s offer, including the very short period for acceptance, were somewhat uncompromising.

14    Third, while Utech’s offer appeared to be premised on the fact that Electrical Data’s application was doomed to fail, I am not persuaded that it was or would have been readily apparent to Electrical Data at the time that its case was in fact doomed to fail. As events transpired, the hearing in respect of the separate issue did not proceed before the Registrar, but was referred to a Judge for determination. That would tend to suggest that the issue was not as straightforward as Utech would have it. While I ultimately found that the statutory demand had not been served, I rejected Utech’s challenge to the evidence adduced by Electrical Data which indicated that the statutory demand had in fact been re-sent to its registered office. Moreover, while I ultimately found that Utech had discharged its burden of establishing that there was “evidence to the contrary”, such that Electrical Data could not rely on the deeming effect of s 29 of the Acts Interpretation Act 1901 (Cth), that finding was based on evidence which included evidence served by Utech after 1 May 2024. I should also add that I did not accept many of Utech’s submissions in respect of the applicable law, which focussed more on s 160 of the Evidence Act 1995 (Cth) than on s 29 of the Interpretation Act. The issue turned out to be somewhat more complex and finely balanced than Utech’s submissions would tend to suggest.

15    While with the benefit of hindsight, it would obviously have been sensible for Electrical Data to accept the second settlement offer, I am not persuaded that Electrical Data’s failure to accept the offer was, in all the circumstances, unreasonable such as to warrant an order for indemnity costs.

Is a lump-sum costs order appropriate?

16    As was noted in Edwards at [54]:

The Court’s Preference, where it is “practicable and appropriate to do so”, is for the making of a lump-sum costs order: Costs Practice Note (GPN-COSTS) at [4.1]. Utilisation of a lump-sum costs procedure is “at the discretion of the judge” and the parties must be “given a fair opportunity to present their views as to the appropriateness of utilising a lump-sum costs procedure”: GPN-COSTS at [4.2]. The Court’s preference for lump-sum costs orders is no doubt to avoid the almost inevitable delay and expense of the taxation procedures in Pt 40 Div 40.2 of the Rules: see Michael Wilson & Partners Ltd v Porter (No 3) [2022] FCA 998 at [22]. Paragraph 4.9 of GPN-COSTS envisages that in an appropriate case, a judge may refer the costs dispute to mediation or to a Registrar as a referee.

17    Both parties ultimately urged the Court to make a lump-sum costs order, albeit in circumstances where there was a considerable difference between the parties in respect of the appropriate quantum of the order. Given the nature of the proceeding, I consider that a lump-sum costs order is appropriate. I should emphasise, however, that I do not intend to approach the making of a lump-sum costs order as if I were a costs assessor or taxing officer. As Utech appeared to concede, a “broadbrush” approach is appropriate.

The appropriate lump-sum amount for costs

18    As already noted, Electrical Data proposed $15,000 as being the appropriate lump-sum amount for costs. It is unclear how that amount was derived or calculated, however, it would appear to be based on little more than the nature of the proceeding.

19    Utech proposed the following amounts: $65,000, if indemnity costs are ordered from the date of the first offer (and on a party-party basis beforehand); $64,000 if indemnity costs are ordered from the date of the second offer (and on a party-party basis beforehand); and $58,000 if costs are ordered on a party-party basis for the proceeding.

20    Utech relied on evidence from a solicitor who had some experience in providing estimates in respect of the taxation of costs. That solicitor had prepared a draft bill of costs which included: a column containing the amount billed to client (on a time costing basis); a figure for “taxed costs” which represented the solicitor’s opinion in respect of the costs that would be allowed following the taxation process having regard to the Court’s scale of costs; and a figure for “assessed amount”, which represented the lesser of the first and second columns. The total of the first column was $48,737.00; the total of the second column, taxed costs, was $49,115.00; and the total of the third column, assessed costs, was $41,166. The bill of costs also referred to disbursements, mostly the fees of counsel, which totalled $21,038.60.

21    I consider that the legal costs incurred by Utech as reflected in the draft bill of costs to be excessive, if not extravagant, particularly given the nature of the proceeding. As already indicated, the hearing in respect of the separate issue concerning service took less than two hours. It involved the short and relatively ineffective cross-examination of one witness, Electrical Data’s solicitor Mr Kyle Kutasi, and short submissions, including in relation to the relevant legal principles. Ultimately the submissions that were made concerning the legal principles were of little real assistance to me. While I accept that it was open to Utech to vigorously contest Electrical Data’s application, I find it difficult to accept that it was warranted or reasonable for its solicitors to incur the substantial legal costs that were apparently incurred. I also find it difficult to accept, in all the circumstances, that it was reasonable or justifiable to retain counsel to appear at virtually all of the hearings, including procedural hearings before a Registrar and a case management hearing before me.

22    As I have already made clear, I do not propose to go through the draft bill of costs with a fine-tooth comb, as if I were a costs assessor or taxing officer, to identify amounts that may be considered excessive in all the circumstances. However, even a cursory review of the draft bill reveals several unreasonable or unwarranted entries, including substantial costs incurred in preparing research notes for counsel, correspondence with counsel, and costs relating to the repeated “perusal” of correspondence and other things. I am also aware from my own involvement in the proceeding that Utech incurred unnecessary and unwarranted fees in respect of several subpoenas which I found to be overly broad and oppressive. I therefore refused to grant leave to issue those subpoenas. The draft bill includes several items relating to those subpoenas (including disbursements) and several significant items relating to the issue concerning costs, including the preparation of the draft bill of costs.

23    While I have of course given some weight to the evidence relating to the draft bill of costs and the opinions of the solicitor who prepared it, I am unpersuaded that it is appropriate to make a lump-sum costs order for the amounts referred to in the draft bill of costs. Having regard to the nature of the proceeding, and taking a “broadbrush” approach, I consider that a lump-sum costs order in the sum $30,000 is fair and reasonable in all the circumstances.

Associate:

Dated:    6 September 2024