THE COURT:
1 The issue which remains in this matter, following publication of our reasons for judgment on 16 April 2019 in Erskine as liquidator of North Shore Property Developments Pty Ltd (in liq) v 72-74 Gordon Crescent Lane Cove Pty Ltd [2019] FCAFC 62, is costs. In those reasons we explained why we made an order dismissing the appeal. We also made the usual order as to costs. The respondents now seek an order varying our costs order so that the appellant must pay the costs of the respondent on a party/party basis up to and including 20 February 2019 and on an indemnity basis thereafter.
2 We have concluded that the costs order we made on 16 April 2019 should not be varied.
3 The respondent seeks the indemnity costs order on the basis of an offer it made on 20 February 2019 to agree to orders to the effect that the appellant's appeal and the respondent's cross-appeal be dismissed and each party pay its own costs.
4 According to the respondent:
(1) the relevant question is whether in all of the circumstances and at the time it occurred it was unreasonable for the appellant to reject the offer to settle: Brosnan v Katke [2016] FCAFC 156 at [6];
(2) it was unreasonable for the appellant to reject the offer to settle having regard to all of the circumstances as they existed at the time the offer was made and rejected including the factors referred to in Hazeldene's Chicken Farm Pty Ltd v Victorian WorkCover Authority (No 2) [2005] VSCA 298; (2005) 13 VR 435 at [25], which were applied by the Full Court in Anchorage Capital Partners Pty Limited v ACPA Pty Ltd (No 2) [2018] FCAFC 112 at [7]. Those factors are:
(a) the stage of the proceeding at which the offer was received;
(b) the time allowed to the offeree to consider the offer;
(c) the extent of the compromise offered;
(d) the offeree's prospects of success, assessed as at the date of the offer;
(e) the clarity with which the terms of the offer were expressed; and
(f) whether the offer foreshadowed an application for an indemnity costs in the event of the offeree rejecting it.
(3) in particular:
(a) the matter involved an appeal within a narrow compass, preparation for which cannot be compared to a first instance hearing involving preparation for calling witnesses, cross-examining witnesses and the like. As such, the time for acceptance of the offer sent on the evening of 20 February 2019, initially 5.30 pm on 27 February 2019 extended to 9.30am on 1 March 2019, which was the morning of the hearing, was adequate. The Court would not accept the assertions of the appellant to the contrary both in its rejection of the offer and in its submissions;
(b) the timing of the offer was appropriate as the offer was made once all of the submissions had been filed;
(c) the offer involved a real compromise as it would have enabled the appellant to "walk away" with no liability for the costs of the respondent in circumstances where the respondent had incurred the costs of considering the notice of appeal, the amended notice of appeal, the appellant's submissions and submissions in reply, and of preparing the respondent's submissions;
(d) the appellant's prospects of success were poor and ought reasonably to have been so assessed by the appellant at the time the offer was made. The appellant accepted that it was necessary to establish an error of principle by the primary judge in the exercise of his discretion but, as the respondent had noted in its submissions filed on 6 February 2019, no such error of principle had been identified;
(e) the offer was clear in its terms; and
(f) while the offer did not state expressly that the respondent would seek an order for costs on an indemnity basis if the respondent succeeded it was expressed to be "without prejudice save as to costs" and the appellant, who was legally represented, would have appreciated that the offer was made in accordance with the principles in Calderbank v Calderbank [1975] 3 All ER 333 and that, as a result, if the respondent successfully defended the appeal, it would seek an order for its costs to be paid on an indemnity basis after the date of the offer.
5 According to the appellant:
(1) given that it did not make an offer of compromise in accordance with Pt 25 of the Federal Court Rules 2011, it was for the respondent to demonstrate that there are exceptional circumstances which justify the making of an order for indemnity costs against the appellant;
(2) the appellant's rejection of the offer was not unreasonable in all of the circumstances at the time the offer was made and rejected as:
(a) the offer did not involve a genuine compromise but, rather, required the appellant to capitulate shortly before the hearing in circumstances where the appellant had already expended the majority of its costs and would have to forego an order for the respondent to pay its costs if the appellant had succeeded;
(b) the fact that the appeal was subject to the principles of House v The King (1936) 55 CLR 499 regarding a discretionary decision does not mean that the appeal was hopeless, nor does the fact that the Court rejected the appellant's contention that the primary judge had erred in principle. The fact that no previous case involved the similar fact of entry by a liquidator into a deed of settlement and the brevity of the primary judge's decision not to permit further investigation of the circumstances surrounding the deed of settlement means that it cannot be said that the appeal was hopeless; and
(c) the offer was made very late, shortly before the hearing and was open for a relatively short period of time in circumstances where the submissions would have been filed a week earlier had the respondent complied with the Court's original directions. The consequence was that the offer arrived while the appellant was preparing for the hearing.
6 While we do not accept a number of the appellant's submissions we nevertheless are satisfied that it was not unreasonable for the appellant to reject the offer in the circumstances as they existed at the time the offer was made and rejected. In particular, we do not accept the appellant's formulation of the applicable principle as requiring the respondent to demonstrate the existence of "exceptional circumstances" if, by that, the appellant meant something different from or more than the fact of a rejection of a settlement offer which should be characterised as unreasonable in all of the circumstances. Nor do we think that the offer did not involve some genuine element of compromise. The respondent was offering to forego costs at a time in the proceeding when it must have incurred material costs. The fact that the offer also required the appellant to forego its costs does not mean that the respondent's offer lacked an element of genuine compromise. We also do not accept that the appellant had inadequate time to assess the offer. The appeal was within a very narrow compass. The offer was clear and involved no complexity. The appellant could readily have assessed the offer and prepared for the hearing.
7 We accept that, on their face, all of these matters weigh in favour of the making of the order for indemnity costs which the respondent seeks. The factors which outweigh this are threefold. First, because the question of the unreasonableness of the rejection of the offer is to be made without the benefit of hindsight, and thus without the benefit of our reasons for judgment, the appellant's characterisation of the primary judge's reasons as involving an error of principle cannot or should not be held to be hopeless. The respondent accepts this but says that, properly advised, the appellant ought to have appreciated that its prospects of success were poor and that neither the appellant's written submissions in chief or reply identified any error objectively capable of being characterised as one of principle. While this submissions accords with the conclusion we reached the appellant is right that no case involving similar facts was able to be found. The fact that we held there was no error of principle does not mean that the appellant's view to the contrary was hopeless or unarguable or had such poor prospects of success that it was unreasonable for the appellant to have rejected an offer which, while involving a genuine element of compromise nevertheless required the appellant, in effect, to capitulate. Second, while the appellant had adequate time to consider the offer, the offer was made late in the progress of the matter, shortly before the hearing, in circumstances where the appellant had already incurred the bulk of the costs of preparation for the hearing. Third, the offer required the appellant to capitulate in circumstances where the appellant had identified a series of matters which, taken objectively, provided a rational justification for the appellant's position that further investigation of the deed of settlement was required. These factors, taken together, mean that it was not unreasonable for the appellant to reject the offer at the time it was made.
8 For these reasons we do not consider that we should vary the order we made on 16 April 2019. The appellant seeks its costs, on the usual basis, of defending the respondent's application for indemnity costs. Consistent with the principle that costs follow the event, an order to that effect should be made in the appellant's favour.