FEDERAL COURT OF AUSTRALIA LFDB v SM (No 2) [2015] FCA 1013 Citation: LFDB v SM (No 2) [2015] FCA 1013 Parties: LFDB, DBA(AU), DBA(AU) AS TRUSTEE FOR DBP TRUST, BWP and SE v SM LFDB, DBA(AU), DBA(AU) AS TRUSTEE FOR DBP TRUST, BWP and SE v SM File number: NSD 353 of 2015 NSD 354 of 2015 Judge: GLEESON J Date of judgment: 14 September 2015 Catchwords: COSTS – indemnity costs – whether action had no prospect of success – effect of applicants' letter to respondent – whether respondent's failure to resolve proceedings contrary to Federal Court of Australia Act 1976 (Cth), s 38N(1) – where respondent enjoyed partial success – no reason to depart from the usual rule Legislation: Federal Court of Australia Act 1976 (Cth), ss 37M, 37N, 43 Trans-Tasman Proceedings Act 2010 (Cth) Cases cited: Black v Lipovac [1998] FCA 699; (1998) 217 ALR 386 CGU Insurance Ltd v Corrections Corp of Australia Staff Superannuation Pty Ltd [2008] FCAFC 173 Degmam Pty Ltd (in liq) v Wright (No 2) [1983] 2 NSWLR 354 Dowling v Fairfax Media Publications Pty Ltd (No 2) [2010] FCAFC 28; (2010) 62 AILR 101-129 DSE (Holdings) Pty Ltd v InterTAN Inc [2004] FCA 1251; (2004) 51 ACSR 555 Fountain Selected Meats (Sales) Pty Ltd v International Produce Merchants Pty Ltd (1988) 81 ALR 397 Futuretronics.com.au Pty Ltd v Graphix Pty Ltd [2009] FCAFC 40 Gersten v Minister for Immigration and Multicultural Affairs [2001] FCA 260 Growth Equities Corporation Ltd v Genesis Growth Investments Pty Ltd [2010] NSWSC 1302 Investec Bank (Australia) v Goldale Pty Ltd (No 2) [2009] VSCA 113 Ogawa v Spender [2006] FCAFC 68; (2006) 151 FCR 228 Oshlack v Richmond River Council [1998] HCA 11; (1998) 193 CLR 72 Pricom Pty Ltd v Sgarioto (unreported, Supreme Court of Victoria, Eames J, 10 April 1995, 24 April 1995) Re Smith; Ex parte Rundle (No 2) (1991) 6 WAR 299 Seven Network Ltd v News Ltd [2009] FCAFC 166; (2009) 182 FCR 160 Date of hearing: Heard on the papers Date of last submissions 10 August 2015 Place: Sydney Division: GENERAL DIVISION Category: Catchwords Number of paragraphs: 27 Counsel for the Applicants: Mr P Herzfeld Solicitor for the Applicants: Evangelos Patakas & Associates Counsel for the Respondent: Dr C Ward with Ms AS Rose Solicitor for the Respondent: Marque Lawyers IN THE FEDERAL COURT OF AUSTRALIA NEW SOUTH WALES DISTRICT REGISTRY GENERAL DIVISION NSD 353 of 2015 BETWEEN: LFDB First Applicant DBA(AU) Second Applicant DBA(AU) as trustee for DBP Trust Third Applicant BWP Fourth Applicant SE Fifth Applicant AND: SM Respondent JUDGE: GLEESON J DATE OF ORDER: 14 SEPTEMBER 2015 WHERE MADE: SYDNEY THE COURT ORDERS THAT: 1. The applicants' application for indemnity costs be refused. 2. The respondent's application for a variation of the order that the respondent pay the applicants' costs be refused. 3. Each party bear its own costs of the costs applications. Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011. IN THE FEDERAL COURT OF AUSTRALIA NEW SOUTH WALES DISTRICT REGISTRY GENERAL DIVISION NSD 354 of 2015 BETWEEN: LFDB First Applicant DBA(AU) Second Applicant DBA(AU) as trustee for DBP Trust Third Applicant BWP Fourth Applicant SE Fifth Applicant AND: SM Respondent JUDGE: GLEESON J DATE OF ORDER: 14 September 2015 WHERE MADE: SYDNEY THE COURT ORDERS THAT: 1. The applicants' application for indemnity costs be refused. 2. The respondent's application for a variation of the order that the respondent pay the applicants' costs be refused. 3. Each party bear its own costs of the costs applications. Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011. IN THE FEDERAL COURT OF AUSTRALIA NEW SOUTH WALES DISTRICT REGISTRY14 September 2015 GENERAL DIVISION NSD 353 of 2015 BETWEEN: LFDB First Applicant DBA(AU) Second Applicant DBA(AU) as trustee for DBP Trust Third Applicant BWP Fourth Applicant SE Fifth Applicant AND: SM Respondent IN THE FEDERAL COURT OF AUSTRALIA NEW SOUTH WALES DISTRICT REGISTRY GENERAL DIVISION NSD 354 of 2015 BETWEEN: LFDB First Applicant DBA(AU) Second Applicant DBA(AU) as trustee for DBP Trust Third Applicant BWP Fourth Applicant SE Fifth Applicant AND: SM Respondent JUDGE: GLEESON J DATE: 14 SEPTEMBER 2015 PLACE: SYDNEY REASONS FOR JUDGMENT 1 On 20 July 2015, I made orders setting aside the registration of three freezing orders made by the High Court of New Zealand ("NZ High Court") which had been registered in this Court pursuant to the Trans-Tasman Proceedings Act 2010 (Cth) ("Trans-Tasman Proceedings Act"), and ordered the respondent to pay the applicants' costs of their applications to set aside those registrations. 2 The applicants now seek orders for indemnity costs. 3 Conversely, the respondent seeks orders reducing the costs payable by her: (a) by 10% to reflect the applicants' failure to pursue a stay application; and (b) for the second to fifth applicants, by 50% to reflect "the respondent's success on the question of public policy and time spent on the character of the New Zealand proceedings". Legal framework 4 Section 43 of the Federal Court of Australia Act 1976 (Cth) ("the Act") confers jurisdiction on the Court to award costs. In DSE (Holdings) Pty Ltd v InterTAN Inc [2004] FCA 1251; (2004) 51 ACSR 555, Allsop J (as he was then) said at [14]: Section 43 of [the Act] is a broad and ample power not to be read down otherwise than by judicial principle conformable with the amplitude of the power. 5 In the particular circumstance of a case involving some "relevant delinquency" on the part of the unsuccessful party, an order may be made for costs on an indemnity basis: Oshlack v Richmond River Council [1998] HCA 11; (1998) 193 CLR 72 at [44] per Gaudron and Gummow JJ, referring to Degmam Pty Ltd (in liq) v Wright (No 2) [1983] 2 NSWLR 354 and Re Smith; Ex parte Rundle (No 2) (1991) 6 WAR 299 at 301. See also Growth Equities Corporation Ltd v Genesis Growth Investments Pty Ltd [2010] NSWSC 1302 at [18]. 6 In Seven Network Ltd v News Ltd [2009] FCAFC 166; (2009) 182 FCR 160 at [1102], Dowsett and Lander JJ said: Usually costs are ordered on a party and party basis but if there is "some special or unusual feature in the case to justify the Court exercising its discretion" costs may be ordered on some other basis: Preston v Preston [1982] 1 All ER 41 at 58. There must, however, be some justification to depart from the ordinary rule. The discretion to depart from an order for party and party costs will not be exercised unless there is some special or unusual feature or the justice of the case so requires: Re Wilcox; Ex parte Venture Industries Pty Ltd (1996) 141 ALR 727. The categories of case in which it might be appropriate to do so are not closed: Colgate-Palmolive Company v Cussons Pty Limited (1993) 46 FCR 225. An applicant who should have known that his or her proceeding was foredoomed to failure could be obliged to pay costs on an indemnity basis: Smolle v Australia and New Zealand Banking Group Ltd (No 2) [2007] FCA 1967. A clearly hopeless proceeding may mean that the unsuccessful applicant should be subjected to an order for indemnity costs. An applicant who persists in prosecuting a proceeding without regard to the evidentiary difficulties in the case may be called upon to pay costs on some basis other than the usual basis: Yates Property Corporation Pty Ltd v Boland (No 2) (1997) 147 ALR 685. Specific examples of cases which might attract the exercise of the discretion to award indemnity costs were given by Sheppard J in Colgate-Palmolive Company v Cussons Pty Limited 46 FCR at 233. No prospect of success 7 In Gersten v Minister for Immigration and Multicultural Affairs [2001] FCA 260 at [19], a Full Court said: If an action is commenced when proper advice would indicate that the proceeding has no prospect of success, a discretion to award indemnity costs is ordinarily enlivened. Similarly, if a party who has no defence to a claim of right, refuses to acknowledge that right and either obstinately, or for an ulterior purpose, obliges the claimant to commence proceedings to enforce that right, that circumstance may attract the exercise of a discretion to award indemnity costs against that party. Such an order may also be made against the legal representative of that party if that practitioner subordinates his or her professional duties to promote the interests of the client in that litigation. 8 The first sentence of that passage was quoted with approval in Dowling v Fairfax Media Publications Pty Ltd (No 2) [2010] FCAFC 28; (2010) 62 AILR 101-129 at [45]. 9 In Fountain Selected Meats (Sales) Pty Ltd v International Produce Merchants Pty Ltd (1988) 81 ALR 397 at 401, Woodward J said: I believe that it is appropriate to consider awarding "solicitor and client" or "indemnity" costs, whenever it appears that an action has been commenced or continued in circumstances where the applicant, properly advised, should have known that he had no chance of success. In such cases the action must be presumed to have been commenced or continued for some ulterior motive, or because of some wilful disregard of the known facts or the clearly established law. Such cases are, fortunately, rare. But when they occur, the court will need to consider how it should exercise its unfettered discretion. 10 That passage was referred to with apparent approval by a Full Court in Ogawa v Spender [2006] FCAFC 68; (2006) 151 FCR 228 at [29]. Offers of compromise 11 In Black v Lipovac [1998] FCA 699; (1998) 217 ALR 386, a Full Court considered the effect of "Calderbank letters", that is offers of compromise expressed to be without prejudice but reserving the right to refer to the offer on the issue of costs. The Court said, at [217] to [218]: 217. There is a line of authority in the Federal Court supporting the proposition that the mere refusal of a Calderbank offer does not of itself warrant an order for indemnity costs and the offeror needs to show the conduct of the offeree was unreasonable. The cases are WCW Pty Ltd v Charthill Ltd (Olney J, 7 July 1992, unreported), John S Hayes & Associates Pty Ltd v Kimberley-Clark Australia Pty Ltd (1994) 52 FCR 201 (Hill J), Sanko Steamship Co Ltd v Sumitomo Australia Ltd (Sheppard J, 7 February 1996, unreported), MGICA v Kenny (1996) 140 ALR 707 (Lindgren J), Fasold v Roberts (Sackville J, 11 September 1997, unreported). To the contrary is the decision of Rolfe J in the Supreme Court of New South Wales in Multicon Engineering Pty Ltd v Federal Airports Corporation (20 June 1996, unreported). His Honour considered that the non-acceptance of an offer more favourable to the offeree than the judgment ultimately awarded prima facie demonstrated unreasonable conduct and the offeree bore the onus of showing why indemnity costs should not be ordered. 218. In reality there is not a substantial difference between the two views; both accept that the reasonableness of the conduct of the offeree, viewed in the light of the circumstances which existed when the offer was rejected, is relevant to the exercise of the discretion to award indemnifying costs. To the extent there is a difference, we would prefer the by now well established line of authority in decisions of single judges of this Court. However, we would not, with respect, necessarily endorse the view of Sheppard J in Sanko that the conduct of the offeree has to be "plainly unreasonable". To adopt an especially high standard of unreasonableness would operate as a fetter on the discretion to award indemnity costs and diminish the effectiveness of the Calderbank offer as an incentive to settlement. There is in our view force in the comments of Byrne J in the Supreme Court of Victoria in Mutual Community Ltd v Lorden Holdings Pty Ltd (unreported, 28 April 1993) at 12-13: The policy of the Court is to encourage litigating parties to undertake genuine settlement negotiations and, for that purpose, to face up to serious offers of settlement. The response of a litigant in receipt of an offer of settlement will always be affected by the prospect that the sum which the Court might order including party and party costs may be less advantageous than the terms of the offer. Experience, however, shows that this prospect alone is not always sufficient to compel a litigant to face up to the offer. The further prospect of a super-added costs penalty if a reasonable offer be not accepted is a salutary inducement to an offeree to undertake this often painful task. 12 In CGU Insurance Ltd v Corrections Corp of Australia Staff Superannuation Pty Ltd [2008] FCAFC 173 at [75], a Full Court said: 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 [the predecessor provisions to the Federal Court Rules 2011 (Cth)]. However, where recourse is not had to the O 23, 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] FCA 699; (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] FCA 224; (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. 13 In Futuretronics.com.au Pty Ltd v Graphix Pty Ltd [2009] FCAFC 40 at [5], a Full Court said: The refusal of a Calderbank offer will not always attract an award of indemnity costs. The offeror must show that the rejection was unreasonable in the circumstances of the case: Black v Lipovac [1998] FCA 699; (1998) 217 ALR 386 at [217]-[218]. The respondents have not convinced us that the rejection was unreasonable. By the August 2008 offer all the respondents were offering to give up was any claim they may have to costs of the appeal. There was little in the offer that was attractive to the appellant. Of course the appellant was entirely unsuccessful on the appeal, for substantially the reasons explained by the respondents in their August letter. However the appeal was not on its face without any prospect of success. Counsel for the appellant was able, on the available material, to present arguments that required careful attention. It was only on a close examination of the documentation that the Court concluded that the appeal on liability should be dismissed. In retrospect, the appellant's case was never a strong one, but on the principal points argued (liability) the appellant's case was not so [weak] that it should be taken to have acted unreasonably in refusing the August offer, which offered little in the way of a genuine compromise. Section 37N(1) of the Act 14 Section 37M(1) of the Act provides that the overarching purpose of the civil practice and procedure provisions is to facilitate the just resolution of disputes according to law, and as quickly, inexpensively and efficiently as possible. Section 37N(1) requires parties to a civil proceeding before the Court to conduct the proceeding (including negotiations for settlement of the dispute to which the proceeding relates) in a way that is consistent with the overarching purpose. Section 37N(2) requires a party's lawyer, in the conduct of a civil proceeding before the Court on a party's behalf, to take account of the duty imposed on the party by subsection (1) and assist the party to comply with the duty. 15 Subsection 37N(4) provides that, in exercising the discretion to award costs in a civil proceeding, the Court or a Judge must take account of any failure to comply with the duty imposed by s 37N(1) or (2). Partial success 16 In Investec Bank (Australia) v Goldale Pty Ltd (No 2) [2009] VSCA 113, the Victorian Court of Appeal adopted the following statement by Eames J in Pricom Pty Ltd v Sgarioto (unreported, Supreme Court of Victoria, Eames J, 10 April 1995, 24 April 1995) at [4]: As a general rule costs should follow the event, and a successful party should obtain all of the costs of the action even although it failed to establish some of the alternative heads of its claim: Ritter v Godfrey (1920) 2 KB 47. However, in the exercise of its discretion the court may decline to order costs in favour of a successful party, or may order the successful party to pay the costs of the unsuccessful party, where the plaintiff failed to establish discrete heads of claim, or failed to establish issues which it pursued in its claim, although ultimately succeeding on the basis of another discrete head of claim: Hughes v Western Australian Cricket Association Inc [1986] FCA 382; (1986) ATPR 40-748, per Toohey J at 48,136. Applicants' argument for indemnity costs 17 The applicants submit that: (1) The freezing orders ought never to have been registered and it should have been apparent to the respondent, properly advised, that the registrations must inevitably be set aside; (2) The applicants' solicitor wrote to the respondent's solicitor very early in the proceedings, explaining why the registrations must be set aside and foreshadowing an application for indemnity costs, in the event that the proceedings were contested; and (3) The respondent's failure to resolve the proceedings was contrary to s 37N(1) of the Act and inconsistent with the overarching purpose stated in s 37M(1) to facilitate the just resolution of the dispute as quickly, inexpensively and efficiently as possible. 18 The relevant correspondence included a letter dated 16 April 2015 by which the applicants' solicitor requested that the respondent consent to setting aside the registrations and agree to pay the applicants' costs. Respondent's submissions 19 In response to the application for indemnity costs, the respondent argues that: (1) None of the grounds raised by the applicants elevate the circumstances to the sort of situation that would warrant an indemnity costs order; (2) The respondent "duly proceeded on the Court's authority that the three judgments were properly registrable"; (3) The applicants did not challenge the registrations until six weeks after they occurred; (4) The issues decided by the Court were without direct precedent. The respondent had arguable submissions that she was entitled to test; and (5) The correspondence relied upon by the applicants included an unwarranted threat of a costs order against the applicants' solicitors personally and an unwarranted accusation that the respondent and her lawyers by implication were acting for a collateral purpose in registering the judgments and refusing to consent to their being set aside. 20 On the respondent's application to vary the costs orders currently in place, the respondent contends that the Court should take into account that: (1) The applicants did not pursue their application for a stay of enforcement of the registrations; (2) The respondent was successful on the question of whether registration was contrary to public policy, as against the second to fifth applicants, and no finding was made concerning the first applicant; (3) The respondent was required to spent significant time considering the applicant's contention that the New Zealand proceeding should be characterised as proceedings in rem. Consideration Indemnity costs 21 I am not persuaded that an order for indemnity costs is warranted. The applicants' submission that the outcome was inevitable is inconsistent with their decision to put detailed submissions to the Court concerning alternative bases to justify their case. 22 Having regard to the debate that passed in correspondence between the parties as to the legal correctness of the applicants' submission, I accept that there was no lack of bona fides in the position taken by the respondent to contest the applications. The applicants did not offer to resolve the proceedings on the basis of any compromise. I am not satisfied that the correspondence affects the position that the respondent's failure to consent to the orders sought was not a matter warranting a departure from the usual rule that costs follow the event. I am not satisfied that the respondent contravened s 37N(1) in the manner in which she conducted the proceedings. Variation to costs orders made on 20 July 2015 23 I am not satisfied that any of the matters raised by the respondent warrant any variation to the costs orders already made, which reflect the usual rule. 24 The stay application was not pursued in the context of the relatively early hearing of the substantive matter. The respondent does not point to any specific costs wasted because the stay application was not pursued. 25 As to the Court's rejection of alternative arguments by the applicants, having regard to the applicants' complete success in obtaining the orders which it sought, I am not satisfied that there are any circumstances affecting those alternative arguments which warrant a departure from the usual rule. In my view, the mere fact that the applicants did not succeed on all arguments in the circumstances of this case does not warrant a departure from the usual rule. 26 I do not accept that any time required to be spent on the argument that the New Zealand proceeding should be characterised as proceedings in rem warrants a departure from the usual rule, where the issue was not argued in detail and the applicants acknowledged in their written submissions that there was authority to the contrary of their contention in relation to arguably analogous Australian proceedings. Conclusion 27 Each application should be dismissed. The parties should each bear their own costs. I certify that the preceding twenty-seven (27) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Gleeson. Associate: Dated: 14 September 2015