Dukemaster Pty Ltd v Bluehive Pty Ltd

1 On 15 September 2000 the primary judge ordered that the first respondent (Bluehive) was entitled to damages for loss suffered as a result of misleading and deceptive conduct engaged in by the appellant (Dukemaster), and that the second respondent (Holdings) was entitled to damages for breach by Dukemaster of a compromise agreement of 18 September 1997, alternatively by reason of Dukemaster's misleading and deceptive conduct. Bluehive was awarded $315,095.94 and Holdings $32,685.13, in each case with interest from 23 December 1998. His Honour dismissed Dukemaster's cross‑claim against Bluehive for rent. Dukemaster was ordered to pay Bluehive's and Holdings' costs of the Application and Bluehive's costs of the cross‑claim. See Bluehive Pty Ltd v Dukemaster Pty Ltd [2000] FCA 1307. 2 Dukemaster appealed to the Full Court. On 5 March 2001 the Full Court allowed the appeal against the judgment for Holdings. The matter the subject of the appeal against the judgment for Bluehive was remitted to the primary judge for the making of further findings on specified issues. Pending the making of those findings the appeal was stood over and costs were reserved. See Dukemaster Pty Ltd v Bluehive Pty Ltd [2001] FCA 180. Pursuant to the remitter, on 16 November 2001 the primary judge made further findings. His Honour ordered that the costs of the remitter be reserved to be determined by the Full Court. See Bluehive Pty Ltd v Dukemaster Pty Ltd (No 2) [2001] FCA 1621. 3 On 27 November 2002 the Full Court allowed the appeal against the judgment for Bluehive, set aside the orders of the primary judge and in lieu thereof ordered that the Application be dismissed. The Court said there should be judgment for Dukemaster against Bluehive on its cross‑claim. However, no such order was then made pending the resolution of the question of costs. The Court gave directions for the filing and exchange of written submissions as to the costs of the appeal and of the proceedings before the primary judge. See Dukemaster Pty Ltd v Bluehive Pty Ltd [2002] FCAFC 377. 4 Dukemaster has submitted that since it has succeeded on all issues, it should have its costs of the proceedings before the primary judge, the first part of the appeal, the remitter and the second part of the appeal. In our view Dukemaster should have its costs except the costs of the remitter. The unusual circumstances occasioning the remitter (considered in pars [20] and [21] of our reasons for judgment of 5 March 2001) make it appropriate that the parties bear their own costs of the remitter. The main question that now arises is the basis upon which Bluehive and Holdings should pay the costs other than the costs of the remitter. 5 On 7 March 2000 Dukemaster served on Bluehive and Holdings an Offer of Compromise pursuant to Order 23 of the Federal Court Rules. It offered to pay them $20,000 plus penalty interest at the rate of 12.3 per cent from the date of issue of the Application until the date of the Offer in the sum of $2,972.21. The offer was inclusive of costs. Bluehive and Holdings rejected the offer. 6 In the events that happened, the offer did not fall within Order 23, because sub‑rule (5) does not cover the case where a respondent's offer has been rejected in circumstances where the applicant has been wholly unsuccessful. Nevertheless, the making of the offer remains a matter to be taken into account in determining whether the usual party/party costs order, or some order more generous to the appellant, should be made. See Coshott v Learoyd [1999] FCA 276. 7 The mere making of an offer of compromise and its non‑acceptance, followed by a result more favourable to the offeror, does not automatically lead to an order for payment of costs on an indemnity basis: John S Hayes & Associates Pty Ltd v Kimberley‑Clark Australia Pty Ltd (1994) 52 FCR 201 at 204‑206; MGICA (1992) Pty Ltd v Kenny & Good Pty Ltd (No 2) (1996) 70 FCR 236 at 239. The applicant for a more generous award must show that the rejection of the offer was imprudent or plainly unreasonable: NMFM Property Pty Ltd v Citibank Ltd (No 2) ("NMFM") (2001) 109 FCR 77 at 98; Australian Competition & Consumer Commission v Australian Safeway Stores Pty Ltd (No 3) [2002] FCA 1294 at [28]; Sydney Markets Ltd v Sydney Flower Market Pty Ltd [2002] FCA 283 at [16]‑[17] and [23]. 8 Whatever the position may be with an offer made under Order 23, a Calderbank offer, or any offer of compromise outside the regime in Order 23, is unlikely to serve its purpose of attracting an indemnity award of costs if the rejecting applicant fails to recover more than what is offered, unless the offer is a reasonable one and contains a statement of the reasons the offeror maintains that the application will fail. In NMFM at [87]‑[88] Lindgren J said: "No doubt where a party puts with sufficient particularity to the opposing party the reasons why the latter must fail, yet the latter does not recognise the inevitable, this will be a factor pointing to an award of indemnity costs. … The requirements of 'sufficient particularity' and 'inevitability of failure' are important. In their absence, it would be open to parties to put their respective cases to the opposing party urging it to recognise the merit of what is put in the hope that if it ultimately finds favour with the Court, an award of indemnity costs will follow. If this were correct, one might ask rhetorically, 'Why write a letter as distinct from simply relying on the pleadings?'." 9 Bluehive's and Holdings' rejection of the offer of compromise was not imprudent or plainly unreasonable. Bluehive initially claimed damages of $510,233. The primary judge awarded it $315,095.94. Holdings was awarded $32,685.13. It is true that those awards have been set aside. But a Judge of the Court was of the view that each applicant had a cause of action that entitled it to damages. In these circumstances, we are unable to say that an offer of approximately 6 per cent of the amount the applicants recovered at trial (approximately 4 per cent of the amount they initially claimed) was a commercially realistic one made upon a sensible and informed assessment of the prospects and risks of the litigation on each side. Cf Flemington Properties Pty Ltd v Raine & Horne Commercial Pty Ltd (unreported, 11 February 1998, Lehane J) and Mikaelian v Commonwealth Scientific & Industrial Research Organisation [1999] FCA 541 at [7]. We doubt whether the offer ($20,000 plus interest of $2,972), which was inclusive of costs, would have covered the applicants' costs as at 7 March 2000, which was only four and a half months before trial. Further, the letter of offer did not attempt to explain to the applicants why they should accept so derisory an amount. There was no suggestion of a knock‑out point. In all the circumstances, therefore, we are not persuaded that a case has been made out to depart from the ordinary rule as to costs. 10 Dukemaster also seeks an order for costs against Mr Gan personally. On 30 November 1999 Mr Gan executed a Deed of Guarantee in favour of Dukemaster. Clauses 1 to 3 of the Deed are as follows: "1. In consideration of the Respondent forbearing from making an application for security for its costs of the Proceeding against the Applicants, Mr Jonathan Gan … ('the Guarantor') hereby guarantees to the Respondent the due and punctual payment by him of any order for costs made against the Applicants (or either of them) in favour of the Respondent in the proceeding. 2. The Guarantor agrees (as a separate and additional covenant) to indemnify and keep indemnified the Respondent from and against any failure by the Applicants (or either of them) to duly, punctually and in accordance with the Rules of the Federal Court pay any order for costs made against the Applicants (or either of them) in favour of the Respondent in the proceeding. 3. For the purposes of securing the aforesaid guarantee and indemnity, if an order for costs is made in the proceeding against the Applicants (or either of them), the Guarantor hereby irrevocably consents to the Court (either at the same time as any such order is made or upon subsequent application by the Respondent) making an order to the effect that the Guarantor is liable to the Respondent for such costs pursuant to Section 43 of the Federal Court Act 1976 and the Rules of the Federal Court." 11 The special feature of this case that justifies the making of a costs order against Mr Gan lies in clause 3 of the Deed. But we observe that the case also falls within the general category of case to which the High Court referred in Knight v F P Special Assets Ltd (1992) 174 CLR 178 at 192‑193. 12 For the foregoing reasons we would make the usual order as to costs (except the costs of the remitter), but order that Mr Gan be liable with Bluehive and Holdings for those costs. Bluehive intends to apply for special leave to appeal to the High Court, and has sought a stay of the costs orders until the outcome of its application is known. If it obtains special leave, it seeks a stay until the determination of the appeal. We think it appropriate to grant such a stay. I certify that the preceding twelve (12) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Sundberg, and the Honourable Justice Emmett.