McMullin v ICI Australia Operations Pty Ltd

REASONS FOR JUDGMENT (No.9) 1 WILCOX J: On 14 August 1998 I handed down Reasons for Judgment (No.7) in this representative action. Those reasons concerned the quantum of damage suffered by two grazing partnerships as a result of CFZ contamination of their cattle. One of the partnerships was Bruce and Elsie Harris & Co. ("Bruce Harris"). At the hearing Bruce Harris sought damages totalling $27,975,635, calculated in accordance with an amended Scott Schedule that reduced the claim from a higher earlier figure. I found the claim to be "grossly excessive" and allowed items that totalled (with interest until 31 August 1998) $368,267. 2 On 14 August 1998 I deferred making any orders. I invited the parties to submit an agreed form of order to my associate. 3 Unfortunately, the parties have not been able to agree about costs. The disagreement apparently centres on the significance to be given to the fact that Bruce Harris rejected, or failed to accept, pre-trial offers exceeding the amount of damages subsequently assessed. When the problem was drawn to my notice, I directed the filing of affidavits and lodgment of written submissions. In the event, only one affidavit was filed; this being an affidavit of Peter Gregory Thomas, consultant to the solicitors for the applicants, dated 22 December 1999. Written submissions were furnished by each of the parties. 4 The respondents accept Mr Thomas' narrative of the relevant facts. This narrative discloses that instructions as to the quantum of Bruce Harris' claim were sought in May and June 1997. The process of obtaining instructions, on what Mr Thomas described as "a complex and extensive claim", continued into early 1998. A Scott Schedule claiming losses of $36,765,071 was forwarded to the respondents on 23 January 1998. 5 Almost immediately, on 28 January 1998, the solicitors for ICI made an offer to settle the claim for $560,000 (payable within 30 days) plus costs. The offer was left open for acceptance until 16 February 1998. 6 At that stage discovery was incomplete and there had been no response to the Bruce Harris Scott Schedule. On 16 February 1998 the applicants' solicitors rejected the offer. They made no counter-offer. 7 A more detailed Scott Schedule was served on 23 February 1998. ICI responded to this document on 20 March 1998. On the same day ICI's solicitors conveyed an offer to settle the claim for $1,000,000 (payable within 30 days) plus costs. That offer was left open until 9 April 1998. The matter had been fixed for hearing in the fortnight commencing 18 May 1998. 8 Apparently the offer of 20 March was not formally rejected. But it was not accepted. Neither was there a counter-offer. There was discussion between the solicitors as to the adequacy of ICI's response to the revised Scott Schedule. An amended reply was served on 7 May. 9 On 12 May 1998 ICI made a further offer, this time in the sum of $500,000 (payable by 2 July 1998) plus costs. The offer was left open only until 14 May. It was not accepted, nor was any counter-offer made. 10 It was decided the Bruce Harris claim should be heard in the second week of the fortnight set aside for assessment hearings. During the first week, on 19 May 1998, ICI made yet another offer, this time in the sum of $1,100,000 payable by 2 July 1998 plus costs. The offer was left open only for that day. It was not accepted. No counter-offer was made and the assessment was heard over the three days 25 to 28 May. 11 In my reasons for judgment, I noted that an underlying premise of the large Bruce Harris claim was that, but for CFZ contamination, the partners would have disposed of all their cattle in early 1995 and devoted their resources to dryland farming. The only evidence to support the premise was the assertion to that effect of Mr Bruce Harris and his sons, Kenneth and Robert. A strong attack was made on the credibility of all three witnesses, but I found it unnecessary to deal with their general honesty; I thought the uncontested facts (especially the low rate of cattle sales in 1995 and 1996, considered in the light of rainfall records) was inconsistent with a firm decision in 1994 to dispose of all the cattle. 12 The written submissions of ICI contend for a number of alternative orders respecting costs, in descending order of preference as follows: (a) that Bruce Harris have its costs (on a party/party basis) to 28 January 1998, but pay ICI's costs, incurred after that date, on an indemnity basis. The rationale of this claim is that the offer made on 28 January ($560,000) comfortably exceeded the eventual assessment and the partnership acted imprudently in rejecting that offer; (b) that Bruce Harris have its costs (on a party/party basis) to 28 January, that ICI have costs on a party/party basis to the date of the second offer (20 March 1998) and thereafter on an indemnity basis. As I understand them, ICI's solicitors put this proposal on the basis that the party/party costs in effect follow the event, but it was extremely imprudent for Bruce Harris to fail to accept the offer of $1,000,000. They say that, by the date of the second offer, the Scott Schedule and the claimants' evidence were complete and ICI had served its response to the Scott Schedule; (c) "at the very least" that the respondents receive their party/party costs from 28 January 1998. 13 Counsel for the Bruce Harris partners also puts a hierarchy of alternative orders; very different in their effect from those of ICI. They are: (a) having regard to the inherent uncertainty of the result, the Court should make an order for the parties to recover their costs (presumably on a party/party basis) notwithstanding the size of the judgment; (b) there should be no order for costs; (c) the respondents should have their costs (presumably again on a party/party basis) as from 19 May 1998. 14 I think it is obvious there ought to be some costs order in favour of ICI; it made four pre-trial offers to the Bruce Harris partnership exceeding the amount assessed by me. It is less clear what that order should be. There is some attraction in the view that Bruce Harris should pay ICI's costs as from the date of the first offer, 28 January, or at least from the date of its rejection (16 February). However, at both those dates, much preparatory work remained undone; in particular, there had not yet been a response from ICI to the Bruce Harris Scott Schedule. Under those circumstances, I think the claimants did not act unreasonably in rejecting the offer. It is true this means work continued to be performed in respect of a claim that turned out to be worth less than $560,000, but the claimants already had the benefit of a finding on liability and were justified in continuing preparation to the point when they could knowledgeably assess the prospects concerning quantum. 15 The situation is different in relation to the second offer. It was made at the same time as ICI's reply to the Scott Schedule. It was left open until 9 April 1998; a date only six weeks before the likely hearing date. By that time the Bruce Harris case was fully prepared. Having regard to these matters, I think ICI should have its costs as from the date of non-acceptance of the offer; that is 9 April 1998. I select this date rather than 20 March because, as the offer itself recognises, it was reasonable for the claimants to have some time to consider their response. 16 The most difficult question is whether the costs order in favour of ICI should be made on a basis more generous than party/party. In Coshott v Learoyd [1999] FCA 276 I discussed the reported cases in which failure to accept an offer of compromise led to an application for a costs orders on an indemnity basis. I need not repeat that discussion. Unlike Coshott v Learoyd, the situation in the present case was capable of being brought within Order 23 of the Federal Court Rules. However, the solicitors for ICI did not bring the situation within that Order. None of their letters of offer complied with Order 41 or stated that the offer was made under Order 23: see Order 23 rule 3(2)(a) and (b). 17 If the offer of 20 March 1998 had been made pursuant to Order 23, then, unless the Court otherwise ordered, the situation would have been as set out in rule 11(5); that is, Bruce Harris would have been entitled to costs on a party/party basis until the day following the offer and ICI to costs on a party/party basis thereafter. However, the order in favour of ICI could have been made on a more generous basis if this was thought appropriate. In Coshott v Learoyd, I said "(w)here an offer is made pursuant to Order 23, with the safeguards to the offeree that are thereby imported, it seems to me its non-acceptance should be given considerable weight; otherwise there is not much point in offerors using the Order". This was said in the context of considering whether or not it was appropriate, in that case, to make an order on an indemnity basis. 18 In the present case, the offer did not comply with the formalities required by Order 23 but the offer was left open for more than the 14 days required by rule 5 of Order 23. It was made to the Bruce Harris partners through their solicitors, who would have realised that non-acceptance might have costs implications. Indeed, para 6 of the letter stated that, if the offer was not accepted, "ICI reserves the right to use this offer in support of an application for costs". 19 I do not think an offeree should be ordered to pay costs on a scale higher than the party/party scale simply because it transpires it would have been advantageous for him or her to have accepted the offer. Although the Full Court in Black v Lipovac [1998] FCA 699, 4 June 1998, not reported, rejected the necessity for the conduct of the offeree to be "plainly unreasonable", it did accept the need to consider the reasonableness of the conduct of the offeree, viewed in the light of the circumstances existing at the time the offer was rejected (or not accepted). A decision to reject an offer might be perfectly reasonable, notwithstanding a subsequent lower verdict; for example, because of evidence not known to the offeree. Where, on the other hand, the offeree knew the whole of the likely evidence and the inherent weakness of his or her own case (as in Coshott v Learoyd) it might be foolhardy not to accept the offer. 20 The 20 March offer was a substantial one: $1,000,000. It is true the offer was much less than the claim but it was also much more than the later award. It would have been obvious to the members and advisers of the Bruce Harris partnership that the chance of obtaining an award higher than the offer depended entirely upon the Court accepting the claim that a firm decision had been made in 1994 to sell off all the cattle and substitute dryland farming. If the situation had been realistically assessed, the obstacles to acceptance of the claim that I set out in my reasons would have been apparent. It is important to note that my rejection of the underlying premise of the claim did not stem from any material disclosed at trial by ICI, but simply from its inconsistency with evidence already known to the Bruce Harris partners; in particular their cattle sales figures and rainfall records. Any realistic assessment of the situation ought to have led to the conclusion that the offer of $1,000,000 was a fair, even generous, offer that ought to be accepted. 21 I think that, in the present case, as in Coshott v Learoyd, it was "foolhardy of them to press on, and unreasonable to inflict further costs on the respondent". As in that case, this is a case for a special costs order. 22 However, for the reasons expressed in Coshott v Learoyd, I will not make an order on an indemnity basis. I will make an order in accordance with the formula adopted in Re Wilcox, Ex parte Venture Industries Pty Ltd (1996) 72 FCR 151, covering the costs incurred by ICI after 9 April 1998. I certify that the preceding twenty-two (22) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Wilcox.