FEDERAL COURT OF AUSTRALIA Astram Financial Services Pty Ltd v Bank of Queensland Ltd (No 2) [2010] FCA 1166 Citation: Astram Financial Services Pty Ltd v Bank of Queensland Ltd (No 2) [2010] FCA 1166 Parties: ASTRAM FINANCIAL SERVICES PTY LTD, LEICESTER DENIS RAMSEY, KIM SUE-ELLEN RAMSEY and LEICESTER DENIS RAMSEY AS TRUSTEE FOR THE LD RAMSEY FAMILY TRUST v BANK OF QUEENSLAND LTD File number: NSD 2479 of 2006 Judge: BUCHANAN J Date of judgment: 28 October 2010 Catchwords: COSTS – application for costs normally to be made or reserved at trial – application for indemnity costs – rolled up offer not distinguishing between individual liability of unsuccessful parties – offer open only for a short time and expired before scheduled mediation Legislation: Federal Court Rules O 62 r 3(1) Cases cited: ACCC v Daniels Corporation Pty Ltd [2001] FCA 936 Astram Financial Services Pty Ltd v Bank of Queensland Ltd [2010] FCA 1010 Australian Competition and Consumer Commission v Universal Music Australia Pty Ltd (No 2) (2002) 201 ALR 618 Brookfield Multiplex Limited v International Litigation Funding Partners Pte Ltd (No 4) [2009] FCA 803 Grygiel v Baine (No 2) [2005] NSWCA 434 Harding v Deputy Commissioner of Taxation (2008) 172 FCR 469 Hewlett Packard Pty Ltd v GE Capital Finance Pty Ltd [2003] FCAFC 278 Shahid v Australasian College of Dermatologists (No 2) [2008] FCAFC 98 Siminton v Australian Prudential Regulation Authority (No 2) [2008] FCAFC 113 Tristar Steering and Suspension Australia Ltd v Industrial Relations Commission of New South Wales (No 2) (2007) 159 FCR 274 Date of hearing: Heard on the papers Date of last submissions: 8 October 2010 Place: Sydney Division: GENERAL DIVISION Category: Catchwords Number of paragraphs: 19 Solicitor for the Respondent: HWL Ebsworth Lawyers (written submissions) IN THE FEDERAL COURT OF AUSTRALIA NEW SOUTH WALES DISTRICT REGISTRY GENERAL DIVISION NSD 2479 of 2006 BETWEEN: ASTRAM FINANCIAL SERVICES PTY LTD First Applicant/Cross-Respondent LEICESTER DENIS RAMSEY Second Applicant/Cross-Respondent KIM SUE-ELLEN RAMSEY Third Applicant/Cross-Respondent LEICESTER DENIS RAMSEY AS TRUSTEE FOR THE LD RAMSEY FAMILY TRUST Fourth Applicant/Cross-Respondent AND: BANK OF QUEENSLAND LTD Respondent/Cross-Claimant JUDGE: BUCHANAN J DATE OF ORDER: 28 October 2010 WHERE MADE: SYDNEY THE COURT ORDERS THAT: 1. The respondent/cross-claimant's further application for indemnity costs be refused. 2. There be no order as to the costs of that application. 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 2479 of 2006 BETWEEN: ASTRAM FINANCIAL SERVICES PTY LTD First Applicant/Cross-Respondent LEICESTER DENIS RAMSEY Second Applicant/Cross-Respondent KIM SUE-ELLEN RAMSEY Third Applicant/Cross-Respondent LEICESTER DENIS RAMSEY AS TRUSTEE FOR THE LD RAMSEY FAMILY TRUST Fourth Applicant/Cross-Respondent AND: BANK OF QUEENSLAND LTD Respondent/Cross-Claimant JUDGE: BUCHANAN J DATE: 28 October 2010 PLACE: SYDNEY REASONS FOR JUDGMENT 1 Order 62 rule 3(1) of the Federal Court Rules provides as follows: 3(1) The Court may in any proceeding exercise its powers and discretions as to costs at any stage of the proceeding or after the conclusion of the proceeding. 2 In the principal judgment in this matter (Astram Financial Services Pty Ltd v Bank of Queensland Ltd [2010] FCA 1010) I determined that the application brought by the first applicant ("Astram") and second and third applicants ("Mr and Mrs Ramsey") should be dismissed and that the cross-claim against them brought by the respondent ("the Bank") should succeed. In its final submissions at the trial the Bank sought, in the event that the application was dismissed, an order for indemnity costs against Mr and Mrs Ramsey on the basis that they "at no stage had an arguable cause of action let alone particularised any loss or damage suffered by them" and an order for costs assessed in the ordinary way against Astram. In respect of its cross-claim the Bank sought simply a conventional order for costs in its favour. No indication was given that the Bank might desire to make some separate or further application for costs with respect to either the application or the cross-claim, or to advance additional or different reasons why such a further costs order might be made. 3 Normally it is to be expected that a party will deal with costs during the course of a trial or at least indicate clearly that it desires an opportunity to make further, and later, submissions on costs (see ACCC v Daniels Corporation Pty Ltd [2001] FCA 936; Hewlett Packard Pty Ltd v GE Capital Finance Pty Ltd [2003] FCAFC 278 at [13]; Grygiel v Baine (No 2) [2005] NSWCA 434; Tristar Steering and Suspension Australia Ltd v Industrial Relations Commission of New South Wales (No 2) (2007) 159 FCR 274 at [26]; Shahid v Australasian College of Dermatologists (No 2) [2008] FCAFC 98 at [11]; Siminton v Australian Prudential Regulation Authority (No 2) [2008] FCAFC 113 at [4]; Harding v Deputy Commissioner of Taxation (2008) 172 FCR 469 at [13]). 4 In the principal judgment I indicated that I did not accept the suggestion advanced in the Bank's submissions that Mr and Mrs Ramsey should pay indemnity costs with respect to the application. I said (at [376]): In my view the appropriate outcome is that the first, second and third applicants be jointly and severally liable for the respondent's costs of and in connection with the application and the cross claim. 5 The principal judgment was delivered on 15 September 2010. I did not then make orders but required the Bank to bring in short minutes of order within seven days. On 22 September 2010 solicitors for the Bank forwarded draft orders to the Court and asked for an opportunity to make further submissions on costs, again seeking orders for indemnity costs. 6 Notwithstanding that the question of costs had been addressed in the Bank's submissions, without any indication that a further opportunity would be sought to do so again, I accepted that an opportunity to make such submissions should be afforded because the Bank indicated that its further submissions about costs would be based on the existence of without prejudice offers. Accordingly, the orders made in the final proceedings included the following orders: 3. The first applicant, second applicant and third applicant jointly and/or severally pay the respondent's costs of and incidental to the application and cross-claim, such costs to be taxed, if not agreed. 4. Any claim by the respondent for additional costs on an indemnity basis arising from matters not previously relied upon or referred to in the Reasons for Judgment published on 15 September 2010 be made and supported by written submissions filed and served on or before 8 October 2010. 5. Any written submissions in response to a claim for additional costs on an indemnity basis be filed and served on or before 22 October 2010. 7 In submissions filed on behalf of the Bank in accordance with order 4, the Bank sought indemnity costs against not only Mr and Mrs Ramsey but also against Astram, and not only with respect to the application but also with respect to the cross-claim. The application for indemnity costs, now sought from all applicants with respect to all aspects of the litigation, was based primarily upon the existence of an offer of settlement made on 29 May 2007. The offer remained open only for a matter of days, until 4 June 2007, and expired the evening before mediation was to occur. 8 The submissions for the Bank in support of its application for indemnity costs also attached an offer sent on behalf of the applicants to the Bank on 7 June 2010, after the trial had concluded but before judgment was delivered. No further reference was made to this communication in the submissions and it does not seem to me to have any relevance to the present application. 9 Apart from an offer that each party bear its own costs, the offer which was made by the Bank to the applicants in May 2007 was not directed to any compromise of the applicants' claims. It proposed that the application be dismissed. The Bank offered to accept from the applicants a specified amount in settlement of the claims made by the Bank in its cross-claim. The amount specified was expressed as a global figure to satisfy three outstanding loans which I identified in the principal judgment as (at [129]) a business term loan, (at [130]) a business overdraft facility (together with its increased amount (at [134])) and (at [136]) a home loan. The Bank offered to accept from the applicants an overall sum of $621,724.74 in satisfaction of obligations under all three loans. An explanation was provided in the Bank's letter of the way the global figure had been calculated by reference to amounts outstanding under the three loans, but no distinction was made in this rolled up amount to cater for the different obligations owed by each of the applicants. 10 It is relevant to the Bank's present application to distinguish amongst the various loans, and the Bank's proposal for settlement of them. It is also relevant to identify where liability lay for satisfaction of those loans. I do not believe it is appropriate to make a comparison between the offer made in May 2007 and the final outcome of the proceedings without bearing in mind the difference in liability owed by each of the applicants as well as making a comparison between the effect of the offer and ultimate liability, as the Bank contends. For example, Astram had no liability under the home loan. So far as the business term loan was concerned only Mr Ramsey was liable jointly and severally with Astram. So far as the business overdraft facility was concerned Mr and Mrs Ramsey's liability was limited jointly and severally to $260,000. 11 The Bank offered, in substance, to accept a 40% discount on amounts owing under the business term loan and the business overdraft facility which it had provided to Astram. That was, subject to one further matter to be mentioned, to the potential advantage of Astram. It was also to the advantage of Mr Ramsey as guarantor for the business term loan and of Mr and Mrs Ramsey as limited guarantors of the business overdraft facility. No reduction of the home loan was offered; the whole of the amount then owing under the home loan was claimed. 12 Bearing these matters in mind, it is convenient to deal first with Astram. The Bank's latest submissions misstate the effect of the orders which were made on 22 September 2010, so far as they concern the overall liability of Astram. In its present submissions the Bank suggested that Astram's liability, arising from the terms of the judgment, was that it pay up to $1,033,114.60 plus costs. The submissions treat Astram as liable under the home loan, to which it was not a party. In the draft orders which were sent by the Bank on 22 September 2010 (which were used as a basis for the final orders), Astram's liability was more reliably quantified at $616,684.55. That figure was calculated by the Bank after allowing a credit to Astram of $287,000 from the sale of the franchise by the Bank. The amount of final judgment against Astram was less than the amount claimed in the letter of offer, even though interest continued to accrue on Astram's debts for another two years, until 12 May 2009. In my view, if Astram's position is considered individually, as it is entitled to demand, there is no persuasive case for a claim for indemnity costs against Astram based upon the terms of the offer made on 29 May 2007. 13 Assessment of the position of Mr and Mrs Ramsey is less straightforward. No compromise of the home loan was offered in May 2007. Judgment for the Bank on that part of its cross-claim does not assist its present application. Mr Ramsey's liability, jointly with Astram, for outstanding amounts under the business term loan might provide some foundation for an application that he pay indemnity costs of some kind for rejecting an offer to compromise that liability. Mr Ramsey's liability as guarantor for the business term loan was found to be $216,976.91. The Bank would have accepted $107,712.43 (including interest to 29 May 2007). Mr and Mrs Ramsey's liability with respect to the business overdraft facility was limited to $260,000 (approximately 65% of Astram's final liability). The Bank's offer proposed that this facility be discharged for about $185,000. That might also provide some support for the Bank's present application so far as Mr and Mrs Ramsey are concerned. However, there are other ways of looking at the position. 14 If Mr and Mrs Ramsey's positions are considered separately the total judgment against Mrs Ramsey ($665,576.20) may be seen to be much less in excess of the offer (even after the accretion of further interest) than in the case of Mr Ramsey ($882,553.10). That is the result of the fact that, of the three applicants, it was only Mr Ramsey who carried liability with respect to all three loans. The offer of settlement made no allowance for that circumstance but it is not appropriate, in my view, to treat the differences in exposure to liability as having no significance on the present application. It is clear to me that the Bank has a much weaker case for indemnity costs against Mrs Ramsey than it may have against Mr Ramsey, notwithstanding that ultimately all the loans are secured by their joint property. 15 Furthermore, the final outcome of the Bank's cross-claim and a comparison between that outcome and the offer of settlement must be seen in a proper perspective whatever view is taken about the position of the individual applicants. The great bulk of the proceedings was taken up with dealing with the application, rather than the cross-claim. The Bank made no offer of compromise of the application, apart from offering to bear its own costs. There is some doubt whether an offer of that kind qualifies at all as a foundation for an application for indemnity costs (see e.g. Australian Competition and Consumer Commission v Universal Music Australia Pty Ltd (No 2) (2002) 201 ALR 618 at [56], [61]; Brookfield Multiplex Ltd v International Litigation Funding Partners Pte Ltd (No 4) [2009] FCA 803 at [12]) but that is an issue I do not need to determine in the present case. Although the application was dismissed, except for costs the applicants have fared no worse than the Bank proposed in relation to that part of the proceedings. 16 Apart from their reliance upon their own application, there was little resistance by the applicants to the orders sought by the cross-claim. Any defence to the cross-claim really depended on the outcome of the application. There was no substantive case in defence of liability under any of the loans. Little hearing time or submissions were devoted to those matters. Although the Bank was put to a form of formal proof, that was easily achieved, and not seriously resisted. 17 In all the circumstances, the existence of the rolled up offer dated 29 May 2007, and a simple comparison between that offer and the outcome of the proceedings, does not persuade me that an order for indemnity costs is justified against any of the applicants. 18 There is a further factor to be taken into account which arises from the conditions conveyed with the offer. The offer was open for acceptance for only a very short period of time. There is no evidence it was ever renewed. I regard the period of time made available for acceptance of the offer as unreasonably short on the basis of the material before the Court. In its present submissions the Bank has argued that the offer was "clearly a genuine offer of compromise". No doubt it was, in the sense that the Bank was prepared to settle the matter on that basis at that time, but there has been no explanation why the offer made on 29 May 2007 should have lapsed before mediation commenced and could not have remained available for acceptance at the mediation on the very next day or for some further, at least respectable, period of time. The fact that the offer was made conditional on settlement before mediation suggests that one purpose of the offer was to avoid mediation. Why such a condition should attach to the offer does not appear from the material upon which the Bank now relies. Without some explanation, and justification, the imposition of a condition to the effect that the offer was no longer available if mediation proceeded is concerning. Normally the Court adds its support to the availability of alternative forms of dispute resolution, such as mediation. I do not wish to give any endorsement to the idea that limitations may be included in offers of settlement which appear intended to remove such facilities and opportunities from consideration, render them unattractive or punish applicants if they are used. In those circumstances also I am not persuaded that any further order for costs in favour of the Bank is justified. 19 The Bank's further application for indemnity costs will be refused. No submission was filed by the applicants about this issue. In the circumstances, there will be no order as to the costs of the Bank's further application for costs. I certify that the preceding nineteen (19) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Buchanan. Associate: Dated: 28 October 2010