In this month’s edition, our Sydney Associate, Dipal Prasad, takes a look at the outcome of a recent Federal Court decision regarding indemnity costs and Calderbank offers. Get in touch if you’d like help with your costs claim.

It’s rare for a party to be awarded costs on an indemnity basis. However, one time they will be is where the other party “wilfully disregards” facts.  A recent Federal Court decision explored when this exception applied, as well as how long you need to give someone to consider a Calderbank letter before you can rely on it in a claim for indemnity costs.

And the Federal Court had some interesting things to say about both.

The general rule about indemnity costs

Generally, costs are awarded on a party/party basis, except in special circumstances that have been laid out in case law.  Whether indemnity costs are justified will depend upon the facts and circumstances of each case.

In the recent decision, MCG Group Pty Ltd v Ftrus Pty Ltd (formerly Fortrus Pty Ltd) [2017] FCA 359 (MCG Group), Justice Greenwood reasserted this rule:

“While the circumstances identified by the Court [in InterTAN Inc v DSE (Holdings) Pty LtdFCAFC 54 at [11]] may serve as a guide to the exercise of the discretion, the question is always whether the particular facts and circumstances of the case at hand justify the making of an order for costs other than on a party and party basis.”

One exception – wilful disregard of facts

Like most rules, there are exceptions. These exceptions allow the court to award indemnity costs, for example, where an application has no chance of success or where the justice of the case warrants it.

In MCG Group, Justice Greenwood considered the exception identified in Fountain Selected Meats (Sales) Pty Ltd v International Produce Merchants Pty Ltd [1988] FCA 202 that says indemnity costs will be justified where someone commences an action in wilful disregard of known facts or contrary to well established law.

In the main judgment, the court had made orders in favour of the Applicant. In its submissions on costs, the Applicant argued the Respondents should pay costs on an indemnity basis, because of their’ “wilful disregard of the known facts”.
As evidence of this, the Applicant relied on the Court’s finding that the Second Respondent, Mr Paul McDonald, answered a number of questions put to him on trial in an obfuscated manner, particularly questions on whether he had made an agreement with his brother in 2013 – one of the main issues in the case.

“Obfuscation” not enough to warrant indemnity costs

However, Justice Greenwood held that this “obfuscation” was not alone sufficient to warrant an indemnity costs order, saying:

“Although Mr Paul McDonald clearly engaged in obfuscation in answering a number of questions in the course of the proceedings I am not satisfied that, by itself, this demonstrates that the respondents engaged in wilful disregard of the primary facts in the course of the trial. I am therefore not satisfied that special circumstances, required to justify an order of indemnity costs for the whole proceeding, subsisted in this case.”

The rule to remember here—if you want to seek indemnity costs on the basis of the other party’s wilful disregard of facts, make sure you have a solid and extensive case for this claim. It’s not usually enough to rely on the testimony of one witness.

Calderbank offer – what is enough time?

Another time courts can award indemnity costs is where a party rejects a reasonable offer of compromise or Calderbank offer.

In the MCG Group case, the Applicant pleaded that if indemnity costs weren’t awarded for the whole proceeding, they should at least be awarded from 30 November 2015. This is when it had made a Calderbank offer to the Respondents for $750,000 to settle the dispute. The final judgment exceeded this amount by about $135,000.

The court accepted that the Respondents would have been better off by $73,022.00 had they accepted the offer. However, it noted that the offer was made on 30 November 2015 and was only open until 10am, the next day, on 1 December 2015.

The court also noted that the Respondents would have been better off financially if they’d accepted the offer. But they had acted reasonably in rejecting it because the short window in which they had to make a decision gave them no reasonable opportunity to assess the costs.

The rule to remember here—time limits are important when making offers to settle.
When you make a Calderbank offer, give the other party some time to consider their position and assess the costs of the case.

Essentially, make sure you give someone enough time to consider your offer. Keeping an offer open for just one day is simply not enough.

Want more?
Get in touch with us for advice on when you can claim for indemnity costs. We can also help you know where you stand when making or receiving  Calderbank offers