Australian Competition and Consumer Commission v Metcash Trading Limited

Federal Court of Australia (Full Court)|2012-04-18|Before: Jacobson J, Yates JJ

REASONS FOR JUDGMENT 1 Judgment was given in this appeal on 30 November 2011. At that time the Court ordered that the appeal be dismissed and that the appellant (the Commission) pay the respondents' costs: Australian Competition and Consumer Commission v Metcash Trading Limited (2011) 198 FCR 297. 2 The first respondent (Metcash) has filed an interlocutory application seeking orders that the costs to which it is entitled be paid on a differential basis, such that costs of the appeal incurred after 11.00 am on 7 October 2011, including the costs of the interlocutory application, be paid on an indemnity basis rather than as between party and party. 3 The basis for this application is Metcash's claim that the Commission had unreasonably failed to accept an offer to compromise made by it under cover of a letter dated 5 October 2011. The offer to compromise was made pursuant to r 25.01 of the Federal Court Rules 2011, which provides: (1) A party (the offeror) may make an offer to compromise by serving a notice, in accordance with Form 45, on another party (the offeree). (2) The notice must not be filed in the Court. [Emphasis in rule] 4 The substance of the offer was as follows: (a) The Commission should file a notice of discontinuance of the appeal. (b) Metcash would forego its costs entitlement pursuant to order 2 made by Jacobson J on 20 September 2011 against the Commission in respect of an interlocutory application heard on 15 September 2011 in which the Commission unsuccessfully sought an interim injunction to restrain Metcash's acquisition of shares in Interfrank Group Holdings Pty Limited (referred to in the appeal judgment as Franklins): Australian Competition and Consumer Commission v Metcash Trading Ltd [2011] FCA 1079. (c) The Commission and Metcash would bear their own costs of the appeal. 5 The offer was expressed to be open for acceptance for a period of 14 days from the date of the letter communicating the offer. 6 The issue now before the Court is whether Metcash is entitled to the orders it seeks and, if so entitled, whether such orders should be made. 7 Of particular significance is r 25.14(2), which is as follows: If an offer is made by a respondent and an applicant unreasonably fails to accept the offer and the applicant's proceeding is dismissed, the respondent is entitled to an order that the applicant pay the respondent's costs: (a) before 11.00 am on the second business day after the offer was served - on a party and party basis; and (b) after the time mentioned in paragraph (a) - on an indemnity basis.

The parties' submissions 8 In substance, Metcash submits that the orders should be made because the Commission's failure to accept the offer to compromise was unreasonable: r 25.14(2). 9 This submission was developed in the following way. At trial the Commission had failed to establish its market definition, its counterfactual case, and the fact that the acquisition was likely to substantially lessen competition. In order to succeed on appeal, it was necessary for the Commission to overturn the primary judge's ultimate findings and conclusions on each of those issues. Significantly, the primary judge's conclusion that the Commission had not even established that there was a real chance that the counterfactual for which it contended would come to pass was, on appeal, an insurmountable obstacle to the Commission's success because the Commission did not challenge the key factual findings on which that conclusion was based. Thus, at the time the offer to compromise was made, the Commission's appeal had no realistic prospect of success. 10 In this connection, Metcash also submits that, at this time, the Commission had the benefit of Jacobson J's dismissal of the Commission's application for interim injunctive relief to restrain completion of the share transfer pending the hearing and determination of the appeal by the Full Court, which included his Honour's observation that, on that application, the Commission had not pointed to any glaring error or obvious oversight in the primary judgment and that, in any event, the primary judge was not persuaded that there was a "real chance" that the counterfactual for which the Commission contended would come to pass: see at [79]-[80]. 11 Thus, Metcash submits, this was not a case where its offer was made before the strengths and weaknesses of the parties' respective cases were known. On the contrary, following the trial and the interlocutory hearing before Jacobson J, "the hurdles facing the ACCC were clear". 12 For its part, the Commission submits that Metcash has not shown that the rejection of its offer to compromise was unreasonable. Whether the rejection was unreasonable involves an evaluative judgment. In the present context the existence of "unreasonableness" requires a consideration of whether the acceptance of the offer was one upon which reasonable minds might differ or if its rejection could be supported by reasoned or logical argument. In either case, the requirement of unreasonableness would not be made out. 13 The Commission developed this argument by pointing to what it says is the crucial distinction between a weak case and a case which has been brought without reason or which is unarguable. It submits that each of the "three basic issues agitated in the appeal" was arguable. It submits that although Jacobson J dismissed its application for interim injunctive relief, his Honour nevertheless proceeded on the basis that the arguments advanced by the Commission, at that time, raised "some prospect of success" and were, at least, "debatable". It further submits that the risk of "anti-competitive behaviour" was sufficiently present to cause Jacobson J to order that the hearing of the appeal be expedited. 14 Although accepting that it did not challenge the primary facts underpinning the primary judge's conclusion on its counterfactual case, the Commission nevertheless points to the fact that it challenged that conclusion (that is whether the "real chance" test was satisfied) based on those facts. It submits that this challenge was "hardly a matter deserving of criticism" and was, in any event, linked with the contentious issue of the correct test to be applied in determining the counterfactual case. 15 The Commission points to other matters which, it submits, stand in the way of making the differential order that is sought. It submits that the extent of the offer to compromise relative to the scale and importance of the substantive issues was not such as to be "self-evidently warranting acceptance". The substantive grounds of appeal "had implications touching upon important public interest". In any event, the offer was put in "peremptory, unclear and unexplained terms".

Consideration 16 We should say at the outset that we are not persuaded that there is any substance to the submission that the offer to compromise was in terms that were unclear or that any criticism can be levelled on the footing that the offer was peremptory or unexplained. The offer to compromise was perfectly clear and we have no doubt that the Commission was able to make an unhindered appraisal as to whether, in the circumstances as they then stood, the offer should be accepted. 17 We also consider that the offer can be considered to be a reasonable offer in the sense that it was a genuine offer that was worthy of real and serious consideration: Sagacious Legal Pty Ltd v Wesfarmers General Insurance Ltd [2011] FCAFC 53 at [130]-[132] quoting with approval the observations made by Greenwood J in Clark v Commissioner of Taxation [2010] FCA 415 at [90] and Uniline Australia Ltd ACN 010 752 057 v SBriggs Pty Ltd ACN 007 415 518 (No. 2) [2009] FCA 920 at [38]. That said, it does not follow inexorably that it was, in the circumstances, unreasonable for the Commission to reject that offer. 18 In our view it is relevant to take into account the fact that the appeal did raise issues of public interest and importance relating to the interpretation and application of s 50 of the Competition and Consumer Act 2010 (Cth) (the Act), dealing, as it did, with a significant business transaction affecting the way in which grocery items would be supplied in trade or commerce to a significant section of the Australian public. The existence of these elements does not mean, of course, that the Commission can escape the Court's scrutiny of its conduct of the litigation, including its conduct in refusing to accept the offer to compromise: Federal Commissioner of Taxation v Clark (No 2) (2011) 197 FCR 251 at [28]. But, in general, the issues raised were matters of importance, as well as of substance, as reflected in their treatment in the appeal judgments. 19 Metcash submits that, even so, the appeal was a poor vehicle to test the interpretation and application of s 50 of the Act. This is because the findings made by the primary judge amounted to a rejection of the Commission's case, even on the legal principles which it had propounded. It submits therefore that there was always a real likelihood that, in these circumstances, a Full Court would not even get to resolving the issues that the Commission had raised as matters of concern for it as the regulator under the Act. Metcash submits that public interest issues should therefore be put to one side when considering the question of costs in this particular case. 20 We do not accept that submission. It is true that the primary judge made a number of significant findings of fact that were adverse to the Commission's case. Those findings presented real obstacles to the Commission's case on appeal succeeding. The Commission's counterfactual case is, perhaps, the best example in that regard. However, whilst not challenging the primary judge's findings of primary fact in respect of that issue, the Commission did challenge the weight to be given to, and the conclusions to be drawn from, those findings, to argue that its counterfactual case did pass the threshold of the "real chance" test. The Commission's counterfactual case on appeal was not unarguable just because, ultimately, it was rejected. 21 Another matter of significance is the fact that acceptance of the offer to compromise required the Commission to completely abandon its case to restrain the acquisition. In this connection it is difficult to see what middle ground existed between the parties on which they could effectively negotiate to compromise the proceeding: Metcash wished to complete the acquisition; the Commission, as regulator, sought to stop it on competition grounds that were genuinely advanced. Notwithstanding the difficulties it faced in light of the primary judge's findings, the Commission's case on appeal was not such that it was inevitable that it would lose. In those particular circumstances it was not required to abandon its appeal simply because of the prospect on offer of a more favourable position on costs. 22 On balance we are not persuaded that the Commission's rejection of the offer to compromise was unreasonable in all the circumstances. We therefore decline to make the orders sought in the application.

Disposition 23 The interlocutory application should be dismissed. Metcash should pay the Commission's costs of and incidental to that application. I certify that the preceding twenty-three (23) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justices Finn, Buchanan, Yates.

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