Futuretronics.com.au Pty Ltd v Graphix Labels Pty Ltd

REASONS FOR JUDGMENT 1 On 23 January 2009 the Court dismissed the appellant's appeal from a judgment of Besanko J and ordered that the appellant pay the respondents' costs of the appeal: Futuretronics.com.au Pty Ltd v Graphix Labels Pty Ltd [2009] FCAFC 2. On the handing down of judgment the respondents' solicitor foreshadowed an application for indemnity costs in connection with the appeal. The parties adopted the Court's suggestion that the matter proceed by way of written submissions, the last of which were filed on 11 March 2009. 2 The respondents relied on the affidavit of Luke Merrick, which disclosed the following events: · On or about 2 July 2008 the appellant filed its notice of appeal. · On 26 August 2008 Mr Merrick sent a letter to the appellant's solicitors setting out the reasons why, in the respondents' view, the appeal would not be successful, and offering to resolve the appeal on the basis that it be discontinued with no order as to costs. · On 7 November 2008 (a little over two weeks before the appeal was to be heard) the respondents made an offer of compromise, expressed to be under Order 23 of the Federal Court Rules, offering to resolve the appeal on the basis that it be dismissed with the appellant paying 75% of the respondents' taxed costs of the appeal. The appellant did not accept either offer. 3 As indicated above, the August 2008 letter contained detailed reasons as to why the respondents were of the view that the appeal would fail on every point. The reasons substantially accord with those ultimately given for dismissing the appeal. 4 The parties were agreed as to the law applicable to Calderbank offers, and we do not need to expound the relevant principles in any detail. 5 The refusal of a Calderbank offer will not always attract an award of indemnity costs. The offeror must show that the rejection was unreasonable in the circumstances of the case: Black v Lipovac (1998) 217 ALR 386 at [217]‑[218]. The respondents have not convinced us that the rejection was unreasonable. By the August 2008 offer all the respondents were offering to give up was any claim they may have to costs of the appeal. There was little in the offer that was attractive to the appellant. Of course the appellant was entirely unsuccessful on the appeal, for substantially the reasons explained by the respondents in their August letter. However the appeal was not on its face without any prospect of success. Counsel for the appellant was able, on the available material, to present arguments that required careful attention. It was only on a close examination of the documentation that the Court concluded that the appeal on liability should be dismissed. In retrospect, the appellant's case was never a strong one, but on the principal points argued (liability) the appellant's case was not so week that it should be taken to have acted unreasonably in refusing the August offer, which offered little in the way of a genuine compromise. 6 The November offer was expressed to be made under Order 23. Rule 23.11(6) provides: If: (a) an offer is made by a respondent and not accepted by the applicant; and (b) the respondent obtains an order or judgment on the claim to which the offer relates as favourable to the respondent, or more favourable to the respondent, than the terms of the offer; then, unless the Court otherwise orders: (c) the respondent is entitled to an order that the applicant pay the respondent's costs in respect of the claim incurred up to 11 am on the day after the day the offer was made, taxed on a party and party basis; and (d) the respondent is entitled to an order that the applicant pay the respondent's costs in respect of the claim incurred after that time, taxed on an indemnity basis. 7 In reliance on rule 11(6) the respondents submitted that there were no relevant matters which would lead the Court to make an order "contrary to the presumption" in the rule. In answer the appellant contended that rule 11(5) does not apply to an applicant/appellant who has been wholly unsuccessful, relying on McDonald v Parnell Laboratories (Aust) (No 2) (2007) 164 FCR 591 and Seven Network Ltd v News Ltd [2007] FCA 1489. On that basis the appellant asserted that an award of indemnity costs could not be made unless the respondents demonstrated that its refusal of the offer was "imprudent or unreasonable": Dukemaster Pty Ltd v Bluehive Pty Ltd [2003] FCAFC 1 at [6]. It is clear therefore that the parties did not at that stage join issue on the applicable rule, namely rule 11(6). 8 We invited the parties to make supplementary submissions on whether Order 23 applies to appeals. The respondents did so, and gave their reasons why it does apply. The appellant said it did not wish to make any further submissions in relation to that issue. 9 Since the parties did not join issue either in their initial submissions or when invited to make supplementary submissions, we propose to deal with the matter on the assumption that Order 23, and in particular rule 11(6), applies to an appeal. 10 In dealing with rule 11(4), which also uses the expression appearing in rule 11(6) - "unless the Court otherwise orders" - Hely J in Port Kembla Coal Terminal Ltd v Braverus Maritime Inc (No 2) (2004) 212 ALR 281 at [17], after referring to Heerey J's observation in an earlier case that "compelling and exceptional circumstances" must exist before the Court would "otherwise order", said: Once an offer is made, and a judgment no less favourable obtained, a rebuttable presumption in favour of indemnity costs is created. It then becomes incumbent on the defendant to show reason why the presumption should not crystallise. Correctly understood, Heerey J was explaining the operation of the Rule, rather than impermissibly attempting to place a fetter on the exercise of the court's discretion. … [H]is Honour was not seeking to do more than to convey that the prima facie position should only be departed from for proper reasons which, in general, only arise in an exceptional case… We agree with these remarks about rule 11(4) which in our view are applicable to rule 11(6). 11 We have concluded at [5] that the appellant's refusal of the August offer was reasonable. There is little difference between that and the later offer. It was less attractive than the earlier one. The appellant would have to pay 75% of the respondents' taxed costs instead of the parties bearing their own costs. If the present question was whether the rejection of the later offer was unreasonable, we would have said it was not. However, it is established that the fact that an unsuccessful litigant acted reasonably in rejecting an offer under rule 11(4) (and its counterparts in other jurisdictions) is not of itself a sufficient reason to displace the operation of the rule: New South Wales Insurance Ministerial Corporation v Reeve (1993) 42 NSWLR 100 at 102; Morgan v Johnson (1998) 44 NSWLR 58 at 582; Port Kembla 212 ALR at [18]. 12 The appellant has not satisfied us that the prima facie position established by rule 11(6) should be departed from. Accordingly the respondents are entitled to costs on an indemnity basis in accordance with the rule. I certify that the preceding twelve (12) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justices Tamberlin, Finn and Sundberg.