FEDERAL COURT OF AUSTRALIA Diakyne Pty Limited v Ralph (No 2) [2009] FCA 780 COSTS – whether indemnity costs order warranted – whether respondents' conduct in rejecting offers of settlement by the applicant amounted to conduct unreasonable or imprudent COSTS – whether proceeding should have been more suitably brought in another court – whether Order 62 rule 36A(2) of the Federal Court Rules operates to reduce costs payable Held: ordinary order as to costs made Corporations Act 2001 (Cth) Federal Court of Australia Act 1976 (Cth) Federal Court Rules DIAKYNE PTY LIMITED (ACN 099 168 402) v PAUL RONALD RALPH and COLORADO INVESTMENTS PTY LIMITED (ACN 063 688 611) NSD 465 of 2008 JAGOT J 21 JULY 2009 SYDNEY IN THE FEDERAL COURT OF AUSTRALIA NEW SOUTH WALES DISTRICT REGISTRY General Division NSD 465 of 2008 BETWEEN: DIAKYNE PTY LIMITED (ACN 099 168 402) Applicant AND: PAUL RONALD RALPH First Respondent COLORADO INVESTMENTS PTY LIMITED (ACN 063 688 611) Second Respondent JUDGE: JAGOT J DATE OF ORDER: 21 JULY 2009 WHERE MADE: SYDNEY THE COURT ORDERS THAT: 1. There be judgment for the Applicant as against the First and Second Respondents in the amount of $110,000.00 plus interest as from 30 November 2007 until the date of Judgment (an amount of $17,211.50) being a total of $127,211.50. 2. The Cross-Claim be dismissed. 3. The Respondents/Cross-Claimants pay the Applicant/Cross-Respondent's costs of the proceedings as agreed or taxed. Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules. The text of entered orders can be located using Federal Law Search on the Court's website. IN THE FEDERAL COURT OF AUSTRALIA NEW SOUTH WALES DISTRICT REGISTRY General Division NSD 465 of 2008 BETWEEN: DIAKYNE PTY LIMITED (ACN 099 168 402) Applicant AND: PAUL RONALD RALPH First Respondent COLORADO INVESTMENTS PTY LIMITED (ACN 063 688 611) Second Respondent JUDGE: JAGOT J DATE: 21 JULY 2009 PLACE: SYDNEY REASONS FOR JUDGMENT 1 On 7 July 2009 I delivered my principal reasons for decision in this proceeding (Diakyne Pty Limited v Ralph [2009] FCA 721). I ordered the parties to file draft orders reflecting the reasons for judgment for the applicant (including with respect to interest and costs). The parties agreed to the orders save as to costs. 2 The applicant seeks an order for party-party costs up to and including 28 May 2008 and costs on an indemnity basis as from 29 May 2008, subject to one matter arising under Order 62 rule 36A(2) of the Federal Court Rules. 3 The debate between the parties has been limited to the question whether there should be an indemnity costs order. The applicant relies on the affidavit of Mark Kingsley Hughes sworn 17 July 2009 which, amongst other things, annexes three offers made by the applicant to the respondents to settle the proceedings. None of these offers were made pursuant to Order 23 of the Federal Court Rules. Accordingly, the procedures for awarding costs under that Order do not automatically apply. 4 The first offer was made on 27 May 2008. The letter making the offer on a "without prejudice save as to costs" basis was open for acceptance until 4.30 pm on the same day. The alternative offers contained in the letter are related to a loan arrangement between the second respondent and the parent company of the applicant. 5 There was another offer made on 30 January 2009, again, without prejudice save as to costs. That offer did not refer to any monies owing under the loan agreement and was in a standard form for the respondents to pay the applicant the sum of $50,000, each party to pay its own costs, and the proceedings otherwise to be dismissed. That offer was open again until 4.30 pm on the same day, 30 January 2009. 6 The third offer was made on 11 February 2009 on the same without prejudice save as to costs basis. This offer was effectively in the same substantial terms as the offer of 30 January 2009. By 11 February 2009 the hearing had commenced and been adjourned part-heard after three days for further hearing thereafter. All of the offers were rejected by the respondents and the matter proceeded to judgment. 7 The applicant has helpfully provided written submissions setting out the relevant principles which are well known. Costs are in the discretion of the Court under s 43 of the Federal Court of Australia Act 1976 (Cth). The applicant accepts that although it has achieved a substantially more favourable judgment than the terms of its offer of 27 May 2008, this is not sufficient in order to obtain the special costs order it seeks. The applicant must satisfy the Court that the conduct of the respondents in rejecting the offer was unreasonable or imprudent. 8 The applicant submits that the respondents' conduct was unreasonable or imprudent having regard to: - (i) the ultimate findings I made in the principal decision, (ii) the substantial level of compromise which the 27 May 2008 offer represents, (iii) the almost immediate rejection of that offer, (iv) the rejection of or failure to respond to the other offers, and (v) the failure by the respondents to make any written offer of settlement or offer of compromise at all. 9 I accept that it is clear that the offers by the applicant were far more favourable to the respondents than the ultimate result in the judgment of the Court. I also accept the applicant's submission that hindsight shows that it would have been a prudent choice for the respondents to have accepted one or other of the offers. 10 Nevertheless, I am not persuaded on the evidence that any conduct of the respondents in this matter should be characterised as unreasonable or imprudent, in the sense necessary so as to justify the making of an indemnity costs order. The first offer was tied up with the loan agreement (referred to at [11] of my principal reasons) and, as the respondents pointed out, there was always an obligation for MediVac Limited to repay the loan. In those circumstances, it is difficult to understand why the offer would be put in those terms. There was also a very short time for acceptance of the settlement offer. 11 The second and third offers stand alone. In each case there was a short time for acceptance and they were made relatively late in the day. It does not seem to me that there is any conduct of the respondents in this matter that would justify the making of an indemnity costs order. 12 I therefore order the respondents/cross-claimants pay the applicant/cross-respondent's costs of the proceedings as agreed or taxed. 13 The remaining issue is the respondents' reference to Order 62 rule 36A(2) of the Federal Court Rules. That provides that if the Court is of the opinion that a proceeding brought in the Court could more suitably have been brought in another court and so declares that any costs will be reduced by one-third of the amount otherwise allowable. I accept the applicant's submissions that there is no room for the formation of any such opinion in the context of these proceedings brought under the Corporations Act 2001 (Cth) and having regard to the jurisdiction of this Court. The costs order will remain as I have said. I certify that the preceding thirteen (13) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Jagot. Associate: Dated: 21 July 2009 Counsel for the Applicant: Mr E Muston Solicitor for the Applicant: Bruce Stewart Dimarco Lawyers Counsel for the Respondents: Mr B DeBuse Solicitor for the Respondents: Truman Hoyle Date of Hearing: 21 July 2009 Date of Judgment: 21 July 2009