FEDERAL COURT OF AUSTRALIA Independent Portable Buildings Pty Limited v Modular Building Systems Pty Limited (No 2) [2011] FCA 643 Citation: Independent Portable Buildings Pty Limited v Modular Building Systems Pty Limited (No 2) [2011] FCA 643 Parties: INDEPENDENT PORTABLE BUILDINGS PTY LIMITED v MODULAR BUILDING SYSTEMS PTY LIMITED File number: NSD 70 of 2011 Judge: ROBERTSON J Date of judgment: 8 June 2011 Catchwords: COSTS – Claim for indemnity costs – Calderbank letter sent by plaintiff – Defendant's refusal of proposal not unreasonable – Order for party and party costs Cases cited: CGU Insurance Limited v Corrections Corporation of Australia Staff Superannuation Fund Pty Ltd [2008] FCAFC 173 Clark v Commissioner of Taxation [2010] FCA 415Hazeldene's Chicken Farm Pty Ltd v Victorian WorkCover Authority (No 2) (2005) 13 VR 435 Date of hearing: Determined on the papers Place: Sydney Division: GENERAL DIVISION Category: Catchwords Number of paragraphs: 24 Counsel for the Plaintiff: Mr A Harding Solicitor for the Plaintiff: Priority Business Lawyers Counsel for the Defendant: Mr A Spencer Solicitor for the Defendant: Gillis Delaney Lawyers IN THE FEDERAL COURT OF AUSTRALIA NEW SOUTH WALES DISTRICT REGISTRY GENERAL DIVISION NSD 70 of 2011 BETWEEN: INDEPENDENT PORTABLE BUILDINGS PTY LIMITED Plaintiff AND: MODULAR BUILDING SYSTEMS PTY LIMITED Defendant JUDGE: ROBERTSON J DATE OF ORDER: 8 JUNE 2011 WHERE MADE: SYDNEY THE COURT ORDERS THAT: 1. The defendant pay the plaintiff's costs of the proceedings on a party/party basis, as agreed or assessed. 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 70 of 2011 BETWEEN: INDEPENDENT PORTABLE BUILDINGS PTY LIMITED Plaintiff AND: MODULAR BUILDING SYSTEMS PTY LIMITED Defendant JUDGE: ROBERTSON J DATE: 8 JUNE 2011 PLACE: SYDNEY REASONS FOR JUDGMENT Background 1 On 19 May 2011 I ordered that the defendant's demand dated 22 December 2010, served on the plaintiff on 11 January 2011, be set aside. The application made by the plaintiff was under s 459G(1) of the Corporations Act 2001 (Cth) ("the Act"). 2 The parties asked me not to deal with the question of costs at the time of that judgment. My tentative view was that costs should follow the event and that the defendant should pay the plaintiff's costs. 3 When giving judgment on the substantive case I made directions for the filing of any outlines of submissions on costs. I have been provided with submissions on behalf of the defendant dated 26 May 2011 and submissions on behalf of the plaintiff dated 2 June 2011. 4 Additional evidence was tendered on the question of costs. In chronological order, that material is: 1. email from the solicitors for the plaintiff to the solicitors for the defendant dated 20 January 2011; 2. letter from the solicitors for the defendant to the solicitors for the plaintiff dated 25 January 2011; 3. letter from the solicitors for the plaintiff to the solicitors for the defendant dated 1 February 2011; 4. letter from the solicitors for the plaintiff to the solicitors for the defendant dated 8 February 2011; 5. letter from the solicitors for the plaintiff to the solicitors for the defendant dated 3 March 2011; 6. email from the solicitors for the defendant to the solicitors for the plaintiff dated 6 April 2011. 7. letter from the solicitors for the plaintiff to the solicitors for the defendant dated 29 April 2011. Submissions 5 In short, the defendant's position in relation to costs is either that there should be no order as to the costs of the proceedings or that costs should follow the event and that costs so ordered should be on the ordinary or party/party basis to be taxed, if not agreed. That is, the defendant's alternative position is that there is no basis for ordering that any of the costs of the proceedings be paid on an indemnity basis. 6 The plaintiff's submission is that the appropriate costs order is that the defendant pay the plaintiff's costs of the proceedings, such costs to be assessed: (a) on a party/party basis up to and including 2 March 2011; and (b) on an indemnity basis on and from 3 March 2011. 7 Alternatively, the plaintiff says it should have indemnity costs at least in respect of the preparation of the affidavit of Sandra Carniato sworn 29 April 2011 which went to the issue of when the plaintiff had been served with the statutory demand. It was not read at the trial in light of the defendant's acceptance, immediately prior to the hearing, that it no longer contended that the plaintiff's application had been brought out of time. Consideration 8 I am not persuaded that any special costs order should be made in relation to the affidavit of Sandra Carniato. 9 Although it is clear from Ms Carniato's affidavit that the application to set aside the statutory demand was not filed outside the 21 days period allowed under the Act, it is not sufficiently clear to me that the defendant's position before that affidavit was filed was unreasonable or out of the ordinary. 10 Next, I am not persuaded by the submissions on behalf of the defendant that there should be no order as to costs of the proceedings. In particular, I see no basis for the complaint that the defendant did not have the opportunity to meet certain issues. It was open to the defendant to tender whatever evidence it chose, but since no evidence was filed or tendered by the defendant in the substantive hearing I must assume it decided not to. 11 Further, the proposition that "by far the bulk of the case made by the plaintiff went to seeking to establish that there was an off-setting claim" is incorrect. That issue played a relatively minor part at the hearing and there was no evidence directed specifically to it. 12 As to the ground on which the plaintiff succeeded, there is nothing put by the defendant that would persuade me that the plaintiff should not have its costs. The proposition put by the defendant that "the construction of the agreement was a gloss . . . at the hearing" does not strike me as either accurate or to the point. 13 It is also, in my view, inaccurate to say that the Court rejected each of the grounds advanced by the plaintiff for setting aside the statutory demand in the correspondence between the parties; in the affidavit filed in support of its application and in its Outline of Submissions. The Court found that there was a genuine dispute, albeit that the basis for that conclusion was narrower than that advanced on behalf of the plaintiff. There is nothing unusual in that. 14 Indeed, the correspondence tendered on the costs question showed that it was the defendant which appears substantially to have changed its position from its contention that the application to set aside the statutory demand was out of time to the proposition that there was no genuine dispute established by the evidence filed by the plaintiff. 15 The question therefore remains whether, by virtue of the correspondence now tendered, the plaintiff should have its costs on an indemnity basis on and from 3 March 2011. 16 The foundation for that claim is that on 3 March 2011 the plaintiff's solicitors wrote to the defendant's solicitors offering to settle the matter on the basis that the demand be set aside and each party bear its own costs. 17 That letter reads, relevantly: It is patently clear that there is a genuine dispute as to the debt claimed by your client that is the subject of the Demand. The Demand was therefore inappropriately issued and is liable to be set aside. Nevertheless, to avoid further costs we are instructed to propose a settlement of the Federal Court proceedings on the following terms: 1. The Demand be set aside. 2. Each party bear their own costs of the proceeding. This offer is open for acceptance until 5 pm on 10 March 2011. If the offer is accepted, consent orders can be made at the next directions hearing on 11 March 2011. This offer is made in accordance with the principles in Calderbank v Calderbank. If rejected, it may be relied on by our client in support of an application for indemnity costs. 18 I accept that the offer, albeit limited to giving up the costs incurred to the date of the offer, was a genuine offer: see Clark v Commissioner of Taxation [2010] FCA 415 at [89]-[92] per Greenwood J. 19 I also accept that O 23 of the Federal Court Rules is not an exclusive code and what is referred to as a Calderbank offer may be taken into account in the exercise of the Court's discretion on the question of costs. Here O 23 was not invoked. 20 The relevant principles are set out in CGU Insurance Limited v Corrections Corporation of Australia Staff Superannuation Fund Pty Ltd [2008] FCAFC 173 at [75] as follows: From the tenor of claims which have come before the court in recent years, there appears to be a view abroad that the failure of a party who has rejected a Calderbank offer ultimately to achieve a better outcome than provided for in the offer leads to a presumptive entitlement to indemnity costs with respect to the period subsequent to the offer. Such a view would be mistaken. Where a moving party (including a cross-claimant) offers to settle for a sum which is less than he or she eventually achieves at trial, there is a presumptive entitlement to indemnity costs under O 23 r 11(4) of the Federal Court Rules. However, where recourse is not had to the O 23 [sic], but reliance is placed upon the court's general discretion, it is necessary for the party seeking indemnity costs to demonstrate that the other party's refusal of the Calderbank offer was unreasonable: Black v Lipovac (1998) 217 ALR 386, 432; Maniotis v JH Lever & Co Pty Ltd (No 2) [2006] FCAFC 28. It is not sufficient that the offer was a reasonable one: Alpine Hardwoods (Aust) Pty Ltd v Hardys Pty Ltd (No 2) (2002) 190 ALR 121, 128 [35]; Dais Studio Pty Ltd v Bullet Creative Pty Ltd [2008] FCA 42, [11]. In considering this question in a particular case, the matter of unreasonableness will be judged by reference to the circumstances facing the offeree at the time of the offer. While the eventual outcome in the case may go part of the way in this regard, there is no presumption that ultimate success in the proceeding for the offeror necessarily renders the offeree's rejection unreasonable. 21 I also note the useful guidance provided by the judgment of the Court of Appeal in Hazeldene's Chicken Farm Pty Ltd v Victorian WorkCover Authority (No 2) (2005) 13 VR 435 at [25] where the Court said: The discretion with respect to costs must, like every other discretion, be exercised taking into account all relevant considerations and ignoring all irrelevant considerations [citation omitted]. It is neither possible nor desirable to give an exhaustive list of relevant circumstances. At the same time, a court considering a submission that the rejection of a Calderbank offer was unreasonable should ordinarily have regard at least to the following matters: (a) the stage of the proceeding at which the offer was received; (b) the time allowed to the offeree to consider the offer; (c) the extent of the compromise offered; (d) the offeree's prospects of success, assessed as at the date of the offer; (e) the clarity with which the terms of the offer were expressed; (f) whether the offer foreshadowed an application for an indemnity costs [sic] in the event of the offeree's rejecting it. 22 Applying the principles in CGU Insurance Limited and having regard to the matters listed in Hazeldene's Chicken Farm, I am not persuaded that the defendant's refusal of the proposal was unreasonable. As at 3 March 2011, the affidavit of Sandra Carniato, to which I have referred above, on the then contentious question of the date of service of the statutory demand, had not been filed. That affidavit was sworn on 29 April 2011. Also, the time allowed by the offer was relatively short. 23 For these reasons I reject the plaintiff's submission that the defendant should pay the plaintiff's costs of the proceedings on an indemnity basis from 3 March 2011. 24 The order I make is that the defendant pay the plaintiff's costs of the proceedings on a party/party basis I certify that the preceding twenty-four (24) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Robertson. Associate: Dated: 8 June 2011