Island Helicopters Pty Ltd v Central (Qld) Aviation Pty Ltd and Anor (No.2)
[2017] FCCA 2811
•17 November 2017
FEDERAL CIRCUIT COURT OF AUSTRALIA
| ISLAND HELICOPTERS PTY LTD v CENTRAL (QLD) AVIATION PTY LTD & ANOR (No.2) | [2017] FCCA 2811 |
| Catchwords: PRACTICE & PROCEDURE – COSTS – Whether applicant should pay the respondents’ costs of proceedings even though the applicant obtained judgment against first respondent – whether applicant acted unreasonably in not accepting respondents’ offer of compromise – applicant ordered to pay respondents’ costs as agreed or taxed. |
| Legislation: Federal Circuit Court Rules 2001 (Cth), r. 21.02(2)(c), 21.10 |
| Cases cited: Dukemaster Pty Ltd v Bluehive Pty Ltd [2003] FCAFC 1 Gladstone Park Shopping Centre Pty Ltd v Wills (1984) 6 FCR 496 Island Helicopters Pty Ltd v Central (Qld) Aviation Pty Ltd & Anor [2017] FCCA 1665 John Conrad Hansen trading as Derrawee Pastoral Company v Monterey (Coolah) Pty Limited [2012] NSWSC 1383 Robinson v Blackheart Industries Pty Ltd & Ors (No.3) [2015] FCCA 2542 |
| Applicant: | ISLAND HELICOPTERS PTY LTD (ACN 099 003 719) |
| First Respondent: | CENTRAL (QLD) AVIATION PTY LTD (ACN 010 620 014) |
| Second Respondent: | ERIC WEBB |
| File Number: | SYG 371 of 2014 |
| Judgment of: | Judge Manousaridis |
| Hearing date: | Determined on the papers |
| Date of Last Submission: | 6 September 2017 |
| Delivered at: | Sydney |
| Delivered on: | 17 November 2017 |
REPRESENTATION
| Counsel for the Applicant: | Mr M Bennett |
| Solicitors for the Applicant: | Marsden Law Group |
| Counsel for the Respondents: | Mr O Fagir |
| Solicitors for the Respondents: | McCullough Robertson Lawyers |
ORDERS
The applicant pay the respondents’ costs of the proceedings.
Unless the parties otherwise agree, the respondents’ costs be referred for taxation under Part 40 of the Federal Court Rules 2011 (Cth).
| FEDERAL CIRCUIT COURT OF AUSTRALIA AT SYDNEY |
SYG 371 of 2014
| ISLAND HELICOPTERS PTY LTD (ACN 099 003 719) |
Applicant
And
| CENTRAL (QLD) AVIATION PTY LTD (ACN 010 620 014) |
First Respondent
| ERIC WEBB |
Second Respondent
REASONS FOR JUDGMENT
Introduction
On 19 July 2017 I made orders that judgment be entered in favour of the applicant in the sum of $31,662.85 but that the application otherwise be dismissed.[1] I also ordered that the parties have liberty to apply in relation to costs.
[1] Island Helicopters Pty Ltd v Central (Qld) Aviation Pty Ltd & Anor [2017] FCCA 1665
Pursuant to the liberty to apply, the respondents applied to relist the matter for the purpose of applying for an order for costs. On 16 August 2017 I made directions for the filing of submissions and set down for hearing the question of costs. After the parties filed submissions, they consented that I deal with the question of costs on the basis of the written submissions the parties filed without a hearing.
Parties’ submissions
The applicant submits an order for costs should be made in its favour on a party and party basis because it obtained a judgment against the first respondent, and costs should follow the event. The applicant submits that such order for costs should be made even though the applicant did not secure any relief against the second respondent because, being the controlling mind of the first respondent, the second respondent otherwise incurred no costs beyond those the first respondent incurred. In the alternative, the applicant submits the appropriate order would be that each party pays its or his own costs.
The respondents, on the other hand, submit I should make an order for costs on the ordinary basis up to 20 May 2016 and on an indemnity basis after that day. The respondents’ submissions are premised on two sets of facts. The first is that the claim on which the applicant succeeded was one that was introduced as a result of an amendment that was made during the hearing pursuant to leave I granted over the respondents’ objection, and that, after I allowed the amendment, the first respondent admitted the claim.
The second set of facts on which the respondents rely is the offer contained in what the respondents in their written submissions describe as a “Calderbank offer”. That is a reference to a letter Mr Thorne, the solicitor for the respondents, sent to the applicant’s solicitor by email on 20 May 2016.[2] That letter, which was marked “[w]ithout prejudice save as to costs”, contained an offer to settle the proceedings on the basis that the parties execute an appropriate deed of release and that the parties take all necessary steps to discontinue the proceedings with no order as to costs.
[2] The letter is annexed to the affidavit of Mr T Thorne affirmed 6 September 2017 which was filed for the purpose of the respondents’application for costs. I have notionally read the affidavit.
Principles
The award of costs should ordinarily follow the event.[3] The “event” in question should be the practical outcome of the case, not the formal orders made; it is necessary to determine who is the successful party having regard to the matters that were in issue.[4] In some circumstances it is appropriate for the court to take into account a successful party’s having lost on significant issues. The circumstances where this might be appropriate have been discussed in a number of cases. In Waters v. P C Henderson (Aust) Pty. Limited Mahoney JA said:[5]
Where the proceedings involve multiple issues the application of the rule that costs follow the event may involve hardship where a party succeeds on some issues and yet fails on others. Particularly is this so where, for example, a defendant succeeds on issues that occupied the bulk of the time taken by the proceedings. Nevertheless, unless a particular issue or group of issues is clearly dominant or separable, it will ordinarily be appropriate to award the costs of the proceedings to the successful party without attempting to differentiate between those particular issues on which it was successful and those on which it failed.
[3] Gladstone Park Shopping Centre Pty Ltd v Wills (1984) 6 FCR 496
[4] John Conrad Hansen trading as Derrawee Pastoral Company v Monterey (Coolah) Pty Limited [2012] NSWSC 1383 at [29] (Schmidt J)
[5] Unreported CA(NSW) Kirby P, Mahoney and Priestley JJA, 6 July 1994 quoted with approval in James & Ors v Surf Road Nominees Pty Limited & Ors [No 2] [2005] NSWCA 296 at [32]
Where, as is the case before me, a party has made an offer of settlement which was not accepted by the other party, that is a circumstance relevant to the exercise of the discretion as to costs. In particular, it becomes relevant if the offeree would have been better off had he or she accepted the offer rather than continue with the proceeding. There are a number of matters the Court may take into account when determining the significance it should attach to the non-acceptance of the offer.[6] These include whether the offer included a genuine element of compromise, the stage of the proceedings at which the offer was made, and whether the offeree acted unreasonably in not accepting it.
[6] See G E Dal Pont Law of Costs 3rd ed 2013 at [13.60] – [13.86]
The following passage from the judgment of the Full Federal Court in Dukemaster Pty Ltd v Bluehive Pty Ltd contains a useful statement of the principles that apply to applications for indemnity costs based on the non-acceptance of an offer of compromise:[7]
The mere making of an offer of compromise and its non‑acceptance, followed by a result more favourable to the offeror, does not automatically lead to an order for payment of costs on an indemnity basis: John S Hayes & Associates Pty Ltd v Kimberley‑Clark Australia Pty Ltd (1994) 52 FCR 201 at 204‑206; MGICA (1992) Pty Ltd v Kenny & Good Pty Ltd (No 2) (1996) 70 FCR 236 at 239. The applicant for a more generous award must show that the rejection of the offer was imprudent or plainly unreasonable: NMFM Property Pty Ltd v Citibank Ltd (No 2) (“NMFM”) [2001] FCA 480; (2001) 109 FCR 77 at 98; Australian Competition & Consumer Commission v Australian Safeway Stores Pty Ltd (No 3) [2002] FCA 1294 at [28]; Sydney Markets Ltd v Sydney Flower Market Pty Ltd [2002] FCA 283 at [16]‑[17] and [23].
Whatever the position may be with an offer made under Order 23, a Calderbank offer, or any offer of compromise outside the regime in Order 23, is unlikely to serve its purpose of attracting an indemnity award of costs if the rejecting applicant fails to recover more than what is offered, unless the offer is a reasonable one and contains a statement of the reasons the offeror maintains that the application will fail. In NMFM at [87]‑[88] Lindgren J said:
“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. …
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?’.”
[7] [2003] FCAFC 1 at [7] and [8]
What costs order should be made?
The applicant succeeded in obtaining a judgment. That judgment, however, was ordered in relation to a claim which, on the last day of the hearing, I permitted to be included in the statement of claim. I permitted the amendment on the usual terms that the applicant pay any costs thrown away by reason of the amendment. Given the claim was new, and the first respondent did not dispute its liability to pay the amount claimed, the judgment I ordered cannot reasonably be seen as the event by reference to which I should determine who is to pay the costs of the proceedings.
That leads me to the other causes of action on which the applicant relied. These are set out in my reasons for judgment of 19 July 2017. The applicant failed on all of these causes of action against both respondents; and it is this fact that constitutes the relevant event when determining who should bear the costs of the proceeding.
There is one other matter that is potentially relevant to determining the question of costs; and that relates to evidence that was tendered in relation to the respondents’ affirmative defence that the applicant suffered no damage. As I noted in my reasons for judgment of 19 July 2017, that defence raised complex issues and, because it was not necessary, I decided not to address them. The matters to note about the defence, however, are that it was not unreasonable for the respondents to raise it; and they raised it only because the applicant asserted causes of action against them which I determined against the applicant.
In these circumstances I am of the opinion that the appropriate order is that the applicant pay the respondents’ costs.
I then turn to whether I should order that the applicant be ordered to pay on an indemnity basis the costs the respondents incurred after the time by which the offer contained in Mr Thorne’s letter of 20 May 2016 remained open (relevant period). In assessing that question it is necessary to refer to the letter Mr Thorne sent to the applicant’s solicitor on the same day Mr Thorne sent the letter containing the offer of compromise.[8] Mr Thorne there stated the respondents were “intrigued as to the basis” of the applicant’s application, namely, that the respondents have liability under the lease agreement “in circumstances where it was frustrated upon the destruction of the helicopter”. Mr Thorne continued by submitting that the respondents’ case was strengthened by an expert’s report the respondents had received “which reveals that your client has essentially no prospect of being able to demonstrate that it has suffered any loss” as well as by Mr Sweeney’s affidavit.
[8] The letter is also annexed to the affidavit of Mr T Thorne affirmed 6 September 2017.
The reasonableness of the applicant’s not accepting the offer made in the letter dated 20 May 2016 is to be assessed as at the time that offer was stated to expire, namely, 3 June 2016. As I have already noted, the offer was that the proceeding be discontinued with no order as to costs. Whether it was unreasonable for the applicant not to have accepted the offer depends on the objective prospects of success based on the facts that were known or which ought reasonably to have been known by the applicant during the relevant period. In particular, it would have been unreasonable for the applicant not to have accepted the offer if the applicant ought to have reasonably known that it had a high prospect of not succeeding on its causes of action.
In my opinion, it was not unreasonable for the applicant not to accept the respondents’ offer.
a)First, at least part of the applicant’s causes of action depended on the resolution of conflicting accounts of conversations. These conversations particularly related to that part of the applicant’s claim for the payment of the additional premium the applicant became liable to pay to insure the helicopter’s operations in Papua New Guinea. It could not be said that, during the relevant period, the applicant ought reasonably to have expected that the conflict of evidence would be determined against the applicant.
b)Second, the grounds on which Mr Thorne in his letter dated 20 May 2016 claimed the applicant’s case was weak referred to only one of the causes of action on which the applicant relied, namely, that based on the repudiation of the lease agreement. Mr Thorne did not assert that the applicant’s claim for the repayment of the premium was weak.
c)Third, to the extent Mr Thorne relied on the expert’s report to claim the applicant’s claims were weak, the applicant required time to assess the contents of that report by itself seeking expert assistance. The relevant period was not reasonably sufficient to have enabled the applicant to obtain such assistance.
d)Fourth, as I observed in my reasons for judgment of 19 July 2017, the issues raised by the respondents’ positive defence that the applicant suffered no loss were not straightforward and raised complex legal issues.
For these reasons, I am not satisfied that I should order the applicant to pay on an indemnity basis the costs the respondents incurred after 3 June 2016.
Conclusion
Under r.21.02(2)(c) of the Federal Circuit Court Rules 2001 (Cth) (FCC Rules), in making an order for costs the Court may set the method by which the costs are to be calculated. Under r.21.10 of the FCC Rules, unless the Court otherwise orders, a party entitled to costs in a proceeding (other than a proceeding to which the Bankruptcy Act 1966 (Cth) applies) is entitled to costs in accordance with Parts 1 and 2 of Schedule 1 to the FCC Rules.
Neither the applicant nor the respondents, however, expressly referred to r.21.10 of the FCC Rules. The applicant, however, submitted that the first respondent would be liable to the applicant for its costs on “the party party basis”, and that an “order to that effect under r 21.02” of the FCC Rules “would be so made”.[9] The respondents, on the other hand, submitted the applicant should pay costs “on the ordinary basis up to 20 May and on the indemnity basis from 20 May onward”.[10] From these submissions, I take it that both the applicant and the respondents submitted that in relation to any order for costs I may make, the entitlement of the beneficiary of such order is to be otherwise than in accordance with Parts 1 and 2 of Schedule 1 to the FCC Rules.
[9] Applicant’ Submissions on Costs¸ [1]
[10] Submissions for the Respondents on Costs, [39]
In my opinion, given the nature of the issues in this case,[11] it is appropriate that I order pursuant to r.21.02(2)(c) of the FCC Rules that, unless the parties otherwise agree, the respondents’ costs be referred for taxation under Part 40 of the Federal Court Rules 2011 (Cth). I will make orders accordingly.
[11] See Robinson v Blackheart Industries Pty Ltd & Ors (No.3) [2015] FCCA 2542 at [17]
I certify that the preceding nineteen (19) paragraphs are a true copy of the reasons for judgment of Judge Manousaridis
Date: 17 November 2017
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