Offers to compromise
12 It is convenient to say something more concerning an offer to compromise under rule 25.01 because such offers were made by Westpac to each of the applicants. Any such offer is to be distinguished from a "Calderbank offer". The distinction was described by the Full Court (Stone, Edmonds and Jagot JJ) in IFTC Broking Services Ltd v Federal Commissioner of Taxation [2010] FCAFC 31; (2010) 268 ALR 1 (IFTC) at [12]:
Futuretronics exposes the difference between a Calderbank offer and an offer of compromise. In respect of a Calderbank offer, characterisation of the refusal to accept the offer as reasonable or not is significant, even potentially determinative. In respect of an offer of compromise, the reasonableness of the refusal to accept the offer is not, of itself, sufficient to displace the consequence of indemnity costs. The appellants' reliance on various circumstances said to make their refusal of the offer reasonable fails to confront this difference of principle.
13 In Futuretronics.com.au Pty Ltd v Graphix Labels Pty Ltd [2009] FCAFC 40 (Futuretronics), Tamberlin, Finn and Sundberg JJ stated at [5] that the refusal of a Calderbank offer will not always attract indemnity costs. Their Honours emphasised that the offeror "must show that the rejection was unreasonable in the circumstances of the case". Their Honours then discussed the relevant approach to an offer made under Order 23, rule 11(6) of the then Federal Court Rules, which was in the following terms:
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.
14 The following statements by the Full Court at [10] in respect of that previous rule are applicable to an offer of compromise under rule 25.01 of the 2011 FCRs:
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).
15 In Merost Pty Ltd v CPT Custodian Pty Ltd (No 2) [2014] FCA 594 (Merost), North J considered that the principles established in these Full Court decisions were applicable to rule 25.14(3) of the 2011 FCRs. In Merost, the applicant had made an offer of compromise to receive $300,000 plus costs in satisfaction of its claim. Judgment was obtained for the applicant in the sum of $312,339.42, comprising an award of $260,000 plus interest of $52,339.42. Consequently, the judgment was more favourable than the terms of the offer.
16 Justice North rejected the respondent's submission that the applicant had to show that the respondent's conduct in refusing the offer was unreasonable when viewed in the light of the circumstances which existed when the offer was refused. His Honour identified some relevant principles which guide the exercise of the discretions under the relevant current rules:
11. Under a rule such as r 25.14(3), when an offer is made and a judgment no less favourable is obtained, a rebuttable presumption in favour of indemnity costs is created. The prima facie position should only be departed from for proper reasons, which generally only arise in an exceptional case: see Port Kembla Coal Terminal Ltd v Braverus Maritime Inc (No 2) (2004) 212 ALR 281; [2004] FCA 1437 at [17] per Hely J; and Futuretronics.com.au Pty Ltd v Graphix Labels Pty Ltd [2009] FCAFC 40 at [10] per Tamberlin, Finn and Sundberg JJ.
12. In its supplementary written submissions the respondent first contended that the reference in the rule to the "terms of the offer" means that the offer must be construed as at the time it was made. By this reasoning, as at 23 July 2012, the principal amount necessary to produce $300,000 after the addition of interest would have been about $280,000. The judgment sum of $260,000 was less favourable to the applicant and hence the rule did not require the respondent to pay indemnity costs.
13. There is however no warrant in the text of the rule to support this approach. What is required in this case is a comparison between the amount of the offer of $300,000 and the amount of the judgment of $312,339.42. On this analysis the judgment was more favourable than the offer which the applicant made.
…
15. The considerations advanced by the respondent do not justify departure from the prima facie entitlement of the applicant to indemnity costs. They do not provide proper reasons for departure from the ordinary operation of the rule. There was nothing exceptional about the position of the respondent. It was faced with an offer inclusive of interest. It had to assess the likely outcome of the proceedings. Part of the assessment was a calculation of the interest which would be payable on the judgment under s 51A(1) of the Act. In that exercise it miscalculated so that the judgment was more favourable to the applicant than the offer. This is an example of the ordinary circumstances in which the prima facie entitlement to indemnity costs arises.
17 Westpac expressly challenged North J's statement in [13] of Merost that the current rule requires a simple comparison between the total amount of the offer (in that case $300,000) and the amount of the judgment (in that case $312,339.42). Westpac argued that North J's approach is flawed in failing to take into account the time value of money and the extent to which both the offer and the judgment, made as they are at different times, include interest. In support of that submission, Westpac made the following contentions:
(a) under Order 23, rule 11(7) of the pre-2011 Federal Court Rules, express provision was made to cover the contingency where a judgment included interest or damages in the nature of interest and directed that, for the purpose of applying Order 23, rule 11(4) and (5) (which were broadly similar to rule 25.14(2) and (3) of the 2011 FCRs), the Court must disregard so much of the interest as relates to the period after the day the offer was made;
(b) that previous rule, which mirrored the rules in all but one of the State Supreme Courts, and required interest awarded in relation to the period after an offer was made to be disregarded, is consistent with "common sense" because:
otherwise the reasonableness of an offer in comparison to judgment would be eroded by the passage of time and potentially encourage an applicant to delay prosecuting the proceeding; and
the only way a respondent could make an otherwise reasonable offer would be to build into the offer an amount for interest which reflected an estimate of interest to the date of judgment (Westpac referred to Davies and Nicol as Joint and Several Liquidators of Harris Scarfe Ltd v Chicago Boot Co Pty Ltd [2011] SASC 197 at [30] per Sulan J);
(c) North J's construction undermined the overarching purpose of the rules and s 37M of the Federal Court Act; and
(d) the Explanatory Statement to the 2011 FCRs described rule 25 as not substantially altering the existing practice and providing more flexibility on the structure of offers, including in relation to interest. Westpac submitted that this last reference should be read as referring to the fact that Order 23, rule 4 required the amount of interest and how it was calculated to be specified if an offer was for a sum of money that was inclusive of interest. That is to be contrasted with rule 25.03 of the 2011 FCRs which merely permits the offer of compromise to specify the amount which represents interest.
18 Westpac contended that Merost is distinguishable and should be confined to its own facts or, alternatively, the relevant passage in [13] is plainly wrong. Neither contention should be accepted. The facts in Merost are not relevantly distinguishable and it is clear that North J was enunciating a general principle based on the plain text of the provision, which is substantially similar to rule 25.14(1). Secondly, I am not persuaded that North J's statement in [13] is "clearly wrong", such that I should not follow it. In my respectful view, his Honour's approach is correct and I propose to apply it here. As his Honour emphasised, that approach is consistent with the text of rule 25.14(3). The text of rule 25.14(1) is relevantly the same. Significance must also attach to the fact that the 2011 FCRs do not include an express equivalent provision to that in the earlier Order 23, rule 11(7). I do not accept Westpac's submissions that his Honour's construction undermines the policy of the rule or is contrary to "common sense", as manifested in comparable provisions in various Supreme Court jurisdictions. The text of the provision is paramount and should not be displaced by commentary in the Explanatory Statement. The practical difficulties of estimating an amount for interest, upon which Westpac relied in support of its position, may well arise depending upon when in the litigation cycle an offer of compromise is made but it is notable that there is no obligation under the current rule to specify an amount which represents interest.
19 As noted above, Westpac made an offer of compromise to each of the applicants in two tranches - on 2 and 9 December 2011. The offers were expressed to be made under rule 25.01(1) and in the form of Form 45. Each notice of offer to compromise specified a monetary amount. No express reference was made to that amount including or excluding interest. Each notice also stated that the offer was in addition to costs as agreed or assessed. Each offer was expressed to be open for acceptance for 14 days, being the minimum period permitted under the rule.
20 The applicants acknowledged that they had the onus of showing why an indemnity costs order should not be made under rule 25.14(1). While acknowledging that existing authorities state that the prima facie position created by rule 25.14 should only be departed from for proper reasons which "in general, only arise in an exceptional case", they submitted that the expression "exceptional case" should be understood as requiring that the case needs in some way to be exceptional and that there is no requirement for "exceptional circumstances" of any type in the sense of being extraordinary, rare, unprecedented or unexpended. In circumstances where at least two Full Courts (Futuretronics at [10] and Richardson v Oracle Corporation Australia Pty Ltd (No 2) [2014] FCAFC 139 (Oracle) at [11]) have expressly approved Hely J's statement in Port Kembla Coal Terminal Ltd v Braverus Maritime Inc (No 2) [2004] FCA 1437; (2004) 212 ALR 281(Port Kembla) to the effect that it is appropriate to depart from the presumptive position under the earlier but similarly-worded rule for proper reasons "which, in general, only arise in an exceptional case", I am bound to apply the guidance which is provided by that formulation while also acknowledging the importance of taking into account all relevant circumstances in any individual case.
21 The applicants submitted that, having regard to the following circumstances, "there could be no unreasonableness - assessed as at the date of making the Offers - in the applicants not accepting the Offers":
(a) at the date the offers were made, the only evidence served by Westpac were the affidavits of Mr Fegan and Mr Edie and those of Ms Elliott and Ms Silvera;
(b) orders had been made for Westpac to file the evidence upon which it proposed to rely (in the Murphy, Wittenberg, Lavars, Lawson and Moore proceedings) by, respectively 28 July 2011, 30 September 2011 and 16 November 2011;
(c) after the offers had been served and had expired, and in alleged breach of the Court orders referred to in (b) above, Westpac served additional affidavits from the following people during the period 19 January 2012 to 19 September 2012: Mr Boulaevski; Ms Clarke; Mr Doyle; Ms Ward; Mr Eggins; Ms Burgess; Mr Barbour; Ms Silvera; Mr Bartlett; Mr Edie; Mr Harvey and Ms Gilbert-Davies;
(d) "critically", so the applicants submitted, Ms Gilbert-Davies' affidavit was served only 14 days before the trial began and it "was her evidence of an alleged mistaken 'error' which was central to the Court's finding that the causes of action in deceit and negligent misstatement had not been made out". The applicants further submitted that if Ms Gilbert-Davies' evidence had been available at the time the offers were made, "the balancing task for the applicants would have been fundamentally different";
(e) Westpac's late-served evidence came from witnesses whose identity must have been known to it at the time the offers of compromise were made; and
(f) in the Poulos and Smith proceedings, Westpac had not filed a defence at the time when the offers were made in those proceedings.
22 In oral address, Mr Pritchard SC (who appeared with Mr Shariff for the applicants) also raised some additional factors in support of the applicants' contention that rule 25.14(1) should not be applied. I will deal with those matters below.
23 The applicants further submitted that, in the light of all these matters, they were not in a position at the relevant time to make an informed assessment of the relevant strengths and weaknesses of the parties' respective cases, nor of the risks of not accepting the offers of compromise. Furthermore, the applicants submitted that there was an impression that the offers of compromise "were only intended by the respondent to found an indemnity costs order and not to achieve a genuine, mutually informed resolution of the disputes the subject of the proceedings". They also submitted that, at the time the offers were made, the applicants' claims in contract concerning their retention incentive payments were denied, but Westpac subsequently conceded liability on that issue after service of the offers of compromise, thus the "belated capitulation by the respondent of such a significant issue in the proceedings negates any effect the Offers might otherwise have had". They relied on evidence given by their instructing solicitor, Mr Gillis (who was not cross-examined), who deposed that if Westpac had conceded the retention incentive scheme claim in contract prior to the service of the offers to compromise, that would have made "a significant difference" to his assessment of those offers and to the advice he gave to each of the applicants. Mr Gillis also deposed that the affidavits which were served by Westpac after 19 January 2012 would have made "a significant difference" to his assessment of the offers to compromise.
24 The applicants also submitted that, at the time the offers were made, none of the applicants contemplated that the seven proceedings would be heard concurrently, which order was said by them to "fundamentally alter the nature, extent and expense of each applicant's trial".
25 In the case of Ms Murphy, it was submitted that it was only during the course of the trial that Westpac abandoned its defence on the deed of release issue because it could not produce a signed copy of the deed, a fact which ought to have been known to it well before the trial. It was also submitted that the majority of preparatory work on Ms Murphy's case was directed to that issue.
26 Westpac did not oppose an order that it pay the costs of Ms Lavars and Mr Moore up to the date of the offers of compromise made to them in December 2011, but it sought indemnity costs against both of them for the period thereafter. As will emerge below, there is an issue relating to the applicability of the offer of compromise which was made to Ms Lavars, which turns on whether or not the award of damages in relation to her case is less than the offer of compromise which was made to her.
27 Westpac contended that, apart from Mr Wittenberg, none of the other remaining applicants received a judgment which was more favourable than the offer which was given under the various offers of compromise and that, in those circumstances, rule 25.14(1) applies and Westpac is presumptively entitled to its costs on an indemnity basis from the relevant date.
28 In the case of Mr Wittenberg, Westpac accepted that it should be ordered to pay Mr Wittenberg's costs on a party and party basis, save that it sought an apportionment in relation to his failed claims in deceit, misleading or deceptive conduct and negligence (noting that Westpac accepts that the offer of compromise made to Mr Wittenberg in December 2011 was less favourable than the award of damages in his favour).
29 It is convenient to first address the position in respect of Ms Lavars arising from her non-acceptance of the offer of compromise. Westpac's contention that its offer of compromise to Ms Lavars in the amount of $375,000 plus costs as agreed or assessed was greater than the judgment in her favour is predicated on its contention that Ms Lavars should not receive an award of damages in respect of the TIP for 2008/2009 or any interest thereon. For reasons given below, I do not accept Westpac's submissions on this matter. Mr Lawson is entitled to an award of damages plus interest which includes her TIP for 2008/2009. Accordingly, Westpac's reliance on rule 25.14(1) in claiming costs on an indemnity basis against Ms Lavars is rejected.
30 Different considerations arise in respect of Ms Murphy and Messrs Moore, Lawson, Smith and Poulos. Some of the submissions made on their behalf as to why they should not have to pay any of Westpac's costs on an indemnity basis appear to have been made on the basis that Westpac had made Calderbank offers, as opposed to offers of compromise under rule 25.14. As noted above, different tests apply depending upon whether an applicant has received a Calderbank offer or an offer of compromise under that rule. Whether or not the non-acceptance of an offer was "reasonable" is a relevant consideration in relation to a Calderbank offer, but it does not determine the position concerning an offer of compromise under rule 25.14. As noted in [14] above, the rebuttable presumption which arises under rule 25.14(3) is not readily displaced. Merely because non-acceptance of an offer of compromise was "reasonable" is unlikely to provide a sufficient basis for displacing the presumption. As Hely J observed in Port Kembla at [18]:
Even if an unsuccessful litigant acted reasonably in rejecting an offer of compromise… the authorities establish this of itself is not a sufficient reason to displace the presumptive or prima facie operation of the Rules.
31 Moreover, the relevant applicants' reliance on unforeseen developments in the course of litigation needs to be approached with considerable caution in assessing whether the presumption is rebutted having regard to the policy and rationale underlying a provision such as rule 25.14, which is to oblige the parties to give serious thought to the risk involved in non-acceptance on the basis that "litigation is inescapably chancy" (see the observations of the Full Court in IFTC at [9(4)]).
32 The following observations of the Full Court (Kenny, Besanko and Perram JJ) in Oracle at [11]-[12], while directed to a similar presumptive position under rule 11(6), are also apposite:
It will be appropriate to depart from the presumptive position under rule 11(6) (and hence rule 11(4)) for proper reasons 'which, in general, only arise in an exceptional case': Port Kembla Coal Terminal Ltd v Braverus Maritime Inc (No 2) [2004] FCA 1437; (2004) 212 ALR 281 at 284 [17]. In assessing what is exceptional in the relevant sense it is useful to keep in mind, as the New South Wales Court of Appeal put it in Maitland Hospital v Fisher (No 2) (1992) 27 NSWLR 721 at 725, that '[l]itigation is inescapably chancy' and that it was precisely to encourage meditation upon that unsettling truth that court rules such as Order 23 providing for offers of compromise were introduced. In the words of Mason P, rules such as rules 11(4) and 11(6) encourage the parties 'to give serious thought to the risk involved in non-acceptance': Morgan v Johnson (1998) 44 NSWLR 578 at 581-2.
Thus the mere fact that something unexpected or unforeseen has happened during the course of the litigation is unlikely, in a usual case, to provide the kind of proper reasons for which Order 23 rules 11(4) and 11(6) call. The litigation landscape is littered with the wreckage of unforeseeable events and unexpected circumstances.
33 In addition to the relevant guidance provided by those observations, which I consider apply here, I also reject the relevant applicants' evidence and claim that, because further evidence was served after the offers, they were not in a position to make an informed assessment.
34 First, I do not accept that all the evidence relied upon by the applicants in support of this contention was served in defiance of Court orders as alleged or that the evidence could not have been reasonably foreseen at the time the offers were being considered. The offers of compromise were made in early December 2011 and were open for acceptance for 14 days. The orders for service of Westpac's evidence were amended on 13 December 2011 to take into account that Westpac had only received Mr Poulos' evidence in chief on 7 December 2011 and had not then received Mr Smith's evidence in chief, which was served only on 3 February 2012. Moreover, I accept Westpac's submission that the evidence which was subsequently served was of no particular significance in circumstances where:
(a) the three brief affidavits served in January and February 2012 by Mr Boulaevski, Ms Ward and Mr Eggins merely formally proved previously discovered spreadsheets from the HR database;
(b) a brief affidavit from Ms Clarke served in February 2012 merely corroborated a minor detail of Mr Harvey's evidence in relation to Ms Murphy's proceedings, and that brief affidavit ultimately was not read;
(c) an affidavit of Mr Doyle served in March 2012 was not served earlier because it responded in part to the evidence in chief of Mr Smith, which was not served on Westpac until February 2012;
(d) six short further affidavits served in July 2012 addressed new factual issues raised in the applicants' evidence in reply and three of these further affidavits ultimately were not read; and
(e) the brief affidavit of Ms Gilbert-Davies supported evidence which had already been given by Ms Elliott, was served in August 2012 and was filed with leave and without objection from the applicants.
35 Secondly, I consider that the applicants have greatly overstated the significance of the late filing of Ms Gilbert-Davies' evidence and its importance in the Court's decision to reject the relevant applicants' claims in deceit etc. Ms Gilbert-Davies' evidence substantially confirmed that of Ms Elliott (whose affidavit had been served on 6 November 2011) concerning the circumstances surrounding the failure to distribute the scripts containing the internal target which had to be achieved for the retention incentives to be paid. In addition, in an affidavit sworn by Mr Paul Harvey on 16 November 2011, which was served on the applicants but ultimately not read, Mr Harvey described his involvement in the steps taken around 16 June 2008 to distribute the retention incentive letters and the proposal to use a script in the proposed meetings. He deposed that he never considered that the 10.1 per cent EPS target was deliberately withheld from scheme participants.
36 The submission that Ms Gilbert-Davies' evidence regarding her mistake in not including the scripts was "central" to the Court's finding that the claims in deceit and negligent misstatement had not been made out is exaggerated. The primary reasons speak for themselves, but it is evident from [909] to [959] of those reasons that, while Ms Gilbert-Davies' evidence was relevant in rejecting the claims, the Court's acceptance of the evidence of both Mr Fegan and Ms Elliott, who were the central targets of the claims, was far more important.
37 Nor do I accept that, at the time the offers of compromise were made, the relevant applicants could not have contemplated that the seven proceedings would be heard concurrently or that the Court order made on 10 August 2012 to that effect fundamentally altered the nature, extent and expense of each applicants' trial. It ought to have been readily apparent to each of the applicants and those who advised them that there was a substantial overlap of issues and common witnesses such that the cases would probably be heard together. Indeed, in December 2011, when the offers of compromise were made, the Court had already listed five of the seven proceedings for hearing on certain dates in April and July 2012. On 9 November 2011, the Smith and Poulos proceedings were also listed for hearing on those dates and an order was then made that, in relation to all the proceedings, evidence in one was to be evidence in the others. Furthermore, at a directions hearing on 10 October 2011, the possibility of the proceedings being all heard together was discussed.
38 As noted above, Mr Pritchard SC also raised a number of additional factors and submitted that these factors, together with the other factors set out above, cumulatively provided a basis for not enforcing rule 25.14. Dealing with those additional factors in turn, I do not consider that they provide an adequate basis to deny the operation of the rule, whether considered individually or collectively with the others factors described above.
39 First, it was contended that an exception should be made to the prima facie rule because the offers to compromise were only expressed to be open for the minimum possible 14 day period, no reason has been given for Westpac for that limitation and the offers were made in a period which is notorious for being "professionally busy for litigants and natural persons" and in circumstances where no hearing date had been allocated. It is evident, however, that the offers to compromise were made in the context of mediations, involving each of the applicants, which took place on either 30 November, 1 December or 8 December 2011. Each of those mediations having been unsuccessful, it is not surprising that Westpac determined to make offers to compromise shortly thereafter with a view to avoiding further costly litigation. It was not unreasonable for Westpac to utilise the minimum period stipulated under the rule. The applicants did not complain or seek any extension during that period.
40 Secondly, the applicants relied on the fact that during the period the offers were open for acceptance, Westpac was responsible for sending "distracting correspondence" to the applicants' solicitors which drew attention to their professional ethical duties in raising serious allegations of deceit and asked that copies of the correspondence be forwarded to counsel. Westpac sought to have the allegations of fraud withdrawn. In my view, it was entirely appropriate for Westpac to instruct its solicitors to send such correspondence. The correspondence highlighted the evidence of Mr Fegan, Ms Elliott, Mr Harvey and Mr Bartlett, each of whom denied that there was any deliberate or fraudulent intention to mislead the applicants as to the true target figure. Nor do I accept the contention that Westpac's evidence which was served as at the date of the offers to compromise involved a difficult evaluative assessment of the creditworthiness of Westpac's material witnesses. This contention may have had more force if it were not the fact that the contemporaneous documentation which was produced to the applicants supported the evidence of those material witnesses.
41 Thirdly, I do not consider that particular weight should attach to the fact that the offers to compromise were available for acceptance before Westpac conceded the claims in contract regarding the retention incentive scheme. It was open to the applicants at the relevant time to consider whether or not to accept those offers having regard to their many other claims. It is also relevant that Mr Gillis did not descend into any detail as to how his assessment of the offers would have been significantly different if the concession had been made beforehand.
42 Fourthly, as to the submission that Ms Gilbert-Davies was an employee of Westpac and her evidence could have been served earlier, this contention is predicated on an erroneous view as to the relevant significance of Ms Gilbert-Davies' evidence in the findings made in the primary judgment regarding the claims in deceit, misleading or deceptive conduct and negligent misstatement.
43 Mr Pritchard SC also raised several other factors in support of his submission the circumstances here warranted an exception being made to the prima facie rule, including the fact that the offers were never repeated or extended. He submitted that the applicants did not expressly reject the offers to compromise and their non-acceptance was not imprudent or unreasonable in the circumstances. None of those matters strengthens the applicants' position. Indeed, the last mentioned factor would appear to be more appropriate to a Calderbank offer.
44 For these reasons, I consider that the relevant applicants have not established a sufficient basis for departing from the presumptive position that Westpac is entitled to have its costs paid on an indemnity basis for the relevant period in respect of each relevant applicant. For similar reasons, nor am I satisfied that they have established that it is appropriate under rule 1.34 of the 2011 FCRs to dispense with rule 25.14(1).