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[2007] FCA 878
Federal Court of Australia
2007-06-12
Tracey J
Original judgment source is linked above.
REASONS FOR JUDGMENT 1 I delivered judgment in this matter on 18 May 2007: see [2007] FCA 708. The trial had occupied nine sitting days. The applicant pleaded causes of action in rectification, contractual breach of a lease, waste, unconscionable conduct contrary to ss 51AA and 51AC of the Trade Practices Act 1974 (Cth) and contraventions of ss 52 and 53(g) of that Act and sought various forms of relief. In the event the applicant was only successful on the claim that the respondent had breached a clause of the lease which required it to obtain the written approval of the applicant before undertaking significant structural alterations to the leased premises. Damages of $34,820.00 were awarded to the applicant. I invited submissions from the parties as to what costs orders should be made. 2 The respondent has submitted that the Court should order that: · The respondent pay the applicant's costs of the proceeding to 11:00 am on 26 November 2005, including any reserved costs to that time, taxed on a party-party basis reduced by one third; and · The applicant pay the respondent's costs of the proceeding from 11:00 am on 26 November 2005, including any reserved costs after that time and including the respondent's costs ordered to be paid by the applicant pursuant to the order of the Court made on 19 October 2006, taxed on an indemnity basis. 3 Indemnity costs were sought because the applicant had rejected an offer of compromise for $140,000 on 25 November 2005. Reliance was placed on O 23 r 11(5) of the Federal Court Rules ("the Rules") which deals with the consequences of the rejection of an offer of compromise in circumstances where the rejecting party fails to obtain judgment in a sum more favourable than the terms of the offer. The one third reduction proposed in relation to the period before the offer was rejected was justified by reference to O 62 r 36A(1) which provides for such a reduction where judgment is awarded for less than $100,000. 4 The applicant submits that the Court should order that: · The respondent pay the applicant's costs of the proceeding to 11:00 am on 26 November 2005, including any reserved costs to such time, taxed on a party-party basis; and · The applicant pay 75 percent of the respondent's costs of the proceeding from 11:00 am 26 November 2005, including any reserved costs after such time, taxed on an indemnity basis. 5 The applicant seeks to support a departure from the general rule contained in O 23 r 11(5) by reference to the time devoted at trial (estimated at 50 percent of hearing time) to the issue on which the applicant was successful and because of some assertions made in the witness statement of one of the respondent's witnesses (but later deleted) which it is said led to the prosecution of the rectification claim. The applicant seeks to justify a departure from the general rule established by O 62 r 36A(1) by pointing to what is said to be the "special degree of legal complexity" involved in the proceeding.
O 23 r 11(5) 6 Order 23 r 11(5) provides for the making of orders of the kind sought by the respondent (apart from the proposed one third reduction in relation to costs incurred prior to 26 November 2005). Indeed, such orders would be taken to have been made by force of the rule unless the Court otherwise orders. The rule is plainly directed to encouraging parties to give the most serious possible consideration to offers of compromise; they are not lightly to be rejected. As the applicant acknowledged, it carries a heavy burden when seeking to persuade the Court to determine that the rule should not operate in this case. 7 Issues based apportionment of costs will be appropriate in certain circumstances. It is not easy, however, to accept that the results of any issues based analysis can have a bearing on the question of whether the general rule which is stipulated in O 23 r 11(5) should not operate in a particular case. Subject to a contrary order of the Court that provision will operate if the quantum of damages which is awarded by the Court is less than the offer of compromise. An applicant may thus succeed on all issues and still be required to pay costs on an indemnity basis in the period after the offer was rejected. Although it may be accepted, in the present case, that the trial may have been somewhat shorter had the respondent conceded the breach of the lease, this, in my opinion, is not sufficient to warrant a departure from the consequences prescribed by O 23 r 11(5). The respondent's defence of its position in relation to the breach of the lease was at least arguable and it did not, in pursuing its defence, unreasonably prolong the trial. 8 The particular paragraph in the witness statement which it is said provoked the rectification claim related to correspondence and discussions between the parties "during the second half of 1997 and in 1998". They related to the witness's recollections as to why it was that he was disposed to accept or not oppose repeated assertions by the applicant that the respondent had an obligation, under the lease, to reinstate the building (including the foyer) at the end of the lease. As I held in my principal judgment (at [61] - [63]) the relevant time at which the necessary common intention had to exist was the time at which the lease was executed in December 1996. Evidence as to one witness's state of mind in the latter part of 1997 and in 1998 could have had no bearing on his intention (assuming it to be relevant) in December 1996. Furthermore, the witness specifically said that he had not been involved in the negotiation of the lease. 9 I therefore decline to make any order which would displace the operation of O 23 r 11(5) in this case.
ORDER 62 r 36A(1) 10 Order 62 r 36A(1) of the Rules provides that, where a party is awarded damages for less than $100,000 on a claim for a money sum or damages, any costs ordered to be paid will be reduced by one third of the amount otherwise allowable unless the Court otherwise orders. 11 As French J held in Collier Constructions Pty Ltd v Foskett Pty Ltd (1992) 33 FCR 591 at 592, the purpose of the subsection "is to require prospective applicants in proceedings in this Court, when the money sum or damages claim is likely to be modest, to consider the desirability to proceeding in another jurisdiction …" 12 The damages sought by the applicant in this proceeding were far from modest. They amounted to $1,380,000. This was not a case which, had the applicant's principal submissions been accepted, it was likely that the best that could be hoped for by way of damages would have been less than $100,000. Moreover, the issues were complex as evidenced by the engagement, on both sides, of senior counsel and the length of the submissions made on behalf of both parties: cf Tu v Pakway Australia Pty Ltd (2006) 227 ALR 287 at 293. These considerations warrant, in my view, a departure from the general rule. 13 There should, therefore, be an order that costs not be reduced pursuant to O 62 r 36A(1) of the Rules. Save for the addition of this order and the deletion of the words "reduced by one third" in the first of the two orders proposed by the respondent the orders of the Court should be in accordance with those proposed by the respondent.
I certify that the preceding thirteen (13) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice TRACEY.
Associate: Dated: 12 June 2007 Counsel for the Applicant: Mr M Colbran QC & Mr I Upjohn
Counsel for the Respondent: Mr C Macaulay SC & Mr T Woodward
Solicitor for the Respondent: Mallesons Stephen Jaques
Date of Hearing: (Written Submissions received 23 & 28 May 2007)
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