Erskine as liquidator of North Shore Property Developments Pty Ltd (in liq) v 72-74 Gordon Crescent Lane Cove Pty Ltd (No 2)

• Jurisdiction: Australia Federal only
• Court: Federal Court
• Judgment Date: 09 May 2019
• Neutral Citation: [2019] FCAFC 73
• Date: 09 May 2019

FEDERAL COURT OF AUSTRALIA

Erskine as liquidator of North Shore Property Developments Pty Ltd (in liq) v 72-74 Gordon Crescent Lane Cove Pty Ltd (No 2) [2019] FCAFC 73

Appeal from:	Erskine v 72-74 Gordon Crescent Lane Cove Pty Ltd, in the matter of North Shore Property Developments Pty Ltd (in liq) [2018] FCA 1094
File number(s):	NSD 1493 of 2018
Judge(s):	JAGOT, GLEESON AND MARKOVIC JJ
Date of judgment:	9 May 2019
Catchwords:	COSTS – application to vary costs order – application for indemnity costs – whether it was unreasonable for the appellant to reject the offer to settle
Cases cited:	Anchorage Capital Partners Pty Limited v ACPA Pty Ltd (No 2) [2018] FCAFC 112 Brosnan v Katke [2016] FCAFC 156 Calderbank v Calderbank [1975] 3 All ER 333 Hazeldene’s Chicken Farm Pty Ltd v Victorian WorkCover Authority (No 2) [2005] VSCA 298 House v The King (1936) 55 CLR 499
Date of hearing:	Determined on the papers
Registry:	New South Wales
Division:	General Division
National Practice Area:	Commercial and Corporations
Sub-area:	Corporations and Corporate Insolvency
Category:	Catchwords
Number of paragraphs:	8
Solicitor for the Appellant:	Norton Rose Fulbright Australia
Solicitor for the Respondents:	Kazi Portolesi Lawyers

ORDERS

		NSD 1493 of 2018
BETWEEN:	ROBYN- LEE ERSKINE AS LIQUIDATOR OF NORTH SHORE PROPERTY DEVELOPMENTS PTY LTD (IN LIQUIDATION) Appellant
AND:	72-74 GORDON CRESCENT LANE COVE PTY LTD ACN 168 361 662 First Respondent ; BANQ ACCOUNTANTS AND ADVISORS PTY LTD ACN 138 252 052 Second Respondent ; GFP HOLDINGS AUST PTY LTD ACN 146 789 129 (and another named in the schedule) Third Respondent
AND BETWEEN:	72-74 GORDON CRESCENT LANE COVE PTY LTD ACN 168 361 662 Cross-Appellant
AND:	ROBYN-LEE ERSKINE AS LIQUIDATOR OF NORTH SHORE PROPERTY DEVELOPMENTS PTY LTD (IN LIQUIDATION) Cross-Respondent

JUDGES:	JAGOT, GLEESON AND MARKOVIC JJ
DATE OF ORDER:	9 MAy 2019

THE COURT ORDERS THAT:

1. The respondent’s application to vary the order in respect of costs to provide for an indemnity costs order in the respondent’s favour after 20 February 2019 be dismissed.

2. The respondent pay the appellant’s costs of and in connection with that application.

Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 20

REASONS FOR JUDGMENT

THE COURT:

1. The issue which remains in this matter, following publication of our reasons for judgment on 16 April 2019 in Erskine as liquidator of North Shore Property Developments Pty Ltd (in liq) v 72-74 Gordon Crescent Lane Cove Pty Ltd [2019] FCAFC 62, is costs. In those reasons we explained why we made an order dismissing the appeal. We also made the usual order as to costs. The respondents now seek an order varying our costs order so that the appellant must pay the costs of the respondent on a party/party basis up to and including 20 February 2019 and on an indemnity basis thereafter.

2. We have concluded that the costs order we made on 16 April 2019 should not be varied.

3. The respondent seeks the indemnity costs order on the basis of an offer it made on 20 February 2019 to agree to orders to the effect that the appellant’s appeal and the respondent’s cross-appeal be dismissed and each party pay its own costs.

4. According to the respondent:

1. the relevant question is whether in all of the circumstances and at the time it occurred it was unreasonable for the appellant to reject the offer to settle: Brosnan v Katke [2016] FCAFC 156 at [6];

2. it was unreasonable for the appellant to reject the offer to settle having regard to all of the circumstances as they existed at the time the offer was made and rejected including the factors referred to in Hazeldene’s Chicken Farm Pty Ltd v Victorian WorkCover Authority (No 2) [2005] VSCA 298; (2005) 13 VR 435 at [25], which were applied by the Full Court in Anchorage Capital Partners Pty Limited v ACPA Pty Ltd (No 2) [2018] FCAFC 112 at [7]. Those factors are:

(a) the stage of the proceeding at which the offer was received;

(b) the time allowed to the offeree to consider the offer;

(c) the extent of the compromise offered;

(d) the offeree’s prospects of success, assessed as at the date of the offer;

(e) the clarity with which the terms of the offer were expressed; and

(f) whether the offer foreshadowed an application for an indemnity costs in the event of the offeree rejecting it.

3. in particular:

   1. the matter involved an appeal within a narrow compass, preparation for which cannot be compared to a first instance hearing involving preparation for calling witnesses, cross-examining witnesses and the like. As such, the time for acceptance of the offer sent on the evening of 20 February 2019, initially
      5.30 pm on 27 February 2019 extended to 9.30am on 1 March 2019, which was the morning of the hearing, was adequate. The Court would not accept the assertions of the appellant to the contrary both in its rejection of the offer and in its submissions;

   2. the timing of the offer was appropriate as the offer was made once all of the submissions had been filed;

   3. the offer involved a real compromise as it would have enabled the appellant to “walk away” with no liability for the costs of the respondent in circumstances where the respondent had incurred the costs of considering the notice of appeal, the amended notice of appeal, the appellant’s submissions and submissions in reply, and of preparing the respondent’s submissions;

   4. the appellant’s prospects of success were poor and ought reasonably to have been so assessed by the appellant at the time the offer was made. The appellant accepted that it was necessary to establish an error of principle by the primary judge in the exercise of his discretion but, as the respondent had noted in its submissions filed on 6 February 2019, no such error of principle had been identified;

   5. the offer was clear in its terms; and

   6. while the offer did not state expressly that the respondent would seek an order for costs on an indemnity basis if the respondent succeeded it was expressed to be “without prejudice save as to costs” and the appellant, who was legally represented, would have appreciated that the offer was made in accordance with the principles in Calderbank v Calderbank [1975] 3 All ER 333 and that, as a result, if the respondent successfully defended the appeal, it would seek an order for its costs to be paid on an indemnity basis after the date of the offer.

5. According to the appellant:

1. given that it did not make an offer of compromise in accordance with Pt 25 of the Federal Court Rules 2011, it was for the respondent to demonstrate that there are exceptional circumstances which justify the making of an order for indemnity costs against the appellant;

2. the appellant’s rejection of the offer was not unreasonable in all of the circumstances at the time the offer was made and rejected as:

   1. the offer did not involve a genuine compromise but, rather, required the appellant to capitulate shortly before the hearing in circumstances where the appellant had already expended the majority of its costs and would have to forego an order for the respondent to pay its costs if the appellant had succeeded;

   2. the fact that the appeal was subject to the principles of House v The King (1936) 55 CLR 499 regarding a discretionary decision does not mean that the appeal was hopeless, nor does the fact that the Court rejected the appellant’s contention that the primary judge had erred in principle. The fact that no previous case involved the similar fact of entry by a liquidator into a deed of settlement and the...