FEDERAL COURT OF AUSTRALIA MCG Group Pty Ltd v Ftrus Pty Ltd (formerly Fortrus Pty Ltd) [2017] FCA 359 File number: QUD 107 of 2015 Judge: GREENWOOD J Date of judgment: 5 April 2017 Catchwords: PRACTICE AND PROCEDURE – consideration of the disposition of the costs of the principal proceeding – consideration of the exercise of the discretion as to costs in light of a Calderbank offer made by the respondents to the applicants and in light of affidavit material filed by the parties Legislation: Competition and Consumer Act 2010 (Cth), s 236, Schedule 2 Federal Court of Australia Act 1976 (Cth), r 1.32 Federal Court Rules 2011 (Cth), r 1.36 Cases cited: Calderbank v Calderbank [1975] 3 All ER 333 Christofidellis v Zdrilic [2000] FCA 679 Colgate-Palmolive Company v Cussons Pty Ltd (1993) 46 FCR 225 Foots v South Cross Mine Management Pty Ltd (2007) 234 CLR 52 InterTAN Inc v DSE (Holdings) Pty Ltd [2005] FCAFC 54 Kazar (liquidator) v Kargarian (2011) 197 FCR 113 MCG Group Pty Ltd v Ftrus Pty Ltd (formerly Fortrus Pty Ltd) [2016] FCA 697 Stewart v Atco Controls Pty Ltd (in liquidation) [No 2] (2014) 252 CLR 331 Date of hearing: 24 June 2016 Date of last submissions: 24 June 2016 Registry: Queensland Division: General Division National Practice Area: Commercial and Corporations Sub-area: Corporations and Corporate Insolvency Category: Catchwords Number of paragraphs: 26 Counsel for the Applicant: Mr M Martin QC Solicitors for the Applicant: Mills Oakley Counsel for the Respondents: Mr Conrick Solicitors for the Respondents: Ellem Warren Lawyers ORDERS QUD 107 of 2015 BETWEEN: MCG GROUP LTD ACN 124 699 823 Applicant AND: FTRUS PTY LTD ACN 101 141 851 (FORMERLY FORTRUS PTY LTD) First Respondent PAUL GERARD MCDONALD Second Respondent JUDGE: GREENWOOD J DATE OF ORDER: 5 APRIL 2017 THE COURT ORDERS THAT: 1. The respondents pay the costs of the applicant of and incidental to the proceeding including reserved costs on a party and party basis to be taxed and agreed. 2. Pursuant to s 23 and s 37P of the Federal Court of Australia Act 1976 (Cth), r 1.32 and r 1.36 of the Federal Court Rules 2011 these Orders and the Reasons for Judgment in support of these Orders are made and published from Chambers. Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011. REASONS FOR JUDGMENT GREENWOOD J: 1 On 10 June 2016, the Court pronounced final judgment in the proceeding and ordered that judgment be given for the applicant against the respondents in an amount of $673,210.38: MCG Group Pty Ltd v Ftrus Pty Ltd (formerly Fortrus Pty Ltd) [2016] FCA 697 (the "principal judgment"). The Court also directed the parties to file short submissions in relation to the question of the disposition of costs of and incidental to the proceeding including reserved costs. 2 On 17 June 2016, the Court amended, pursuant to r 39.05(h) of the Federal Court Rules 2011 (Cth), the Orders of 10 June 2016 to give judgement in an amount of $800,422.00 plus interest of $84,949.82 pursuant to s 51A of the Federal Court of Australia Act 1976 (Cth). 3 The applicant subsequently filed written submissions in support of its contentions on costs and the respondents filed responsive submissions supported by an affidavit of Ms Lauren Smith affirmed 17 June 2016. As things transpired, Mr Paul McDonald was unable to pay the judgment debt. His estate became sequestrated and trustees were appointed. Moreover, the first respondent was unable to pay the judgment debt and was placed in liquidation. Thus, the question of the costs became a little academic. Nevertheless, these reasons address the disposition of the costs. 4 The applicant, in its submissions, contends that the respondents ought to be ordered to pay the applicant's costs of the proceeding on an indemnity basis having regard to the respondents' wilful disregard of the known facts. Alternatively, the applicant contends that the respondents ought to pay the applicant's costs of the proceeding on a party and party basis for the period up to 29 November 2015 and on an indemnity basis on and from 30 November 2015, having regard to a Calderbank offer contained in a letter dated 30 November 2015 (the letter is incorrectly dated 30 January 2015) from the solicitors for the applicant, Mills Oakley Lawyers ("Mills Oakley"), to the solicitors for the respondents, Ellem Warren Lawyers ("Ellem Warren"). 5 The respondents oppose any order for indemnity costs against them. They say that having regard to all of the circumstances of the proceeding, the special or unusual features required for an order that departs, on the exercise of the discretion arising under s 43(2) of the Federal Court of Australia Act 1976 (Cth), from the ordinary rule, that costs be awarded on a party and party basis, do not exist. They also say that having regard to all of the circumstances at the time of the Calderbank offer of 30 November 2015, the respondents were neither imprudent nor unreasonable in rejecting the offer. Apart from this issue, the respondents seek an order in their favour on a party and party basis for the costs thrown away concerning the discontinuance of a part of the claim. Alternatively, they say that the applicant should not be entitled to an order for costs in their favour concerning that amendment. 6 Although the award of costs is discretionary, generally a successful party is entitled to an award of costs in its favour in the absence of special circumstances justifying some other order: Foots v South Cross Mine Management Pty Ltd (2007) 234 CLR 52 at [25]; Kazar v Kargarian (2011) 197 FCR 113 at [1] to [9]; Colgate-Palmolive Company v Cussons Pty Ltd (1993) 46 FCR 225; InterTAN Inc v DSE (Holdings) Pty Ltd [2005] FCAFC 54 at [11] ("InterTAN Inc"). An award of costs is compensatory or restitutionary in character rather than a matter of penalty or punishment. 7 The special circumstances that may justify a departure from the ordinary rule and an award of indemnity costs were summarised by the Full Court in InterTAN Inc at [11]: A review of the authorities shows that there are various categories of cases in which solicitor and client or indemnity costs can be awarded. They include cases where the bringing of an application is "high-handed": Australian Guarantee Corporation Ltd v De Jager [1984] VR 483, 502; where an application has "no chance of success": Fountain Selected Meats (Sales) Pty Ltd v International Produce Merchants Pty Ltd (1998) 81 ALR 397, 401 or is "hopeless": J-Corp Pty Ltd v Australian Builders Labourers Federated Union of Workers, Western Australian Branch (No 2) (1993) 46 IR 301, 303; where an application is "unnecessary": Ragata Developments Pty Ltd v Westpac Banking Corporation (unreported, Federal Court, 5 March 1993); where an application is brought and prosecuted "not for the bona fide purpose of protecting and enforcing a legal right, but to achieve an ulterior or extraneous purpose": Ragata Developments Pty Ltd v Westpac Banking Corporation (unreported, Federal Court, 5 March 1993); where an application is commenced in wilful disregard of known facts or contrary to well established law: Fountain Selected Meats (Sales) Pty Ltd v International Produce Merchants Pty Ltd (1988) 81 ALR 397, 401; where there has been "some relevant delinquency on the part of the unsuccessful party": Oshlack v Richmond River Council (1998) 193 CLR 72, 89; where the justice of the case warrants such an order: Andrews v Barnes (1887) 39 Ch D 133, 141; and where there are some special or unusual features in a case to justify the court the exercising its discretion in this way: Preston v Preston [1982] Fam 17, 39. 8 While the circumstances identified by the Court in InternTAN Inc may serve as a guide to the exercise of the discretion, the question is always whether the particular facts and circumstances of the case at hand justify the making of an order for costs other than on a party and party basis. 9 As to the question of whether such special circumstances existed in this case, the applicant relies on the Court's observations in the principal judgment at [133](12)-(17). In those paragraphs I found that the second respondent, Mr Paul McDonald, engaged in obfuscation in answering a number of questions put to him at trial including (among other matters) when answering questions about the agreement he reached in June 2013 with his brother, Mr Bill McDonald, which formed the critical factual contention in the case: PJ at [133](16). The applicant emphasises Mr Paul McDonald's denial of an agreement and the incongruity between his evidence that he spoke to his brother "very rarely" on the phone and an unexplained email sent by Mr Paul McDonald to his brother at 10.20pm on 26 June 2013 asking his brother to "please call": PJ at [77], [133](16). The applicant says that these findings support its contention that the respondents' defence was entirely inconsistent with the "objective evidence" and that the respondents engaged in a wilful disregard of the facts known to them, sufficient to justify an order for indemnity costs. 10 For their part, the respondents accept that adverse findings were made in the principal judgment concerning Mr Paul McDonald's evidence. However, the respondents say that an adverse credibility finding is not, by itself, sufficient to justify departure from the usual practice of awarding costs to the successful party on only a party and party basis. The respondents say that, in this case, adverse findings in the principal judgment were, in the main, unrelated to the parties' essential dispute as to the terms of the agreement made in June 2013. As to the finding that Mr Paul McDonald engaged in obfuscation when answering questions that were about the agreement made in June 2013, and which therefore went to the essential dispute between the parties, the respondents say that the principal judgment identifies "no basis for this finding". They say therefore that there are "no special circumstances" which justify an award of indemnity costs. They say that there was no manifest weakness in the respondents' case and there was no demonstrable wilful disregard of facts. 11 The respondents also rely on a number of criticisms of the way in which the applicant pleaded and particularised its case. They say that the pleadings were deficient in that until the first day of trial, the applicant failed to particularise the date and context of the conversation that gave rise to the June 2013 agreement; the terms of the contract initially pleaded were later abandoned on the first day of trial; the specific details of the agreement, including the specific terms, were pleaded after a delay of two months; and the applicant could not remember the exact date of the conversation. They also say that the email of 26 June 2013 was not put to Mr Paul McDonald until cross-examination. It follows, they say, that the parties held legitimately different contentious views as to the facts. 12 I accept that were a number of deficiencies with the way in which the applicant's case was pleaded. The first statement of claim was filed 23 March 2015. An amended statement of claim was filed on 22 May 2015. A third version was filed on 9 November 2015 and the fourth was filed on 1 December 2015 with leave given on the first day of the trial. 13 Plainly enough, the principal judgment identifies the basis for the finding that Mr Paul McDonald engaged in obfuscation in answering questions on a range of topics all of which were relevant to the question of whether he could be believed on the central issue in contest of whether he made an agreement with his brother in 2013: see PJ at [62]-[69]; [133](1)-(6); (12)-(17). 14 Nevertheless, I accept that an adverse credit finding alone is an insufficient basis for an order for indemnity costs: Christofidellis v Zdrilic [2000] FCA 679, [29]. Although Mr Paul McDonald clearly engaged in obfuscation in answering a number of questions in the course of the proceedings I am not satisfied that, by itself, this demonstrates that the respondents engaged in wilful disregard of the primary facts in the course of the trial. 15 I am therefore not satisfied that special circumstances, required to justify an order of indemnity costs for the whole proceeding, subsisted in this case. 16 As to the question of whether the respondents acted reasonably or unreasonably in rejecting an offer to settle, the respondents rely upon the affidavit of Ms Smith affirmed 17 June 2016. Ms Smith says that on 30 November 2015 the solicitors for the respondents received an email from Mills Oakley attaching a settlement offer. The offer was expressed to be in accordance with the principles set out in Calderbank v Calderbank [1975] 3 All ER 333. As to the relevance of a Calderbank offer in the exercise of the discretion see: Stewart v Atco Controls Pty Ltd (in liquidation) [No 2] (2014) 252 CLR 331 at [4]. 17 The offer was put in this way: Our client offers to settle the proceeding on the basis that your clients pay to it the sum of $750,000 in full and final satisfaction of the dispute (Settlement Sum). The Settlement Sum is: 1. inclusive of interest; 2. inclusive of costs; and 3. to be paid within 14 days of acceptance of this offer. This offer is open until 10am on 1 December 2015 and is binding upon acceptance. 18 The offer was, evidently enough, not accepted. I infer that it lapsed at 10:00am on 1 December 2015. 19 The question of whether the respondents acted reasonably or unreasonably in rejecting an offer to settle "the proceeding" inclusive of interest and costs to that point in time in the amount of $750,000 is informed, in part, by whether that figure exceeds the quantum of the judgement ultimately obtained by the applicant. 20 The settlement offer of 30 November 2015 is in an amount of $750,000. The final judgment given on 17 June 2016 (amending the earlier judgment of 10 June 2016) is in an amount of $800,422 plus interest of $84,949.82 constituting a total of $885,371.82. However, the respondents emphasise that on 30 November 2015 when the offer was made the relief claimed by the applicant amounted to only $673,210.38 plus interest. That amount, although the measure of the claim, was made in error. It was only identified as a calculation error by the applicant after final judgment was delivered on 10 June 2016. Thus, on 17 June 2016 orders were made amending the final judgment to reflect the correct figure of $800,422. The respondents say that the reasonableness of the 30 November 2015 offer must be viewed in the context of the lower figure of $673,210.38 which was, in fact, the amount of the applicant's claim at the time. They also say that this lack of clarity meant that it was not possible to properly assess the extent of compromise involved at the time and that the offer was only open for less than 24 hours. 21 The applicant says that the 30 November 2015 offer was inclusive of both interest and costs. At the date of the offer the interest (on the amount of $673,210.38) amounted to $59,811.62. Since the offer of 30 November 2015 was $750,000 inclusive of interest, the offer, leaving aside costs for the moment, was one, in effect, of $690,188.38 (in respect of a claim of $673,210.38) plus interest of $59,811.62. The costs to that date, however, were $90,000. 22 On that basis, the offer ought to be seen giving full value to the costs as an offer to settle a claim of $673,210.38 plus costs of $90,000 ($762,210.38) plus interest (calculated to the date of the offer on the lower claim of $673,210.38 rather than the amended corrected claim of $800,422). If the interest calculation to that date is taken as $59,811.62, the applicant has offered to settle on 30 November 2015 a claim plus interest plus costs of $823,022.00 for $750,000. On that footing, the respondents would have then been better off by $73,022 had they accepted the offer. The offer, however, was open for only one day. The respondents had no reasonable opportunity to assess the costs. They probably could have calculated the interest from the date of filing to 30 November 2015 on an amount of $673,210.38 for themselves. However, I am not satisfied that the respondents acted unreasonably in not accepting the offer as made. 23 Accordingly, the order will be that the respondents pay the applicant's costs of and incidental to the proceeding including reserved costs on a party and party basis. 24 One further question remains. 25 The initial statement of claim filed on 23 March 2015 included a claim for damages under s 236 of Schedule 2 of the Competition and Consumer Act 2010 (Cth) referred to as the The Australian Consumer Law. On 1 December 2015, by way of leave on the first day of the trial, the statement of claim was amended to discontinue this separate claim. The respondents say that ordinarily they ought to be entitled to costs thrown away upon discontinuance of a part of a claim, taxed on a party and party basis. 26 I accept that the respondents were put to some expense in preparing to defend this aspect of the claim which was ultimately not pressed. However, I am not satisfied that any separate order ought to be made concerning these costs. The applicants were successful in the proceeding overall and ought to have their costs without any set-off or cross-order in relation to an aspect of the earlier pleading. I certify that the preceding twenty-six (26) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Greenwood. Associate: Dated: 5 April 2016