Litigation and Dispute Resolution

Federal Court intervention and non-compliance with accepted offers to compromise

8 March, 2015

The decision in Donau Pty Limited (formerly Forgacs Engineering Pty Ltd) v ASC AWD Shipbuilder Pty Limited (No 2) [2018] NSWSC 1589 (Donau v ASC) is a timely reminder of the limitations of an Offer of Compromise in affording a successful party any guaranteed indemnity costs protection in circumstances where the offering party has in fact secured a better outcome than the offer.

The Supreme Court of New South Wales has recently handed down a significant decision on costs.

The decision in Donau Pty Limited (formerly Forgacs Engineering Pty Ltd) v ASC AWD Shipbuilder Pty Limited (No 2) [2018] NSWSC 1589 (Donau v ASC) is a timely reminder of the limitations of an Offer of Compromise in affording a successful party any guaranteed indemnity costs protection in circumstances where the offering party has in fact secured a better outcome than the offer.

In Donau v ASC, despite ASC submitting that it was entitled to indemnity costs by reason of it having issued an offer of compromise pursuant to r.20.26 of the Uniform Civil Procedure Rules 2005 (NSW) (ASC’s Offer), the NSW Supreme Court instead determined that a fair method of apportioning the cost orders of the proceedings to reflect the relative successes and failures of the parties on particular issues, was to order that ‘each bear its own costs’ – and so the Court ordered.

Background to the proceedings

The proceedings concerned a dispute between Donau and ASC regarding Donau’s entitlement to be paid fee for its work on the AWD Project in constructing parts of three air warfare destroyers for the Australian Navy.

Donau and ASC entered into an Original Contract on 20 August 2009 setting out the terms upon which Donau was engaged to work on the Project. The parties subsequently, on 26 October 2012, entered into a Heads of Agreement which varied the terms of the Original Contract, including those provisions of the Original Contract governing Donau’s entitlement to be paid fee. The primary issue in the proceedings was centred around the question of whether the Heads of Agreement came into effect, and if so, what implications that had on Donau’s entitlement to fee.

Donau contended that the Heads of Agreement did come into effect – the consequence of which was that ASC was liable to pay Donau in excess of $30m in unpaidfee.

ASC contended that the Heads of Agreement did not come in effect by reason of certain pre-conditions of the Heads of Agreement having not been met. As such, ASC argued that the parties’ respective rights, obligations and responsibilities remained governed by the strict terms of the Original Contract. In the alternative, ASC alleged that if the Heads of Agreement was found by the court to have taken legal effect, Donau had engaged in misleading and deceptive conduct by inducing ASC to execute the Heads of Agreement and by reason of that alleged conduct, the Heads of Agreement was unenforceable.

As His Honour Ball J set out in his judgment, during the course of the proceedings a large number of issues were raised by the parties in connection with their dispute. Some of those issues, such as a claim by ASC that the Heads of Agreement should be rectified and claims by Donau that various estoppels operated in its favour, raised substantial factual issues. Many of those issues were abandoned before trial and were the subject of extensive lay affidavit evidence served prior to the commencement of the hearing.

The findings of the NSW Supreme Court judgment in Donau Pty Limited v ASC AWD Shipbuilder Pty Limited [2018] NSWSC 1273 (the substantive judgment), were that:

  1. contrary to ASC’s submissions, the Heads of Agreement didcome into effect;
  2. contrary to Donau’s submissions, ASC did(by way of a letter dated 7 June 2013) validly terminate the Heads of Agreement;
  3. the effect of ASC’s valid termination was that despite the Heads of Agreement coming into effect, the consequence of its subsequent valid termination was to ‘re-enliven’ the Original Contract upon termination with the consequence being that any monies payable to Donau under the Heads of Agreement were to be taken into account when determining Donau’s entitlement to fee once the parties were found to have reverted back to the Original Contract. Of significance in the context of the Court’s judgment on costs Donau v ASC, is that this was a construction and interpretation of the terms of the Heads of Agreement that was not contended for by either party to the proceedings. Instead this finding reflected the court’s own findings as to the true and proper construction of the terms of the Heads of Agreement – including upon its valid termination;
  4. had it been necessary to decide, contrary to ASC’s submissions, ASC’s misleading and deceptive conduct cross-claim would have failed.

The parties were invited by the court to serve separate submissions on costs and court handed to down its decision on costs on 23 October 2018.

The costs decision in Donau v ASC

The practical result of the findings above was that the court entered a substantial judgment in ASC’s favour.

In that context, on the question of costs, ASC submitted that the appropriate cost orders were that (subject to existing costs orders made throughout the conduct of the proceedings): (i) Donau otherwise pay ASC’s costs of and incidental to the proceedings up to ASC’s Offer, on the ordinary basis; (ii) on and from ASC’s Offer, Donau pay ASC’s costs on an indemnity basis.

On the other hand, Donau submitted that the appropriate order flowing from the substantive judgment was that each party bear its own costs. Donau’s contention as set out its written submissions which both parties were invited to file on costs, was that an ‘each party bear its own costs’ order was fair and appropriate in all the circumstances, including by reason of the following arguments put forward by Donau.

  1. Whilst the practical result of the court’s finding on the question of construction of the terms of the Heads of Agreement was that ASC was entitled to its claimed judgment amounts, the court’s findings were not arrived at by reason of the case argued by ASC at trial.  Instead, and as set out above, the court came up with its own interpretation on the question of construction and operation of the Heads of Agreement – which did not reflect the position advanced by ASC at trial – yet resulted in ASC being entitled to the judgment amounts it claimed. Donau argued that this warranted a departure from the general that costs follow the event.
  2. Throughout the course of the proceedings, both Donau and ASC abandoned substantive claims, the consequence of which was that both parties incurred costs in respect of the preparation of evidence, and in the course of giving discovery, in respect of claims ultimately not pressed by both parties at hearing.
  3. By reason of the court’s findings, ASC’s misleading or deceptive conduct claim did not arise. Nevertheless, the court concluded that had it been necessary to determine the issue, the court would have concluded that ASC’s claim should fail. Donau contended that significant costs were incurred by Donau in responding to this allegation which ultimately failed.

In respect of ASC’s Offer and the indemnity costs consequences that may flow from an Offer of Compromise under the Uniform Civil Procedure Rules, in circumstances where ASC succeeded on a case that was substantially different to ASC’s pleaded case and the case advanced by ASC at hearing, the court should exercise its discretion to “order otherwise” and against an indemnity costs order in all the circumstances.

His Honour accepted Donau’s submissions and determined that in the context of the various claims abandoned by both sides in the lead up to the hearing (in respect of which separate costs orders had been made) that “it seem[ed] sensible to vacate all costs orders and order that each party bear its own costs of those issues….an order in those terms would simplify considerably the task of assessing costs”.

The ’take home’ points

This decision is not only a timely reminder of the limitations of an Offer of Compromise in affording a successful party any guaranteed indemnity costs protection in circumstances where the offering party has in fact secured a better outcome than the offer, but also a reminder of the court’s willingness to exercise its discretion to “order otherwise” when determining to take a practical approach to apportioning costs in circumstances where both parties have succeed and failed on the issues in dispute.

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Canadian Court elevates thumbs-up emoji to signature status

In June 2023, a Canadian Court in South-West Terminal Ltd v Achter Land and Cattle Ltd, 2023 SKKB 116, held that the "thumbs-up" emoji carried enough weight to constitute acceptance of contractual terms, analogous to that of a "signature", to establish a legally binding contract.   Facts This case involved a contractual dispute between two parties namely South-West Terminal ("SWT"), a grain and crop inputs company; and Achter Land & Cattle Ltd ("ALC"), a farming corporation. SWT sought to purchase several tonnes of flax at a price of $17 per bushel, and in March 2021, Mr Mickleborough, SWT's Farm Marketing Representative, sent a "blast" text message to several sellers indicating this intention. Following this text message, Mr Mickleborough spoke with Mr Achter, owner of ALC, whereby both parties verbally agreed by phone that ALC would supply 86 metric tonnes of flax to SWT at a price of $17 per bushel, in November 2021. After the phone call, Mr Mickleborough applied his ink signature to the contract, took a photo of it on his mobile phone and texted it to Mr Archter with the text message, "please confirm flax contract". Mr Archter responded by texting back a "thumbs-up" emoji, but ultimately did not deliver the 87 metric tonnes of flax as agreed.   Issues The parties did not dispute the facts, but rather, "disagreed as to whether there was a formal meeting of the minds" and intention to enter into a legally binding agreement. The primary issue that the Court was tasked with deciding was whether Mr Achter's use of the thumbs-up emoji carried the same weight as a signature to signify acceptance of the terms of the alleged contract. Mr Mickleborough put forward the argument that the emoji sent by Mr Achter conveyed acceptance of the terms of the agreement, however Mr Achter disagreed arguing that his use of the emoji was his way of confirming receipt of the text message. By way of affidavit, Mr Achter stated "I deny that he accepted the thumbs-up emoji as a digital signature of the incomplete contract"; and "I did not have time to review the Flax agreement and merely wanted to indicate that I did receive his text message." Consensus Ad Idem In deciding this issue, the Court needed to determine whether there had been a "formal meeting of the minds". At paragraph [18], Justice Keene considered the reasonable bystander test: " The court is to look at “how each party’s conduct would appear to a reasonable person in the position of the other party” (Aga at para 35). The test for agreement to a contract for legal purposes is whether the parties have indicated to the outside world, in the form of the objective reasonable bystander, their intention to contract and the terms of such contract (Aga at para 36). The question is not what the parties subjectively had in mind, but rather whether their conduct was such that a reasonable person would conclude that they had intended to be bound (Aga at para 37)."   Justice Keene considered several factors including: The nature of the business relationship, notably that Mr Achter had a long-standing business relationship with SWT going back to at least 2015 when Mr Mickleborough started with SWT; and   The consistency in the manner by which the parties conducted their business by way of verbal conversation either in person or over the phone to come to an agreement on price and volume of grain, which would be followed by Mr Mickleborough drafting a contract and sending it to Mr Achter. Mr Mickleborough stated, "I have done approximately fifteen to twenty contracts with Achter"; and   The fact that the parties had both clearly understood responses by Mr Achter such as "looks good", "ok" or "yup" to mean confirmation of the contract and "not a mere acknowledgment of the receipt of the contract" by Mr Achter.   Judgment At paragraph [36], Keene J said: "I am satisfied on the balance of probabilities that Chris okayed or approved the contract just like he had done before except this time he used a thumbs-up emoji. In my opinion, when considering all of the circumstances that meant approval of the flax contract and not simply that he had received the contract and was going to think about it. In my view a reasonable bystander knowing all of the background would come to the objective understanding that the parties had reached consensus ad item – a meeting of the minds – just like they had done on numerous other occasions." The court satisfied that the use of the thumbs-up emoji paralleled the prior abbreviated texts that the parties had used to confirm agreement ("looks good", "yup" and "ok"). This approach had become the established way the parties conducted their business relationship.   Significance of the Thumbs-Up Emoji Justice Keene acknowledged the significance of a thumbs-up emoji as something analogous to a signature at paragraph [63]: "This court readily acknowledges that a thumbs-up emoji is a non-traditional means to "sign" a document but nevertheless under these circumstances this was a valid way to convey the two purposes of a "signature" – to identify the signator… and… to convey Achter's acceptance of the flax contract." In support of this, Justice Keene cited the definition of the thumbs-up emoji: "used to express assent, approval or encouragement in digital communications, especially in western cultures", confirming that the thumbs-up emoji is an "action in an electronic form" that can be used to allow express acceptance as contemplated under the Canadian Electronic Information and Documents Act 2000. Justice Keene dismissed the concerns raised by the defence that accepting the thumbs up emoji as a sign of agreement would "open the flood gates" to new interpretations of other emojis, such as the 'fist bump' and 'handshake'. Significantly, the Court held, "I agree this case is novel (at least in Skatchewan), but nevertheless this Court cannot (nor should it) attempt to stem the tide of technology and common usage." Ultimately the Court found in favour of SWT, holding that there was a valid contract between the parties and that the defendant breached by failing to deliver the flax. Keene J made a judgment against ALC for damages in the amount of $82,200.21 payable to SWT plus interest.   What does this mean for Australia? This is a Canadian decision meaning that it is not precedent in Australia. However, an Australian court is well within its rights to consider this judgment when dealing with matters that come before it with similar circumstances. This judgment is a reminder that the common law of contract has and will continue to evolve to meet the everchanging realities and challenges of our day-to-day lives. As time has progressed, we have seen the courts transition from sole acceptance of the traditional "wet ink" signature, to electronic signatures. Electronic signatures are legally recognised in Australia and are provided for by the Electronic Transactions Act 1999 and the Electronic Transactions Regulations 2020. Companies are also now able to execute certain documents via electronic means under s 127 of the Corporations Act. 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Published by Foez Dewan
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