Australian Competition & Consumer Commission v Black on White

REASONS FOR JUDGMENT 1 This is a question of costs in respect of orders made by the Court on 12 June 2002 on a notice of motion filed by the Australian Competition and Consumer Commission ("the ACCC") on 15 June 2001. The orders were made pursuant to s 87(1A) of the Trade Practices Act 1976 (Cth) ("the Act") compensating named persons who suffered loss as a consequence of the contravention of Part V of the Act by James Nicholas Poteri ("the third respondent") and Nicholas James Poteri ("the fourth respondent"). 2 The third and fourth respondents were ordered to pay the following sums: (a) the sum of $5,482.50, being an amount of $3,655 plus interest of $1,827.50 to Mr Darryl Cobb and Mrs Sarah Cobb; and (b) the sum of $4,821.18, being an amount of $3,214.12 plus interest of $1,607.06 to Ms Jody Rye. 3 The fourth respondent seeks an order that the ACCC pay his costs of the motion on an indemnity basis. Paragraphs 3, 4 and 5 of the motion are relevant to the present question. Those paragraphs provide: "3. The third and fourth respondents pay to the applicant, within 30 days of the date of the Court's order, the amount of $6,869.12 to be distributed to the following persons who have suffered loss and damage in the following amounts: (a) Sarah Elizabeth Jill Cobb and Darryl Steven Cobb in the amount of $3,655.00; and (b) Jody Leanne Rye in the amount of $3,214.12. 4. The third respondent and the fourth respondent pay to the applicant, within 30 days of the date of the Court's order, interest pursuant to section 51A of the [Federal Court of Australia Act 1976 (Cth)], at the rate of 10% per annum or such other rate as the Court considers appropriate, on each of the amounts listed in paragraph 3 to be distributed to the respective persons listed in paragraph 3. 5. The third and fourth respondents pay the applicant's costs of and incidental to this application to be taxed if not agreed." The submission of the fourth respondent seeking an order for indemnity costs is based on a number of offers made by him to the ACCC prior to the orders of the Court. It will be necessary to refer to the detail of those offers a little later. 4 Section 43 of the Federal Court of Australia Act 1976 (Cth) provides: "(1) Subject to subsection (1A), the Court or a Judge has jurisdiction to award costs in all proceedings before the Court (including proceedings dismissed for want of jurisdiction) other than proceedings in respect of which any other Act provides that costs shall not be awarded. (1A) In a representative proceeding commenced under Part IVA or a proceeding of a representative character commenced under any other Act that authorises the commencement of a proceeding of that character, the Court or Judge may not award costs against a person on whose behalf the proceeding has been commenced (other than a party to the proceeding who is representing such a person) except as authorised by: (a) in the case of a representative proceeding commenced under Part IVA - section 33Q or 33R; or (b) in the case of a proceeding of a representative character commenced under another Act - any provision in that Act. (2) Except as provided by any other Act, the award of costs is in the discretion of the Court or Judge." 5 The discretion conferred upon the Court by subs 43(2) is absolute and unfettered, but is one which must be exercised judicially and not arbitrarily or capriciously, or upon grounds unconnected with the litigation: Trade Practices Commission v Nicholas Enterprises Pty Ltd (No. 3) (1979) 42 FLR 213 per Fisher J at 219. In exercising the discretion conferred upon it, the Court must consider the particular facts of the case before it: Gladstone Park Shopping Centre Pty Ltd v Ross Wills (1984) 6 FCR 496. In the ordinary case costs follow the event, and a successful party will receive his/her costs unless there are special circumstances present which justify some other order: Hughes v Western Australian Cricket Association Inc (1986) 8 ATPR 40-748 at 48, 136 per Toohey J citing Ritter v Godfrey (1920) 2 KB 47; Gladstone Park (supra) at 505 and 509. 6 The Court can consider evidence of settlement negotiations where a communication of documents is relevant to determining liability for costs: see s 131(2)(h) of the Evidence Act 1995 (Cth). Further, the Federal Court has, in O 23 of the Federal Court Rules, provided a mechanism for the settlement of disputes by delivery of offers of compromise, and provided cost consequences for the parties not accepting relevant offers within specified time periods. The provisions of O 23 of the Federal Court Rules and the treatment of offers such as "Calderbank" letters, so named after Calderbank v Calderbank [1976] Fam 93; [1975] 3 WLR 586; [1975] 3 All ER 333, the subject of consideration in Messiter v Hutchinson (1987) 10 NSWLR 525, reflect the Court's policy of encouraging litigating parties to undertake genuine settlement negotiations and to consider seriously offers of settlement. 7 In assessing the utility of an offer made, the Court has to consider whether the offer is constructed in such a way as to constitute a reasonable basis for compromising or settling a proceeding and, in that sense, whether it is genuine: Dr Martens Australia Pty Ltd v Figgins Holdings Pty Ltd (No. 2) [2000] FCA 602 per Goldberg J at pars 16-24. 8 The history of the proceedings and of the negotiations concerning settlement, so far as is relevant, are as follows. On 4 April 2001, the ACCC was ordered to pay one-third of the fourth respondent's costs of and incidental to the principal application. The motion, the costs of which are presently of concern, was filed on 15 June 2001 together with affidavits of one Sarah Cobb, Emma Cobb and Jody Rye. 9 On 22 June 2001, the fourth respondent delivered an O 23 notice of offer to the ACCC, offering to compromise "… the whole of the claims made against him contained in paragraphs 3 and 5 of the Notice of Motion dated 15 June 2001" by paying to the ACCC the sum of $7,000, "in full and final satisfaction of the above claims inclusive of all costs". The notice also provided for the sum of $7,000 to be paid by the fourth respondent to the ACCC by means of setting-off and deducting $7,000 from the amount of moneys otherwise owing for the fourth respondent's costs pursuant to the order of 4 April 2001. 10 The offer made pursuant to O 23 on 22 June 2001 was rejected by the ACCC by letter dated 9 July 2001, pointing out that the offer did not include any amount of interest and commenting that this was inappropriate given the representative nature of the action. 11 The ACCC delivered on 9 July 2001 its own O 23 notice of offer, offering to settle on terms that the fourth respondent pay to the applicant to be distributed to Mr Darryl Cobb and Mrs Sarah Cobb the amount of $3,655 plus an amount of $1,643.09 interest, a total sum of $5,298.09, and to pay to the applicant to be distributed to Ms Jody Rye an amount of $3,214.12 together with interest of $1,840.16, a total sum of $5,054.28, and that there be no order as to costs. 12 On 26 October 2001, the ACCC delivered a further O 23 notice of offer wherein the monetary amounts sought were slightly amended. By this offer, the fourth respondent was to pay to the applicant to be distributed to Mr Darryl Cobb and Mrs Sarah Cobb the sum of $3,655 together with $1,478.77 interest, a total sum of $5,133.77; and to pay to the applicant to be distributed to Ms Jody Rye the amount of $3,214.12 together with interest of $1,222.82, a total amount of $4,436.94; and there was to be no order as to costs. 13 On 29 October 2001, the fourth respondent made a further O 23 notice of offer as follows: "1. The Fourth Respondent will pay the Applicant the sum of seven thousand dollars ($7,000.00) in full and final satisfaction of the above claims (excluding interest) inclusive of all costs. 2. The Fourth Respondent will pay the Applicant the sum of two thousand seven hundred and one dollars ($2,701.59) and seventy-nine cents [sic] in full and final satisfaction of the Applicant's claim for interest. 3. The said sum of nine thousand seven hundred and one dollars and seventy-nine cents ($9,701.59) [sic] be paid by the Fourth Respondent to the Applicant by means of setting-off and deducting the said sum from the amount of monies which the Applicant is ordered to pay the Fourth Respondent pursuant to the order of Spender J. made 3 April 2001 such that notwithstanding the determination of the sum due to be paid by the Applicant to the Fourth Respondent either by the certification by the Taxing Officer or the compromise of the costs liability by the party, the Applicant shall only be obliged to pay the Fourth Respondent an amount which is $9,701.59 less then the Applicant's costs liability to the Fourth Respondent pursuant to the order made by Spender J. on 3 April 2001." 14 On 8 November 2001, the ACCC wrote to the solicitor for the fourth respondent, which letter relevantly provided: "… 2. The Commission agrees with the substance of your offer but is concerned that a set-off of the monies otherwise payable to the affected parties is not available as against the Commission's costs. The Commission is however agreeable to that sum being deducted from the amount otherwise payable to the fourth respondent in accordance with the order of 4 April 2001 and paid to the affected parties on his behalf. In doing so the Commission has made the judgement that the fourth respondent's costs would be taxed in accordance with the order at more than $10,000. It is therefore prepared to settle this matter by: (a) consent orders (proposed orders enclosed); and (b) an authority from your client (proposed authority enclosed). 3. If your client agrees with the proposed, please make arrangements for the documents to be signed and returned to this office as soon as possible." The short minutes of the orders provided: "THE COURT ORDERS BY CONSENT THAT: 1. The fourth respondent is liable to pay to the applicant the amount of $6,869.12 to be distributed to the following persons who have suffered loss and damage in the following amounts: (a) Sarah Elizabeth Jill Cobb and Darryl Steven Cobb in the amount of $3,655.00; and (b) Jody Leanne Rye in the amount of $3,214.12. 2. The fourth respondent is liable to pay to the applicant the amount of $2,701.59 comprising interest to be distributed to the following persons in the following amounts: (a) Sarah Elizabeth Jill Cobb and Darryl Steven Cobb in the amount of $1,478.77; and (b) Jody Leanne Rye in the amount of $1,222.82." 15 The application by the ACCC was made pursuant to s 87(1B) of the Act, which relevantly provides: "Where, in a proceeding instituted for an offence against section 79 or instituted by the Commission or the Minister under section 80, a person is found to have engaged (whether before or after the commencement of this subsection) in conduct in contravention of a provision of Part IVA, IVB or V, the Commission may make an application under subsection (1A) on behalf of one or more persons identified in the application who have suffered, or are likely to suffer, loss or damage by the conduct, but the Commission shall not make such an application except with the consent in writing given before the application is made by the person, or by each of the persons, on whose behalf the application is made." 16 The ACCC submits that the Court should have regard to the nature of the proceedings that it brought in evaluating the various offers of compromise that had been made. For its part, the fourth respondent contends that the principles which the Federal Court should follow in dealing with his application for indemnity costs were considered by a Full Court of the Federal Court in Black v Lipovac [1998] FCA 699, and more recently by Wilcox J in Coshott v Learoyd [1999] FCA 276. It was submitted on behalf of the fourth respondent that: (a) there is no fixed rule as to the manner in which the Court will exercise its discretion to award costs in circumstances in which a more favourable offer has been rejected; (b) whilst the ordinary practice is to award costs on a party and party basis it is sometimes appropriate to take a different course including awarding indemnity costs against a party who has acted unreasonably; (c) the non-acceptance of an O 23 offer or a Calderbank offer does not automatically lead to the making of an order for indemnity costs and the Court must consider the whole of the circumstances; 17 The fourth respondent noted comments by Wilcox J in Coshott (supra) where his Honour said at par 48: "… non-acceptance of an Order 23 offer should at least be regarded as providing to the offeror a good start in the task of persuading the Court to award more than party-party costs …". And at par 47 he had earlier said that the purpose of O 23 is: "… to enable a party to 'raise the stakes' in the litigation, and thereby encourage the opposing party to give more anxious consideration to the desirability of a settlement." 18 The ACCC submitted that the notices delivered by the fourth respondent were not offers within the terms of O 23 and, or in the alternative, were unreasonable in their terms and were thus not genuine offers to resolve the litigation. The ACCC relies on O 23 r 2 which relevantly provides: "(1) In any proceeding, a party may make to another party an offer to compromise any claim in the proceeding on the terms set out in the notice of offer. (2) If an offer to compromise the separate claims of several parties to the proceedings is in a single notice of offer, the notice of offer must specify separately the offer made to each party." The ACCC submitted that as the proceedings sought relief for different parties, it was necessary for the fourth respondent to specify the claim which he sought to compromise, and the offer made to each party. The notices of offer delivered by the fourth respondent did not comply, so it is submitted, with the terms of O 23, as they did not specify which claim and in what amounts compromise was sought and offered to whom. 19 The fact of the matter is that parties referred to in O 23 r 2 are the parties to the litigation, and the relevant parties in the present litigation are the ACCC and the fourth respondent. Neither Mr and Mrs Cobb nor Ms Rye were parties to that litigation, and that is so notwithstanding that the ACCC was suing on behalf of those persons. It is relevant to note that the relief sought in the notice of motion by the ACCC was that the "third and fourth respondents pay to the applicant …". 20 The ACCC further submits that, since the time of its response of 9 July 2001 to the fourth respondent's initial offer, it has insisted that because of the "representative nature of the proceedings", it could not set-off an amount to be paid to the representative claimants against its own liabilities. 21 In my opinion, this aspect of the matter is flawed by the perception by the ACCC of the nature of the proceedings. The claim was by the ACCC against, relevantly, the fourth respondent, and the obligation as to costs in the principal proceedings was between the ACCC and the fourth respondent. It is not a case that there was some bar to setting-off the matters because there was involved a "set-off" of the "amount to be paid to the representative claimants against its own liabilities". In my opinion, the notices delivered by the fourth respondent were offers capable of acceptance by the ACCC. 22 It is contended on behalf of the ACCC that: "… the fourth respondent has sought to embarrass the applicant in respect of the conduct of the application which he conducts as a statutory agent." 23 I do not understand what is meant by this submission, and I propose to say no more about it. 24 So far as the fourth respondent's bill of costs is concerned, a bill of costs in the sum of $481,000 had been delivered to the ACCC on 22 October 2001. This was assessed by the taxing officer and allowed at $74,618.08, this sum being one-third of the amount of $223,854.25. The contention on behalf of the ACCC is that this assessment of the sum payable by it to the fourth respondent is a bar to reliance on the aspect of set-off of the offer by the fourth respondent to the ACCC represented in the offer contained in the second offer. For the reasons which I expressed in Smallacombe v Lockyer Investments Co Pty Ltd (1993) 42 FCR 97, particularly at 102, I do not regard the offer as a Calderbank type offer. It appears plain to me from O 23 r 4 that an O 23 offer may specify that the sum is inclusive of the costs of the proceedings. 25 Having regard to what I see as the acceptance by the ACCC in its letter of 8 November 2001 that the fourth respondent's costs would be taxed in accordance with the order of the Court of 4 April 2001 at more than $10,000 and also with the communication to the fourth respondent of 8 November 2001 that the "Commission agrees with the substance of your offer", the offer to which that reference refers being that contained in the letter of 29 October 2001, the provisions of O 23 r 11(5) and (6) apply and have the consequence that the ACCC is entitled to costs in respect of the claim incurred up to 11 am on the day following the day on which the offer was made, namely 11 am 30 October 2001, on a party and party basis, and the fourth respondent is entitled to costs in respect of the claim incurred after that time, taxed on an indemnity basis. 26 I cannot help but think that the attitude of the ACCC in relation to at least the second offer made by the respondent is a bit precious. Having regard to the obvious intent of O 23 and the law in connection with Calderbank letters, it seems to me plain that this is a case where the ACCC should have its costs up until the day following the 29 October 2001 offer by the fourth respondent, and pay the costs subsequent to that on an indemnity basis. 27 On 3 July 2002, the fourth respondent filed written submissions on the costs of that motion. On 7 August 2002, the ACCC's outline of submissions on costs was filed in the Court. On the basis of those submissions, the Court advised the parties on 16 December 2002 that the Court would give judgment in respect of the costs relating to the ACCC's notice of motion filed on 15 June 2001 on 20 December 2002. After the advice by the Court as to when judgment in respect of costs would be given, the fourth respondent filed written submissions in reply on 17 December 2002. The ACCC filed submissions in "brief reply to matters raised by the solicitors for the fourth respondent in their latest submission" on 19 December 2002. 28 Notwithstanding the extended sequence of submissions in the matter, I have had regard to all of those submissions in considering the question of costs. In particular I have considered and rejected the contention on behalf of the ACCC in its final submission of 19 December 2002 that: "As a statutory agent the applicant was seeking recovery of loss or damage suffered by Mr and Mrs Cobb and Ms Rye. Any amount so recovered was payable to those persons not to the applicant. On the other hand the costs order of 3 April 2001 [sic] was against the applicant itself. The relevant cross demands did not have sufficient connection with each other or arise out of the same relationship with the fourth respondent as would justify set-off of the relevant amounts."