Wenzel v Australian Stock Exchange Ltd

Our client considered each application for membership in good faith. It was entitled to defer consideration of applications for membership pending consideration by existing members of the demutualisation proposal. Nevertheless during the deferral period it allowed each applicant an opportunity to show whether a compelling case for immediate admission could be made out. In the exercise of its discretion it determined that your client did not make out a compelling case. At all times our client acted fairly and consistently determining all applications within 6 months of receipt of the application in accordance with its Articles. For these and other reasons our client believes that your client's claim will not succeed at trial.

Our client, however, is prepared to entertain a commercial settlement of the Proceeding now, before further substantial costs are incurred."

The letter went on to offer to pay the applicant $110,000, inclusive of interest, plus party‑party costs to the date of the letter, in settlement of the proceeding. The offer was open for acceptance until 4:00 pm on Friday 17 March 2000. The letter concluded:

"We advise that, should our client obtain judgment in the Proceeding or should your client obtain judgment in the Proceeding on terms less favourable than [those in] the offer, then, based on the principles laid down in Calderbank v Calderbank [1976] Fam 93, our client will seek an order of the Court for the payment by your client of our client's costs, from the date of this letter, on a full indemnity basis, in addition to any order the Court may make for the payment of costs incurred by our client prior to this letter."

The letter was headed "Without prejudice save as to costs". None of the applicants accepted the offer.

2 At the time the offers were made the following documents had been filed: affidavits of each applicant, a statement of claim, an amended statement of claim, a defence, a reply, an amended reply, a rejoinder, and further and better particulars. In addition each party had given discovery. 3 On 11 July 2000 the ASX's solicitors sent three further letters to the applicants' solicitors in substantially the same terms as the earlier letters, save that the offer of settlement was increased from $110,000 to $140,000. The amount was inclusive of interest plus party‑party costs "to the settlement date". The offer was open for acceptance until 4:00 pm on Wednesday 26 July 2000. Each letter was accompanied by a deed of settlement and release reflecting the terms offered. The "settlement date" was to be the date of execution of the deed. None of the applicants accepted the revised offer. 4 The applications were heard over seven days in October 2001. They were dismissed on 15 February 2002. 5 In Multicon Engineering Pty Ltd v Federal Airports Corporation (1996) 138 ALR 425 at 451 Rolfe J in the Supreme Court of New South Wales said:

"In my opinion the proper approach to take to an offer of compromise, whether made under the Rules or pursuant to a Calderbank letter, is that there should be a prima facie presumption in the event of the offer not being accepted and in the event of the recipient of the offer not receiving a result more favourable than the offer, that the party rejecting the offer should pay the costs of the other party on an indemnity basis from the date of the making of the offer. I proceed on the basis that the unreasonableness was the failure by the offeree to accept the offer, which unreasonableness is demonstrated, prima facie, by the ultimate result."

His Honour had earlier referred to a number of decisions of this Court (including John S Hayes & Associates Pty Ltd v Kimberly‑Clark Australia Pty Ltd (1994) 52 FCR 201) which he saw as authority that before an order for indemnity costs based on non‑acceptance of a Calderbank letter could be made, it was necessary for the offeror to show that the offeree was guilty of pursuing a case in wilful disregard of known facts or clearly established principles, or one which involved allegations that ought never to have been made, or one that had some other feature from which it could be deduced that the applicant had no chance of success: at 447. Rolfe J declined to adopt that approach, or that expressed by Sheppard J in Sanko Steamship Co Ltd v Sumitomo Australia Ltd (unreported, 7 February 1996) that the ordinary rule as to costs "should only be departed from where the conduct of the party against whom the order is sought is plainly unreasonable".

6 In Black v Lipovac [1998] FCA 699 a Full Court of this Court, after considering Multicon, Hayes, Sanko and later single judge decisions in this Court following the Hayes approach, said:

"In reality there is not a substantial difference between the two views; both accept that the reasonableness of the conduct of the offeree, viewed in the light of the circumstances which existed when the offer was rejected, is relevant to the exercise of the discretion to award indemnifying costs. To the extent there is a difference, we would prefer the by now well established line of authority in decisions of single judges of this Court. However, we would not, with respect, necessarily endorse the view of Sheppard J in Sanko that the conduct of the offeree has to be 'plainly unreasonable'. To adopt an especially high standard of unreasonableness would operate as a fetter on the discretion to award indemnity costs and diminish the effectiveness of the Calderbank offer as an incentive to settlement."

7 In Coshott v Learoyd [1999] FCA 276 Wilcox J said at [46]:

"As the Full Court suggested in Black, the difference between the approach propounded by Rolfe J and that adopted in this Court may be more apparent than real. Everybody agrees there can be no fixed rule; a proposition established for this Court by the terms of s 43 of the Federal Court of Australia Act 1976 conferring on the Court a discretionary jurisdiction in relation to costs. Everybody also agrees that, while the ordinary practice is to award costs on a party‑party basis, it is sometimes appropriate to take a different course, including ordering indemnity costs against a party who has acted unreasonably. The difference between Rolfe J and the Federal Court decisions seems to turn on whether there should be 'a prima facie presumption' of indemnity costs against a party who has not accepted an offer of compromise made pursuant to the Rules or a Calderbank letter and achieved no better result at trial, or whether this is only a factor to be taken into account in determining whether the offeree acted unreasonably. On either view, the Court has to look at the whole situation, including the circumstances that applied at the time of the non‑acceptance of the offer."

See also Sydney Markets Ltd v Sydney Flower Market Pty Ltd [2002] FCA 283.

8 The extent to which a Calderbank letter draws an applicant's attention to the weakness of its case is a consideration relevant to the making of an indemnity order. The letter must descend to particularity. In NMFM Properties Pty Ltd v Citibank Ltd (No 2) (2001) 109 FCR 77 at 98 Lindgren J said:

"No doubt where a party puts with sufficient particularity to the opposing party the reasons why the latter must fail, yet the latter does not recognise the inevitable, this will be a factor pointing to an award of indemnity costs.

The requirements of 'sufficient particularity' and 'inevitability of failure' are important. In their absence, it would be open to parties to put their respective cases to the opposing party urging it to recognise the merit of what is put in the hope that if it ultimately finds favour with the Court, an award of indemnity costs will follow. If this were correct, one might ask rhetorically, 'Why write a letter as distinct from relying on the pleadings?'

I agree with his Honour's view. 9 Conformably with the approach of the Full Court in Black I will eschew both a presumption in favour of indemnity costs flowing from rejection of the offers and the application of a "plainly unreasonable" test. What the ASX's solicitors identified in the letters as the "principal" point of defence was that there was no pre‑admission contract. I rejected that contention. The ASX's fall back position, based on clause 13 of the application form, was upheld. However the proper construction of the clause was open to argument, as appears from pars 23 and 30 of my reasons. The ASX did not contend that clause 13 could apply to the deferral policy, and the policy was sustained only by resort to article 2. While the letters of offer asserted that the ASX was entitled to defer consideration of applications pending a decision on demutualisation, no reference was made to article 2 and no other support for the assertion was offered. Article 2 was not pleaded, and indeed was mentioned for the first time in the ASX's written final address dated 25 October 2001, the last day of the trial. The letter lacked sufficient particularity, and did not show why the applicants' claims had to fail. In the light of these considerations the applicants did not in my view act unreasonably in rejecting the offers which, although not derisory, were only for a fraction of the minimum amount they would recover if successful. 10 Apart from the Calderbank letters the ASX relied on the fact that I did not accept the applicants' evidence as to their business‑related motivation for seeking membership. I held that their real, or at least their predominant, motivation was to secure the expected benefits of demutualisation. In this connection the ASX's counsel relied on one of the occasions collected by Sheppard J in Colgate‑Palmolive Co v Cussons Pty Ltd (1993) 46 FCR 225 at 233 on which an indemnity costs order had been made ‑ the making of allegations that ought never to have been made. I did not entirely discount the existence of a business related motivation. It was not necessary for me to decide whether the applicants' sole motivation was to share in a windfall on demutualisation, and I did not do so. See pars 48, 52 and 55. I do not regard the fact that I held that their predominant motivation was to share in an expected benefit, whereas they asserted that their sole or principal motivation was business‑related, tips the scale in favour of an indemnity order. There is a danger in converting a finding about a contested fact into the occasion for imposing a penalty on the loser of the contest by way of an indemnity costs order. 11 What I have said at the conclusion of par 9 applies to the ASX's submission about the dinner party incident. Although I did not accept Mr Madden's or Miss Pike's account, there were unsatisfactory circumstances surrounding the Parkinson file note and the apparently careful formulation of his affidavit relating to the note, that could have been seen by Mr Madden and his advisers as justifying the application to re‑open his case and adduce the dinner party evidence. 12 The orders I pronounced on 15 February 2002 stand. The ASX's motion seeking indemnity costs will be dismissed. I certify that the preceding twelve (12) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Sundberg.

Counsel for the Applicants: P Vickery QC and W Alstergren

Solicitors for the Applicants: Home Wilkinson & Lowry

Counsel for the Respondent: P Almond QC and S H Steward

Solicitors for the Respondent: Mallesons Stephen Jaques