Bradshaw v Emirates

The applicable principles 13 The award of costs is in the discretion of the Court: Federal Court of Australia Act 1976 (Cth), s 43(2). The discretion is broad but is to be exercised judicially. The fundamental purpose of the discretion is to compensate the successful party, not to punish the unsuccessful party. In general, a successful party will obtain an order for costs in its favour. See PKT Technologies Pty Ltd (formerly known as Fairlight.au Pty Ltd) v Peter Vogel Instruments Pty Ltd (No 2) [2020] FCAFC 46 at [14]. 14 The ordinary rule is that the costs follow the event: Idenix Pharmaceuticals LLC v Gilead Sciences Pty Ltd (No 2) [2018] FCAFC 7 at [3]. However, in recognition of the policy of encouraging parties to settle their disputes, and that disputes should proceed to trial only as a last resort, there are circumstances in which even a successful party will be ordered to pay the costs of the unsuccessful party: Tickell v Trifleska Pty Ltd (1990) 25 NSWLR 353 at 354-355; Clark v ING Life Ltd [2007] FCA 1960 at [25]. It is for that reason that a without prejudice offer will be admissible and relevant for the purpose of exercising the costs discretion: Calderbank at 342-343. 15 Rejection of an offer of compromise that is made outside of the Rules, e.g., a Calderbank offer, followed by a result at trial that is less favourable to the offeree than the offer that was rejected does not automatically result in indemnity costs against the offeree; in order for there to be an indemnity costs order, the respondent must show that the applicant's rejection of their offer was so unreasonable as to justify indemnity costs: Inspector-General in Bankruptcy v Bradshaw (No 2) [2006] FCA 383 at [18]. It has been said that "an imprudent refusal of an offer of compromise" will warrant the exercise of the discretion to award indemnity costs: Colgate Palmolive Co v Cussons Pty Ltd [1993] FCA 801; 46 FCR 225 at 233; Hazeldene's Chicken Farm Pty Ltd v Victorian WorkCover Authority (No 2) [2005] VSCA 298; 13 VR 435 at [18]. 16 Insofar as the Rules are concerned, r 25.01 provides that a party may make an offer to compromise by serving a notice, in accordance with Form 45, on another party. Rule 25.03 specifies the necessary content of a notice of offer to compromise, which relevantly includes stating whether the offer is inclusive of costs. Such an offer may be made at any time before judgment is given (r 25.05(1)) and it may be limited in time for which it is open to be accepted provided that the time must not be less than 14 days after the offer is made (r 25.05(3)). 17 Rule 25.14 deals with the circumstances where an offer to compromise under the Rules is not accepted. Each sub-rule deals with a different circumstance, with sub-rr (1) and (2) dealing with the non-acceptance by an applicant of an offer made by a respondent, and sub-r (3) dealing with the non-acceptance by a respondent of an offer made by an applicant. 18 Rule 25.14(1) provides that if an offer is made by a respondent and it is not accepted by an applicant, and the applicant obtains "a judgment that is less favourable than the terms of the offer", the applicant is not entitled to any costs after 11.00 am on the second business day after the offer was served and the respondent is entitled to an order that the applicant pay the respondent's costs after that time on an indemnity basis. 19 It is to be noted that that sub-rule (and sub-r (3)) does not qualify the non-acceptance of the offer with the word "unreasonable", i.e., in the terms of the rule, in order for the consequences of the non-acceptance of the offer to take effect it is not necessary that that non-acceptance was unreasonable. That is in contrast to sub-r (2) which provides that if an offer is made by a respondent and the 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 on a party and party basis up to 11.00 am on the second business day after the offer was served, and on an indemnity basis thereafter. 20 At first blush it might be thought to be anomalous that sub-r (1) does not require the non-acceptance of the offer to be unreasonable in order for the consequences to be enlivened, whereas sub-r (2) does. However, on further consideration it is apparent that the difference is intended and it has a rational purpose. Its purpose is to encourage genuine offers of compromise and to avoid a respondent putting themselves at an advantage by making a miserly offer (e.g., $1) so that if the claim is dismissed they would be entitled to indemnity costs thereafter - such an unjust outcome is avoided by requiring the non-acceptance of the offer to be unreasonable. In contrast, sub-r (1) does not require an examination as to whether the applicant unreasonably failed to accept the offer because it applies only if the applicant obtains a judgment in its favour. The costs consequences, subject to the exercise of discretion, follow if the applicant obtains a judgment less favourable than the respondent's offer. See Commissioner of Taxation v Crown Insurance Services Ltd (No 2) [2012] FCAFC 182 at [29]-[32]; Sandoz Pty Ltd v H. Lundbeck A/S (No 2) [2021] FCAFC 47 at [17]. 21 Despite the apparently mandated consequences that follow upon the conditions in the chapeau to r 25.14(1) being met, there is a discretion to make a contrary order which arises from the effect of r 1.35. That rule provides that the court may make an order that is inconsistent with the Rules and in that event the order will prevail. It has been said that in the event that the conditions triggering the operation of r 25.14(1) are made out, there is a rebuttable presumption in favour of, rather than an entitlement to, indemnity costs: Specsavers Pty Ltd v The Optical Superstore Pty Ltd (No 4) [2012] FCA 652 at [10].

Consideration 22 The respondent's 9 July 2019 Calderbank offer of $5,000 inclusive of costs was equal to or less than what the applicant ultimately achieved and consequently gives rise to no special costs consideration. 23 However, the respondent's 30 January 2020 offer to compromise the proceeding is material. There is no dispute that it satisfies the requirements of such an offer under Pt 25 of the Rules. It constitutes an express offer to pay $15,000 plus costs. It was not accepted by the applicant, and the applicant subsequently achieved a less favourable outcome. The conditions for the operation of r 25.14(1) are therefore satisfied and, subject to the court's discretion, the consequence of that rule should follow. Those are that from 11.00 am on Monday, 3 February 2020, the respondent is entitled to its costs on an indemnity basis. 24 The question then is, are there discretionary reasons not to make a costs order consistent with r 25.14(1)? 25 The principal submissions advanced by the applicant as to why he should not be subjected to an indemnity costs order is that such an order would be inconsistent with the position taken by the respondent in correspondence, in its defence and at trial. That position was that the applicant's claim was subject to the Civil Liability Act and that the applicant's entitlement to costs would be limited under the Legal Profession Uniform Law Application Act 2014 (NSW). On that basis, it is said on behalf of the applicant that the respondent "abandoned reliance upon the Federal Court Rules … as applies to the assessment of costs". 26 A further and related submission on behalf of the applicant is that the offer to compromise of 30 January 2020 in the sum of $15,000 plus costs must be disregarded because earlier communications from the respondent had asserted that the applicant would only be entitled to costs on the limited basis allowed for a personal injuries claim under the Application Act. Those communications included a telephone conversation between the parties' solicitors on 26 June 2019 in which the respondent's solicitor asserted that the applicant's claim would be subject to costs restrictions consequence on it being subject to the Civil Liability Act. On that basis it is said that the respondent's offer to settle did not encompass a costs liability beyond $10,000. 27 The applicant then submits that "it was not reasonable for the Applicant to consider the offers made by the Respondent, and the Court should exercise its discretion to make a costs order in favour of the Applicant". 28 The applicant's submissions must be rejected for a number of reasons. 29 First, the 30 January 2020 offer was on the Federal Court's Form 45 and was expressly made under the Rules. On it terms, the offer to pay costs could only have been reasonably understood as being the costs as assessed under the Rules, not under some other costs regime. If the offer had been accepted and the applicant had claimed his costs there is no basis on which the respondent could have contended that the costs should be assessed other than under the Rules. 30 Secondly, since the respondent had asserted in correspondence and its defence that the Civil Liability Act applied and on that basis the applicant was not entitled to any general damages, the offer to compromise which offered far more than the pecuniary damages that the applicant had ever claimed was obviously made as a compromise against the possibility that the Civil Liability Act was found not to apply. Therefore, it was not inconsistent for the respondent to assert that the Civil Liability Act applied and to make an offer to compromise that was not subject to the costs limitations that would apply only if the Civil Liability Act did apply; the premise of the offer was the possibility that the respondent's contentions with respect to the Civil Liability Act would not be accepted. 31 In light of those considerations, the applicant has failed to adduce any evidence or to advance any coherent argument as to why it was reasonable for him to not accept the respondent's offer of 30 January 2020. Indeed, given the weakness of his evidence at trial supporting any claim for pecuniary damages and any significant claim for non-pecuniary damages, if his non-acceptance of the offer was on the basis of legal advice, a serious question arises as to the reasonableness of that advice. In the circumstances as they pertained at the end of January 2020, the applicant should have been advised to accept the respondent's offer. Unfortunately, he did not do so and now he faces the consequences stipulated by r 25.14(1), there being no basis to make an inconsistent order under r 1.35. 32 All that said, there does not appear to be any reason why the applicant should not have his costs up until 11.00 am on 3 February 2020. The respondent submits, to the contrary, that the applicant failed to achieve a better result at trial than the 9 July 2019 offer of $5,000 inclusive of costs on the basis that that was before the proceeding was commenced and therefore there was no entitlement to costs at that stage. On that basis the respondent submits that it should be awarded indemnity costs from that date. I take that also as a submission against the applicant being entitled to costs up to 3 February 2020. 33 Although it is in a sense true that the applicant did not better the offer at trial, that does not have the results contended for by the respondent. The result achieved by the applicant at trial was not less favourable than the Calderbank offer; he achieved $5,000 at trial which, costs aside, is equal to the Calderbank offer. If costs are taken into account, then given the incurring of costs before 9 July 2019 and the inevitable incurring of costs in order to take advice on the offer, the result (thus far) at trial of $5,000 excluding costs is better than the offer. The costs should be taken into account because once a proceeding is commenced, costs incurred prior to the proceeding are recoverable on a party and party bill of costs: see rr 40.29 and 40.30 and Sch 3 of the Rules; State of Victoria v Sportsbet Pty Ltd (No 2) [2012] FCAFC 174 at [14]-[15]; W Win Engineering Pty Ltd v Wiggins [2016] FCA 967 at [48]. 34 In any event, it was not unreasonable or imprudent of the applicant not to accept the offer of 9 July 2019. The offer is therefore no basis for an indemnity costs order in the respondent's favour. It is also no basis for an ordinary costs order in the respondent's favour. 35 For those reasons, the 9 July 2019 offer by the respondent and the applicant's non-acceptance of that offer do not disentitle the applicant to his costs up to 3 February 2020. 36 There is the possibility that the costs that the applicant is entitled to for that period should be reduced under r 40.08 because he claimed and was awarded damages of less than $100,000 and the proceeding could more suitably have been brought in another court. However, the respondent has made no application under that rule. Cf. Dutton v Bazzi (No 2) [2021] FCA 1560 at [37]ff.

Conclusion 37 In the result, there should be orders as follows: (1) Judgment for the applicant against the respondent in the sum of $5,000.00; (2) The respondent pay the applicant's costs, as taxed or agreed, up to 11.00 am on 3 February 2020; (3) The applicant pay the respondent's costs on an indemnity basis, as taxed or agreed, thereafter; and (4) The various orders be set-off against each other. I certify that the preceding thirty-seven (37) numbered paragraphs are a true copy of the Reasons for Judgment of the Honourable Justice Stewart.