FEDERAL COURT OF AUSTRALIA STX Pan Ocean Co Ltd v Thomson [2012] FCA 662 Citation: STX Pan Ocean Co Ltd v Thomson [2012] FCA 662 Appeal from: Thompson v STX Pan Ocean Co Ltd [2011] FMCA 575 Parties: STX PAN OCEAN CO LTD v DAVID JOHN THOMSON File number: QUD 661 of 2011 Judge: LOGAN J Date of judgment: 16 May 2012 Catchwords: COSTS – award of costs on an indemnity basis – bankruptcy notice – unsuccessful defence of challenge to setting aside of bankruptcy notice – whether federal magistrate erred in finding the offer of comprise was extended in a 'Calderbank context' and that refusal of appellant to accept offer was a sufficient foundation for awarding indemnity costs – no necessary consequence that refusal of offer of compromise results in award of indemnity costs – awarding of costs on indemnity basis by federal magistrate not an unreasonable exercise of discretion – appeal dismissed Legislation: Bankruptcy Act 1966 (Cth) s 41 Bankruptcy Regulations 1996 (Cth) reg 4.04 Cases cited: The Australian Steel Company (Operations) Pty Ltd v Lewis (2000) 109 FCR 33 cited Calderbank v Calderbank [1975] 3 All ER 333 referred to Colgate-Palmolive Company v Cussons Pty Limited (1993) 46 FCR 225 considered Kleinwort Benson Australia Limited v Crowl (1988) 165 CLR 71 cited Parianos v Lymlind Pty Ltd (1999) 93 FCR 191 cited Tati v Stonewall Hotel Proprietary Limited (No 2) [2012] NSWCA 124 followed Thompson v Stx Pan Ocean & Co Ltd [2011] FMCA 575 referred to Thompson v Stx Pan Ocean Co Ltd (No 2) [2011] FMCA 947 referred to Date of hearing: 16 May 2012 Place: Brisbane Division: GENERAL DIVISION Category: Catchwords Number of paragraphs: 16 Counsel for the Appellant: Mr P King Solicitor for the Appellant: Holman Fenwick Willan Counsel for the Respondent: Mr L Jurth Solicitor for the Respondent: Worcestor & Co IN THE FEDERAL COURT OF AUSTRALIA QUEENSLAND DISTRICT REGISTRY GENERAL DIVISION QUD 661 of 2011 ON APPEAL FROM THE FEDERAL MAGISTRATES COURT OF AUSTRALIA BETWEEN: STX PAN OCEAN CO LTD Appellant AND: DAVID JOHN THOMSON Respondent JUDGE: LOGAN J DATE OF ORDER: 16 MAY 2012 WHERE MADE: BRISBANE THE COURT ORDERS THAT: 1. The appeal is dismissed. 2. The appellant is to pay the respondent's costs of and incidental to the appeal, to be taxed, if not agreed. Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011 IN THE FEDERAL COURT OF AUSTRALIA QUEENSLAND DISTRICT REGISTRY GENERAL DIVISION QUD 661 of 2011 ON APPEAL FROM THE FEDERAL MAGISTRATES COURT OF AUSTRALIA BETWEEN: STX PAN OCEAN CO LTD Appellant AND: DAVID JOHN THOMSON Respondent JUDGE: LOGAN J DATE: 16 MAY 2012 PLACE: BRISBANE REASONS FOR JUDGMENT 1 The grounds of appeal are these: 1. The Federal Magistrates Court erred in finding that the alleged offer of compromise was "plainly extended in a Calderbank context", and in having regard to that configuration as relevant to making an order for indemnity costs. 2. The Federal Magistrates Court erred in holding that a refusal of the appellant to accept an alleged offer of compromise, whether imprudent or otherwise was a sufficient foundation for the order for indemnity costs. 3. The Federal Magistrates Court erred in proceeding on the assumption that there was scope to compromise having regard to the nature of the proceedings. 4. The Federal Magistrates Court erred in holding that because the debtor's alleged offer was rejected, that indemnity costs should be ordered. 5. The Federal Magistrates Court erred in failing to have any or any sufficient regard to the complete lack of merit in the debtor's application. 2 It is important when approaching this case, so far as the conduct of STX Pan Ocean Co Ltd (STX) is concerned, in the face, initially, of an email of 30 June 2011 and its enclosures, as well as later correspondence, not to judge its actions by the false wisdom of hindsight, as opposed to examining in prospect its actions. Had the learned federal magistrate approached the matter only in hindsight, there would have been an error in principle. It is not in any way, on my reading of his Honour's reasons (see: Thompson v Stx Pan Ocean & Co Ltd [2011] FMCA 575), the case that he has so done. 3 In his judgment in respect of the application to set aside the bankruptcy notice, and after reflective consideration of relevant authority, namely Kleinwort Benson Australia Limited v Crowl (1988) 165 CLR 71, Parianos v Lymlind Pty Ltd (1999) 93 FCR 191 and The Australian Steel Company (Operations) Proprietary Limited v Lewis (2000) 109 FCR 33, his Honour, at [31], concluded that the bankruptcy notice had omitted a statement required by reg 4.04(2)(b)(iii) of the Bankruptcy Regulations 1996 (Cth) (the Bankruptcy Regulations)., namely, that the conversion of the amount of foreign currency into Australian currency had been made in compliance with the regulations. His Honour concluded that the notice was invalid on that basis alone. 4 That particular basis is not one which was identified explicitly in the email of 30 June 2011, in the enclosed application or in Mr Thomson's enclosed affidavit. There was nothing more than a bare reference to reg 4.04 of the Bankruptcy Regulations in the application and alleged non-compliance with that regulation. The other basis upon which, as is evident from para 34 of his Honour's reasons for judgment, he concluded that the bankruptcy notice was rendered invalid was one identified in Mr Thomson's affidavit. That was the inconsistency in terminology as between telegraphic transfer rate and telegraphic rate of exchange and, further, the apparent inapplicability of the exchange rates in the annexed Commonwealth Bank tabulation, having regard to the disclaimer on that tabulation. 5 After 30 June 2011, Mr Thomson, by his solicitors, sent two further items of correspondence to STX's solicitors. These were sent after an initial response on behalf of STX which denied that there was any material defect in the bankruptcy notice. On 5 July 2011, those acting for Mr Thomson "again invited" STX to "make the concessions detailed in my email of 30 June 2011" and "not to force the applicant to take the matter to a hearing, failing which, as previously advised, indemnity costs will be sought." A further email of 8 July 2011 made a like offer. 6 It was against this background that the learned federal magistrate, in his judgment in respect of costs, observed in Thompson v Stx Pan Ocean Co Ltd (No 2) [2011] FMCA 947 at [13] and [14]: 13 Whilst it is correct to assert that the offer did not comply with the formal rules of compromise, the offer of compromise was plainly extended in a Calderbank context. In the circumstances of an application which was returnable within fourteen days of the filing of the initiating application it is plain that the court rules would not have accommodated a more formalistic approach. The respondent also contends that the offer of compromise is not a genuine offer relying upon Hobartville Stud Proprietary Limited v Union Insurance Company Limited (1991) 25 NSWLR 358 at 368. However the facts in that case are plainly distinguishable from those in this instance. In that case the plaintiff claimed a sum of money under an insurance policy. In that context an offer of compromise was made for a sum which was $1.00 short of the full claim. The court had but little difficulty in determining no genuine offer of compromise had been made. 14 In a case such as the present there could be little scope for compromise. The application was of a technical nature where the applicant was either to be entirely successful or entirely unsuccessful. However, despite that the Calderbank offer served to put the respondents on notice that if the applicant's application was not conceded to by a number of days following the date of offer then the applicant would proceed to engage both junior and senior counsel to prosecute the application. In that sense it can be seen that the applicant offered to compromise on the basis that there being an immediate concession of the application with limited costs in the event of non-concession but otherwise the applicant would engage counsel and thereby expose the respondent to the prospect of a more onerous costs order. The respondent rejected that offer and in my view did so imprudently and it is therefore in the circumstances just and reasonable that it pay costs on an indemnity basis. [Footnote references omitted] 7 Insofar as his Honour formed the view, apparent from the passage quoted, that a basis upon which an order for costs on an indemnity basis might be ordered it was an imprudent refusal of an offer of compromise, that view, having regard to Colgate-Palmolive Company v Cussons Pty Limited (1993) 46 FCR 225, exhibits no error of principle. Insofar as the grounds of appeal assert otherwise, they themselves display an ignorance of principle. That is not, of course, to say that an imprudent rejection of an offer of compromise must inexorably lead to an order for costs on an indemnity basis, but his Honour has applied that particular principle in the circumstances of this case. His Honour rightly, in my opinion, characterised the case as one where there was "little scope for compromise" with the application to set aside a bankruptcy notice being "of a technical nature". Whether his Honour was correct in characterising the email of 30 June 2011 for, inferentially, that seems to be the one upon which his Honour focused, having regard especially to para 8 of his reasons as a "Calderbank" offer is moot. 8 His Honour annotates the reference, initially, to "Calderbank" with a reference to the case which gave rise to the description, namely, Calderbank v Calderbank [1975] 3 All ER 333. Neither the email of 30 June 2011, nor those of 5 and 8 July 2011 which followed it, explicitly state that they are made without prejudice save as to costs. One must, of course, look to the substance of correspondence to see whether, nonetheless, the intent of that correspondence is of a similar ilk to that which explicitly carries such a without-prejudice qualification. It is also relevant to take into account the audience to which correspondence is directed. This was correspondence passing between solicitors, not between laypersons or between a solicitor and a layperson. 9 The email of 30 June 2011 did not explicitly provide for what would be the consequence of one or more of the concessions sought. Inferentially and, again, this is correspondence between solicitors, the sequel to any concession could only, in the circumstances, have been the making of an order by consent that the bankruptcy notice be set aside. Neither, it must be said, is there an explicit reference in the email of 30 June 2011 to the terms upon which any such setting aside should occur. The learned magistrate, fairly, in my opinion, has approached that question on the basis that it would occur on terms that STX would only be liable for costs in a limited way; presumably, costs up to and including the setting aside by agreement of the notice. 10 His Honour was also right, in my view, to regard the offer as one made against a background where scope for compromise was limited. Either the notice was defective or it was not. There was scope, and his Honour has appreciated this, for compromise in relation to how costs might go. In effect, what his Honour has done is to excise from the email of 30 June 2011 references to matters that became irrelevant, for example, the alleged abuse of process, and instead to focus upon the asserted basis of invalidity, and the invitation on the part of Mr Thomson to STX to concede that. 11 For STX, it is submitted that it had complied with the form published by the Insolvency Trustee Service of Australia, and that s 41(2) of the Bankruptcy Act 1966 (Cth) required it to do neither more nor less. Even allowing for this, this particular bankruptcy notice had about it a fraught quality, inexorably flowing so the learned magistrate found, from the annexure of the Commonwealth Bank exchange rate tabulation qualified in the way that it was, taking into account the particular terminology used in the form, and as opposed to the bankruptcy regulations. To press forward a defence of a notice containing a disclaimer of the kind found in the annexed Commonwealth Bank tabulation was always fraught. That is so, quite apart from the other basis of challenge namely, an absence of a statement for which the regulations provide in the notice. 12 The email of 30 June 2011 to a practitioner could only be read, in my opinion, as a letter which was proposed to be tendered in the event that Mr Thomson enjoyed forensic success in his application to set aside the bankruptcy notice. In that sense, even though it did not contain an explicit statement that it was without prejudice as to costs, that is the substance of it. Further, that is the substance of the reiteration of it that occurred on 5 and 8 July 2011. 13 It must be said at once that there is no necessary presumption that because a "Calderbank" offer is made and the offeree does not achieve a more favourable result, that costs on an indemnity basis from the date of the offer must be made. So much was made clear recently, and by reference to many earlier authorities to like effect, by Bathurst CJ, Allsop P, and Beazley JA agreeing, in Tati v Stonewall Hotel Proprietary Limited (No 2) [2012] NSWCA 124 at [9]. For all that, it is a relevant consideration. 14 Here, what I must do is to decide whether, having taken into account that relevant consideration, there was an unreasonable exercise of the federal magistrate's discretion in awarding indemnity costs. I am not persuaded that the exercise of the discretion on that basis, taking into account a consideration which was relevant, was unreasonable. It is nothing to the point whether or not I would have, in these same circumstances, exercised the discretion in that way, taking into account that consideration. Rather, the question is whether it was unreasonable in the sense that no reasonable exercise of the discretion taking into account that consideration could have resulted in an indemnity costs? 15 The other observations, then, which must be made in respect of the grounds of appeal are these. Contrary to ground 1, it is possible, having regard to the correspondence, to characterise the email of 30 June 2011 as one made "in a Calderbank context". Contrary to ground 2, an imprudent refusal of an offer of compromise is a relevant consideration to take into account in relation to the exercise of a costs discretion. Contrary to ground 3, there was scope for compromise in this case of exactly the kind identified by the learned federal magistrate in his reasons for judgment, namely, a position short of costs following the event on a party and party basis after a contested hearing of an application to set aside a bankruptcy notice. That is what Mr Thomson offered on 30 June 2011. Contrary to ground 4, I do not read the learned federal magistrate as holding that because the offer was rejected, indemnity costs should be ordered; rather, his Honour has taken a view, in the particular circumstances of this case, where there was very limited scope for compromise, and where a basis upon which the notice came to be set aside was identified in advance and was always fraught, that costs on that basis should be awarded. Quite what is meant by the terms of ground 5, that the federal magistrate had failed to have any or any sufficient regard to the complete lack of merit in the debtor's application is not clear. There was no appeal from the judgment setting aside the bankruptcy notice. 16 It follows from what I have said that the appeal must be dismissed, with costs. I certify that the preceding sixteen (16) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Logan. Associate: Dated: 22 June 2012