Costs after 5 October 2022
7 On 5 October 2022, the respondents made an offer to the applicant for the resolution of the proceeding (ie the whole of the representative proceeding) by the payment by them of $15 million inclusive of interest, costs, expenses and disbursements - but subject, of course, to approval by the Court. That offer was rejected by the applicant on 7 October 2022.
8 The offer by the respondents was made on a "without prejudice save as to costs" basis and was said to be in accordance with the principles in Pt 25 of the Federal Court Rules 2011 (Cth) or, failing those being effective for the purpose of appropriate costs orders, the principles in Calderbank v Calderbank [1976] Fam 93; [1975] 3 All ER 333. The respondents now accept that the offer was not made in accordance with the requirements of the Pt 25 regime. However, it is uncontroversial that because the common law principles applicable to Calderbank offers survive that regime, they apply in the present case: Alpine Hardwood (Aust) Pty Ltd v Hardys Pty Ltd (No 2) [2002] FCA 224; 190 ALR 121 at [18].
9 The relevant principles are as follows: where a rejected Calderbank offer proves to be more generous than the subsequent judgment, the court may award the offeree the costs up to the date of the offer (or shortly thereafter in recognition that some time was reasonably required to consider the offer), but then may, as a matter of discretion, order the offeree to pay the offeror's costs after that date. If the offer was unreasonably rejected, the costs may be awarded against the offeree on an indemnity basis. See Bradshaw v Emirates (Costs) [2021] FCA 1613 at [14]-[15].
10 There are thus two matters arising from the rejection by an applicant of a Calderbank offer that is more than a subsequent judgment that may be relevant to the exercise of the costs discretion: the rejection may result in the respondent being awarded costs despite the applicant obtaining a judgment in its favour, and if the rejection was unreasonable those costs might be made on an indemnity (or "special") basis.
11 The respondents submit that the costs of the proceeding from 5 October 2022 and thereafter should continue to be reserved. That is on the basis that at some future point in time when the evidence before the Court is such that the Court is able to be satisfied to the civil standard that the total combined value of the group members' claims will be more, or less, than the amount of the offer, the Court will be able to determine whether the rejection of the offer should have a bearing on the costs, including whether the applicant was unreasonable in rejecting it. The respondents submit that although the Court is not presently able to make a positive finding based on the evidence before it as to whether the total combined value of the group members' claims is greater than the amount of the offer, the applicant was (or, perhaps, ought to have been) in a position to properly assess the reasonableness of the offer when it was made. That is said to be on the basis that proper investigation had presumably been undertaken on behalf of the applicant, at least for the purpose of enabling her and her representatives to make and consider several settlement offers that preceded the offer in question.
12 In the latter regard, the respondents had made a "drop hands" offer on 1 September 2022. The applicant rejected that offer on 21 September 2022 and made a counteroffer of $69 million inclusive of costs. The respondents rejected that offer on 30 September 2022 and made a counteroffer of $12.25 million inclusive of costs. The applicant rejected that offer on 3 October 2022 and made a counteroffer of $59 million inclusive of costs.
13 The applicant submits that there is no justification for departing from the ordinary position that costs should follow the event. She accordingly seeks a party and party costs order in respect of the costs that have been reserved. She makes four principal submissions in support of her position.
14 First, the applicant submits that it was not unreasonable for her to reject the 5 October 2022 offer noting that it was made in a personal injury class action where the total quantum cannot be reliably determined. She refers to the ex tempore judgment of Wilcox J in McMullin v ICI Australia Operations Pty Ltd (No 6) [1997] FCA 1426.
15 In McMullin, judgment had been handed down dealing with the quantum of liability in relation to the claims by the two named applicants, on their own behalf and on behalf of six sample group members. The applicants then sought a costs order on an indemnity basis which was refused, Wilcox J being unpersuaded that he should make an order at that stage other than on a party/party basis. As in the present case, the respondents, however, submitted that no costs order should be made at that stage as it might turn out, when all of the damages claims were assessed, that they were less than an offer that had been made by the respondents.
16 His Honour recognised that the respondents' offer had been made in accordance with the familiar approach in civil litigation, namely that if in any case the applicants ultimately received a result less beneficial than the offer, the respondents may be able to resist an adverse costs order, or even obtain a favourable order, by establishing that the applicants had not succeeded in beating the offer. His Honour said that although that approach is familiar in "ordinary litigation", "it presents a major problem in relation to a representative proceeding … especially where there are unidentified group members".
17 The problem that his Honour identified was expressed as being that if the applicants had accepted the respondents' offer they would have had to apply for approval of the settlement or discontinuance of the proceeding in order to give effect to the terms of the offer: Federal Court of Australia Act 1976 (Cth) (FCA Act), s 33V(1). However, the Court would have been unable to deal with the application until it had information regarding the identity of the group members and the likely value of the claims. His Honour said that he would not have been prepared to approve a monetary settlement without having some idea whether the settlement represented fair value, from the point of view of group members. In other words, the Court would have had to have been satisfied that the amount that individual group members would receive reasonably reflected the hazards of their claims.
18 With great respect to his Honour, I fail to see how the problem he identified prevents the operation of a Calderbank offer that is made to settle the whole of a representative proceeding - noting that his Honour identified other strategies that might protect a respondent in a representative proceeding from costs, namely conceding liability or offering to compromise on liability with a discount on the assessment of damages.
19 Returning to a respondent's offer to settle the whole of a representative proceeding, if the offer is accepted, as postulated by his Honour, then no occasion for consideration of the costs consequences of the offer arises - the costs consequences only arise if the offer is rejected. If the offer is rejected, as it was in the present case, and the quantum of the group members' claims is ultimately determined, either by way of court approved settlement or judgment, the court will on the occasion of approving the settlement or giving judgment know whether the offer was more or less than the ultimately determined amount. Also, the court may be in a position to assess whether the offer was unreasonably rejected which, as mentioned, would be relevant to whether costs should be awarded on an indemnity basis.
20 The settlement of representative proceedings is invariably, or almost invariably, on the basis of a global amount for all claims. To deny respondents the mechanism of putting the applicant (or their funder) at risk on costs by making a reasonable global offer of settlement would not serve to encourage the settlement of such proceedings. There is therefore good reason to allow Calderbank offers to operate in the context of representative proceedings.
21 In the circumstances, to the extent that McMullin stands for the principle that a Calderbank offer cannot operate in the context of a representative proceeding where the offer is made to settle all of the group members' claims in a global amount, it is in my view clearly wrong. In any event, I find the reasoning hard to discern and it may be that his Honour was exercising a discretion in the particular case, rather than intending to establish any rule.
22 In support of the contention that it was not unreasonable for her to reject the 5 October 2022 settlement offer, the applicant emphasises that the assessment of whether an offer was unreasonably rejected must be made with reference to the circumstances at the time the offer was made and not at some later time: Seven Network Ltd v News Ltd [2007] FCA 1489; 244 ALR 374 at [65] per Sackville J. On that basis, the applicant submits that no purpose will be served in further delaying the determination of liability for costs after 5 October 2022 as the relevant circumstances are already known and cannot be any different in hindsight.
23 The principal difficulty with that submission, even if it were accepted that the Court will not be in a better position at some future time to assess the reasonableness of the rejection of the settlement offer, is that it ignores the relevance of the ultimate quantum of the claims relative to the settlement offer. That quantum can only be known at some future time. At that time it may be clear that the offer exceeds the proper quantum, which is a factor that would be highly relevant to the costs following rejection of the offer. It is unaffected by whether or not the rejection was unreasonable.
24 The same consideration nixes the applicant's submission that she was not unreasonable in rejecting the settlement offer because it included an unreasonable and prejudicial term that if the proposed settlement were not approved by the Court, then the applicant would pay for the respondents' costs thrown away by adjourning and rescheduling the trial. That is to say, even if that submission were to be accepted it would not lessen the considerable force of the argument that the costs should be reserved so that the impact of the ultimate proper quantum of the claims can be taken into account in determining the liability for costs postdating the offer.
25 Secondly, the applicant submits that there was and is no basis to think that the likely total combined value of the group members' claims is less than the amount of the offer. In my view, that cannot be determined on the information presently available. The applicant points to her party and party costs to date likely being of such a sum (ie $5.85 to $6.75 million) as to be nearly half the amount of the offer, leaving only a relatively modest amount for the group members' claims. She submits that there is no basis to think that the sum of the group members' claims might be less than that amount.
26 The difficulty is that I do not know anything about the other group members' claims, or even how many such claims there are - although I know the approximate number of passengers I do not know how many, if any, have opted out, or how many executor group members and close family group members there are (see J[3] for descriptions of these sub-groups). It is simply not possible at this stage to be confident that the offered sum is less than what the ultimate quantum may be.
27 Thirdly, the applicant submits that the 5 October 2022 offer was a last-minute tactic and not a genuine attempt to reach a settlement. In that regard, the applicant relies on Dal Pont GE, Law of Costs (5th ed, LexisNexis, 2021) (Dal Pont) at [13.91] where it is said that the law:
should not encourage the use of a Calderbank offer delivered shortly before trial - when the offeree might be expected to have his or her mind on a number of matters and will already have incurred considerable costs - 'as an indiscriminately wielded tactical weapon'. This may be inferred where the case is complex and has been pending for considerable time, as explained by Bryson JA in De Groot v Nominal Defendant [[2005] NSWCA 61 at [261]].
[Footnotes omitted, emphasis added.]
28 However, it is to be observed that in the cited passage in De Groot, Bryson JA explained that:
It is one thing to bring settlement offers into account when exercising a discretion as to costs: it is another thing altogether to endorse a disruptive stratagem, which is how I class throwing down an offer of settlement not before but during the hearing, after years of time which could and should have been used to consider settlement had passed, and severely limiting the time available for its consideration.
29 The present case is nothing like that case. I do not see that there is any basis to conclude that the respondents' offer was not genuine and was merely a last-minute tactic aimed at distracting the applicant's preparation for trial. It is true that it was made on the eve of the trial - the trial had been listed to commence on 10 October 2022 although at the request of the applicant, on 4 October I put out the start of the trial to 12 October. However, the trial was scheduled to and did last for a number of weeks. Also, the trial was never going to determine the quantum of the sum of the group members' claims - it was listed to determine only the applicant's claim. It was therefore made very well in advance of any final determination. But perhaps most tellingly, as detailed above, the applicant had herself made settlement offers on 21 September 2022 and 3 October 2022, the latter being only two days before the respondents' offer in question. The respondents had also made a substantial offer on 30 September 2022. Just as there is no basis to suggest that the applicant's offers were other than genuine, I do not see any basis to conclude that the respondents' relevant offer was other than genuine.
30 The relevant offer was also in a substantial sum. It may be that that turns out to be well less than what the claims are truly worth, or it may not. None of that matters. The point is that the offer has the hallmarks of being genuinely intended as a means of trying to settle the dispute.
31 Fourthly, the applicant submits that to further reserve the costs would be contrary to the principal of the finality of litigation, ie it would not promote the finality of litigation but would rather fragment it. In that regard, the applicant relies on Dal Pont at [13.82] and submits that in the circumstances of an "all in" Calderbank offer, ie one that includes costs as in the present case, a determination of costs liability will not be put off following final judgment to enable the actual costs to be quantified on taxation. That may be so, but that is because other than the determination of costs liability there would in those circumstances be nothing left for the court to decide; to delay that determination pending quantification of the costs would be to delay finalising the litigation.
32 The present case is very different. It is true that to further reserve the costs after the 5 October 2022 offer will prolong the determination of that issue, but it will not prolong the finalisation of the litigation. Only one group member's claim has been determined, and, as I will turn to shortly, only a limited number of common questions have been determined. Absent settlement, this case has a long way to go.
33 In response to that, the applicant submits that for Mrs Karpik, the principal applicant, the case has been finalised and that there is nothing more to decide. On that basis, she submits that she is entitled to her costs now and that to delay determination of that entitlement would be to delay the finality of her litigation. That, however, seems to me to be an artificial approach. It ignores that the very expensive trial was fought not only to determine her claim but to determine common questions. Indeed, those costs would not have been expended if it was only her claim that was in issue. To award her all of those costs in circumstances where, notionally, the ultimate benefit of that expensive exercise (being the combined sums awarded to all group members in due course) is less than the respondents' pre-trial settlement offer would be to give her (or at least her litigation funder) a potentially undeserved windfall.
34 In the circumstances, I am satisfied that the costs after 5 October 2022 up to and including the costs of the hearing on the costs and common questions issues a few days ago should be reserved.