FEDERAL COURT OF AUSTRALIA Fresh Express Australia Pty Ltd v Larridren Pty Limited [2002] FCA 1640 COSTS – calderbank offer – whether costs should be paid on an indemnity basis where a calderbank offer is made after a substantial part of the case has been heard. Calderbank v Calderbank [1976] Fam 93 applied Colgate Palmolive Co v Cussons Pty Limited (1993) 46 FCR 225 referred to Dr Martens Australia Pty Limited v Figgins Holdings Pty Limited (No 2) [2000] FCA 602 cited FRESH EXPRESS AUSTRALIA PTY LTD v LARRIDREN PTY LIMITED AND SALVATORE CERRETO AND ALRAMON PTY LIMITED AND BLESSINGTON JUDD N 1267 OF 1999 HILL J 13 DECEMBER 2002 SYDNEY IN THE FEDERAL COURT OF AUSTRALIA NEW SOUTH WALES DISTRICT REGISTRY N 1267 OF 1999 BETWEEN: FRESH EXPRESS AUSTRALIA PTY LTD APPLICANT AND: LARRIDREN PTY LIMITED FIRST RESPONDENT SALVATORE CERRETO SECOND RESPONDENT ALRAMON PTY LIMITED THIRD RESPONDENT BLESSINGTON JUDD FOURTH RESPONDENT JUDGE: HILL J DATE OF ORDER: 13 DECEMBER 2002 WHERE MADE: SYDNEY THE COURT ORDERS THAT: 1. the applicant pay the second and third respondents' costs on a party/party basis. 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 N 1267 OF 1999 BETWEEN: FRESH EXPRESS AUSTRALIA PTY LTD APPLICANT AND: LARRIDREN PTY LIMITED FIRST RESPONDENT SALVATORE CERRETO SECOND RESPONDENT ALRAMON PTY LIMITED THIRD RESPONDENT BLESSINGTON JUDD FOURTH RESPONDENT JUDGE: HILL J DATE: 13 DECEMBER 2002 PLACE: SYDNEY REASONS FOR JUDGMENT 1 On 29 November 2002 I gave reasons for judgment in these proceedings. Inter alia at that time I ordered that the matter should be stood over for 14 days, that is to say until today, to give the parties an opportunity to make submissions as to the amount for which judgment should be entered on the cross-claim. At the time I also made orders as to the costs both of the main proceedings and the second cross-claim. The second and third respondents submit that I should order the costs of the proceedings in October to be paid on an indemnity basis having regard to a letter dated 13 August 2002 in which an offer for settlement was made. The applicants oppose the making of an order for costs on an indemnity basis. 2 The proceedings were heard for some five days in April and were then adjourned until October. At the adjourned hearing a short period of time was devoted to matters of expert evidence, most of which was agreed. The balance of the time was spent in submissions. The settlement offer was that the applicant discontinue its proceedings against the second and third respondents with no order as to costs on the basis that the second and third respondents discontinue the second cross-claim, again, with no orders to costs. 3 The letter sets out what is said to be the basis for the offer being made. Briefly, it can be said that the writer of the letter suggested that his clients would succeed on the cross-claim for rent until March 2002, that the applicants would be unsuccessful in their claim in respect of the first $85,000 loan amount, but that the applicants would be likely to be successful in respect of the remaining $50,000 on the basis that it was likely that the Court would find that the fixtures and fittings were in fact transferred from Almaron Pty Limited to Larridren Pty Limited as contended by the applicant. 4 As things turned out the applicant was unsuccessful in the main proceedings and the respondents were successful on the cross-claim, but only in respect of rent to January 2001. On behalf of the applicants it is submitted that I should not order costs on an indemnity basis because the settlement offer was made only in August 2002. That is to say, after virtually all of the evidence in the proceedings had been heard. It was also submitted on behalf of the applicant that it acted reasonably in not accepting the settlement having regard, no doubt, to what was thought to be a reasonable possibility that the applicant would win. A view which the respondents, it would seem, also held. 5 It is accepted on behalf of the applicant that the letter is properly within the principles referred to in Calderbank v Calderbank [1976] Fam 93 although I have some doubt whether this is correct. However, it can be said, generally speaking, that the ordinary rule is that an unsuccessful party will pay the costs of the successful party on a party and party basis. However, circumstances may exist which warrant the court departing from the usual course. One of which is what Shepherd J in Colgate Palmolive Co v Cussons Pty Limited (1993) 46 FCR 225 at 232-4 referred to as "an imprudent refusal of an offer to compromise". 6 At least in this Court it is accepted that the mere fact that an offer of compromise or settlement is made, whether by way of a Calderbank letter of offer or otherwise, does not automatically mean that costs will be ordered on an indemnity basis even where the non acceptance of the offer is followed by a result which is less favourable to the offeree than that contained in the offer. Some of the authorities are discussed in the judgment of Goldberg J in Dr Martens Australia Pty Limited v Figgins Holdings Pty Limited (No 2) [2000] FCA 602. 7 The policy behind the rule in Calderbank v Calderbank is that the law favours the sensible compromise of disputes and that policy is promoted if a party who rejects a realistic offer of compromise risks an order for indemnity costs if it refuses the offer and ultimately obtains a result no better than that which it would have got by accepting the offer. It is of course necessary before the principle applies that the offer is a genuine and realistic one. It is also relevant to consider the point of time at which the offer was made. 8 Ultimately, the question I must ask is whether in the circumstances and also having regard to the time the offer was made it was reasonable or unreasonable for the offeree to reject the offer contained in it. The difference between the parties as to the question of reasonableness of the offer arises largely because the applicant concentrates upon the individual components said to explain the offer whereas the solicitor for the respondents concentrates on the overall impact of the offer rather than the underlying components which are said to lead to the conclusion at the time the offer was made that it was a reasonable one. 9 The present is a difficult case because at the time the offer was made, as I have already indicated, in fact virtually all of the evidence had been adduced. In one sense that, no doubt, might be thought to have given the parties a better opportunity of assessing their chances. On the other hand acceptance of the offer did little to promote the underlying principle that acceptance of the offer might avoid litigation. All that was left really of the litigation was the submission of each party. 10 Accepting that I have, as the authorities indicate, an overall discretion in the matter and having regard to the time in which the offer arose, I am not inclined to think that justice requires that costs be ordered in this case on an indemnity basis. There is a real question in my mind, notwithstanding that it has been accepted by the parties, whether this was a Calderbank offer in the real sense when in essence the suggested compromise merely calls for the parties to walk away from litigation. But whether that is or is not the case I think that the offer was really made at a time so late that the applicant should not now be punished for not accepting it. 11 Accordingly I propose not to order that costs be paid on an indemnity basis but rather that the costs be borne on a party/party basis in accordance with the usual order. I certify that the preceding eleven (11) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Hill. Associate: Dated: 17 January 2002 Counsel for the Applicant: R Beasley Solicitor for the Applicant: Dominic David Stamfords No appearance for the First Respondent. Counsel for the Second & Third Respondents: A Ivansoff Solicitor for the Second & Third Respondents: Wight & Strickland No appearance for the Fourth Respondent: Dates of Hearing: 13 December 2002 Date of Judgment: 13 December 2002