Case: Seven Network Ltd v News Ltd [2007] FCA 1489 ; (2007) 244 ALR 374
Outcome: considered
submissions did not gainsay the matters of principle for which the cases relied upon by Olivaylle stood, only the application of those principles in the circumstances of this particular case. In particular, Flottweg accepted that the mere fact that the result at trial left Olivaylle worse off than any pre-trial offer carried with it no presumptive entitlement to an award of indemnity costs. Rather, it was submitted that the question was whether the rejection of the offers (or at least one of them) was unreasonable or imprudent, the discussion and conclusions reached by Sackville J in Seven Network Ltd v News Ltd [2007] FCA 1489 ; (2007) 244 ALR 374 at [59] to [63] with respect to Black v Lipovac , supra and other authorities being adopted. Flottweg further submitted that, while it may not have been unreasonable or imprudent for Olivaylle to have instituted or, as the case may be, continued the litigation in the absence of one or more of the offers it made, at least one of those offers constituted a fair commercial compromise such that it was unreasonable or imprudent to institute or continue the litigation in the face of that offer. That sentiment, it was submitted, was evident in the approach taken by Emmett J in Ruaro v Ferrari [2008] FCA 307 at [17] . I am bound to follow matters of principle enunciated by the Full Court. In that regard, it may be, as Buchanan J highlights in the following passage from his judgment in McDonald v Parnell Laboratories (Aust) (No 2) [2007] FCA 2086 ; (2007) 164 FCR 591 at 597, [22] , that there is a difference in opinion at intermediate appellate level as to whether, for the purpose of satisfying a condition precedent to the awarding of indemnity costs and as an alternative to "imprudent", the rejection of an offer of compromise should be able to be described as "unreasonable" or "plainly unreasonable": In Dukemaster Pty Ltd v Bluehive Pty Ltd [2003] FCAFC 1 ( Dukemaster) Sundberg and Emmett JJ said, in a case like the present where O 23 r 11 did not apply because an applicant had been wholly unsuccessful, that an applicant for a more generous award of costs than party-party costs 'must show that the rejection of the offer was imprudent or plainly unreasonable' (see at [7]). There has been doubt expressed about the soundness of the statement in Dukemaster that rejection of an offer, if unreasonable, must be 'plainly unreasonable' in the light of the earlier judgment of a Full Court in Black v Lipovac [1998] FCA 699 ; (1998) 217 ALR 386 at [217] [218], to which Wilcox J also referred in Coshott (see Seven Network Limited v News Limited [2007] FCA 1489 at [59] [62]). In the earlier of the Full Court authorities, Black v Lipovac [1998] FCA 699 ; (1998) 217 ALR 386 at 432-433, [218] , the point was made that the conduct of an offeree need not be "plainly unreasonable" in order to warrant the ordering of indemnity costs because "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." I respectfully agree and, for that reason, would choose to follow the earlier Full Court authority were that to be critical to the resolution of the costs application. It is not though because in both Black v Lipovac [1998] FCA 699 ; (1998) 217 ALR 386 and Dukemaster Pty Ltd v Bluehive Pty Ltd [2003] FCAFC 1 the alternative of imprudent rejection was acknowledged. Like Buchanan J in McDonald v Parnell Laboratories (Aust) (No 2) and, as his Honour noted (at [22]), like Heerey J in AFP Properties Pty Ltd v Kestrel Holdings Pty Ltd (No 3) [2007] FCA 2016 at [24] [25], it is sufficient to assess whether the rejection of any of the offers was, "imprudent". That basis of assessment accords with the exemplar given by Sheppard J in Colgate-Palmolive Company v Cussons Pty Limited , which I have already noted, whose judgment, as Heerey J acknowledged in AFP Properties (ibid), is the locus classicus on the subject. The time by which Olivaylle had to file its evidence in chief according to the then current interlocutory timetable lapsed during the time when the offer was open for acceptance. The critique offered by Flottweg by reference to various conclusions reached at trial does not, in my opinion, impermissibly call in aid a false wisdom of hindsight. I accept that I must consider whether the rejection of the offer was unreasonable by considering, inter alia, the strengths and weaknesses of Olivaylle's case prospectively at the time when the offer was made: Seven Network Ltd v News Ltd [2007] FCA 1489 ; (2007) 244 ALR 374 at [65] and the authorities there cited by Sackville J. Rather, what the critique does is to highlight evidentiary difficulties that were present in Olivaylle's case during the time originally fixed for the filing of its evidence in chief. As events transpired, those difficulties remained thereafter but what is presently relevant about the subjects identified in the critique is that, on the bases highlighted and viewed prospectively , Olivaylle either knew or ought reasonably to have known when the offer was made that it just could not hope to receive anything remotely approaching a damages award of some $27 million, as propounded on the strength of Mr Jorgensen's first report. Its evidentiary difficulties persisted, as was candidly acknowledged on the adjournment application, but in essential elements were present in August 2007. It is true that the evidentiary foundation of the cases for each party was embellished during the trial but that does not detract from the significance of the evidentiary difficulties present in August 2007. In my concluding remarks in the main judgment I attributed the pressing of the claim to Mr De Moya's disappointed pride. Those were remarks made after reflecting on the evidence that came to be led at a lengthy trial and with the benefit of observing the witnesses who came to give evidence, including Mr De Moya. There were though elements of such a conclusion in prospect in 2007 when the offer was made and during the time for its acceptance. The premises upon which Mr Jorgensen was instructed to prepare his report are eloquent in this regard. When matters of pride are excised, what remained in prospect in August 2007 was a case in contract and under the TPA which was problematic both in terms of liability, likelihood of vindication of a right of rescission or "withdrawal", securing of any order under s 87 and damages. There was a damages cap in the Contract. On any view, the sum offered was well in excess of that cap. That cap had no role to play in the event of a vindication of the asserted right of "withdrawal", but that such a right had been engaged was conjectural. The contractual cap could not limit the amount of any damages which would fall for assessment under s 82 of the TPA and s 87 did confer a power to vary the Contract so as to delete it. These powers were though enlivened only in the event that a liability claim under the TPA succeeded. Mr De Moya had already made his preference for relying on the contractual word plain and Olivaylle already knew that Flottweg had the benefit of the Greek Certificate, to say nothing of the design input of Mr Nieuwkerk in relation to achievement of contractually required atmospheric oxygen levels and the separate advisory role that he undertook for Olivaylle in relation to the supply of nitrogen gas for those parts of the line to be blanketed. Even prospectively, proof of liability in respect of the TPA claim was fraught with the risk.