Federal Court of Australia

SMBC Leasing and Finance, Inc. v Flexirent Capital Pty Ltd (Costs) [2026] FCA 182

ORDERS

THE COURT ORDERS THAT:

1.    Judgment be entered for the applicant against the respondents in the amounts of:

(a)    AUD14,840,518.56; and

(b)    USD141,862.10 or the AUD equivalent at the time of payment or execution.

2.    The respondents pay to the applicant pre-judgment interest in the amount of $4,411,171.35 pursuant to s 51A(1)(a) of the Federal Court of Australia Act 1976 (Cth).

3.    The applicant provide the respondents the bank account details into which the respondents are to pay the amounts in orders 1 and 2 by 5 pm on 27 February 2026.

4.    The respondents pay 70% of the applicant’s costs of the proceedings up to 11 am on 25 July 2025, on a party/party basis.

5.    The respondents pay 70% of the applicant’s costs of the proceedings from 11 am on 25 July 2025, on an indemnity basis.

6.    The applicant’s costs of the proceedings be determined in a lump sum if not agreed.

7.    The applicant file and serve its Costs Summary, as contemplated by [4.10] of GPN-COSTS, within 14 days.

8.    The respondents file and serve their Costs Response within 14 days after service of the Costs Summary, as contemplated by [4.13] of GPN-COSTS.

9.    The applicant file written submissions confined to 5 pages (following the usual rules about line spacing and font) on the quantum of the lump sum costs order within 7 days of receiving the Costs Response.

10.    The respondents file written submissions in response, confined to 5 pages (following the usual rules about line spacing and font), within 7 days of receiving the applicant’s submissions.

11.    Subject to further order, the costs issue be determined on the papers.

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

REASONS FOR JUDGMENT

THAWLEY J:

Introduction

1    On 30 January 2026, I gave reasons for judgment in this proceeding: SMBC Leasing and Finance, Inc. v Flexirent Capital Pty Ltd [2026] FCA 29 (J). These reasons assume familiarity with those reasons and adopt the same abbreviations. I also made orders directing the parties to confer with a view to reaching agreement as to the appropriate orders to give effect to those reasons, including as to costs. Agreement between the parties has been reached save as to two issues.

2    The first issue is whether the applicant, SMBC, is entitled to pre-judgment interest in respect of its funding of the Liquidators. The second issue is the appropriate order as to costs.

InterEst

3    I held that SMBC was entitled to damages reflecting a portion of SMBC’s costs of funding the Liquidators: J[142] to [150]. The funding of the Liquidators was a reasonable step taken by SMBC in seeking to mitigate its losses, ultimately successfully.

4    The issue is whether SMBC is entitled to pre-judgment interest on this amount of damages.

5    A successful applicant is generally entitled to pre-judgment interest unless good cause is shown to the contrary: Federal Court of Australia Act 1976 (Cth) (FCA) s 51A; Hanson-Young v Leyonhjelm (No 5) [2020] FCA 34 at [5]. Pre-judgment interest was awarded on amounts incurred in reasonable mitigation of loss in ZACD Group Ltd v Bao [2025] FCA 1500 at [388]. SMBC claimed interest on this head of loss. There is no dispute that the correct quantum of pre-judgment interest on the amount would be $219,972.91.

6    Flexirent submitted that pre-judgment interest should not be awarded because, after calculating the total cost of funding ($1,140,000), the Court concluded that SMBC is likely to receive a recovery ($2,847,000) such that the award of damages in the proceedings against the respondents should be reduced by the amount of $1,707,000: J[150]. This submission does not provide a sensible reason not to grant pre-judgment interest. SMBC has sustained losses in funding the Liquidators. It has not yet received the likely recovery from the Liquidators.

7    SMBC is entitled to pre-judgment interest in respect of its funding of the Liquidators.

COSTS

8    The competing positions of the parties as to costs are as follows:

(1)    SMBC contends that Flexirent should pay 72.6% of its costs of the proceedings on a party/party basis up to 11 am on 25 July 2025 and thereafter Flexirent should pay 72.6% of its costs on an indemnity basis.

(2)    Flexirent contends that SMBC should pay Flexirent’s costs of the proceedings on an indemnity basis by reason of SMBC’s rejection of Flexirent’s offer of settlement dated 14 April 2022.

9    It is convenient to address Flexirent’s position first. Flexirent relies on a letter dated 14 April 2022 sent before the proceedings had commenced. By that letter, Flexirent offered to settle SMBC’s claims for $15.5 million. The letter was sent on a ‘without prejudice’ basis. It did not state that it was to be relied upon on the question of costs, nor did it state that it was a Calderbank offer.

10    The Court’s discretion to award costs, conferred by s 43 of the FCA, is unfettered. Even if an offer does not formally meet the requirements of a Calderbank offer, and therefore does not directly engage the line of reasoning, or refer to the principles in Calderbank v Calderbank [1975] 3 All ER 333, the existence of the offer remains a part of the overall circumstances the entirety of which may justify the making of a particular order with respect to costs, including an indemnity costs order.

11    It is desirable that settlement offers are made before the commencement of proceedings, especially where they are likely to be long and expensive. Courts routinely take respondents’ pre-litigation conduct into account, where relevant, in determining an appropriate costs order. Examples include a respondent’s tender of payment or offer to provide undertakings. Pre-litigation offers were held to be relevant in Ofria v Cameron (No 2) [2008] NSWCA 242 at [27] and Pinnacle Runway Pty Ltd v Triangl Limited (No 3) [2020] FCA 1379 at [47]. I proceed on the basis that the offer made by Flexirent is relevant to the question of costs.

12    It is also desirable that a party make clear in a settlement offer that it proposes to rely on the offer on the question of costs if that is what it proposes to do if the offer is rejected. This ensures that the other party’s attention is brought firmly to the potential costs consequences if the offer is rejected and the litigation continues, including whether to obtain legal advice about prospects or the legal effect of such an offer in the event the offer is not bettered.

13    It is relevant that Flexirent’s offer gave no indication that it was to be relied upon on the question of costs, or explain the consequences of non-acceptance, but I do not see that fact as excluding the relevance of the offer on the question of costs. I do not understand it to have been held otherwise in Windsor Family Assets Pty Ltd v Green Day Energy Pty Ltd (No 2) [2024] FCA 412 at [18] or Broadway Plaza Investments Pty Ltd v Broadway Plaza Pty Ltd; In the matter of Combined Projects (Arncliffe) Pty Ltd (No 3) [2021] NSWSC 1537 at [61] to [69].

14    Flexirent offered to settle SMBC’s claims for $15.5 million. Flexirent submits that this offer has not been bettered. Alternatively, it submits that the offer was reasonable. It says that, therefore, the Court’s costs discretion should be exercised in its favour by ordering SMBC to pay its costs of the whole proceedings on an indemnity basis.

15    The parties agree that the applicant is entitled to judgment in the amounts of AUD14,840,518.56 and USD141,862.10, excluding pre-judgment interest. It is because the sum of these two figures is less than $15.5 million that Flexirent submits that the offer of $15.5 million was better than the result achieved.

16    One must understand how the amount of AUD14,840,518.56 was calculated. The starting figure was $15,259,500 (the net receivables shortfall). An amount of $1,707,000 had to be deducted from this figure to take into account future recoveries and past expenditure on mitigation steps leading to those recoveries: SMBC is likely to recover an amount of $2,847,000 from the Liquidators in respect of which it has incurred expenditure of $1,140,000. To the net amount produced by this calculation one must add financing/break costs of $311,061.40 and legal costs in Australian dollars and US dollars incurred in funding the Forum Proceedings (and other proceedings brought by the Liquidators).

17    At the time Flexirent made its offer, SMBC was pursuing its mitigation strategy, but had not succeeded in obtaining any recovery. It was thus incurring additional expenditure, in the context of Flexirent’ breaches of contract, in order to mitigate its losses and obtain recovery elsewhere in respect of both the 2018 MRASA and the 2020 MRASA. That expenditure was loss recoverable from Flexirent, and therefore decreased the comparative value of Flexirent’s settlement offer; it was not taken into account in that offer. But as at 14 April 2022, SMBC could not have known on how much it might recover, if anything, from the Liquidators. In the circumstances of this case, the likely future recoveries should not be taken into account to increase the comparative value of Flexirent’s settlement offer.

18    It is fortuitous for Flexirent that the likely recovery from the Liquidators could be determined in these proceedings. But, as at 14 April 2022, if the proceedings had been determined on that date, SMBC would probably have bettered the offer. When one takes out of the equation the fact that SMBC successfully pursued a mitigation strategy which the Court took into account in determining the quantum of the final damages award, SMBC achieved a meaningfully better outcome than what Flexirent offered, even before taking into account that SMBC had also incurred significant legal costs by 14 April 2022 which Flexirent’s offer was also intended to cover. These facts should be taken into account in considering whether SMBC bettered the offer of 14 April 2022. In my view, it should be taken as having done so.

19    In any event, if the 14 April 2022 offer is treated as better than the result ultimately achieved because SMBC successfully mitigated some of its losses, SMBC’s rejection of it was reasonable. First, there are the matters just referred to. Secondly, at the time of the offer, SMBC was attempting to obtain documents, pursuant to a contractual right, so as better to assess its 2020 MRASA case. SMBC was ultimately successful in obtaining documents: SMBC Leasing and Finance, Inc v Flexirent Capital Pty Ltd (No 2) [2022] FCA 1597.

20    Accordingly, whilst I take Flexirent’s offer into account, it does not lead to the conclusion that SMBC should pay the costs of the proceedings on an indemnity basis.

21    In oral argument, Flexirent made an alternative submission that the offer could support a “middle ground” position that each party bear its own costs of the proceedings. Taking the matters referred to earlier into account, and the fact that Flexirent did not repeat its offer after 22 April 2022, or accept SMBC’s offer made on 23 July 2025, I do not consider that there should be an order to the effect that each party pay its own costs.

22    The next question is whether Flexirent should pay 72.6% of SMBC’s costs up to 11 am on 25 July 2025, on a party/party basis and 72.6% of SMBC’s costs of the proceedings from 11 am on 25 July 2025, on an indemnity basis.

23    The amount of 72.6% was assessed by SMBC’s solicitor and explained in her affidavit. The figure accords with my sense of the time required in the case split between the 2018 MRASA issues and the 2020 MRASA issues. The main factual and legal focus in the case was on the 2018 MRASA in respect of which Flexirent had mounted a defence grounded on the proposition that reliance on a warranty was necessary to obtain damages for breach of contract. In addition to the 2018 MRASA occupying the most time in argument, this defence required witnesses to attend from overseas for lengthy cross-examination to support factually a proposition of dubious legal merit: see J[24] to [44].

24    As to the 2020 MRASA, it must have been evident to both parties, at least by 23 July 2025, that SMBC’s case on the 2020 MRASA was weak because comparatively little time was spent by anyone on that case. It is also clear from the terms of the offer that SMBC harboured doubt about its prospects on the 2020 MRASA.

25    I do not accept Flexirent’s submission that the percentage of the costs is best determined by counting the paragraphs in SMBC’s Second Further Amended Statement of Claim which apparently showed that 48.33% of the pleading related to the 2018 MRASA claim.

26    It is also necessary to refer to an order made by Needham J on 8 May 2025: see SMBC Leasing and Finance, Inc v Flexirent Capital Pty Ltd (Discovery) [2025] FCA 459. Her Honour resolved certain issues concerning discovery and made the following order:

3.    Costs reserved and to be the respondents’ costs in the cause.

27    The parties were in dispute about its meaning. SMBC’s construction better accords with an objective interpretation of the order in the context in which it was made. The order should be understood as having been intended to grant Flexirent its costs of the application if it successfully defended the proceedings. If Flexirent lost, as it did, then it was not entitled to its costs of the application. On no scenario was SMBC entitled to its costs of the application.

28    Taking all those matters into account, Flexirent should pay 70% of SMBC’s costs up to 11 am on 25 July 2025, on a party/party basis.

29    By a letter dated 23 July 2025, SMBC offered to settle the proceedings for $20,000,000, inclusive of costs. The offer was made as a formal Offer of Compromise under the Federal Court Rules 2011 (Cth) (FCR) and as a Calderbank offer. The letter explained that substantial costs had been incurred. There is no question that Flexirent, properly advised by its solicitors, would have known that substantial further costs would be incurred in proceeding to a hearing. As at 23 July 2025, Flexirent must have known that costs were likely to be in the millions of dollars.

30    SMBC has obtained judgment for the equivalent of roughly $19,452,627.73, including pre-judgment interest. When costs are included, the judgment is substantially more favourable than the offer. Flexirent did not submit otherwise.

31    Where the judgment “is more favourable than the terms of the offer” the applicant “is entitled” to indemnity costs in accordance with the terms of r 25.14(3) of the FCR. Rule 25.14 does not expressly or implicitly turn on whether rejection of an offer was “reasonable”: JMC Pty Ltd v Commissioner of Taxation (Costs) [2023] FCAFC 95 at [6]. Rather, it turns on the question whether the judgment “is more favourable than the terms of the offer”. In exercising the discretion under r 1.35 to make an order inconsistent with r 25.14, the reasonableness of a rejection of the offer might be relevant. But a reasonable rejection does not necessarily disengage the entitlement effected by r 25.14.

32    There is no reason to make an order inconsistent with r 25.14. Flexirent’s case on the 2018 MRASA was at best weak, a description which also characterises SMBC’s case on the 2020 MRASA. That explains why SMBC’s offer of $20 million was sensibly pitched where it was. Flexirent’s rejection of the offer was not sufficiently reasonable to warrant making an order under r 1.35 to displace the operation of r 25.14. Indeed, it is difficult to characterise rejecting SMBC’s offer as reasonable at all.

33    Flexirent should pay 70% of SMBC’s costs from 11 am on 25 July 2025, on an indemnity basis.

LUMP SUM COSTS

34    SMBC seeks the fixing of a timetable for the determination of its costs on a lump sum basis. Flexirent submits that the parties should first be afforded an opportunity to resolve costs liability by negotiation, and that it is premature to set such a timetable. That submission should not be accepted. The parties are sophisticated and remain free to negotiate on costs at any time. The fixing of a timetable will not impede that process. On the contrary, it is likely to facilitate resolution by providing a concrete framework within which any negotiation can occur and a better insight into the level of legal fees which have been incurred because of the various decisions taken not to resolve the dispute.

Associate:

Dated:    27 February 2026