Associated Steamships Pty Ltd v Seafarers Safety, Rehabilitation and Compensation Authority

Federal Court of Australia|2020-06-17|Before: Reeves J

This case is about who should pay legal costs after a workers' compensation dispute. Associated Steamships sued the Seafarers Authority seeking contribution for compensation paid to a worker's widow. The Authority offered to settle the case in June 2018 with each side paying their own costs, explaining in detail why Associated Steamships' claims would fail. Associated Steamships rejected this offer without explanation and lost at trial and on appeal. When the case was sent back for further hearing, Associated Steamships tried to discontinue the claim to avoid paying costs. The Court ordered Associated Steamships to pay the Authority's costs on an indemnity basis (a higher rate) from the date of the rejected offer. The Court found the offer was genuine, it was unreasonable to reject it, and Associated Steamships was almost certain to lose both claims. The fact that one claim was discontinued rather than dismissed did not prevent indemnity costs being ordered for the whole case.

The applicant pay the respondent's costs of the proceeding up until 11.00 am on 24 June 2018 on a party and party basis.

INTRODUCTION 1 In Seafarers Safety, Rehabilitation and Compensation Authority v Associated Steamships Pty Ltd [2019] FCAFC 232, the Full Court set aside my judgment in this matter (Associated Steamships Pty Ltd v Seafarers Safety, Rehabilitation and Compensation Authority [2019] FCA 434) and ordered that it be remitted to me to determine Associated Steamships' equitable contribution claim. 2 The Full Court ordered Associated Steamships to pay the costs of the appeal but, understandably in the circumstances, did not deal with the costs of the proceeding. These reasons concern that issue.

THE COSTS ORDERS SOUGHT 3 In accordance with the Full Court's order, on 12 February 2020, I made orders setting Associated Steamships' equitable contribution claim down for hearing on 8 April 2020 and fixing a program to achieve that trial date. 4 On 17 March 2020, that hearing was adjourned as a part of the Court's response to the coronavirus disease of 2019 (COVID-19) pandemic. A week later, the parties were asked whether they were willing to have the matter dealt with on the papers. On 28 April, after several extensions of time, the following response was provided to the Court in an email: The applicant does not wish to press its remitted claim for equitable compensation and will shortly file an application for leave to discontinue the proceedings before his Honour. The parties wish to be heard on costs in relation to the proceeding before his Honour and are agreeable for this to be done on the papers. 5 Thereafter, during the month of May, the parties exchanged submissions on costs. In its submissions, the Authority sought orders that Associated Steamships pay its costs of the proceeding in the following terms: (a) up until 11am on 24 June 2018 on a party and party basis; and (b) … from 11am on 24 June 2018 on an indemnity basis (except in so far as those costs are of an unreasonable amount or unreasonably incurred). 6 In its submissions, Associated Steamships sought leave under r 26.12(2)(c) of the Federal Court Rules 2011 (Cth) (the Rules) to file a notice of discontinuance in respect of the remaining part of its proceeding, namely its equitable contribution claim.

THE OFFER OF COMPROMISE 7 The rationale for the indemnity costs order the Authority has sought was contained in an affidavit made by Ms Athena Cains, its lawyer, which the Authority filed in support of its submissions on costs. In that affidavit, Ms Cains deposed to having sent a letter to the solicitor for Associated Steamships on 22 June 2018 which contained an offer to settle Associated Steamships' proceeding. In her letter, Ms Cains set out, in quite some detail, why it was that the Authority believed Associated Steamships could not succeed in its claim under s 128 of the Seafarers Rehabilitation and Compensation Act 1992 (Cth) (the SRC Act), nor in its equitable contribution claim. At this point it is convenient to digress to explain what those two claims related to. 8 As explained below, Associated Steamships filed an amended statement of claim in this proceeding in April 2018. In that document it claimed that the Authority was liable to make a contribution to the compensation it had paid to the widow of an employee who had contracted skin cancer while he was working for it as a seafarer between 1972 and 1994. Associated Steamships' contribution claim was based on the fact that, during the same period, the employee concerned had also worked for two other employers for which the Authority was the "default" employer under the SRC Act (see [2019] FCA 434 at [2]-[22]). Associated Steamships' entitlement to seek contribution was put on two alternative bases: under s 128 of the SRC Act and by way of equitable contribution. In reality, therefore, this proceeding involved a dispute between two workers' compensation insurers (taking the Authority to be a nominal statutory insurer) in respect of their liability to pay the compensation mentioned above. 9 To return to Ms Cains' letter, in it she concluded by making the offer already mentioned above in the following terms: However, consistent with the parties' obligation to act in a way that is consistent with the overarching purpose provided by s 37M of the Federal Court of Australia Act 1976 (Cth), the [Authority] is willing to meet its own costs and disbursements of the proceeding if [Associated Steamships] agrees to an order that its application be dismissed. The [Authority] therefore offers to resolve this matter on the basis your clients [sic] application be dismissed and each party meet its own costs. The [Authority's] offer is made without prejudice save as to costs and in accordance with the principles set out in Calderbank v Calderbank [1975] 3 All ER 333. If [Associated Steamships] does not accept the [Authority's] offer and the Court dismisses its application and orders it to pay some or all of the [Authority's] costs you may expect that the [Authority] will seek an order that [Associated Steamships] pay the [Authority's] costs of the proceeding on an indemnity basis from the date of this letter. The [Authority's] offer remains open for acceptance in writing for a period of 21 days from the date of this letter. We also enclose for your client's attention a Notice of Offer to Compromise. That offer is made concurrent with, but not in derogation of, the Calderbank offer set out above. If, notwithstanding the matters referred to above, [Associated Steamships] considers its application is not doomed to fail we would be grateful if you could explain the reasons for this view so our client can consider its position. (Emphasis in original) 10 Ms Cains also deposed in her affidavit that, on 2 July 2018, she received a telephone call from the lawyer acting for Associated Steamships advising that Associated Steamships did not accept the Authority's offer. No explanation was given for this rejection, either during that telephone call, or in writing thereafter.

THE CONTENTIONS 11 The Authority submitted that Associated Steamships should only be given leave to file its notice of discontinuance under r 26.12(2)(c) of the Rules on the condition that it pay the costs of this proceeding. It submitted that the combination of the Full Court judgment and Associated Steamships' decision to abandon its equitable contribution claim effectively meant that Associated Steamships had failed completely in the proceeding and costs should therefore follow that event. 12 Additionally, it submitted that Associated Steamships should be ordered to pay those costs on an indemnity basis after 11.00 am on 24 June 2018 because it had made a genuine offer of compromise which Associated Steamships had unreasonably rejected. It put that contention on two alternative bases: an unreasonable or imprudent failure to accept its offer as a Calderbank offer; and/or an unreasonable failure to accept that offer within the terms of r 25.14(2) of the Rules. 13 However, on the latter, it appeared to accept that, since Associated Steamships' proceeding has not actually been dismissed, it could not rely on the presumption set up by r 25.14(2). Nonetheless, it contended that Associated Steamships "should not be permitted to circumvent the presumptive entitlement to indemnity costs that would arise by virtue of r 25.14(2) by completely capitulating at 'the heel of the hunt' and thereby avoiding their proceeding being dismissed". 14 On the former, it relied on the explanation contained in its letter of offer as to why neither of Associated Steamships' claims could succeed which, it contended, had been proved correct, and on Associated Steamships' failure to accept that offer and not provide any reasons why its explanation was incorrect. It contended that the correctness of its explanation was partly demonstrated by the Full Court decision concerning Associated Steamships' s 128 claim and partly "by the Queensland Court of Appeal's recent decision in relation [to] an analogous claim for equitable contribution in State of Queensland v Seltsam Pty Limited [2019] QCA 248". 15 For its part, Associated Steamships submitted that an order for indemnity costs required some "special or unusual feature". It advanced a number of reasons why that feature was not present in this case. First, it contended that the Authority's offer "was not a genuine offer of compromise or a Calderbank offer because the offer was an invitation to capitulate which did not involve any real or genuine compromise". Secondly, it contended that it was not unreasonable to reject the offer because "the issues raised by the application were ones on which reasonable minds could differ and as matters transpired, different minds did differ". Thirdly, it contended that its refusal to accept the offer was not unreasonable or imprudent because the question of construction of s 128 had not been determined and it was in the public interest that should occur. Further, with respect to its equitable contribution claim, it contended that the decision of the Queensland Court of Appeal in State of Queensland v Seltsam Pty Limited (2019) 291 IR 2015; [2019] QCA 248 (Seltsam), which persuaded it to "discontinue its Equitable Compensation [claim]", post-dated the offer. 16 In respect of its application for leave to discontinue its proceeding, it submitted that leave should be granted and there should be no order for costs of the equitable contribution claim because that claim has not been determined on the merits and it "acted reasonably in promptly seeking to discontinue [that claim] when it became apparent that if [Seltsam] is followed, [that claim] would be dismissed". 17 In summary, therefore, it contended that it should be ordered to pay the costs of the proceeding on the standard basis, but that there should be no order for costs in respect of the equitable contribution claim. 18 Finally, it submitted that it should be entitled to an order for the costs of the Authority's application for indemnity costs on a standard basis, assuming it were to be dismissed, or, if it were successful, it contended that any indemnity costs order should be limited to the costs of the s 128 claim and the costs of the equitable contribution claim should be ordered on a standard basis.

THE ISSUES RAISED 19 These contentions raise the following main issues: (a) Was the Authority's offer a genuine offer? (b) If so, did Associated Steamships unreasonably or imprudently fail to accept that offer? (c) If so, does that failure justify an indemnity costs order being made? (d) If so, should that order be limited to the s 128 claim or apply to the whole of the proceeding?

THE PRINCIPLES 20 First, Associated Steamships is correct in its contention that the Authority needs to point to some "special or unusual feature in the case" to justify an indemnity costs order (see Trustee for The MTGI Trust v Johnston (No 2) [2016] FCAFC 190 (The MTGI Trust) at [17] and Colgate-Palmolive Company v Cussons Pty Limited (1993) 46 FCR 225 at 233). 21 Secondly, and relatedly, as the Full Court explained in The MTGI Trust at [21]-[22], a failure to accept a Calderbank offer, or an offer of compromise, may constitute such a feature: 21 It is well-established that a failure to accept a Calderbank offer may justify the exercise of the Court's discretion to award costs on an indemnity basis. Principles referable to Calderbank offers are well-known. As the Full Court explained in Kooee Communications Pty Ltd v Primus Telecommunications Pty Ltd (No 2) [2011] FCAFC 141: 19. … The purpose of the principles governing Calderbank offers and offers of compromise in accordance with court rules is to ensure that, when one party makes another an offer that contains a genuine element of compromise, the recipient of the offer is compelled to give real consideration to the costs and benefits of prosecuting its claim by reason of the prospect of suffering an indemnity costs order should its failure to accept the offer prove unreasonable. 22 In determining whether the Court should exercise its discretion and order indemnity costs in light of a rejection by the unsuccessful party of a Calderbank offer, a key question for consideration by the Court is whether the Calderbank offer was reasonable and proposed a genuine compromise of a case brought without a realistic prospect of success: Sagacious Legal Pty Ltd v Wesfarmers General Insurance Ltd [2011] FCAFC 53 at [125]. 22 Thirdly, a "walk away" offer may constitute a genuine offer of compromise "where there is a substantial element of compromise in forgoing a potential entitlement to recover substantial costs that had been incurred by the offeror to the date of the relevant offer" (emphasis in original) (see Verrocchi v Direct Chemist Outlet Pty Ltd (No 2) [2016] FCAFC 162 (Verrocchi) at [8]). See also The MTGI Trust at [23], Barnes v Forty Two International Pty Limited (No 2) [2015] FCAFC 19 (Barnes) at [18] and Sagacious Legal Pty Ltd v Wesfarmers General Insurance Ltd [2011] FCAFC 53 (Sagacious Legal) at [129]-[132]. 23 Fourthly, apart from the question whether the offer was a genuine offer of compromise, other factors which have been taken into account in assessing whether a party acted reasonably in rejecting an offer include: the strength of the offeree's claim in the proceeding (see Sagacious Legal at [145]); the complexity of the proceeding (see Barnes at [20]); the extent of the offeror's success in the proceeding (see The MTGI Trust at [23]); the stage of the proceeding at which the offer was made and the costs likely to have been incurred to that stage (see Verrocchi at [8]); and the time allowed by the offeror to the offeree to respond to the offer (see Barnes at [19]). 24 Fifthly, when a party seeks leave to discontinue a proceeding, the costs are at the discretion of the Court (see Wotton v State of Queensland [2009] FCA 758 at [55]). Sixthly, the principles pertinent to awarding costs in that circumstance were conveniently summarised in Australian Securities Commission v Aust-Home Investments Limited (1993) 44 FCR 194 at 201, in the following terms (citations omitted): (1) Where neither party desires to proceed with litigation the Court should be ready to facilitate the conclusion of the proceedings by making a cost order … (2) It will rarely, if ever, be appropriate, where there has been no trial on the merits, for a Court determining how the costs of the proceeding should be borne to endeavour to determine for itself the case on the merits or, as it might be put, to determine the outcome of a hypothetical trial … This will particularly be the case where a trial on the merits would involve complex factual matters where credit could be an issue. (3) In determining the question of costs it would be appropriate, however, for the Court to determine whether the applicant acted reasonably in commencing the proceedings and whether the respondent acted reasonably in defending them … (4) In a particular case it might be appropriate for the Court in its discretion to consider the conduct of a respondent prior to the commencement of the proceedings where such conduct may have precipitated the litigation … (5) Where the proceedings terminate after interlocutory relief has been granted, the Court may take into account the fact that interlocutory relief has been granted … Where interlocutory relief has been granted, that fact carries no implication as to the ultimate merits of the case but does ordinarily suggest that the Court granting interlocutory relief has accepted or found that there is an arguable issue to be tried between the parties and that the balance of convenience favours the grant of that relief … 25 Seventhly, further to [24(2)] above, McHugh J made the following pertinent observations in Re the Minister for Immigration and Ethnic Affairs of the Commonwealth of Australia; Ex parte Lai Qin (1997) 186 CLR 622 at 624-625: In an appropriate case, a court will make an order for costs even when there has been no hearing on the merits and the moving party no longer wishes to proceed with the action. The court cannot try a hypothetical action between the parties [Australian Securities Commission v Aust-Home Investments Ltd (1993) 44 FCR 194 at 201]. To do so would burden the parties with the costs of a litigated action which by settlement or extra-curial action they had avoided. In some cases, however, the court may be able to conclude that one of the parties has acted so unreasonably that the other party should obtain the costs of the action [Australian Securities Commission v Aust-Home Investments Ltd (1993) 44 FCR 194 at 201] … Moreover, in some cases a judge may feel confident that, although both parties have acted reasonably, one party was almost certain to have succeeded if the matter had been fully tried … But such cases are likely to be rare. (Emphasis added; footnote citations included) See also Rickus v Motor Trades Association of Australia Superannuation Fund Pty Ltd (ACN 008 650 628) (2010) 265 ALR 112; [2010] FCAFC 16 at [117]-[119] and Rhodium Australia Pty Ltd v Deputy Commissioner of Taxation [2012] FCAFC 17 at [22].

(a) Was the Authority's offer a genuine offer? 26 With these principles in mind, I turn to consider the first of the issues above: (a) Was the Authority's offer a genuine offer? To determine this issue, it is convenient to begin by briefly reviewing the procedural history of this proceeding. 27 Associated Steamships filed its originating application on 20 February 2018. It was accompanied by a statement of claim. 28 At the first case management hearing on 29 March 2018, Associated Steamships indicated that it wished to file an amended statement of claim. Since the Authority had not filed its defence and the pleadings were, therefore, not closed under r 16.12 of the Rules, Associated Steamships was entitled to make that amendment without leave under r 16.51(1). It filed its amended statement of claim on 6 April 2018. The claims made in that document have already been summarised above. The Authority filed its defence on 18 April 2018 and Associated Steamships did not file a reply. 29 By the second case management hearing on 26 April 2018, the pleadings were closed and the matter was ready to be set down for trial. Accordingly, I fixed the trial for three days commencing on 16 October 2018 and made programming orders to achieve that trial date. They included orders that the parties file any expert evidence upon which they intended to rely at the trial. Associated Steamships failed to comply with those orders. The Authority filed a report by Professor Richard Fox. 30 The matter proceeded to trial on the date mentioned above. At the trial, the parties submitted an agreed statement of facts and also agreed the quantum of the contribution payable should the Authority be held liable (see [2019] FCA 434 at [4] and [23] respectively). The trial was therefore confined to legal arguments concerning the construction of s 128 and Associated Steamships' entitlement to claim equitable contribution from the Authority. 31 It follows from this review that, when the Authority made its offer on 22 June 2018, the proceeding had been on foot for approximately four months, it had been set down for trial approximately two months earlier and that trial was due to commence in less than four months' time. From this set of circumstances, I can infer that the parties were likely to have been reasonably well advanced in their preparations for trial and were, therefore, likely to have each incurred a proportion of the costs of that trial. Nonetheless, there is no evidence of the quantum of those costs. The Full Court was similarly bereft of evidence in Sagacious Legal, yet it was willing to infer that an offer made at a very early stage in the proceedings involved "some costs" being forgone (see Sagacious Legal at [133]). In this matter, given the procedural history set out above, I consider I can be reasonably confident that the costs incurred by the time of the Authority's offer were not insignificant. Accordingly, I consider the Authority's offer involved a sufficient element of compromise that it was a genuine offer.

(b) Did Associated Steamships unreasonably or imprudently fail to accept that offer? 32 That brings me to the next issue: (b) Did Associated Steamships unreasonably or imprudently fail to accept that offer? To answer that question, it is necessary to briefly analyse the contentions the Authority's lawyers put about the likely prospects of Associated Steamships' claims as set out in Ms Cains' letter of 22 June 2018. However, before doing so, it is appropriate to note a matter which affects this issue. That is, that the Authority's offer was stated to be open to be accepted within 21 days. 33 Turning, then, to the contentions mentioned above, first, with respect to the s 128 claim, those contentions extended to approximately one and a half pages. They identified numerous sections of the SRC Act and they put forward detailed, but succinct, legal arguments as to why the word "compensation" in s 128 should be construed to refer to compensation "paid under and in accordance with" the SRC Act. Similarly with respect to the equitable contribution claim, they put forward a detailed legal argument as to why the equitable doctrine of contribution was excluded by s 128. 34 Both arguments were therefore legal in nature in the sense that they revolved around the construction of s 128 and whether the equitable doctrine of contribution applied in the circumstances. Conversely, there were few, if any, factual issues involved. It could not therefore be said that the proceeding was particularly complex. It involved two interconnected binary questions, both founded on the construction of s 128 of the SRC Act. 35 It is a matter of history that the Authority was ultimately successful before the Full Court in its argument with respect to Associated Steamships' s 128 claim. In broad terms, the Authority's arguments on that claim at trial, and on appeal to the Full Court, proceeded along essentially the same lines as set out in the Authority's letter of offer. While its arguments with respect to Associated Steamships' equitable contribution claim will not now be determined by this Court, since Associated Steamships now accepts that the judgment in Seltsam, if applied to that claim, would lead to its dismissal, it necessarily follows that the Authority would also have been successful in that claim. That, all the more so, where Seltsam is an intermediate Court of Appeal judgment and Associated Steamships has not advanced any reason why it should not be followed. Again, without descending into detail, in broad terms, the Authority's argument on that claim was essentially the same as that accepted in Seltsam. 36 It follows from the above that I consider this is one of those rare cases where I can conclude that the Authority was almost certain to have succeeded if Associated Steamships' equitable contribution claim had been fully tried. So, having regard to all these factors, I consider it was unreasonable and imprudent for Associated Steamships to fail to accept the Authority's offer.

(c) Does that failure justify an indemnity costs order being made? 37 The third issue above poses the question whether that failure justifies an indemnity costs order being made against Associated Steamships. In this respect, it is to be noted that the Authority's offer was put on two bases: as a Calderbank offer and as an offer of compromise under r 25.14(2). Dealing with the latter first, r 25.14 provides: (1) If an offer is made by a respondent and not accepted by an applicant, and the applicant obtains a judgment that is less favourable than the terms of the offer: (a) the applicant is not entitled to any costs after 11.00 am on the second business day after the offer was served; and (b) the respondent is entitled to an order that the applicant pay the respondent's costs after that time on an indemnity basis. (2) If an offer is made by a respondent and an applicant unreasonably fails to accept the offer and the applicant's proceeding is dismissed, the respondent is entitled to an order that the applicant pay the respondent's costs: (a) before 11.00 am on the second business day after the offer was served - on a party and party basis; and (b) after the time mentioned in paragraph (a) - on an indemnity basis. (3) If an offer is made by an applicant and not accepted by a respondent, and the applicant obtains a judgment that is more favourable than the terms of the offer, the applicant is entitled to an order that the respondent pay the applicant's costs: (a) before 11.00 am on the second business day after the offer was served - on a party and party basis; and (b) after the time mentioned in paragraph (a) - on an indemnity basis. Note 1: Costs on an indemnity basis is defined in the Dictionary. Note 2: The Court may make an order inconsistent with these rules - see rule 1.35. (Emphasis added) It can be seen that a pre-condition to the operation of that rule is that "the applicant's proceeding is dismissed". Because of the peculiar circumstance in this matter, that Associated Steamships has sought leave to discontinue this proceeding rather than allow it to be dismissed, I do not consider the Authority can rely upon r 25.14(2). However, in the circumstances, I do consider it can rely upon its offer as a Calderbank offer. On that basis, and without repeating the reasons set out above, I consider its failure to accept that offer comprised the "special or unusual feature" in this case that justifies an indemnity costs order being made.

(d) Should that order be limited to the s 128 claim or apply to the whole of the proceeding? 38 The final issue above is: (d) Should that order be limited to the s 128 claim or apply to the whole of the proceeding? For the following reasons, I consider it should. First, I reject Associated Steamships' attempt to quarantine its equitable contribution claim from dismissal. For the reasons set out above, I consider it was almost certain to fail on that claim. Secondly, I reject Associated Steamships' contention that it should escape liability for the costs associated with the failure of its claims because "minds could differ" about them. That is almost always the case in contested matters before a court, but when the court determines a matter against the position taken by one of the opposing "minds" or parties, that does not mean that party should not indemnify the other party against the legal costs of having to prove it wrong. That, after all, is the primary purpose of an award of costs (see Bell Lawyers Pty Ltd v Pentelow (2019) 93 ALJR 1007; [2019] HCA 29 at [33]). 39 Thirdly, I reject Associated Steamships' faint contention that it was acting in the public interest in having s 128 construed. To the contrary, I consider its interests were entirely private and commercial (see Northern Territory v Sangare (2019) 265 CLR 164; [2019] HCA 25 at [33]). 40 For these reasons, the indemnity costs order should apply to both of the claims it pursued in this proceeding. While this conclusion is not based on the provisions of r 25.14, noting the terms of the Authority's offer (at [9] above) and in the absence of any submission to the contrary from Associated Steamships, I consider it is appropriate, in the circumstances, to adopt the commencement time and date specified in that rule as anticipated by the orders sought by the Authority (at [5] above).

CONCLUSION 41 For the reasons set out above, I consider the Authority is entitled to the orders set out at [5] above. In order to avoid any confusion, I indicate that the second part of those orders will apply to the costs of this application for costs. 42 Finally, subject to those orders, I will order that Associated Steamships has leave to file a notice of discontinuance of this proceeding in accordance with r 26.12. I certify that the preceding forty-two (42) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Reeves.

Outcomeappellant

Disposition:

Orders made: (1) Applicant to pay respondent's costs up until 11:00 am on 24 June 2018 on party and party basis; (2) Applicant to pay respondent's costs from 11:00 am on 24 June 2018 on indemnity basis (except unreasonable costs); (3) Applicant granted leave to file notice of discontinuance under r 26.12

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