FEDERAL COURT OF AUSTRALIA Daebo Shipping Co Ltd v The Ship Go Star (No 2) [2011] FCA 1544 Citation: Daebo Shipping Co Ltd v The Ship Go Star (No 2) [2011] FCA 1544 Parties: DAEBO SHIPPING CO LTD v THE SHIP GO STAR File number: WAD 21 of 2009 Judge: SIOPIS J Date of judgment: 30 November 2011 Date of hearing: 30 November 2011 Place: Perth Division: GENERAL DIVISION Category: No Catchwords Number of paragraphs: 24 Counsel for the Plaintiff: Mr GR Hancy Solicitor for the Plaintiff: Sparke Helmore Counsel for the Defendant: Mr RF Edwards Solicitor for the Defendant: DLA Piper Australia IN THE FEDERAL COURT OF AUSTRALIA WESTERN AUSTRALIA DISTRICT REGISTRY in admiralty GENERAL DIVISION WAD 21 of 2009 BETWEEN: DAEBO SHIPPING CO LTD Plaintiff AND: THE SHIP GO STAR Defendant JUDGE: SIOPIS J DATE OF ORDER: 30 NOVEMBER 2011 WHERE MADE: PERTH THE COURT ORDERS THAT: 1. The plaintiff is to pay the defendant's costs in the action: (a) before 11.00 am on 20 May 2010 on a party-and-party basis; and (b) after 11.00 am on 20 May 2010 on an indemnity basis. 2. The plaintiff is to pay the defendant's costs of this application. Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011. IN THE FEDERAL COURT OF AUSTRALIA WESTERN AUSTRALIA DISTRICT REGISTRY in admiralty GENERAL DIVISION WAD 21 of 2009 BETWEEN: DAEBO SHIPPING CO LTD Plaintiff AND: THE SHIP GO STAR Defendant JUDGE: SIOPIS J DATE: 30 NOVEMBER 2011 PLACE: PERTH REASONS FOR JUDGMENT 1 This is an application by the defendant for an order for indemnity costs arising from the judgment which I gave in this matter on 31 August 2011, when I dismissed the claim made by the plaintiff. 2 On 16 September 2011, Rares J made an order that Order 2 of the orders I made on 31 August 2011, be stayed until the hearing and determination of the appeal in this matter. Some confusion has arisen as to the effect of Rares J's order and the position needs to be clarified. The confusion arises from the fact that the document which was handed to the parties in Court on the 31 August 2011 when judgment was delivered, comprised the reasons for judgment and provisional orders. Order 2 of the provisional orders was: "The plaintiff is to pay the defendant's costs." However, at the time of handing down the judgment in Court, the parties raised with me the fact that there might be an application for a special order for costs. As a consequence, I did not make Order 2 in the terms of the provisional order. Instead, I made as Order 2, an order that: "I will hear the parties in relation to costs." 3 It is apparent, however, that when Rares J came to hear the application on 16 September 2011, his Honour had the original provisional Order 2 in mind, and not Order 2 as made, when he ordered that Order 2 of my orders made on 31 August 2011, be stayed pending the hearing and determination of the appeal. 4 I propose to rule on the arguments made as to whether there should be a special order for costs, and then stay the costs orders in accordance with the spirit of Rares J's order of 16 September 2011. 5 The defendant contends that the plaintiff should pay costs on an indemnity basis from one of a range of alternative dates, on the grounds of the plaintiff having unreasonably refused an offer of compromise on Calderbank principles; or, in respect of one of the dates, by reason of the operation of O 23 of the Federal Court Rules. 6 The defendant referred to three Calderbank offers of compromise which had been made to the plaintiff during the course of the proceeding leading up to trial, and to one offer of compromise made under O 23 r 2 of the Federal Court Rules. The chronology is as follows. The first Calderbank offer of compromise was made in a letter of 3 June 2009. The second Calderbank offer of compromise was made in a letter of 20 April 2010. On 9 June 2010, the defendant served on the plaintiff a notice of offer of compromise under O 23 of the Federal Court Rules. By a letter dated 17 March 2011, the defendant made a further Calderbank offer of compromise to the plaintiff. 7 The plaintiff has conceded that there were no exceptional circumstances which would displace the defendant's presumptive entitlement to indemnity costs in relation to the O 23 offer of compromise; and so the real argument today has addressed the two preceding Calderbank offers. 8 It is necessary, therefore, to determine whether the plaintiff acted unreasonably in rejecting either of the two Calderbank offers. That is a determination which must be made in all the circumstances of the case. However, one must be mindful, that the object of the Calderbank principles is to encourage so far as is possible, the settlement of litigation. 9 In the recent case of Management 3 Group Pty Ltd (in liq) v Lenny's Commercial Kitchens Pty Ltd (No 3) (2011) 278 ALR 754 at [40], Dodds-Streeton J referred with approval, to a list of factors identified by the Victorian Court of Appeal in Hazeldene's Chicken Farm Pty Ltd v Victorian WorkCover Authority (No 2) (2005) 13 VR 435, as comprising a non-exhaustive list of factors to be taken into account in assessing whether a party has unreasonably rejected an offer of compromise. These factors are: (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 in the event of the offeree's rejecting it. the letter of 3 june 2009 10 I consider, first, whether it was unreasonable for the plaintiff to refuse the first of the Calderbank offers of compromise, which was made in the defendant's solicitor's letter of 3 June 2009. 11 The letter referred to the defences pleaded in the defence and stated: Despite this strong defence which is available to our client, our client wishes to put an end to the ongoing legal expenses it is incurring in defending your client's claim. Accordingly we are instructed to make a walk away offer to your client, with your client agreeing to a dismissal of the Federal Court proceedings with both parties bearing their own costs to date. Please respond within 7 days of this letter. 12 The defendant contended that, although the letter was made early in the proceedings, the Court should have regard to the fact that the plaintiff had commenced this proceeding in conjunction with an application for the arrest of the ship, so, said the defendant, the plaintiff should have carried out sufficient research in respect of the nature of its claim before applying for the arrest of the ship. 13 In my view, the plaintiff did not act unreasonably in rejecting this offer. The offer was made within the first four months of the commencement of the proceeding, and did not give sufficient weight to the prospects of success by the plaintiff, so as to constitute a genuine attempt at compromise. the letter of 20 april 2010 14 The next offer of compromise was made by the defendant's solicitor's letter of 20 April 2010. That letter made an offer of settlement of the plaintiff's claim by the payment of USD160,000 in full and final settlement. The letter went on to say: While maintaining the correctness of all matters which our client has raised by way of defence, we particularly draw your attention to three fundamental matters which your client has failed to address in its pleadings or expert evidence. These are the following: (a) Your client initially accepted in its reply (paragraph 6) that the vessel "Go Star" was delivered to Nanyuan Shipping Co on 3 January 2009. It has since withdrawn that admission, without pleading any positive case as to why it says that delivery of the vessel did not occur, notwithstanding that the discovered documents contain a certificate of delivery. In the absence of any explanation why that certificate does not evidence good delivery, it is difficult to understand your client's denial of delivery. Having regard to the terms of the recapped charterparty between your client and Nanyuan Shipping Co, the necessary consequence of delivery is that title to the bunkers passed to Nanyuan Shipping Co on delivery on 3 January 2009, and your client had no title to the bunkers when they were allegedly converted or unlawfully detained by our client on 15 January 2009. (b) Further, the bunkers were detained by the actions of our client which occurred while the vessel was in the territorial waters of the People's Republic of China. Your client and our client were not in contractual relations with each other. Nevertheless, your client has not pleaded any case or filed any expert evidence which addresses the point that, applying the law of the People's Republic of China, there was no act of conversion or unlawful detention by our client. We do not see how the terms of the charterparties between your client and other persons can affect that result, when there were no contractual relations between your client and our client. Nor can we see that there is any basis for your client to claim that the detention of the bunkers subsequently became unlawful outside the People's Republic of China, when such detention was not unlawful within the People's Republic of China. (c) If point (b) is correct, it was not unlawful for our client to claim that it was entitled to detain the bunkers. Hence, there is no basis for your client to maintain that there was any unlawful interference with your contractual relations with Nanyuan Shipping Co. The points raised above are not simply points of dispute, as are some other matters in the case. They are points that your client has not addressed at all by its pleadings or expert evidence. In such circumstances, we consider that it would be unreasonable for your client, properly advised, to continue with the above action and not to accept the present offer. The present offer is made in a genuine attempt to avoid costs and to achieve a commercial settlement of your client's action. (Original emphasis.) 15 This was an offer which was made some 10 months after the first offer and after the parties had had a failed mediation. The offer was made at a stage when the proceeding was reasonably advanced. The parties had already completed discovery and expert evidence had been exchanged. Therefore, the parties were in a good position to make an assessment as to their relative positions. 16 The letter provided the plaintiff with 30 days to consider the offer. This was, in my view, a reasonable time. 17 The extent of the compromise offered was USD160,000 in full and final settlement. 18 The plaintiff says that the amount claimed plus interest at that time, was approximately USD490,000. In addition, the plaintiff had incurred costs. The plaintiff criticised the defendant's offer of USD160,000 because it did not break down that amount into interest and costs. In my view, this circumstance is only one factor to take into account in assessing the reasonableness of the offer. It does not, in my view, in itself, render the offer unreasonable, nor incapable of giving rise to Calderbank considerations. 19 In my view, bearing in mind, the contingencies of litigation generally, this offer of USD160,000 in full and final settlement, is to be characterised as a real and genuine attempt at compromise. It was not, bearing in mind the amount of monies at stake in the litigation, a token offer. 20 As to the question of the offeree's prospects of success, this is to be assessed at the date of offer. 21 The defendant's letter referred to, and elaborated upon, its defences in explanation of its contention that the plaintiff would fail. The defendant elaborated in its letter on the plaintiff's claims in detinue and conversion, and on its defence that title in the bunkers had not passed and that, therefore, the plaintiff was precluded from making a claim founded on those causes of action. The defendant engaged in similar elaboration in relation to the plaintiff's claim founded on interference in contractual relations. At trial, I dismissed the plaintiff's claim on the basis of the defences pleaded at that time, for the reasons identified by the defendant. 22 The plaintiff says that it was not unreasonable to reject the offer because it was of the view that it had a reasonable prospect of success. 23 In my view, it does not follow from the fact that a party subjectively believes that it has a reasonable case, that its rejection of an otherwise reasonable offer of compromise, will be reasonable. The question of whether a party has acted reasonably in rejecting an offer of compromise involves an objective assessment of the prospects of success in the context of the fact that litigation is a risky and unpredictable endeavour, and that even cases with reasonable prospects of success, will fail. In my view, applying these criteria, the plaintiff acted unreasonably in rejecting the defendant's offer of compromise. This was a case where the defendant made a genuine offer of compromise to the plaintiff, at a time in the process when the parties were in a position to assess the strengths and weaknesses of their respective cases, and the case was decided on no different a basis to the defences as then pleaded. 24 Therefore, I am of the view that the parties should pay costs on a party-and-party basis before 20 May 2010 and, thereafter, on an indemnity 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 Siopis. Associate: Dated: 23 February 2012