Federal Court of Australia

Yarrawah Interactive Pty Ltd v Epiphany Games Pty Ltd (Costs) [2026] FCA 700

ORDERS

THE COURT ORDERS THAT:

1.    The applicant pay the respondents’ costs of the proceeding to be agreed or, failing agreement, to be assessed.

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

REASONS FOR JUDGMENT

DOWNES J:

Overview

1    This matter was listed for a two-week trial commencing on 13 July 2026. Those trial dates were vacated after the applicant failed to comply with an order of 27 March 2026 requiring it to provide security for the respondents’ costs in the amount of $300,000 (inclusive of GST), to be paid in two tranches of $150,000: the first within seven days of that order, and the second by no later than 16 April 2026.

2    On 15 May 2026, the proceedings were dismissed with the question of costs to be determined on the papers.

3    The respondents seek costs on the standard basis until 11:00am on 23 December 2025 and on the indemnity basis thereafter in reliance upon their notice of offer to compromise dated 19 December 2025. Alternatively, they seek an order for indemnity costs by reference to an offer of settlement dated 31 March 2025. Finally, and alternatively, they seek costs on the ordinary basis.

4    The applicant submits that there should be no order as to costs.

5    For the following reasons, the applicant will be ordered to pay the respondents’ costs on the ordinary basis.

Notice of offer to compromise

6    On 19 December 2025, the respondents served a notice of offer to compromise on the applicant’s solicitors in accordance with rule 25.01(1) Federal Court Rules 2011 (Cth). By that notice, the respondents offered to pay the applicant the amount of $76,000 (inclusive of costs) with the proceedings being dismissed. That offer was not accepted.

7    The relevant principles relating to the award of indemnity costs under r 25.14(2) are set out in Camm Cattle Company Pty Ltd v Acumen Finance Pty Ltd (No 3) [2021] FCA 1611 (Downes J) at [10]-[15]; see also Caporaso Pty Ltd v Mercato Centrale Australia Pty Ltd (Costs) [2025] FCAFC 29 (Katzmann, Wheelahan and Hespe JJ) at [21].

8    The respondents submit that the applicant’s failure to accept the offer was unreasonable for the following reasons.

9    First, it is said that the offer was made after a mediation was conducted on 9 December 2025. However, I do not accept this is a reason to find that the failure to accept the offer was unreasonable. If the respondents are suggesting that I should infer that the applicant was informed of the nature of the respondents’ defence at that mediation, I can draw no such inference. There are many ways that a mediation may be conducted and at least one of those ways is that the parties do not discuss the merits of their dispute but engage in commercial bargaining.

10    Second, it is said that the applicant must have been aware of the likelihood of an order for security for costs being made, and the very real risk that the proceedings would be dismissed if the order was not complied with. Again, I do not accept this is a reason to find that the failure to accept the offer was unreasonable. This is especially in circumstances where: (a) the amounts alleged by it to be owing totalled up to over $1 million and the amount being offered was less than 8% of that amount and was inclusive of costs and (b) the respondents had not filed a defence. Further, the applicant, represented by counsel and solicitors, opposed the application for security for costs filed on 30 January 2026, and the applicant achieved partial success in that opposition in that the respondents did not obtain the full amount of security sought by them. It is therefore difficult to infer that the applicant was cognisant of the posited “real” risks of dismissal of the proceeding during the period when the offer was open when it was no doubt acting on legal advice, and there was a tenable argument that no security ought to be provided at all.

11    Third, it is said that the offer was not an offer for a nominal amount. While that may be so, the amount offered was a small fraction (8%) of the total amount being claimed by the applicant and it was inclusive of costs, which eroded its value even further.

12    Fourth, it is said that the offer almost matched an offer made by the applicant in February 2025 for the sum of $75,856 to be paid in instalments on terms, and that for this reason, the offer of $76,000 was a reasonable offer. However, some nine months or more had passed between the February 2025 offer and the offer made on 19 December 2025, and during that period, the applicant had incurred legal costs when it engaged solicitors who had briefed counsel to prepare a comprehensive statement of claim totalling some 72 pages. Legal costs were also incurred by the applicant in commencing and progressing these proceedings. That the respondents made an offer which matched the offer made in February 2025 is not a fair comparator for these reasons. Things had moved on.

13    For these reasons, I am not persuaded that the rejection by the applicant of the 19 December offer was unreasonable such that r 25.14(2) applies.

Offer of settlement dated 31 March 2025

14    The respondents rely on an “offer” of settlement dated 31 March 2025 and seek indemnity costs on the basis that it was unreasonable for the applicant not to accept this offer. However, the letter was five pages long with six pages of annexures, and it was only open for acceptance until 7 April 2025 (i.e. for 7 days). Further, the letter began with the statement that, “if agreed in principle, [it is proposed that] the parties will enter a settlement deed setting out such terms of settlement together with all other customary terms and conditions of such settlement deeds to be negotiated in good faith”. The letter contained two settlement options (which included a proposed payment of amounts of either $45,000 or $15,000). Under either option, no amount was payable until after execution of a “satisfactory” settlement deed.

15    In circumstances where: (a) the amounts alleged by the applicant to be owing totalled up to more than $1 million and the amount being offered was 5% or less of that amount, (b) the proposed terms required the applicant to do certain things to the benefit of the respondents which benefits have not been achieved by the dismissal of the applicant’s claim in this proceeding (c) there were other unidentified terms yet to be negotiated, and (d) the proposal was only open for a short period of time, it was not unreasonable for the applicant to refuse to accept the “offer” (assuming that the letter can be characterised as such) with the consequence that I am not persuaded that the respondents should be awarded indemnity costs from the date of the 31 March letter.

Whether costs order should be made

16    The applicant resists paying any costs, whereas the respondents seek their costs of the proceedings on the ordinary basis as a third option. There is no good reason in this case why costs should not follow the event. It follows that such an order is appropriate.

Associate:

Dated:    3 June 2026