Background
5 The pre-trial phase of this matter was extensive. Numerous interlocutory applications were made by various parties.
6 The trial involved substantial claims by both parties. There were 7 witnesses for the respondents and 11 witnesses for the appellants. The evidence filed was voluminous. The respondents to the appeal (the applicants below) initially pursued a claim for approximately $22 million. On 17 February 2012, Barnes and Hawksley (the appellants to the appeal and the respondents below) filed a cross-claim seeking damages for misleading or deceptive conduct in the amount of $41 million.
7 Reasons for judgment were delivered by his Honour on 18 February 2014 ([2014] FCA 85). On 14 March 2014, following the filing of written submissions, his Honour ruled on costs ([2014] FCA 217) and ordered that judgment be entered against the appellants in favour of BlueFreeway in the sum of $3,062,406.93 comprising damages of $2 million together with interest. His Honour described the $2 million as the "quantum of damages [which] reflects the loss of BlueFreeway's opportunity or chance to negotiate a termination payment with the respondents which [was] less than the $16 million which was actually paid" (at [3]). That damages head and method of calculation applied both to the cause of action based upon the breach of the implied term of the share purchase agreement and the cause of action based upon the misleading or deceptive conduct. The cross-claim was dismissed. Other consequential orders were made.
8 His Honour awarded the respondents to the appeal 75% of their combined costs of the claim and the cross-claim. His Honour stated that the 25% reduction reflected issues on which the respondents had failed at trial or which had been abandoned during the course of the proceedings. His Honour also noted that "the cross claim took up significant time and resources and the respondents [at trial] failed" ([2014] FCA 217 at [15]). Before us, the appellants have submitted that the cross-claim added little by way of additional cost as it was filed late in the proceeding and relied substantially on affidavits already in evidence. But we see no reason to depart from his Honour's description.
9 On 2 April 2014, the appellants appealed the judgment of Griffiths J on various grounds, some of which they succeeded upon, being:
First, it was said that his Honour was in error in finding the implied term of the share purchase agreement contended for by BlueFreeway (ground 1). Further, it was asserted that he was in error for finding a breach thereof (ground 2). Further, it was said that he should also have found that the loss claimed did not fall within either limb of Hadley v Baxendale (1854) 9 Exch 341; 156 ER 145 (Hadley v Baxendale) (ground 3). Grounds 1-3 were upheld by us.
Second, it was said that his Honour was in error in various respects in relation to his findings on liability on the misleading or deceptive conduct case (grounds 4-6). Each of those grounds were rejected by us.
Third, it was said that his Honour erred in finding in favour of BlueFreeway on its claim for damages based upon the value of a lost opportunity or chance to negotiate, which the appellants asserted had not been pleaded, opened or run during the course of evidence (ground 7); further, that his Honour should have dismissed BlueFreeway's claim for damages (ground 8). Grounds 7 and 8 were upheld.
Fourth, it was said that in any event his Honour erred in his valuation of the lost opportunity (grounds 9 and 10). Those grounds were rejected.
Finally, it was said that his Honour erred with respect to his construction and application of a release provision embodied in clause 10 of the exit agreement (grounds 11-14). Those grounds were rejected.
The appellants did not appeal against his Honour's dismissal of their cross-claim.
10 On 14 November 2014, we delivered our reasons for judgment on the appeal ([2014] FCAFC 152), allowing the appeal and finding that the award of damages of $3,062,406.93 made by his Honour should be set aside with the originating application being dismissed. As was explained at [30]:
The amount and basis for the damages award based on a lost opportunity, which was common to both the cause of action for breach of an implied term of the share purchase agreement and the cause of action for misleading or deceptive conduct, was neither pleaded nor opened. Further, the case was not conducted by BlueFreeway on that basis, and appears to have arisen as an afterthought during closing written submissions and oral closing addresses. As his Honour did not find in favour of BlueFreeway on its pleaded case on damages, in such circumstances, his Honour should have dismissed the proceedings, rather than finding for BlueFreeway on an alternative damages basis that was neither pleaded nor run at trial. Further, and in any event, to the extent that his Honour's damages award rested upon a finding of a breach of an implied term of the share purchase agreement, such a finding was not maintainable; no such implied term ought to have been found; in any event, there was no breach thereof; moreover, the finding of damages based upon a loss of opportunity did not fall within either limb of Hadley v Baxendale.
11 We proposed that the costs of both the trial and the appeal follow the event, subject to certain carve outs with respect to the costs of various interlocutory steps below, and indicated that we intended to make final orders in the following terms:
1. Paragraphs 1 and 2 of the orders made by Griffiths J on 14 March 2014 be set aside and in lieu thereof it be ordered that:
"The further amended application filed on 5 May 2011 be dismissed."
2. Paragraph 4 of the orders made by Griffiths J on 14 March 2014 be set aside and in lieu thereof it be ordered:
"4. (a) Subject to paragraph (c), the applicants pay the respondents' costs of and incidental to the applicants' further amended application filed on 5 May 2011.
(b) Subject to paragraph (c), the respondents pay the applicants' costs of and incidental to the respondents' cross claim filed on 17 February 2012.
(c) There be no order as to costs in relation to:
i) the costs of and in relation to the notice of motion filed by the applicants on 19 November 2009;
ii) the costs of and in relation to the notice of motion filed by the respondents on 4 December 2009;
iii) the costs of and in relation to the notice of motion for security for costs filed by the respondents on 17 November 2009;
iv) the costs of and in relation to the notice of motion filed by the respondents on 16 February 2011;
v) the costs of the notice of motion filed by the respondents on 8 April 2011;
vi) the costs of the interlocutory application filed by the applicants on 17 November 2011 (relating to the confidentiality of certain documents produced on subpoena by the National Australia Bank);
vii) the costs of and incidental to the interlocutory hearing on 28 February 2012; and
viii) the costs of the applicants' interlocutory application filed on 29 February 2012."
3. The respondents pay the appellants' costs of and incidental to this appeal.
12 Following the delivery of our reasons, the Court made orders on 14 November 2014 affording the parties an opportunity to file written submissions regarding the form of final orders including costs. Time for the filing of submissions was subsequently extended.
13 On 28 November 2014, the appellants filed submissions on the proposed form of orders. The appellants have submitted that they are entitled to indemnity costs in relation to the trial costs from 3 November 2012 onwards on the basis of a Calderbank offer (see Calderbank v Calderbank [1975] 3 All ER 333), alternatively from 15 November 2012 on the basis of an offer of compromise made by the appellants before the commencement of the trial, both offering that all claims (principal claim and cross-claim) be dismissed with no order as to costs in favour of any party.
14 In support of their claim to indemnity costs, the appellants have relied upon an affidavit of Albert Kim Barnes sworn on 28 November 2014 (Barnes' affidavit) and a bundle of letters, being correspondence containing the offers made by the parties at the pre-trial stage approximately 4 years after the commencement of the proceeding. Specifically, the offers were as follows:
The first offer was a Calderbank offer made by the appellants' solicitors below, Herbert Geer, to the respondents by way of a letter dated l November 2012 (the first offer) stating that the appellants would be prepared to agree to a full and final resolution of the proceedings on the basis that the parties agreed to discontinue all proceedings with no orders being made as to costs. The first offer was made shortly following a mediation and direct negotiations between the parties. The offer was open for a short period of time only, until 5 pm on 2 November 2012. The respondents' solicitors below, Argyle Lawyers, replied to the first offer on 2 November 2012 and rejected the offer stating that their clients were "not prepared to accept any settlement which [did] not involve receipt by them of a financial settlement from your clients". The respondents have submitted that the first offer cannot be considered an effective offer as they were only given a short time to respond, which they argued was not a reasonable timeframe.
The appellants' second offer by way of a letter from their solicitors below dated 13 November 2012 (the second offer) was an offer of compromise made pursuant to r 25.01 of the Federal Court Rules 2011 (Cth) (the Rules) on the basis that all claims (including cross-claims) be dismissed, any prior costs orders made be vacated and each party pay their own costs of all proceedings. That offer was open for 14 days from the date of service of the offer. The respondents' solicitors below responded to the second offer by way of letter dated 29 November 2012, rejecting the offer of compromise and making a Calderbank offer in reply. In summary, they offered to settle the proceedings on the basis that the appellants pay $3 million inclusive of costs as cleared funds on or before 21 December 2012, or otherwise that judgment be entered in the respondents' favour for the sum of $16,436,488 (the full amount claimed) plus costs and that consent orders be signed giving effect to this. That offer was expressed to remain open for acceptance until 9.30 am on 3 December 2012 (the first day of the trial). The appellants rejected it.
15 In support of the present application for indemnity costs, Barnes has deposed that he and Hawksley had agreed to divide the legal fees and disbursements charged by their then solicitors Herbert Geer, who represented them at trial, between them equally. Barnes deposed that as at 20 March 2013, the cumulative amount of fees invoiced to him totalled $1,801,634.06 representing half of the total fees and disbursements charged by Herbert Geer. The invoiced fees incurred by Barnes as at 26 November 2012 totalled $1,250,197.35.
16 On 5 December 2014, the respondents filed an outline of submissions regarding the proposed form of orders. The respondents have opposed the making of any order for indemnity costs and submitted that the appellants are entitled only to the costs orders proposed by us (see [11]). The respondents further submitted that the costs payable by the respondents in respect of the trial costs should be set-off against the costs payable by the appellants to the respondents in respect of the cross-claim. On the question of the set-off, we consider that to be appropriate and the appellants have not objected thereto. The Rules do not provide for such a set-off and a set-off at common law or in equity may be problematic for reasons that we do not need to elaborate on for present purposes. We will make the appropriate set-off order.
17 It is noted that the parties have not objected to our proposed order 1. There was also no objection to our proposed order 3, that the respondents pay the appellants' costs of and incidental to this appeal. There were also no objections to the carve outs suggested in relation to the costs of various interlocutory applications below. The key issue between the parties is the indemnity costs question.