Varas v Fairfield City Council [2009] FMCA 63 (26 February 2009)

Last Updated: 2 March 2009

FEDERAL MAGISTRATES COURT OF AUSTRALIA

VARAS v FAIRFIELD CITY COUNCIL

[2009] FMCA 63

COSTS – Claim for indemnity costs by successful respondent – applicant seeking no order as to costs or scale costs order – consideration of Calderbank offers – consideration of the conduct and nature of the proceedings – costs awarded on ordinary basis.

Federal Magistrates Act 1999 (Cth), s.79 Federal Magistrates Court Rules 2001 Human Rights and Equal Opportunity Commission Act 1986 (Cth)

CGU Insurance Ltd v Corrections Corporation of Australia Staff Superannuation Pty Ltd [2008] FCAFC 173 Colgate Palmolive Company v Cussons Pty Ltd [1993] FCA 536; (1993) 46 FCR 225 Dais Studio Pty Ltd v Bullet Creative Pty Ltd [2008] FCA 42 Hollingdale v North Coast Area Health Service (No 2) [2006] FMCA 585 Maitland Hospital v Fisher (No 2) (1992) 27 NSWLR 721 Messiter v Hutchinson (1987) 10 NSWLR 525 Microsoft Corporation & Ors v Mayhew (No 2) [2008] FMCA 252 Re Wilcox; Ex parte Venture Industries Pty Ltd (No 2) (1996) 72 FCR 151 Trade Practices Commission v Nicholas Enterprises (1979) 42 FLR 213 Varas v Fairfield City Council [2008] FMCA 996

Applicant:

MONICA VARAS

Respondent:

FAIRFIELD CITY COUNCIL

File Number:

SYG 393 of 2007

Judgment of:

Driver FM

Hearing date:

4 February 2009

Delivered at:

Sydney

Delivered on:

26 February 2009

REPRESENTATION

Counsel for the Applicant:

Ms K Edwards

Solicitors for the Applicant:

Haywards Solicitors

Counsel for the Respondent:

Ms K Eastman

Solicitors for the Respondent:

Leigh Virtue & Associates

ORDERS

(1) The applicant shall pay the respondent’s costs and disbursements of and incidental to the application, including any reserved costs, in accordance with the scale of costs in Schedule 1 to the Federal Magistrates Court Rules 2001 (Cth).

FEDERAL MAGISTRATES COURT OF AUSTRALIA AT SYDNEY

SYG 393 of 2007

MONICA VARAS

Applicant

And

FAIRFIELD CITY COUNCIL

Respondent

REASONS FOR JUDGMENT

Introduction and background

1. On 19 September 2008 I gave judgment in the principal proceedings in this matter, dismissing Ms Varas’ application. In that judgment[1] I said that I would hear the parties as to costs. The parties sought time to make submissions as to costs. In the meantime, Ms Varas has appealed to the Federal Court against my judgment. I understand that the Federal Court has informed the parties that the costs issue must be resolved before the appeal proceeds. The successful respondent Council seeks an indemnity costs order, having regard to settlement offers made and not accepted. Ms Varas opposes any costs order or, in the alternative, seeks an order limited to costs in accordance with this Court’s scale of costs.

Evidence and submissions

2. The Council relies upon the affidavit of Paul Macken made on 28 January 2009. Mr Macken gives evidence about three written offers to settle the applicant’s claim. The first offer was made on 8 December 2006 and was an offer to settle for $15,000 provided Ms Varas executed a release. The offer remained open for 28 days. It was not accepted. The second offer was made on 4 September 2007. That was an offer to settle Ms Varas’ claim for the amount of $30,000 subject to the execution of a release. The offer was to remain open for 21 days. It was not accepted. In both letters the solicitors for the Council reserved their client’s rights to rely on the correspondence in support of a costs order, including costs on an indemnity basis. In a further letter dated 21 October 2008 the solicitors for the Council sought agreement to consent orders concerning an award of costs on an indemnity basis. The solicitors for the Council wrote again on 24 December 2008 concerning the issue of costs.
3. The Council makes submissions on the relevant legislative provisions concerning the award of costs in this Court and the general principles. The Council seeks indemnity costs in accordance with general law principles concerning Calderbank offers. The Council submits that Ms Varas bears the onus of persuading the Court that she should not be required to pay costs on an indemnity basis having regard to the offers made.
4. Ms Varas relies upon the affidavit of Petrine Anne Costigan made on 3 February 2009. Ms Costigan deposes as to the procedural history of this matter. She also refers to additional correspondence between the parties concerning the conduct of the proceedings. Among other things, she deposes that her firm clearly put in issue the question of indemnity costs in response to a letter from the Council’s solicitors dated 1 December 2008. While acknowledging the two settlement offers made, Ms Varas submits that the Court should exercise its discretion to refrain from making any costs order or, alternatively, to make an order limited to scale costs under this Court’s rules. Her submissions note that the proceeding in HREOC was in a costs free jurisdiction and that, as far as the proceedings in this Court are concerned, the public interest may weigh against an order for costs[2]. She submits that the case raised a novel issue of law in relation to claims of imputed disability discrimination, especially in cases of imputed mental disability. She further submits that the Council effectively invited the litigation by “lax conduct” and also unnecessarily protracted the proceedings in this Court. She concedes that both sides might be seen as having failed to comply with certain procedural orders of the Court. In the alternative, Ms Varas submits that, consistently with my reasoning in Howe v QANTAS Airways Limited (No 2) [2004] FMCA 943 at [30], costs should be restricted to scale costs. She notes that the mere fact of Calderbank offers having been made does not necessarily lead to an outcome of an indemnity costs order and that the offers made were silent on whether they were inclusive or exclusive of costs.

Reasoning

5. Section 79 of Federal Magistrates Act 1999 (Cth) provides the Court with the power to award costs in non-family law proceedings:
   • (1) This section does not apply to family law or child support proceedings.
   • (2) The Federal Magistrates Court or a Federal Magistrate has jurisdiction to award costs in all proceedings before the Federal Magistrates Court (including proceedings dismissed for want of jurisdiction) other than proceedings in respect of which any other Act provides that costs must not be awarded.
   • (3) Except as provided by the Rules of Court or any other Act, the award of costs is in the discretion of the Federal Magistrates Court or Federal Magistrate.
6. Part 21 of the Federal Magistrates Court Rules 2001(Cth) sets out the relevant provisions regarding costs. Rule 21.02 states:
   • (1) An application for an order for costs may be made:
     • (a) at any stage in a proceeding; or
     • (b) within 28 days after a final decree or order is made; or
     • (c) within any further time allowed by the Court.
   • (2) In making an order for costs in a proceeding, the Court may:
     • (a) set the amount of the costs; or
     • (b) set the method by which the costs are to be calculated; or
     • (c) refer the costs for taxation under Order 62 of the Federal Court Rules or under Chapter 19 of the Family Law Rules; or
     • (d) set a time for payment of the costs, which may be before the proceeding is concluded.
7. The discretion to award costs is “absolute and unfettered”, but must be exercised judicially[3].
8. There are no special provisions for proceedings under the Human Rights and Equal Opportunity Commission Act 1986 (Cth) (“the HREOC Act”)[4].
9. There is no general rule that a successful party in a litigation is entitled to an order for costs but in the ordinary course a successful party can expect to receive a costs order and there needs to be some reason to depart from that general expectation. The awarding of indemnity costs falls within the general discretion of the Court[5]. Indemnity costs may be awarded where a party has imprudently refused an offer of compromise[6]. There is no automatic entitlement[7]. There is conflicting authority between the NSW state courts and the Federal Court on the question of who bears the onus of proof where an offer of compromise has been made and rejected. This Court should follow Federal Court authority. In Dais Studio Pty Ltd v Bullet Creative Pty Ltd [2008] FCA 42 at [6]- [11] Jessop J said[8]:
   • What follows from a consideration of Calderbank and of Cutts v Head themselves is that, necessarily, those cases articulated no proposition which linked a party’s entitlement to indemnity costs with a settlement offer previously made by that party, and rejected by the other party. In my view, if the rejection of such an offer is to ground a claim for indemnity costs, it must be by reason of some circumstance other than that the offer happened to comply with the Calderbank principle.
   • The second general observation which should be made requires me to advert to the authorities upon which Sheppard J relied in Colgate-Palmolive. That case did not involve the rejection of an offer of settlement. His Honour’s reference to "an imprudent refusal of an offer to compromise" was contained within a statement of general "principles or guidelines" that he distilled from certain authorities which had decided claims for indemnity costs. The authorities to which his Honour referred in relation to an imprudent refusal were Messiter v Hutchinson (1987) 10 NSWLR 525, Maitland Hospital v Fisher (No 2) (1992) 27 NSWLR 721 and Crisp v Keng, an unreported judgment of the NSW Court of Appeal given on 27 September 1993. I would, however, and with respect to Sheppard J, echo the note of caution expressed with respect to the use of those authorities by Hill J in John S Hayes & Associates Pty Ltd v Kimberly-Clark Australia Pty Ltd (1994) 52 FCR 201, 204. As Hill J pointed out, the authorities do not appear to sustain the proposition that the "imprudent" refusal of an offer to compromise should incline the court, in an appropriate case, to make a costs order on an indemnity basis. Messiter did not involve a claim for indemnity costs. Both Maitland and Crisp did, but the claim in each case arose under the NSW equivalent of O 23 r 11(4)(d) of the Federal Court Rules, under which a presumptive entitlement to indemnity costs arises where a plaintiff succeeds for an amount more than a sum for which he or she had previously offered to settle. Although the defendant’s rejection of such an offer might, perhaps in the light of subsequent events, be viewed as "imprudent", it was not by reason of that circumstance, but rather by reason of the presumption expressed in the rules of court, that the plaintiff in each of Maitland and Crisp sought costs on an indemnity basis (in the former instance, successfully, and in the latter instance, unsuccessfully).
   • In Sanko Steamship Limited v Sumitomo Australia Limited (No 2) (1995) 63 FCR 227, 293, a money judgment had been given in favour of the cross claimant on its cross claim. In an unreported judgment given on 7 February 1996, Sheppard J himself dealt with an application for indemnity costs. That application was unsuccessful. In the course of dealing with it, Sheppard J referred to his own judgment in Colgate-Palmolive, to the judgment of Hill J in John S Hayes, and to other judgments. His Honour said that Hill J had expressed his agreement with the observation that there was "no authority supporting the proposition that the mere writing of a Calderbank letter would justify an order for costs in favour of a successful party being taxed on a solicitor and client or an indemnity basis". Sheppard J agreed with that observation.
   • The matter was put beyond doubt by the judgment of the Full Court in Black v Lipovac [1998] FCA 699; (1998) 217 ALR 386, 432. The Full Court referred to a line of authority in the court which supported the proposition that the mere refusal of a Calderbank offer does not of itself warrant an order for indemnity costs, and that the offeror needs to show that the conduct of the offeree was unreasonable. That line of authority included John S Hayes. After adverting to apparently contrary authority elsewhere, the Full Court said (217 ALR at 432-433 [218]):
     • 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. There is in our view force in the comments of Byrne J in the Supreme Court of Victoria in Mutual Community Ltd v Lorden Holdings Pty Ltd (unreported, SC(Vic), Byrne J, No 10561/90, 28 April 1993, BC9303878) at 12–13:
       • The policy of the court is to encourage litigating parties to undertake genuine settlement negotiations and, for that purpose, to face up to serious offers of settlement ...
       • The response of a litigant in receipt of an offer of settlement will always be affected by the prospect that the sum which the court might order including party and party costs may be less advantageous than the terms of the offer.
     • Experience, however, shows that this prospect alone is not always sufficient to compel a litigant to face up to the offer. The further prospect of a super-added costs penalty if a reasonable offer be not accepted is a salutary inducement to an offeree to undertake this often painful task.
   • The requirement, expressed in Black v Lipovac, that the conduct of the offeree in rejecting an offer of settlement be unreasonable effectively makes a Calderbank situation but an instance of the general approach to which Woodward J referred in Fountain Selected Meats, and to which the Full Court referred in Hamod. In the latter case, having quoted from the judgment of Woodward J, Gray J (with the assent of the other members of the Full Court) said (188 ALR at 665 [20]):
     • Indemnity costs are not designed to punish a party for persisting with a case that turns out to fail. They are not awarded as a means of deterring litigants from putting forward arguments that might be attended by uncertainty. Rather, they serve the purpose of compensating a party fully for costs incurred, as a normal costs order could not be expected to do, when the court takes the view that it was unreasonable for the party against whom the order is made to have subjected the innocent party to the expenditure of costs.
   • The test, therefore, is whether the offeree’s rejection of the relevant settlement offer was unreasonable in the circumstances then obtaining. It cannot be too strongly emphasised, however, that the rejection of a reasonable offer is not to be automatically regarded as an unreasonable rejection. An example of a case in which it was held that the offer of settlement had been reasonable, and should have been accepted, but that the rejection was not thereby to be regarded as unreasonable, was Alpine Hardwoods (Aust) Pty Ltd v Hardys Pty Ltd [2002] FCA 224; (2002) 190 ALR 121. Having opined that the settlement offer in that case was reasonable, Weinberg J continued (190 ALR at 128 [35]):
     • I must bear in mind, however, the principle stated in Black v Lipovac, namely that the offeror must show that the conduct of the offeree in rejecting that Calderbank offer was unreasonable if there is to be a departure from the ordinary rule that costs are to be paid on a party and party basis. The offeree does not bear the onus of showing why indemnity costs should not be ordered. The fact that the offeree was ultimately unsuccessful in the litigation, and could have accepted a reasonable settlement at an earlier stage does not of itself show that the course adopted by the offeree was relevantly unreasonable or imprudent.
10. In my view, the rejection by Ms Varas of the two offers of compromise was not unreasonable. First, she was entitled to treat both offers as “rolled up” offers inclusive of costs which reduces the weight to be given to their refusal[9]. Secondly, the litigation was complex and (for this Court) drawn out and it took some time for the issues between the parties to be clearly delineated. The parties attempted to negotiate a settlement in good faith on the first day of the trial of this matter and a breach of confidence claim against the psychologist, Ms Nolan, was resolved. It was only then that the scope and the content of the litigation became completely clear. Further, while both parties were at times in default of procedural orders of this Court, the conduct of the proceedings by neither party was such as to either disentitle them to a costs order or call for an award of indemnity costs.
11. I also reject the applicant’s contention that there should be no order for costs because of the public interest. The case of Xiros is distinguishable. This was an ordinary action for damages by Ms Varas under the HREOC Act. While claims of imputed disability discrimination are unusual, this was not in my view a true “test case” (at least in this Court) and, in my view, the case does not carry with it such a strong public interest consideration so as to override the general principle that costs follow the event. I conclude that costs should follow the event. The parties agree that, if costs are not awarded on an indemnity basis, they should be awarded in accordance with this Court’s scale of costs. That is the order that I will make.

I certify that the preceding eleven (11) paragraphs are a true copy of the reasons for judgment of Driver FM

Associate:

Date: 26 February 2009

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[1] Varas v Fairfield City Council [2008] FMCA 996 at [119]
[2] see for example Xiros v Fortis Life Assurance Ltd [2001] FMCA 15
[3] Colgate Palmolive v Cussons [1993] FCA 536; (1993) 46 FCR 225 at [230], per Sheppard J (“Colgate”); Trade Practices Commission v Nicholas Enterprises (1979) 42 FLR 213 at 219; Re Wilcox; Ex parte Venture Industries Pty Ltd (No 2) (1996) 72 FCR 151 at [152], per Black CJ (“Wilcox”).
[4] Hollingdale v North Coast Area Health Service (No 2) [2006] FMCA 585 at [10]
[5] Re Wilcox; Ex parte Venture Industries Pty Ltd (No 2) (1996) 72 FCR 151 at [152]-[153]
[6] Messiter v Hutchinson (1987) 10 NSWLR 525 and Maitland Hospital v Fisher (No 2) (1992) 27 NSWLR 721 at 724
[7] Microsoft Corporation & Ors v Mayhew (No 2) [2008] FMCA 252 at [6]
[8] Cited with approval in the Full Federal Court in CGU Insurance Ltd v Corrections Corporation of Australia Staff Superannuation Pty Ltd [2008] FCAFC 17
[9] University of Western Australia v Gray (No 21) [2008] FCA 1056 at [34]