If a formal offer under the Federal Court Rules is made by an applicant and not accepted by a respondent, and the applicant obtains judgment in terms more favourable than the terms of the offer, the applicant is entitled to an order for indemnity costs from 11am on the second business day after the offer was served on the respondent: r 25.14, Federal Court Rules 2011.
Unlike the position at common law, there is no requirement for the applicant to show that the respondent’s rejection of the offer was unreasonable.
A respondent can only avoid the “rebuttable presumption” of indemnity costs if it can show “exceptional circumstances“: Futuretronics.com.au Pty Ltd v Graphix Labels Pty Ltd  FCAFC 40.
In the recent case of Skyy Spirts LLC v Lodestar Anstalt (No 2)  FCA 575, Justice Perram rejected the unsuccessful party’s contentions that the other party “had won on a narrow point of law which was the subject of conflicting Full Court authority” and that the offer “did not reflect the basis upon which they were ultimately successful” constituted exceptional circumstances.
Indemnity costs were ordered. The case is a good reminder of the strategic advantage of properly formulated offers of compromise that comply with the the requirements of Part 25 of the Federal Court Rules.