Applicant secured more favourable judgment than terms of his offer to compromise, court says
The Federal Court of Australia has ordered a respondent to pay costs on an indemnity basis after finding that a successful applicant obtained a judgment more favourable than an offer to compromise made before the appeal hearing.
The costs decision in Colgrave v TT-Line Company Pty Ltd (Costs) [2026] FCA 1462 followed the court’s finding that compensation was payable to the applicant under s. 38(2) of the Seafarers Rehabilitation and Compensation Act 1992 (Cth). The court set aside the Administrative Review Tribunal’s decision and remitted the matter for reconsideration with a direction concerning the applicant’s entitlement to compensation.
The applicant initially sought indemnity costs on the basis that the respondent had persisted in a hopeless case that it should have known was foredoomed to fail. Alternatively, he sought indemnity costs from 11 a.m. on 19 June 2026 under an offer to compromise made pursuant to Pt 25 of the Federal Court Rules 2011 (Cth).
The court rejected the first argument. Although it found in the substantive judgment that the proper construction of ss. 38(1) and (2) was clear and unambiguous, it said the respondent’s position could not be assessed with hindsight.
The tribunal had previously accepted the respondent’s construction of the legislation. While the respondent also declined to accept a recommendation from Comcare reflecting the correct construction of s. 38(2), the court found that recommendation did not constrain the respondent and did not necessarily establish that the competing construction was untenable.
The court also declined to award indemnity costs based on an earlier settlement offer made while the dispute was before the tribunal. That offer required the respondent to accept liability and pay the applicant’s costs. The court found that rejecting it did not establish that the respondent acted unreasonably in defending the Federal Court appeal.
However, the applicant succeeded on his alternative argument concerning an offer to compromise served on 17 June 2026. Under that offer, the applicant proposed that the appeal be allowed, the tribunal’s decision be set aside, and the matter be remitted for reconsideration with a direction concerning s. 38(1). He also offered to pay the respondent’s costs on a party and party basis.
The substantive orders ultimately made accorded with the proposed orders, while the respondent accepted that costs should follow the event. The court therefore found that the applicant obtained a judgment more favourable than his offer.
Rule 25.14(3) created a presumptive entitlement to party and party costs before 11 a.m. on the second business day after service of the offer and indemnity costs after that time. The respondent identified no proper reason to depart from that position.
The court ordered the respondent to pay the applicant’s costs on a party and party basis before 11 a.m. on 19 June 2026 and on an indemnity basis after that time. It also refused the respondent’s request to stay the costs orders pending a foreshadowed appeal. The court found the respondent had provided no evidence or developed argument establishing prejudice or inconvenience without a stay and had not identified its proposed appeal grounds.
