Alexander v Australian Community Pharmacy Authority

the inadequate statement of reasons 8 The Authority does not concede that the inadequacy of its statement of reasons should have cost consequences. However, the Authority does not seek an order that the applicant pay its costs. It says that the Authority acted as a neutral party in accordance with the Hardiman principle (R v Australian Broadcasting Tribunal; Ex parte Hardiman (1980) 144 CLR 13) and abided by the jurisdiction of the Court, and that it is therefore appropriate that the Authority not seek an order for its costs. 9 That leaves for determination whether I should accept the applicants' application that the Authority should pay their costs and those of the Chemist Warehouse respondents (incurred from the date the Authority's reasons for decision were provided). 10 The application in this matter was filed on 8 December 2009. Consequent upon a later request by the applicants, the Authority provided its statement of reasons on 4 January 2010. The applicants accept that they should pay the respondents' costs incurred to 4 January 2010. However, they contend that the Authority's reasons caused them to alter the basis for their application and adopt the sole ground upon which they relied at the hearing. This ground (the failure to take into account the single-management consideration), they say, was squarely based upon the way in which the Authority's reasons had been expressed. 11 The applicants contend that the Authority's reasons were responsible for the applicants continuing with this proceeding and that but for the inadequacy of the reasons, the final hearing would not have gone ahead. They say, adapting the language of Woodward J in Commonwealth v Pharmacy Guild (1989) 91 ALR 65 at 73, that "the entire blame for [the final hearing and the preparation leading up to that hearing] lies at the door of the [Authority] for its failure to explain its [decision], as it was required to do". 12 By this contention, the applicants ask the Court to find a causal link between the Authority's statement of reasons and the applicants' decision on or after 4 January 2010 not to abandon their proceeding but to continue it. The applicants have not soughtto put evidence before the Court to substantiate the finding they seek. Nor have they pointed to a basis upon which the Court should infer that the applicants would have discontinued the proceeding if the Authority's statement of reasons had made it clear that the Authority had taken the single management consideration into account. The applicants simply assert a causal connection. 13 Such a connection is far from obvious. It is just as (if not more) likely that, on receiving the Authority's statement of reasons, the applicants determined that a better basis for supporting their application was now available than the basis upon which their application was initially filed. 14 The applicants are each owners of a pharmacy located in Gisborne, Victoria. The Chemist Warehouse respondents were seeking to open a new pharmacy in Gisborne and for that purpose were dependent upon the Authority's decision not being set aside by the Court in this proceeding. For reasons that I will detail later, the applicants had a commercial incentive to pursue their application. On the basis of no more than a bare assertion from the applicants, I am not prepared to conclude that the applicants were, on or about 4 January 2010, intending to abandon their application and that they continued it only because the Authority's statement of reasons did not adequately deal with the single-management consideration. I am therefore not convinced that the legal costs which were incurred by the parties would not have been incurred irrespective of the Authority's statement of reasons. It follows that I reject the applicants' contention that the entire blame for the costs which were incurred lies with the Authority. 15 There may well be circumstances where, despite the dismissal of a challenge to a decision, the adequacy of a statement of reasons provided in breach of the obligation under s 13 of the ADJR Act may result in the decision maker being the subject of adverse cost orders. Faulkner v Conwell (1989) 21 FCR 41 is an example of such a case: see at 43 per Woodward J and at 47 per Jenkinson J. 16 Section 43 of the Federal Court of Australia Act 1976 (Cth) confers upon the Court a wide discretion in relation to costs. That discretion must be exercised judicially. In an appropriate case, the discretion may be utilised not only to deny to a respondent decision maker its own costs or part thereof (as occurred in Faulkner), but also to require a decision maker to pay the costs incurred by other respondents as well as an unsuccessful applicant. 17 In this case, for the reasons outlined, and given the Authority's preparedness to bear its own costs, I will make no order that the applicants pay the Authority's costs but will not make a costs order against the Authority.

should indemnity costs be ordered 18 The principles to be applied by this Court in determining whether costs should be paid on a party and party or indemnity basis are well established and need not be elaborated here. The usual order is that costs are payable on a party and party basis, but the Court's wide discretion may be exercised to award indemnity costs where there is some special or unusual feature in a case justifying departure from the ordinary rule: Re Wilcox; Ex parte Venture Industries Pty Ltd (No 2) (1996) 72 FCR 151 at 152 per Black CJ. 19 The Federal Court Rules recognise a range of circumstances where indemnity costs may be ordered. Relevantly, the Rules make provision for offers of compromise and, unless the Court otherwise orders, the payment of indemnity costs where a respondent makes an offer of compromise which is not accepted and the respondent obtains a more favourable judgment than the terms of the offer: Order 23 r 11(6). The common law also recognises a range of circumstances where an order for indemnity costs is appropriate. A non-exhaustive list was identified by Sheppard J in the often cited decision of Colgate Palmolive v Cussons (1993) 46 FCR 225 at 233. Relevantly to the application before me, that list includes an imprudent refusal of an offer of compromise and the commencement or continuance of proceedings for an ulterior motive.

The offer to resolve the proceedings 20 On 27 January 2010, the Chemist Warehouse respondents' solicitors sent a letter to the applicants' solicitors which they characterised as a Calderbank letter. The letter contained a proposal that the applicants consent to the proceeding being dismissed and pay 75% of the party and party costs of the Chemist Warehouse respondents. The offer was left open for acceptance until 4 pm on 3 February 2010. The letter referred to the principles applied in Calderbank v Calderbank [1975] 3 All ER 333 and foreshadowed an application for indemnity costs should the offer be refused. The applicants did not accept the offer. 21 The Chemist Warehouse respondents do not rely on O 23 r 11(6). That is probably so because the offer of settlement did not comply with the formal requirements of O 23. They do, however, rely on the common law and in particular they contend that the applicants' rejection of their Calderbank offer was unreasonable. 22 There is a long line of Federal Court authority for the proposition that a mere refusal of a Calderbank offer does not of itself warrant an order for indemnity costs and that the offerorneeds to show that the conduct of offeree was unreasonable: Black v Lipovac (1998)217 ALR 386 at [217] per Miles, Heerey and Madgwick JJ. It is not the case however that the conduct of the offeree has to be plainly unreasonable, the underlying policy being to encourage litigating parties to undertake genuine settlement negotiations and, for that purpose, to face up to serious offers of settlement: Black at [218]. 23 In Hamod v NSW [2002] FCA 424, Gray J (with whom the other members of the Full Court agreed) said at [20]: Indemnity costs are not designed to punish a party for persisting with a case that turns out to fail. They are not awarded as a means of deterring litigants from putting forward arguments that might be attended by uncertainty. Rather, they serve the purpose of compensating a party fully for costs incurred, as a normal costs order could not be expected to do, when the Court takes the view that it was unreasonable for the party against whom the order is made to have subjected the innocent party to the expenditure of costs. 24 The test, therefore (having regard to the subjection of the innocent party to the expenditure of costs) is whether the offeree's rejection of the relevant settlement offer was unreasonable in the circumstances then obtaining: Dais Studio Pty Ltd v Bullet Creative Pty Ltd [2008] FCA 42. The fact that the offeree was ultimately unsuccessful in the litigation, and could have accepted a reasonable settlement at an earlier stage does not of itself show that the course adopted by the offeree was relevantly unreasonable or imprudent: Alpine Hardwoods (Aust) Pty Ltd v Hardys Pty Ltd (No 2) (2002) 190 ALR 121 at [35] per Weinberg J. 25 The Chemist Warehouse respondents contend that in considering the reasonableness of the offer, the Court should have regard to the offeree's prospects of success, assessed as at the date of the offer. They say that at the time the offer was made, the sole basis for the application was an allegation which was abandoned by the applicants prior to the hearing. Accordingly, they contend that the applicants' prospects of success were low at the date of the offer and for that reason the non acceptance of the offer should be regarded as unreasonable. 26 There are many difficulties with that approach. Firstly, it would be wrong to determine the reasonableness of a rejection of an offer made at an early point in the litigation, based purely on the prospects of success of the offeree by reference to the case as contended by the offeree at that time, and without regard to the prospect that the offeree's case may be recast or repleaded and thereby much improved. The timing of the offer is a relevant consideration. A factor which will weigh against the position of the offeror is that the offer was made before the issues were crystallised as between the parties: Truenergy Pty Ltd v Dispute Resolution Panel & Ors (No 2) [2009] VSC 612at [12]; Rosemin Pty Ltd v Gasp Jeans Chadstone Pty Ltd (No 2) [2010] FCA 406 at [11]-[15]. To adopt the approach here contended for would be to determine the question of indemnity costs by reference to a case said to have been abandoned rather than by reference to the case actually run. That approach does not serve the purpose of the rule as identified by Gray J in Hamod. It does not answer the question of whether it was unreasonable for the party against whom the order is made to have subjected the innocent party to the expenditure of costs. 27 In any event, the ground upon which the applicants initially relied was in essence reformulated rather than abandoned. For reasons which I need not elaborate here but which my earlier judgment explains, there was a close relation between the allegation that the shopping centre did not contain 30 commercial establishments (the initial ground) and the allegation that the Authority had failed to consider the single management consideration. Furthermore on 22 January 2010, whilst the offer of settlement was still open, the applicants' solicitors wrote to the solicitors for the Chemist Warehouse respondents. That letter made it clear that the applicants' contention that the shopping centre did not meet the minimum number of 30 commercial establishments was based upon the applicants' contention that the Gisborne Village and the Market Centre were not under single management. 28 It would be wrong to regard the applicants' case at that time as weak, as the Chemist Warehouse respondents suggest. The case communicated by the applicants to the Chemist Warehouse respondents was not weak although at that point in time the way in which the case was pleaded failed to take full advantage of the attributes of the case and properly express those attributes by reference to the requirements of s 5 of the ADJR Act. 29 There are a number of authorities to the effect that an offer to settle on the basis that each party bares its own costs is not a Calderbank offer and, in any event, may not be considered a genuine offer of compromise: Nutrientwater Pty Ltd v Baco Pty Ltd (No 2) [2010] FCA 304 per Kenny J at [31] referring to Dresna Pty Ltd v Linknarf Management Services Pty Ltd (In liq) (No 2) [2006] FCA 755 at [20]; Australian Competition and Consumer Commission v Universal Music Australia Pty Ltd (No 2) (2002) 201 ALR 618 at [59]- [60]; McKerlie v State of New South Wales (No 2) [2000] NSWSC 1159; Vasram v AMP Life Limited [2002] FCA 1286 at [12]; and Fyna Foods Australia Pty Ltd v Cobannah Holdings Pty Ltd (No 2) [2004] FCA 1212 at [10]. 30 Some of these authorities, together with other authorities for the same proposition, were considered by Goldberg J in Szencorp Pty Ltd v Clean Energy Council Limited (No 2) [2009] FCA 196. Relying on the reasoning of the New South Wales Court of Appeal in Leichardt Municipal Council v Green [2004] NSWCA 341, Goldberg J did not agree with the proposition that an invitation to an applicant to discontinue proceedings with no order as to costs is not a genuine attempt to resolve the proceeding by way of a compromise, for the purposes of considering the consequences of an offer made in a Calderbank letter. 31 I agree with Goldberg J that an offer to give up an opportunity to recover costs from another party may well be a genuine compromise of substance. It is preferable to treat such an offer as an offer of compromise, but then to evaluate the reasonableness of the conduct of the party who has rejected the offer by reference to the extent of compromise involved in the offer with all the other relevant circumstances: Rosemin at [10] per Middleton J. 32 As Kenny J said in Nutrientwater at [31], the extent of the compromise involved is a relevant consideration in determining whether the rejection of the compromise offer was unreasonable. The modest extent of the compromise offered was a factor which lead to the rejection of the application for indemnity costs in Nutrientwater; Inform Design and Construction Pty Ltd v Boutique Homes Melbourne Pty Ltd (No 2) [2008] FCA 965 at [29]; and in Truenergy at [14]. To give weight to the extent of the compromise offered is in keeping with the underlying policy of encouraging settlement. Borderline offers of compromise ought not be given the same potency as generous offers which are far more likely to encourage settlement. 33 The offer made by the Chemist Warehouse respondents was to compromise the opportunity to recover 25% of its party to party costs incurred by them as at the date of offer (or perhaps as at the date of acceptance). There is no evidence before me as to the actual amount expended by the Chemist Warehouse respondents by way of costs. Like Weinberg J in Dresna (at [23]), I am not in a position to gauge whether anything really tangible was being offered in return for the applicants' discontinuance of their application. Even if I were to speculate, which I am not inclined to do, it is unlikely, given the early stage at which the litigation was at, that 25% of the Chemist Warehouse respondents' party to party costs was anything other than a relatively modest sum. 34 The applicants had a reasonable basis for declining to accept the view that their claim would necessarily fail. Given that acceptance of the Chemist Warehouse respondents' offer would have led to the applicants bearing their own costs and potentially being required to pay the costs of the Authority, the offer of a 25% discount on the Chemist Warehouse respondents' party to party costs was apt to be regarded as offering very little. Even with the benefit of hindsight, including the knowledge of the ultimate outcome of the case, it is of little or no surprise that the offer made was not accepted. 35 For all of those reasons, I do not regard the conduct of the applicants in not accepting the offer as unreasonable and do not propose to order the payment of indemnity costs on this basis.

Ulterior motive 36 The Chemist Warehouse respondents contend that the contents of the letter of 22 January 2010 (which Tracey J has ruled to be relevant and admissible as to the question of costs) demonstrate that the applicants brought and prosecuted their unsuccessful proceedings to achieve an ulterior or extraneous purpose. It is alleged that the applicants' purpose was to delay the Chemist Warehouse respondents from opening their store for trade. 37 The letter of 22 January 2010 was written by the applicants' solicitors and addressed to the solicitors for the Chemist Warehouse respondents. The letter contained a proposal for the settlement of the proceedings. The applicants proposed that they would withdraw the proceedings if the Chemist Warehouse respondents were prepared to pay $30,000 towards the legal costs already incurred by the applicants. The applicants' solicitors explained the reason for and rationale behind the proposal at some length. In substance, the applicants asserted both the basis for and their confidence in the success of their application. However, under the heading "The Realities", the applicants' solicitors explained that whilst their clients will succeed in their application, their clients were not unrealistic enough to believe that the Chemist Warehouse respondents will not eventually succeed in obtaining approval to supply pharmaceutical benefits at the new pharmacy which they were trying to establish. In essence, the applicants said that they were aware that should they succeed, the Chemist Warehouse respondents would make another application to the Authority and that with the benefit of the lessons learnt out of this proceeding, all material gaps would be addressed and the Authority's valid approval would be obtained. 38 In that context, the applicants' solicitors said: "Success in the Proceeding will result in costs being awarded in favour of our clients and delaying the commencement of trading by your clients but, in all likelihood, your clients will eventually trade at Gisborne Village … To avoid all parties incurring the expense of uncertainty of the Proceedings, when success in the Proceeding probably only delays your client opening by a few months from that currently planned, our clients have instructed us to put the following proposal to your clients". 39 It is these two passages, together with the proposal itself, which is said by the Chemist Warehouse respondents to reveal that the applicants had brought and maintained the proceedings for the collateral purpose. 40 In response to that submission, the applicants say that all they did was simply concede the "reality" that eventually the Chemist Warehouse respondents would obtain approval from the Authority. They say that identifying the reality does not demonstrate that the applicants held a collateral purpose of delaying the opening of the Chemist Warehouse respondents' pharmacy. They submit that they had a real and understandable basis for enforcing their legal rights and in particular to have the validity of the Authority's decision determined. 41 In support of their contention, the Chemist Warehouse respondents rely on Ragata Developments Pty Ltd v Westpac Banking Corporation (unreported, Federal Court, 5 March 1993 per Davies J ); Packer v Meagher (1984) 3 NSWLR 486; and Fountain Selected Meats (Sales) Pty Ltd v International Produce Merchants Ltd (1988) 81 ALR 397 at 401. In Ragata Developments, Davies J expressed the principle without applying it. His Honour said that indemnity costs may be awarded where unsuccessful proceedings have been brought and prosecuted not for the bona fide purpose of protecting and enforcing a legal right, but to achieve an ulterior or extraneous purpose. In support of the principle his Honour referred to the other two other cases upon which the Chemist Warehouse respondents rely. 42 Packer was a defamation case in which the proceeding was dismissed as an abuse of process. In that case the Court was satisfied that the proceeding was brought for the dominant, ulterior and collateral purpose of investigating the conduct of the Costigan Royal Commission and not to vindicate the plaintiff's own reputation. In Re Fountain Selected Meats, Woodward J said that it was appropriate to consider awarding indemnity costs whenever an action had been commenced or continued in circumstances where the applicant, properly advised, should have known that he had no chance of success. His Honour reasoned that in such a case it should be presumed that the proceeding was commenced or continued for an ulterior motive or because of some disregard to the known facts or the clearly established law. 43 What Davies J was referring to in Ragata Developments is a recognised category of an abuse of process. In Packer, Hunt J observed at [492]: The legal process of a court is being abused when it is being used to exert pressure to effect an object not within the scope of the process: Grainger v Hill [1838] EngR 365; (1838) 4 Bing (NC) 212 at 221; [1838] EngR 365; 132 ER 769 at 773; or where it is used for a purpose other than that for which the proceedings are properly designed and exist: Re Majory [1955] Ch 600 at 623; or where the plaintiff in those proceedings is seeking some collateral advantage beyond what the law offers: Castanho's case (at 567). See also Varawa v Howard Smith Co Ltd [1911] HCA 46; (1911) 13 CLR 35 at 91; Goldsmith v Sperrings Ltd [1977] 1 WLR 478 at 489, 490, 503; [1977] 2 All ER 566 at 574, 585. 44 In cases where an abuse of process arises from an improper or collateral purpose, the issue is one of predominant purpose, not sole purpose: Campaign Master (UK) Limited v Forty Two International Pty Ltd (No 4) [2010] FCA 398 at [44] per Yates J. As His Honour sets out in that case, when identifying a predominant purpose that is also an improper purpose, the courts have distinguished between intention and motive or between what is sometimes called the immediate purpose and the ultimate purpose. 45 Whilst many valiant attempts have been made to distinguish between an immediate purpose and an ultimate purpose, the distinction is perhaps best expressed by reference to the example given by Mason CJ and Dawson, Toohey and McHugh JJ in Williams v Spautz (1992) 174 CLR 509 at 526. The example involved two aldermen who are political rivals. The first alderman prosecutes the second for failure to disclose a relevant pecuniary interest when voting to approve a contract. The intention of the first alderman is to secure a conviction against the second alderman and subsequent disqualification from office. Their Honours said: ... The ultimate purpose of bringing about disqualification is not within the scope of the criminal process instituted by the prosecutor. But the immediate purpose of the prosecutor is within that scope. And the existence of the ultimate purpose cannot constitute an abuse of process when that purpose is to bring about a result for which the law provides in the event that the proceedings terminate in the prosecutor's favour. It is otherwise when the purpose of bringing the proceedings is not to prosecute them to a conclusion but to use them as a means of obtaining some advantage for which they are not designed or some collateral advantage beyond what the law offers. So, in Dowling, Isaacs J. pointed out that "if, for instance, it had been shown that the Society had simply threatened Dowling that unless he did what they had no right to demand from him, namely, give up certain names, they would proceed to sequestration, and they had proceeded accordingly, there would have been in law an abuse of the process". However, because the Society wished to use the process for the very purpose for which it was designed, there was no abuse of process. 46 Central to an abuse of process is the requirement that the party who has instituted proceedings has done so for a purpose or to affect an object beyond that which the legal process offers. The onus of satisfying a court that there is an abuse of process lies upon the party alleging it and the onus is a heavy one: Spautz at [523] and at [529] per Mason CJ and Dawson, Toohey and McHugh JJ. 47 The statements made by the applicants' solicitors (upon which the Chemist Warehouse respondents rely) do not of themselves reveal the applicants' immediate purpose for bringing or continuing the proceeding. The statements do no more than express a view held by the applicants that ultimately, the prosecution of their challenge to the approval of the Authority would only result in delay to the grant of that approval, rather than preclude it. 48 The statements may say a little about the applicants' ultimate purpose but no more than what may otherwise be inferred from the fact that the applicants and the Chemist Warehouse respondents are potential commercial competitors. The applicants operate pharmacies in Gisborne and the Chemist Warehouse respondents sought to establish a pharmacy in Gisborne. It may be inferred that at least part of the motivation of the applicants in bringing and pursuing their application involved the commercial advantage to them of defeating or at least delaying the capacity of the Chemist Warehouse respondents to open their intended business. Applicants are often motivated to bring and continue litigation because of potential commercial advantages of that kind. 49 However, an ultimate purpose of that kind is no different to the ultimate purpose held by the alderman in the example given in Spautz. As persons affected by the Authority's decision, the applicants had a legal right to apply to the Court for an order of review in respect of the decision. There is nothing before me to suggest that their immediate purpose was not within the scope of the legal process which they instituted and maintained. Accordingly, I am not satisfied that the applicants brought or maintained the proceeding for other than the bona fide purpose of protecting and enforcing their legal rights rather than seeking to achieve an ulterior or extraneous purpose.

conclusion 50 It follows that the application made by the Chemist Warehouse respondents for indemnity costs must be refused. I will make no order as to costs in relation to the costs of that application. 51 In relation to all other aspects of this proceeding, the applicants will be ordered to pay the costs of the Chemist Warehouse respondents, with no order as to the costs of the Authority. I certify that the preceding fifty-one (51) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Bromberg.