Transit Australia P/L v Crewford Australia P/L

[1997] QSC 141

IN THE SUPREME COURT

OF QUEENSLAND
  No.  4410 of 1997

[Transit Australia P/L v Crewford Australia P/L]

BETWEEN:

TRANSIT AUSTRALIA PTY LTD
  Appellant

AND:
  CREWFORD AUSTRALIA PTY LTD
  Respondent

REASONS FOR JUDGMENT  -  THOMAS J.

Delivered:12 August 1997

CATCHWORDS:     COSTS - Offers to settle - Appeal from costs award of arbitrator - Whether arbitrator erred in law by refusing to consider verbal offers to settle.

Counsel:Mr L.  Boccabella for the Appellant.

Mr M.  Amerena for the Respondent

Solicitors:MacGillivrays for the Appellant.

MacDonnells for the Respondent.

Hearing date:               1 August 1997

IN THE SUPREME COURT

OF QUEENSLAND
  No.  4410 of 1997
[Transit Australia P/L v Crewford Australia P/L]

BETWEEN:

TRANSIT AUSTRALIA PTY LTD
  Appellant

AND:
  CREWFORD AUSTRALIA PTY LTD
  Respondent

REASONS FOR JUDGMENT  -  THOMAS J

Judgment delivered 12 August 1997

This is an appeal against an order for costs made by an arbitrator.  The appellant may conveniently be referred to as Transit, and the respondent at Crewford.  The arbitration determined claims for compensation by Crewford in respect of the grant of a bus franchise to Transit.  An interim award of 9 October 1996 resulted in an award of compensation to Crewford of a little over $1.7 million.  The award now in issue was made on 17 January 1997, dealing with the questions of interest and costs.

Both Transit and Crewford appealed against the costs order.  The matter was dealt with in part by Derrington J on 3 March 1997 who ordered that that part of the costs order which deprived Crewford of the “domestic” costs of the arbitration should be set aside and the matter remitted to the arbitrator.  The parties were not able to deal fully with the issue raised by Transit in its appeal, but Derrington J granted leave to appeal on the question that is now before me.  Shortly stated it is whether the arbitrator erred in law in ruling that a verbal offer of settlement made by Transit to Crewford before the hearing of the arbitration should not be considered by him in his determination of the question of costs.

Section 34(1) of the Commercial Arbitration Act 1990 gives a very wide discretion to the arbitrator concerning the costs of the arbitration. Subsection (5) specifically requires the arbitrator to take into account the fact of payment into court if that has happened. Subsection (6) provides

“Where in accordance with rules of court an offer of compromise has been made in relation to a claim to which an arbitration agreement applies, the arbitrator or umpire shall, in exercising the discretion as to costs conferred on the arbitrator or umpire by subsection (1), take into account both the fact that the offer was made and the terms of the offer.”

In my view that subsection requires an arbitrator to take into account offers that comply with the rules of court, but it does not necessarily limit the wider general discretion which permits the taking into account of offers that do not comply with those requirements.

A similar situation sometimes confronts the courts.  The “offers to settle” that are referred to in O.26 of the Rules of Court are written offers which must be “served”.  Notwithstanding this, informal offers to settle may in appropriate cases be taken into account by the Court (Smith v Smith [1987] 2 Qd R 807, 809-810, 813; Cutts v  Head [1924] Ch 290). The public policy behind taking account of such offers is that

“parties should be encouraged so far as possible to settle their disputes without resort to litigation”

and that

“it is hard to imagine anything more calculated to encourage obstinacy and unreasonableness than the comfortable knowledge that a litigant can refuse with impunity whatever may be offered to him even if it as much or more than everything to which he is entitled in the action.” (Cutts v Head above at pp 299 and 306)

It is not uncommon in such circumstances to order that the offeree be given a costs order up to the date of the making of the offer and that the offeror be given the benefit of an order for costs incurred after that date.

Sometimes problems arise when the offer is made “without prejudice”, but there is a distinct tendency to interpret such offers as reserving the protection from disclosure in relation only to issues such as liability and quantum, but not as preventing disclosure to the Court in the course when the question of costs comes to be considered (Johns Perry v International Rigging (Aust) [1988] 2 Qd R 556, 557).

Usually such offers are in writing.  Oral offers would commonly suffer the disadvantage of not being able to be precisely proved.  However, in principle, there is no reason why an oral offer to settle cannot be proved, and if it is, why the fact that it was made cannot be brought before the court or tribunal in due course when the result is known.

In the present case there are a number of quite arguable bases upon which it might be said that the oral offer should not result in the arbitrator’s discretion being used to the advantage of Transit.  One of these arguments is that it was not on the whole more favourable to Crewford than the result which Crewford obtained from the arbitrator.  To solve that particular question might involve the receiving of evidence and the making of calculations as well as, perhaps, taking into account a reasonable period that might be expected to elapse before payment would be made.  These however are matters that would need to be considered by the arbitrator when the question of the effect (if any) to be given to the oral offer (if accepted) is considered.

For the above reasons I consider that the arbitrator erred when he ruled

“if it [an unequivocal offer made in writing] has not been made in accordance with the Rules of Court, I will not be bound to consider it.  Under no circumstances will I consider offers which may have been communicated orally.”

The refusal to receive such evidence was an error of law.

It may be noted that the question of costs has in any event to be reconsidered by the arbitrator by reason of the order made by Derrington J.  It seems to me that the appropriate course is to allow the appeal and set aside the whole of the costs award so that that whole matter may be reconsidered at large.

It is to be emphasised that the whole question of costs is now open for the arbitrator’s redetermination in accordance with the law as here stated and as stated by Derrington J.  It remains open to the arbitrator, if he sees fit, to make a limited order for costs, and that of course may be achieved in many ways.  (See for example Colburt v Beard [1992] 2 Qd R 67; Thiess v TCN Channel Nine Pty Limited (No.  5) [1994] 1 Qd R 157, 206-210).

The order is that the interim award, insofar as it relates to costs, is set aside and the question of costs is remitted to the arbitrator for decision in accordance with law.

The costs of this appeal should be paid by the respondent Crewford.