JUDGMENT No. KS OSI E28 FEDERAL COURT OF AUSTRALIA COSTS -— indemnity costs — Calderbank letter - Notice of Offer of Compromise Federal Court Rules 1979 (Cth) O 23 Colgate-Palmolive Pty Ltd & Anor v Cussons Pty Ltd {1993] 46 FCR 225 John S Hayes & Associates Pty Ltd v Kimberley-Clark Australia Pty Ltd [1994] 52 FCR 201 MGICA (1992) Pty Ltd v Kenny & Good Pty Ltd & Anor (No. 2) [1996] 70 FCR 236 Lamesa Holdings BV v Commissioner of Taxation [1997] 74 FCR 416. Fountain Selected Meats (Sales) Pty Ltd v International Produce Merchants Pty Ltd [1988] 81 ALR 397 Calderbank v Calderbank [1976] Fam 93 DENNIS RONALD HILL'&, ANOR v TOOTH & CO LTD & ORS _ NG 554 OF 1994 EINFELD J 2 SEPTEMBER 1998 SYDNEY GENERAL DISTRIBUTION IN THE FEDERAL COURT OF AUSTRALIA NEW SOUTH WALES DISTRICT REGISTRY NG 554 of 1994 BETWEEN: DENNIS RONALD HILL FIRST APPLICANT JANICE BARBARA HILL SECOND APPLICANT AND: TOOTH & CO LTD FIRST RESPONDENT B.Y.E.P. PTY LTD SECOND RESPONDENT RON ROBERTS THIRD RESPONDENT JUDGE: EINFELD J DATE OF ORDER: 2 SEPTEMBER 1998 WHERE MADE: SYDNEY THE COURT ORDERS THAT: 1. The first respondent pay the applicants' costs on a party and party basis up to 14 April 1997 and on an indemnity or solicitor and client basis from 15 April 1997 2. The applicants pay the third respondent's costs on a party and party basis up to 22 November 1994 and on an indemnity or solicitor and client basis from 23 November 3. The first respondent pay to the third respondent the amount of the party and party element of the third respondent's costs of the proceedings Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules. IN THE FEDERAL COURT OF AUSTRALIA NEW SOUTH WALES DISTRICT REGISTRY NG 554 of 1994 BETWEEN: DENNIS RONALD HILL FIRST APPLICANT JANICE BARBARA HILL SECOND APPLICANT AND: TOOTH & CO LTD FIRST RESPONDENT B.Y.E.P. PTY LTD SECOND RESPONDENT RON ROBERTS THIRD RESPONDENT JUDGE: EINFELD J DATE: 2 SEPTEMBER 1998 PLACE: SYDNEY REASONS FOR JUDGMENT In this matter judgment was given on 4 June 1998 in favour of the applicant (Hill) against the first respondent (Tooth) for $400,000 ($270,000 damages and $130,000 interest), and dismissing Hill's claim against the third respondent (Roberts). Hill and Roberts have now sought indemnity costs, Hill from Tooth from 14 April 1997 when a written offer to accept $300,000 plus costs was made, and Roberts from Hill from 22 November 1994 when Roberts offered to pay his own costs in return for a withdrawal or dismissal of the claim. HILL'S APPLICATION Order 23 rule 11(4) of the Federal Court Rules 1979 (Cth) (the Rules) provides: ff (a) an offer is made by an applicant and not accepted by the respondent; and (b) the applicant obtains judgment on the claim to which the offer relates not less favourable than the terms of the offer; then unless the Court otherwise orders, the applicant is entitled to an order against the respondent for costs incurred in respect of the claim: (c) up to and including the day the offer was made — taxed on a party and party basis; and (d) after that day — taxed on an indemnity basis. When followed, this regime was described by Justice Lindgren in MGICA (1992) Pty Lid v Kenny & Good Pty Ltd & Anor (No. 2) [1996] 70 FCR 236 at 238 as providing the applicant with a "presumptive entitlement" to indemnity costs. It is not disputed that the regime was generally followed in this case, although Tooth alleges that Hill's offer of compromise, not accepted, was "not less" than the damages awarded as required for an order for indemnity costs. Hill's argument is that if judgment had been given on the date of the offer, the actual damages would have been $270,000 plus interest to that date. According to the Rules, interest would have been well in excess of $30,000 so that the total amount awarded would have exceeded $300,000. Tooth has submitted that by Order 23 rule 4(2), it is required that if an offer includes interest, the notice of offer must so specify, identify the interest component and show the relevant calculation. As Hill's notice did not do so, it must either be presumed to be exclusive of interest so that the $270,000 awarded by way of damages is less than the offer and therefore Order 23 rule 11(4) does not apply, or Order 23 rule 4(2) was not complied with. If this submission is accepted, it would reintroduce trial by ambush which this Court has for some time, probably since its inception, been at pains to eschew. If Tooth, upon receiving the -3- offer of compromise, had been sufficiently interested in settlement to know Hill's position concerning interest, it could and should have inquired, if appropriate by drawing attention to Order 23 rule 4(2). It has long since ceased to be acceptable for parties just to sit back on technical defects in the other party's documentation and then call the defects in aid at a later time. Order 23 is designed to encourage settlements and therefore save costs to the parties and lighten the load of the Court. If Tooth's argument was correct, these wholly laudable goals could be frustrated by technicalities. It is clear enough to me, as I am sure it was to Tooth, that the offer included interest. As such the judgment was "not less favourable" than the offer. Indemnity costs would ordinarily follow. Even if the Order 23 regime were not in place and this were a Calderbank type situation (Calderbank v Calderbank [1976] Fam 93), I would exercise my discretion in favour of indemnity costs. Despite the findings of facts made concerning Hill's own inadequacies in approach to this purchase, it must always have been clear to Tooth that it had misled Hill as to the trading position of the Orange Grove Hotel. As such, it must always have faced a likelihood that it would be held liable to Hill in damages. The offer was in the circumstances remarkably prescient in its closeness to reality. That this expensive litigation was nonetheless insisted on by Tooth has elements of the powerful using its resources to overwhelm the weak, or seeing a commercial advantage in holding back its money and putting the opposition to proof of the inevitable. The Court cannot lend itself to this approach to settle in place of an objective, dispassionate assessment of its likely outcome. No doubt Tooths' lawyers took the same view; they certainly ought to have done so. These are the very types of circumstances to which Justice Sheppard referred to in Colgate- Palmolive Pty Ltd & Anorv Cussons Pty Ltd [1993] 46 FCR 225, in those gathered by Justice Lindgren in MGICA, and in those I discussed in Lamesa Holdings BV v Commissioner of Taxation [1997] 74 FCR 416. I order that Tooth pay Hill's costs on a party and party basis up to 14 April 1997 and on an indemnity or solicitor and client basis from 15 April 1997. ROBERTS' APPLICATION Roberts' offer was in the form of a Calderbank letter open for 7 days from its date. Unlike an offer under Order 23 of the Rules, such a letter does not give rise to a presumed entitlement to indemnity costs. The matter falls for consideration under appropriate discretionary principles. Roberts' letter of offer is long and I will therefore not reproduce it here. It gives a detailed explanation of why his lawyers believed that Hill's claim against him would fail. It made the very fair point that the 1990 valuation was prepared on instructions from a steering committee formed by the Australian Hotels Association, as the report shows, consisting of Roberts and two others. The 1991 report was similarly authored and only a small part of that was relied on. There were explicit disclaimers throughout both reports which, however unsatisfactory when expert advice was being sought and no doubt paid for, should have been understood to be of very limited value to Hill, especially as they were prepared for and on the instructions of Tooth. It was always strange that, and nowhere explained why, only Roberts was sued and not the two other valuers who were no less implicated in everything Roberts signed. It gives rise to an inference of selective and not well-based personal issues. In addition to the matters raised in Roberts' Calderbank letter suggestive that Hill would not succeed in the claim against him were those mentioned in the judgment: 1. Hill did not ask Roberts for a report on the latest figures or obtain the correct trading figures for the hotel at the time of purchase 2. Hill knew that Roberts' reports were based on averages over several months which gave little idea what the present and continuing trading picture would be 3. Hill saw the disclaimers and knew the reports were prepared for Tooth 4. Hill was an experienced hotelier who was apparently "backing" his own experience and judgment against all comers including Roberts I believe that the rejection of Roberts' offer was imprudent (Colgate-Palmolive at 233) and unnecessarily added to the cost and oppression of the litigation, especially as Hill should have known that he had little or "no chance of success" against Roberts: Fountain Selected Meats (Sales) Pty Ltd v International Produce Merchants Pty Ltd [1988] 81 ALR 397 per Woodward J at 401. This case did not depend "upon findings of credit which could only be made after a full exploration of the evidence had been undertaken": John S Hayes & Associates Pty Ltd v Kimberley-Clark Australia Pty Ltd [1994] 52 FCR 201 per Hill J at 206. Hill submitted that this offer was made just 3 months after the litigation commenced and only a few days after the defences were filed. There were no witness statements and no discovery. But Hill had known the relevant facts as concerned Roberts since 1991 and nothing had changed in this regard, or has since changed up to the present. In fact, as the case eventuated, the case against Roberts could to all intents and purposes have always been determined on facts agreed from about June 1991. In my opinion, no view of the law concerning misrepresentation could have converted these facts into liability by Roberts. I order that Hill pay Roberts' costs on a party and party basis to 22 November 1994 and on an indemnity or solicitor and client basis thereafter. The order for costs in Hill's favour against Tooth will include a Bullock order for Roberts' costs on a party and party basis throughout as there is no reason to fix Tooth with Hill's wrongheaded approach to Roberts' Calderbank letter. I certify that this and the preceding four (4) pages are a true copy of the Reasons for Judgment herein of the Honourable Justice Einfeld Associate: Mi Dated: 2 September 1998 Counsel for the Applicant: Solicitor for the Applicant: Counsel for the First Respondent: Solicitor for the First Respondent: Counsel for the Third Respondent: Solicitor for the Third Respondent: Written submissions completed: Date of Judgment: M.A. Pembroke SC and E.T. Finnane Sowden McInnes Akerman S.G. Finch SC Phillips Fox D.L. Davies SC Colin Biggers & Paisley 24 June 1998 2 September 1998