Australian Competition and Consumer Commission v Employsure Pty Ltd

GRIFFITHS J: 1 These reasons for judgment relate to the question of costs of the trial and the determination of pecuniary penalties. The primary reasons for judgment are reported as Australian Competition and Consumer Commission v Employsure Pty Ltd [2020] FCA 1409 (Employsure PJ). The reasons for judgment concerning pecuniary penalties are reported as Australian Competition and Consumer Commission v Employsure Pty Ltd (No 2) [2021] FCA 1488 (Employsure Pecuniary Penalties). 2 The relevant background is summarised in Employsure Pecuniary Penalties at [1] to [3] and need not be repeated here. Briefly, the applicant (ACCC) was successful on appeal (see Australian Competition and Consumer Commission v Employsure Pty Ltd [2021] FCAFC 142; 392 ALR 205 (Employsure Full Court)) in respect of that part of Employsure PJ relating to six Google Ads which the Full Court held contravened relevant provisions of Sch 2 of the Competition and Consumer Act 2010 (Cth) (the Australian Consumer Law) regarding misleading or deceptive conduct because they conveyed a false representation of government affiliation (the contravening conduct). The ACCC did not appeal from the Court's rejection at trial of its claims of misleading or deceptive conduct in respect of a seventh Google Ad, nor did it appeal the Court's rejection of its claims of misleading or deceptive conduct in respect of Employsure's use of keywords and free advice representations, nor its claims relating to alleged unfair contract terms and unconscionable conduct. 3 In Employsure Pecuniary Penalties, the ACCC sought a pecuniary penalty of $5 million in relation to the contravening conduct; an injunction restraining Employsure for a period of five years from making any representation of government affiliation; and that Employsure should repay 25% of the costs of the trial paid by the ACCC to Employsure (an amount of $220,115.44). 4 The Court ordered Employsure to pay a pecuniary penalty of $1 million (as opposed to the $5 million sought by the ACCC and the $750,000 put forward by Employsure) and declined to grant any injunctive relief. As noted in Employsure Pecuniary Penalties at 4, the parties asked the Court to defer the issue of costs following the publication of the reasons for judgment in Employsure Pecuniary Penalties. The parties have filed outlines of submissions in chief and in response on costs, as well as supporting affidavits. 5 In brief, the ACCC submitted that: (a) it should be awarded 25% of its costs of and incidental to the trial; (b) further to the Full Court vacating the order for costs of the trial, Employsure should be ordered to reimburse 25% of the costs paid by the ACCC to Employsure following the trial on liability (i.e. $220,115.44); and (c) in respect of the penalty hearing, the ACCC said that it should have all its party-party costs in respect of that proceeding. 6 In contrast, Employsure's position regarding costs may be summarised as follows: (a) the ACCC should pay Employsure's costs of the liability and pecuniary penalties stages of the proceedings on a party-party basis up to 12 February 2020; and (b) the ACCC should pay Employsure's costs of the liability and penalty stages of the proceedings on an indemnity basis from 13 February 2020, relying in particular on a claim that it was unreasonable for the ACCC to refuse to accept Employsure's offer of compromise dated 13 February 2020.

Consideration and determination 7 As is well-known, the Court has a broad discretion to make orders with respect to costs under s 43 of the Federal Court of Australia Act 1976 (Cth). In the usual case, the Court's discretion is exercised by an order that costs follow the event and that they be determined on a party-party basis, as agreed or taxed (r 40.01 of the Federal Court Rules 2011 (Cth)). 8 The general principles which guide the Court's discretion to order a party to pay indemnity costs are equally well-known. They are conveniently described by the Full Court in Anchorage Capital Partners Pty Ltd v ACPA Pty Ltd (No 2) [2018] FCAFC 112 at [5] to [8] per Nicholas, Yates and Beach JJ: 5 Section 43 of the Federal Court of Australia Act 1976 (Cth) confers a broad discretion on the Court to award costs in proceedings. In Re Wilcox; Ex parte Venture Industries Pty Ltd (No 2) (1996) 72 FCR 151, Black CJ at 152 stated the principles applicable to a claim for indemnity costs: …it is well established that the starting point for any consideration of an application for indemnity costs is that in the ordinary case costs will follow the event and the Court will order the unsuccessful party to pay the costs of the successful party, on a party and party basis, a basis which will fall short of complete indemnity. Nevertheless, the Court has an absolute and unfettered jurisdiction in awarding costs, although the discretion must be exercised judicially. So indemnity costs may properly be awarded where there is some special or unusual feature in the case justifying the Court in exercising the discretion in that way. 6 A well-established circumstance justifying an award of indemnity costs is an imprudent refusal of an offer to compromise (Colgate-Palmolive Company v Cussons Pty Ltd (1993) 46 FCR 225 at 233 per Sheppard J). In such cases, a key question is whether the offeree's refusal of the offer was "unreasonable" when viewed in light of the circumstances existing at the time the offer was rejected (Black v Lipovac & Ors (1998) 217 ALR 386 at 432 per Miles, Heerey and Madgwick JJ; CGU Insurance Ltd v Corrections Corporation of Australia Staff Superannuation Ltd [2008] FCAFC 173 at [75] per Moore, Finn and Jessup JJ). 7 The circumstances to be taken into account in determining whether rejection of an offer was "unreasonable" cannot be stated exhaustively but may include, for example: (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. (Hazeldene's Chicken Farm Pty Ltd v Victorian WorkCover Authority (No 2) (2005) 13 VR 435 at [25] per Warren CJ, Maxwell P and Harper AJA; Beling v Sixty International S.A. (No 2) [2015] FCA 355 at [25] per Mortimer J). 8 An unsuccessful party is not liable to pay indemnity costs merely because it received an offer to settle on terms more favourable than it achieved at trial and rejected that offer (CGU Insurance at [75]; Black at [217]-[218]). As we observed in the Appeal Reasons, albeit in the context of r 25.14(2) of the FCRs, assessment of the "unreasonableness" of an offeree's refusal of a settlement offer is a broad-ranging inquiry that is not restricted to consideration of the extent or quantum of the compromise offered. 9 These principles need to be applied against a background of relevant facts and circumstances. Employsure relied upon the following matters in support of its position on indemnity costs. First, on 27 April 2018, Employsure sought to address the ACCC's concerns by: carrying out additional compliance training; re-evaluating its processes for monitoring sales staff and implementing appropriate changes; engaging with the ACCC to make further modifications to its website to address any remaining ACCC concerns regarding government affiliation representations; offering certain customers the right to terminate or cancel their contracts with Employsure; and agreeing to abide by the determination of the ACCC's claims by an independent adjudicator. 10 Secondly, shortly before the trial commenced, Employsure offered to implement a series of additional steps with a view to resolving the ACCC's concerns. Those additional steps are described in an affidavit sworn on 25 October 2021 by Mr Andrew Christopher. 11 Thirdly, on 13 February 2020, Employsure wrote to the ACCC and proposed that the proceedings be resolved by Employsure paying a pecuniary penalty of $3.3 million in respect of all the alleged contravening conduct by it, consenting to an injunction and declarations (including declarations that certain terms were unfair contract terms) and paying a contribution of $100,000 to the ACCC's costs. Employsure contends that it is entitled to indemnity costs from 13 February 2020 because it was unreasonable for the ACCC to have rejected that offer. 12 I will now explain my reasoning in respect of each of those matters.

(a) ACCC's partial success on liability 13 As noted above, following Employsure Full Court, the ACCC succeeded in respect of six of the seven Google Ads the subject of its claims of misleading or deceptive conduct concerning the government affiliation representations. The Full Court held that those six Google Ads contravened ss 18(1) and 29(1)(b) and (h) of the Australian Consumer Law. I do not accept the ACCC's submission that an order that Employsure pay 25% of the ACCC's costs of the liability trial hearing sufficiently and fairly reflects the time devoted to the factual and legal matters underpinning this aspect of the ACCC's case. That submission fails to take into account the fact that the ACCC did not appeal my rejection of this part of its case in respect of the seventh Google Ad, nor does it properly reflect the time and expense devoted by Employsure to preparing for and defending other aspects of the ACCC's case which were rejected at trial and were not appealed. In my view, a figure of 20% more fairly and accurately reflects those matters. 14 Accordingly, I will order Employsure to pay 20% of the ACCC's costs of the liability hearing at first instance.

(b) Reimbursement of part of the costs awarded to Employsure at trial 15 Reflecting what I have said above, I consider that Employsure should reimburse 20% of the costs paid to it by the ACCC following the liability hearing at first instance, bearing in mind that the Full Court set aside the order for costs. 16 Accordingly, I will order Employsure to pay to the respondent, within 28 days hereof, an amount of $176,092.35 (excluding GST), representing 20% of the $880,461.75 (excluding GST).

(c) Costs of the remitted pecuniary penalties hearing 17 I do not accept that the ACCC should be awarded its party-party costs in respect of the remitted pecuniary penalty proceedings. I accept, of course, that the ACCC was successful in its limited appeal and was awarded its costs of the appeal. I do not accept, however, that it is appropriate that the ACCC should be awarded its costs of the remitted pecuniary penalty hearing in respect of the six Google Ads which were the subject of that appeal and the remitted pecuniary penalties hearing. That is because, at the remitted penalty hearing, the ACCC was unsuccessful in obtaining injunctive relief and the pecuniary penalty which Employsure was ordered to pay was in an amount which was 80% less than that sought by the ACCC (and slightly more than the amount suggested by Employsure). Taking all these matters into account, I consider that it is appropriate that the ACCC should pay 50% of Employsure's costs of the remitted penalty hearing.

(d) Indemnity costs? 18 After careful consideration and not without some hesitation, I am not persuaded that Employsure is entitled to have any of its costs paid on an indemnity basis. That is primarily because I have concluded that, on balance, it was not unreasonable for the ACCC to reject Employsure's offer of compromise as set out in its letter dated 13 February 2020. Importantly, as the ACCC has emphasised, Employsure's offer was made in respect of the totality of the proposed admissions. It was not unreasonable for the ACCC to reject that offer at that time in circumstances where the offer did not differentiate between different parts of Employsure's conduct, including the conduct relating to six Google Ads in respect of which the ACCC ultimately succeeded. 19 I also take into account the fact that, as Employsure properly acknowledged, some allowance needs to be made for the fact that the proceedings were brought by the ACCC in the public interest and in good faith. I should add, however, that this fact alone is not determinative in assessing whether or not the ACCC's rejection of Employsure's offer was unreasonable. 20 I have also taken into account the fact that, as the ACCC's counter-offer dated 27 February 2020 demonstrates, the ACCC's rejection of Employsure's offer was not unreasonable in circumstances where the ACCC's total costs and disbursements at that particular time were approximately $704,000 (excluding GST) (as established by the affidavit affirmed on 20 December 2021 by Ms Anna Ross) and Employsure's offer included an amount of $100,000 in respect of the ACCC's costs. 21 Finally, insofar as Employsure seeks indemnity costs of the remitted penalty hearing, I accept the ACCC's submission that Employsure's offer of compromise was not renewed (nor replaced) by any offer by Employsure post Employsure Full Court. 22 For all these reasons I decline to make an indemnity costs order.

Conclusion 23 For these reasons, I will make orders in the terms described above. I certify that the preceding twenty-three (23) numbered paragraphs are a true copy of the Reasons for Judgment of the Honourable Justice Griffiths.