Dig It Landscapes Pty Ltd (in liq) v Bupa Aged Care Australia Pty Ltd

1. The applicant must pay the respondent's costs of the proceeding, to be assessed if not agreed.
2. The costs incurred before 11.00 am AWST on 21 December 2020 must be assessed on a party-party basis, and the costs incurred thereafter must be assessed on an indemnity basis.
3. The respondent is entitled to be paid out of Court, in partial satisfaction of the applicant's costs liability, the sum of $35,000 that the applicant paid in pursuant to the orders made on 5 November 2020.
4. The costs of and incidental to the respondent's application for indemnity costs are costs in the cause. Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

JACKSON J: 1 In Dig It Landscapes Pty Ltd (in liq) v Bupa Aged Care Australia Pty Ltd (No 2) [2024] FCA 31 (Dig It (No 2)), the Court dismissed the claim of the applicant, Dig It, in this proceeding. There is no issue that Dig It will be liable for the costs of the respondent, Bupa, on, at least, a party-party basis. There is also no issue that an amount of $35,000 which Dig It paid into court as security for costs will be used to partially satisfy that costs liability. However, Bupa seeks to rely on an offer to compromise that it served on 17 December 2020, in order to claim that its costs should be met on an indemnity basis from 11.00 am on 21 December 2020. Dig It resists this. 2 The offer was made by way of a notice of offer of compromise in Form 45 under the Federal Court Rules 2011 (Cth), invoking the terms of Part 25 of the Rules. The offer complied with that Part. It was in terms that Bupa would pay Dig It $80,000, and in addition that the $35,000 paid in as security would be released to Dig It. It was stated to be inclusive of costs: see r 25.03(1). It was open to be accepted until 14 days after service: see r 25.05(3); r 25.08(1). 3 Dig It never responded to the offer, so it lapsed at the end of those 14 days. As a result, the terms of r 25.14(2) apply: 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. 4 The question, then, is whether Dig It unreasonably failed to accept the offer. In State Street Global Advisors Trust Company v Maurice Blackburn Pty Ltd [2022] FCAFC 57 at [123], the Full Court approved as correct the following statement of principles of Beach J in State Street Global Advisors Trust Company v Maurice Blackburn Pty Ltd (No 3) [2021] FCA 568 at [38]: [T]he fact that an offer of compromise is made which is more favourable than the final result does not automatically result in an award of indemnity costs. Further, it does not follow that even if an offer involved a genuine compromise, any rejection is unreasonable. The question of whether indemnity costs should flow from a rejected offer is whether, given the information then available to the offeree, it should have known that its case was likely to fail. The question of the unreasonableness of the rejection is to be analysed utilising the perspective at the time of the offer. 5 The reasons why Dig It failed at trial are, of course, set out in Dig It (No 2) and I will not summarise them here. These reasons assume familiarity with those reasons and will use defined terms from them. 6 It is worth pointing out, though, that Dig It's failure on the misleading or deceptive conduct claim was inevitable after the ruling in Dig It Landscapes Pty Ltd (in liq) v Bupa Aged Care Australia Pty Ltd [2022] FCA 47 (Dig It (No 1)) that Dig It could not amend its statement of claim to plead, in particular, that the representations it relied on were made without a reasonable basis. That ruling exposed a fundamental deficiency in the statement of claim. The representations Bupa was pleaded to have made were representations about its future intentions, but the statement of claim did not allege how they were misleading or deceptive. Dig It properly disavowed any case that the representations were misleading or deceptive because Bupa never intended to rely on them. That, in the circumstances, required Dig It to plead that the statements were made without a reasonable basis. And yet by the time it sought leave to do so (the first day of trial), it was too late. So Dig It was left with a claim that the statements were inconsistent with the Payment Deed, when it was never clear how the statements were, or could be, inconsistent with that deed: see Dig It (No 2) at [33], [205]-[210]. 7 Lest it be thought that Dig It's failure on the misleading and deceptive conduct case was the result of a mistake in pleading which it might have rectified before trial, it should also be said that it was never apparent from the evidence why Bupa did not have a reasonable basis to make the statements that it was alleged to have made, to the effect that it would enforce the Payment Deed in favour of Dig It and the other subcontractors. On the face of things Bupa, an apparently substantial enterprise, had the ability to enforce the Payment Deed, including by calling on security bonds given by CGU Insurance. 8 It follows from the above that Dig It should have known as at the time of the offer of compromise that its case of misleading or deceptive conduct was likely to fail. The offer was made after the parties had exchanged all the evidence on which they sought to rely. It was also made after they had attended an unsuccessful mediation. Dig It was therefore well-placed to consider the offer, and to be aware of the relative strengths of each party's evidence and the considerable weaknesses in the arguments it intended to present. 9 In particular, Dig It had in its possession a full audio recording of the crucial meeting of 27 March 2015 at which the allegedly misleading statements were made. It further knew that the Payment Deed would have permitted Bupa to have called on the security bonds. On the face of those materials, the statements made on Bupa's behalf at that meeting were not misleading or deceptive or likely to mislead or deceive. Based on what Dig It knew in December 2020, it should have been aware that its misleading conduct case was likely to fail. 10 The same may be said of the other aspect of Dig It's case, in contract. Until the eve of the trial, it was partly based on a claim that Dig It was entitled to enforce the Payment Deed as a third party under s 212(2) of the Civil Law (Property) Act 2006 (ACT). That claim was abandoned, and that abandonment was proper, because the claim had no apparent merit. It had no merit in December 2020 when the offer of compromise was made. 11 Setting that aside, Dig It was left with a claim that, at the 27 March Meeting, Bupa had made a promissory offer to subcontractors to enforce the Payment Deed. It was always inherently unlikely that Bupa, the professionally represented and advised principal under a head construction contract worth over $20 million, would voluntarily assume undocumented contractual obligations to the builder's subcontractors. And since Dig It had a full recording of the meeting, in December 2020 it should have been aware that, on proper analysis, its contract case would indeed fail in relation to all three of the conventional elements of the formation of a contract: see Dig It (No 2) at [160]. 12 The offer was better than the outcome for Dig It were its case to fail. The offer gave it the opportunity to receive $80,000, as well as to take back the $35,000 security for costs, and avoid payment of Bupa's costs. It was unreasonable of Dig It not to accept that offer in December 2020. It follows that Bupa should have its costs on an indemnity basis from 11.00 am on the second business day after the date of the offer: r 25.14(2). 13 Dig It submits that Bupa's offer was not genuine or reasonable, as the $80,000 offered was substantially less than the $671,059.63 in damages Dig It was seeking at that time (later reduced to $545,658.74 at trial). But the amount offered, while not large, still bore a reasonable relationship to the amount claimed: cf. Commissioner of Taxation v Crown Insurance Services Ltd (No 2) [2012] FCAFC 182 at [32]-[34]. It was substantial in the context of the litigation, and was not trivial or derisory. It was a genuine offer of compromise. 14 Dig It also submits that it was not unreasonable for it not to have accepted the offer because it enjoyed some success at the trial, since it established that certain representations it had alleged were made: see Dig It (No 2) at [202], though see also [203]. But as summarised above, even if the representations had been made, there was no apparent basis to find that they were misleading or deceptive. So that limited success in relation to certain allegations is no basis to find that Dig It's apparent decision not to accept the offer of compromise was reasonable. 15 Dig It also submits that it could not have known at the time of the offer that the evidence of its main witness, Mr Mann, would not be accepted. But Mr Mann's evidence was only relevant to the question of reliance, and the adverse findings made in relation to that were purely alternative, on the assumption, contrary to the findings, that the representations made were misleading. The central relevance of the audio recording of the 27 March Meeting meant that this was not a case where the outcome as to misleading or deceptive conduct was going to depend on whether any particular witnesses came up to proof in the witness box. Dig It cannot fairly claim that it acted reasonably in waiting to see how the evidence would pan out at trial. 16 Dig It's final submission is that the statements about the prospects of success made in Bupa's covering letter to the offer of compromise were incorrect assertions as to why the case would fail at trial, and lacked a forensic assessment of the parties' prospects. I accept that assessment of the letter, but only in part. The letter did assert that the representations found to have been made at the 27 March Meeting were not made. But in view of all the matters canvassed above, that is not determinative. The letter was still an attempt, based on Bupa's analysis of the matter at the time, to put Dig It on notice as to why its case would fail. It gave specific reasons and there is no reason to think the reasons were given other than in good faith. Some of the reasons were correct, in particular the assertion that there was no contractual relationship between Dig It and Bupa. There was no obligation on Bupa to go into more forensic detail than it did. 17 In the circumstances, Dig It's rejection of Bupa's offer of compromise was unreasonable. Dig It must pay Bupa's costs of the proceeding on a party-party basis before 11.00 am on 21 December 2020, and on an indemnity basis thereafter. That includes Bupa's costs in relation to this determination of the issue concerning costs. I certify that the preceding seventeen (17) numbered paragraphs are a true copy of the Reasons for Judgment of the Honourable Justice Jackson.