Acubra Pty Ltd v Manningham Medical Centre Pty Ltd (No.2)

[2008] FMCA 1358

FEDERAL MAGISTRATES COURT OF AUSTRALIA

ACUBRA PTY LTD & ANOR v MANNINGHAM MEDICAL CENTRE PTY LTD (No.2) [2008] FMCA 1358

TRADE PRACTICES – COSTS – Calderbank offer – indemnity/solicitor-client costs – whether rejection of offer unreasonable – consideration of reasonableness at time of offer – finding that rejection not unreasonable – party-party costs ordered.

Cutts v Head [1984] 1 All ER 597
Dais Studio Pty Ltd v Bullet Creative Pty Ltd BC200800244
Hazeldene's Chicken Farm Pty Ltd v Victorian WorkCover Authority
(No 2)(2005) VSCA 298; BC200510663
John Hayes and Associates Pty Ltd v Kimberley-Clark Australia Pty Ltd BC9405929
MT Associates Pty Ltd v Aqua-Max Pty Ltd (No 3) [2000] VSC 163; BC200002334
Mutual Community Ltd v Lorden Holdings Pty Ltd & Ors BC9303878
NMFM Property Pty Ltd and Others v Citibank Ltd (No 11) (2001) 187 ALR 654
Nolan v Nolan (No 2) BC200302148
Premier Building and Consulting Pty Ltd (Receivers appointed) v Spotless Group Limited (No 13) (2007) VSC516; BC200711357

University of Western Australia v Gray (No 21) BC200806572

Applicants: ACUBRA PTY LTD & HEALTHWEB PTY LTD T/A VIMY HOUSE CONSULTING SUITES

Respondent: MANNINGHAM MEDICAL CENTRE PTY LTD

File Number: MLG 745 of 2007

Judgment of: O'Dwyer FM

Hearing date: 5 September 2008

Last written submission: 11 September 2008

Delivered at: Melbourne

Delivered on: 3 October 2008

REPRESENTATION

Counsel for the Applicants: Mr Carew

Solicitors for the Applicants: Collins House Legal

Counsel for the Respondent: Mr Woolley

Solicitors for the Respondent: Richmond & Bennison

THE COURT ORDERS THAT:

1. The applicants pay the respondent’s costs on a party-party basis.

FEDERAL MAGISTRATES
COURT OF AUSTRALIA AT
MELBOURNE

MLG 745 of 2007

ACUBRA PTY LTD & HEALTHWEB PTY LTD T/A VIMY HOUSE CONSULTING SUITES

Applicants

And

MANNINGHAM MEDICAL CENTRE PTY LTD

Respondent

REASONS FOR JUDGMENT

Introduction

1. At the hand down of judgment on 5 September 2008 an issue arose on the question of costs.  Pursuant to that judgment there was to be an order that the applicants pay the respondent's costs as the applicants’ claim was dismissed. 

2. Counsel for the respondent made application, however, that the applicants should be ordered to pay indemnity or solicitor-client costs from 13 November 2007.  The basis of that application was that on 13 November 2007 a letter of offer was made to the applicants by which the respondent would pay the applicants $20,000 and costs.

3. That offer was rejected in circumstances, the respondent submits, that were unreasonable having regard to the outcome of the case.

The respondent’s submission on costs

1. The respondent submits that its letter of 13 November 2007 was a Calderbank offer.  There being no procedures for payment into Court, it is appropriate to classify the letter as a Calderbank offer.  (See Cutts v Head [1984] 1 All ER 597)

2. The respondent relies on the authorities of Mutual Community Ltd v Lorden Holdings Pty Ltd & Ors BC9303878; MT Associates Pty Ltd v Aqua-Max Pty Ltd (No3) [2000] VSC 163; BC200002334; Premier Building and Consulting Pty Ltd (Receivers appointed) v Spotless Group Limited (No 13) (2007) VSC 516; BC200711357; and, finally, Hazeldene's Chicken Farm Pty Ltd v Victorian WorkCover Authority (2005) VSCA 298; BC200510663.

3. In Mutual Community v Lorden Holdings his Honour Byrne J examined in broad terms the principle behind making orders other than those normally that follow success in litigation of a party-party nature to include as incentive to parties to resolve disputes costs orders that carry with it some added incentive to the parties to resolve because of the risk of costs orders greater than party-party costs.  His Honour in the case of Premier Building Consulting v Spotless Group expanded those views in some detail.  At [10] his Honour went on to say:

   A feature of an argument about costs where an unaccepted Calderbank offer has been made, is that it is conducted when the result is known.  It will, almost inevitably, involve the offeror contending that, had the offer been accepted, the parties would have been spared a good deal of costs.  This contention will normally be advanced in circumstances where the force of the argument depends upon the fact that the offeree has achieved a less favourable result than would have been the case if the offer had been accepted.  In short, the offeree, in deciding not to accept the offer, has gambled and lost - it has invested the present benefit of the offer against the uncertain benefit that a better result will in due course be achieved.

4. His Honour further stated at [11]:

   The Court of Appeal in Hazeldene's Chicken Farm case has accepted that the failure to accept an offer which is not bettered by the outcome is but a matter which the Court should have regard to in exercising its discretion as to cost.  Approving the judgment of Redlich J in Overseas-Chinese Banking Corporation Ltd v Aljade Development and Construction SDN BHD, the Court of Appeal pointed to the objective that potential litigants should not be discouraged from bringing and, it would seem, pursuing, their dispute in courts.

5. His Honour concluded at [12] that:

   The critical question, then, is whether the rejection of the offer was unreasonable in the circumstances.

6. In the Hazeldene's Chicken Farm case the Victorian Court of Appeal, without in any way attempting to constrain the exercise of a Court's discretion on this issue, made reference to some of the considerations that a Court should take into account when determining to exercise a discretion in response to a Calderbank offer to make an order for costs other than party-party costs.  The Court held at [25] that:

   The discretion with respect to costs, must, like every other discretion, be exercised taking into account all relevant considerations and ignoring all irrelevant considerations.  It is neither possible nor desirable to give an exhaustive list of relevant considerations.  At the same time, a Court considering a submission that the rejection of a Calderbank offer was unreasonable should ordinarily have regard, at least, to the following matters:

   (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 prospect 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 in the event of the offeree rejecting it.

7. The Court of Appeal went on to say  that:

   [26] It has been argued on occasion that the maker of a Calderbank offer should not be entitled to costs unless the offer sets out, with some reasonable specificity, the basis for the offeror's contention that the offeree should accept the compromise - for example, because the offeree's case was hopeless, or because the offeree had no reasonable prospect of doing better in the proceeding than was being offered in advance. 

   [27] Once again, we think it neither necessary nor desirable to lay down any general rule in this regard.  We agree with what Redlich J said in Aljade, as follows:

   Any attempt to prescribe the reasoning which must accompany [a Calderbank offer] should be resisted.  Whether there is a need for the offeror to descend to specificity as to why the offer should be accepted must depend upon a consideration of all of the circumstances existing at the time of the offer.  The extent to which the weakness of a party's position is exposed through the pleadings, affidavits and the various communications between the parties during the course of the litigation may bear upon the significance of the absence of specificity in the informal offer.

   [28] As we said at the outset, the unreasonable refusal of an offer of compromise is, by itself, a proper ground for the award of indemnity costs or - in the present case - the award of solicitor-client costs.  It follows that it is not necessary for the applicant for such an order to establish matters which might be relevant to the other, well- recognised, grounds for indemnity costs.  Once again, we would adopt what Redlich J said in Aljade as follows:

   It is not necessary to establish misconduct by the offeree before the rejection of the offer can be reviewed as unreasonable.  Lack of merit in the way a party has conducted its case is not a prerequisite for the making of an indemnity costs order [on this ground].

   [29] Nor is it necessary for the applicant offeror to show that the offeree acted with "wilful disregard of known facts or clearly established law", or that it acted with "high-handed presumption".  We agree with Redlich J that such conduct is not a prerequisite for a finding that the rejection of a Calderbank offer was unreasonable.

The applicants’ submissions on costs

1. The applicants submit, as I understand their submission, that the failure to accept a Calderbank offer which, in the final outcome, proved to be greater than achieved at the end of trial, is not, in itself, a basis for making an indemnity costs order.

2. In support of that contention the applicants rely upon Nolan v Nolan (No 2) BC200302148 wherein Dodds-Streeton J concluded at [76] that:

   … a Calderbank letter is but one factor relevant to the discretionary determination of costs.  A Calderbank offer is a significant factor in favour of indemnity costs but does not dictate them or require an order for indemnity costs as a matter of routine.  The reasonableness of the offeree in rejecting a Calderbank offer is one important factor in determining the weight to be attributed to it.  The degree of specificity of reasoning expressed in the letter, the stage at which the letter is received, and the content of and response to the offer, may all be relevant to reasonableness.

3. The applicants also rely upon the observations made by Lindgren J in NMFM Property Pty Ltd v Citibank Limited (2001) 187 ALR 654 where he stated when considering Calderbank letters in that case:

   [82] I turn next to the question of Citibank's offers of settlement.  Since NM failed and is to pay Citibank's costs, it is worse off than if it had accepted any of Citibank's offers.  But this alone does not necessarily or even presumptively lead to an award of indemnity costs: the applicant for the award still bears the onus of establishing that the non-acceptance was imprudent or plainly unreasonable.

4. He went on to say:

   [87]No doubt where a party puts with sufficient particularity to the opposing party the reasons why the latter must fail, yet the latter does not recognise the inevitable, this will be a factor pointing to an award of indemnity costs...

   [88]The requirements of "sufficient particularity" and "inevitability of failure" are important.  In their absence, it would be open to parties to put their respective cases to the opposing party, urging it to recognise the merit of what is put in the hope that if it ultimately finds favour with the Court, an award of indemnity costs will follow.  If this were correct, one might ask rhetorically: "Why write a letter as distinct from simply relying on the pleadings?"  In my opinion, the view could reasonably and prudently be taken by NM that what HB was putting in their letter would not ultimately prevail, particularly in view of the nature of its case as one of the selling of a "package" by a person acting simultaneously as the agent of two principals.  In these circumstances NM was entitled to pursue its claim without running the risk of an order for indemnity costs.  The considerations advanced by HB in their letter were not so obviously correct that NM behaved imprudently or plainly unreasonably in not accepting with alacrity the small element of compromise present in the offer made.

5. I understand the above summation by Lindgren J expresses the contention of the applicants in this case.

6. In John Hayes and Associates Pty Ltd v Kimberley-Clark Australia Pty Ltd BC9405929 Hill J observed that:

   [12]The making of an offer of compromise is but one of the many factors which may be taken into account by the Court in exercising its judicial discretion.  It goes too far, in my opinion, with respect, to say that the mere making of a Calderbank letter and its rejection grounds, without more, an order for costs on an indemnity basis. 

7. In similar vein, the applicants rely on the observations of Jessup J in Dais Studio Pty Ltd v Bullet Creative Pty Ltd BC200800244 where he observed:

   [6] What follows from a consideration of Calderbank and of Cutts v Head themselves is that, necessarily, those cases articulate no proposition which linked a party's entitlement to indemnity costs with a settlement offer previously made by that party, and rejected by the other party.  In my view, if the rejection of such an offer is to ground a claim for indemnity costs, it must be by reason of some circumstance other than that the offer happened to comply with the Calderbank principle.

8. He agreed with Hill J in John S Hayes and Associates Pty Ltd Kimberley-Clark Australia Pty Ltd where he noted:

   [7] … the authorities did not appear to sustain the proposition that "imprudent" refusal of an offer of compromise should incline the Court, in an appropriate case, to make a costs order on an indemnity basis.

9. Jessup J concluded that:

   [11] The test, therefore, is whether the offeree's rejection of the relevant settlement offer was unreasonable in the circumstances then obtaining.  It cannot be too strongly emphasised, however, that the rejection of a reasonable offer is not to be automatically regarded as an unreasonable rejection.

10. The applicants also rely upon the comments of French J (as he then was) in University of Western Australia v Gray (No 21) BC200806572 where he concluded at [32] in summarising the applicable principles that:

    1. Mere refusal of a "Calderbank offer" does not itself warrant an order for indemnity costs. In this connection it may be noted that Jessup J in Dais Studio Pty Ltd v Bullet Creative Pty Ltd [2008] FCA 42 said that (at [6]) -

    If the rejection of such an offer is to ground a claim for indemnity costs, it must be by reason of some circumstance other than that the offer happened to comply with the Calderbank principle. 

    2. To obtain an order for indemnity costs the offeror must show that the refusal to accept it was unreasonable.

    3. The reasonableness of the conduct of the offeree is to be viewed in the light of the circumstances that existed when the offer was rejected.

Was the rejection of the Calderbank offer unreasonable?

1. A perusal of the authorities relied on by both the respondent and the applicants clearly shows that the crucial consideration for me is whether the rejection of the Calderbank offer contained in the letter of 13 November 2007 was unreasonable in all of the circumstances at the time of its rejection.

2. The respondent argues that the failure on all heads by the applicants, in itself, denotes the unreasonableness of the rejection of the offer.  The authorities, in my view, clearly identify this as not sufficient to warrant an indemnity or solicitor-client costs order.  There must be more.

3. Applying those considerations set out in  the Hazeldene’s Chicken Farm case, it can be said:

   (a)the offer was made at a time in the proceeding when pleadings had closed and each party had an understanding of their respective positions.  It was also made at a time that, should it have been accepted, it would have saved very significant costs being incurred;

   (b)the time of 14 days in which to respond to the offer, in my view, was adequate;

   (c)the extent of the offer has to be measured against the amount claimed ($118,520) and, in my view, any offers previously made to give, in this case, context.  In a practice that is becoming more frequent, and which is not to be encouraged, after initial submissions as to the authorities I should consider were made, there was further correspondence addressed to my Chambers expanding on submissions and also enclosing a copy of an earlier Calderbank offer by the applicants; which was rejected by the respondent by the counter Calderbank offer that forms the basis of this application.  Solicitors for the applicants in that further correspondence claimed privilege on the basis it was a “without prejudice” offer and I should ignore it.  This belies the fact that it carried the caveat, “without prejudice save as to costs”.  Clearly, the applicants, should they have been successful, were not going to claim privilege.  In any event, the privilege attached to this offer does not preclude its consideration when the question of costs is being considered at the end of a case after judgment on the substantive issue has been delivered.  Be that as it may, the production of the letter by the respondent, in my view, works against the respondent’s application.   It gives context to the subject Calderbank offer and in doing so helps, in my view, determine the unreasonableness or otherwise of the rejection of that offer.   The first Calderbank offer by the applicants fixed on a figure of approximately half the claim ($50,000) without explanation as to how its quantum was arrived at or why the applicants could be reasonably confident of success. It, on the face of it, appears to be an arbitrary sum, setting the benchmark from which any reactive counter offer would pivot. In similar vein, the respondent’s counter offer seems to have fixed on a figure ($20,000) without explanation, but reactive to the earlier benchmark offer.  It may be that both parties took a commercial, but haphazard approach aimed at reaching a point of compromise that hedged against the worst case scenarios for themselves. This is no doubt a successful mechanism for settlement in many cases, but in situations that move on to a final determination after trial, it does not give much that a court can look at to see whether a rejection of an offer at the time of its rejection was unreasonable. There needs to be something more, in my view, from which to draw a conclusion that the rejection of the offer at the time was imprudent or plainly unreasonable.

   (d)In my view, although the pleadings had been completed at the time of the subject Calderbank offer, the determinate element of the outcome in this case rested on the evidence to be lead by the parties at the hearing.  In my view, despite the ultimate outcome, at the time of the offer, it cannot be said the rejection of the offer was unreasonable.

   (e)On the remaining two considerations, there is no issue about the clarity of the offer, nor can there be any doubt about a foreshadowing of an application for indemnity costs if the offeror was ultimately successful. These two considerations, however, after giving proper weight to those others set out above, are not determinate of the outcome.

Conclusion

1. Although the applicants were clearly on notice about the intention of the respondent to apply for indemnity costs and that the offer made complied with Calderbank principles, it cannot be said the rejection was unreasonable at the time of the offer. 

2. There was otherwise no aspect of the applicants’ conduct of the case that would render their behaviour reprehensible, imprudent or “plainly unreasonable” and therefore the rejection of the offer unreasonable.

3. Accordingly, I am not persuaded to exercise my discretion other than to award costs on a party-party basis.

I certify that the preceding twenty-six (26) paragraphs are a true copy of the reasons for judgment of O'Dwyer FM

Associate: 

Date: