Australian Competition & Consumer Commission v Danoz Direct Pty Ltd

REASONS FOR JUDGMENT 1 This matter has been both complex and protracted, involving alleged breaches of the Trade Practices Act 1974 (Cth) (the "Act") by publication of advertisements on television, on a website and in catalogues. Details of the offending conduct appear from my reasons. It is sufficient to say that the conduct in question concerned the capacity of a device to cause weight loss and/or fat reduction and to "tone" muscle. On the first day of the adjourned hearing of the trial, the first respondent indicated that it no longer proposed to market the device in question and undertook not to do so. On that day, 19 March 2003, a joint report was presented by certain of the expert witnesses. Those two facts may be relevant to the question of costs. 2 The applicant has been substantially successful as against the first, third and fourth respondents but has failed as against the second respondent. Although the applicant opposes an order for costs in favour of the second respondent, I can see no justification for that position. The only reasons advanced are that he was the Managing Director of the first respondent and that it will be very hard to identify those aspects of the costs which relate solely to his defence of the proceedings, as opposed to those common to the defences of all respondents. In my view, neither ground is an appropriate basis for depriving a successful respondent of his costs. Subject to one qualification, the applicant should pay the second respondent's costs of the proceedings. 3 Prima facie, the first, third and fourth respondents, as unsuccessful respondents, should pay the applicant's costs. However the circumstances of this case suggest a different outcome. Once the applicant was aware of the nature of the expert evidence which the respondents had available to them concerning the capacity of electronic muscle stimulation to produce a beneficial effect on healthy muscle, the applicant should have realized that it could only prove breach of s 52 by statements concerning such capacity (other than in reliance upon s 51A) if it were to establish on the balance of probabilities that the views of the respondents' expert witnesses should be rejected. I say nothing at this point about the case insofar as it concerned weight loss or fat reduction. The respondents conceded on 28 October 2002 that the device had no capacity to produce such results. I also say nothing at this point about any case relying on s 51A. 4 A substantial amount of the evidence at the trial concerned the capacity of the device, and of electronic muscle stimulation generally, to produce beneficial effects in healthy muscle. I include in this category the evidence of Professor Pearn, Professor De Domenico, Dr Wilson and Dr Coombes. Once the joint report of Professor De Domenico, Dr Wilson and Dr Coombes was available, the applicant had to decide whether or not it would challenge the evidence of Professor De Domenico and Dr Wilson. In the end, it really did not do so. Although it suggested that their opinions were wrong and that they were affected by a prejudice in favour of electronic muscle stimulation, it was not suggested that they were other than honest in the views that they held. Nor was it suggested that they were other than well qualified in relevant areas. The applicant ought to have accepted that it would be unlikely that it could successfully discredit such opinions. Thus the best the applicant could hope for was the inconclusive outcome which has in fact eventuated. That would have left open the case relying upon s 51A on which the applicant has largely succeeded. That case did not rely to any extent upon the evidence of the four scientific witnesses. 5 I do not think that the responsibility for the continued prosecution of that aspect of the case falls entirely upon the applicant. The respondents could have, at least, raised the question of the appropriateness of continuing the "non s 51A" aspect of the litigation. I consider that it is appropriate to make no order as to the costs associated with those four witnesses. That limitation applies to the order for costs which I propose to make in favour of the applicant and to the order for costs which I have made against the applicant and in favour of the second respondent. 6 Another aspect of the case requires consideration. On 1 October 2002, the respondents made what appears to be an offer to settle the proceedings on terms which might be said to be not less favourable than the orders which are to be made in this matter. It is of some importance that the offer was made in the context of a letter dated 19 September 2002 from the respondents' solicitors to the applicant's solicitors which commences as follows: 'It appears that the only real obstacle to a negotiated settlement in this matter, is the relief and form of corrective advertising which the Commission seeks in the Proceedings. Despite this and our repeated requests however, the Commission has persistently refused to provide specific details of its requirements for corrective advertising, unless our client: . Foregoes its rights to defend the action; . Admits liability in the Proceedings; and . Consents to such orders as the Commission sees fit.' 7 If this were the position which the applicant had adopted, I would have considered it highly inappropriate and unnecessarily argumentative. The applicant, like any other party, is obliged to seek sensible resolution of all disputes. However there is a difference of opinion between the parties as to whether the above extract accurately reflects the applicant's position. 8 In a letter dated 22 October 2002 from the applicant's solicitors to the respondents' solicitors, the following passage appears: 'Further, in the context of the above, Ms Mathews informed you that, based on her experience, Commission actions of this kind are often resolved by the parties admitting liability and consenting to Court orders for declarations, injunctions, compliance programs and corrective advertising. To construe Ms Mathews' comments regarding previous resolution of Commission matters as effectively stating that "provided Danoz agree to do whatever the Commission required, including an admission of liability, consenting to an injunction and declaratory order, agreeing to corrective advertising in a form acceptable to the Commission… …the Commission would then entertain a possible settlement of the proceedings" is, therefore, inaccurate.' 9 It seems to me that the applicant is in a special position in proceedings of this kind. It has a particular responsibility for enforcing the Act. That will involve seeking orders which meet the needs of particular cases, including forms of declarations, forms of orders for advertising and other orders, such as for compliance programs. It would not be constructive for the applicant to abstain from negotiating its requirements in an attempt to settle a matter. It is, after all, the applicant which seeks orders. At the trial the applicant will have to indicate the orders which it seeks. There is really no reason why it should not do so prior to trial if requested to identify orders which it would accept with a view to effecting an early resolution of the matter. Community interest in the early resolution of litigation obviously requires that it do so. It would, in my view, be quite unrealistic to expect a respondent to formulate an advertisement which would meet the expectations and views of the applicant without any such input. The applicant has greater expertise and experience in these areas than will any other party likely to be joined in litigation of this kind. It would be unfortunate if the applicant felt that for some reason it should not share the benefit of its expertise and experience with other parties who are genuinely seeking to resolve matters in dispute. 10 I return to the letter of 1 October 2002. As I have said, from a fairly early stage, the respondents have adopted different attitudes to the issues of weight loss and fat reduction on the one hand and muscle toning on the other. When one reads the letter of 1 October 2002, one notes that in par 6, for example, concerning injunctions, the issues relating to weight loss are specifically addressed, implying that they are matters about which the respondents are willing to make appropriate concessions and consent to appropriate orders. On the other hand, in par 11, it is suggested that further agreement will be necessary as to appropriate findings of fact. 11 Fairly clearly, the declarations mentioned in par 1 would, by themselves, say very little to a member of the public about the facts of the case. Some further tailoring to reflect findings of fact was necessary. I find it difficult to construe the letter of 1 October as a true offer of settlement, although I think it was a step in the right direction and no doubt taken in good faith. 12 The appropriate course for the applicant, upon receiving such a letter, was to respond, setting out its requirements. It seems that it did so in that it delivered an amended application setting out the sort of relief which it would be seeking at the trial. Thereafter, there seems to have been no response from the respondents. In those circumstances, I am of the view that the material does not demonstrate an offer which was capable of acceptance so as to dispose of this matter. 13 In saying that, I do not wish to be taken as accepting the proposition advanced by the applicant's counsel that an offer which leaves matters to be agreed between the parties could never be the basis for making an unfavourable order as to costs against a party who failed to "accept" it. In each case, the question will be whether the offer and response thereto were such as to be relevant to the exercise of the discretion as to costs. The analysis of this problem, using the language of contract law, may be misleading. Costs orders are, after all, made in the exercise of a wide discretion. In the present case, I do not consider that the dealings between the parties to which I have referred should influence the order as to costs. 14 I will order that the first, third and fourth respondents pay the applicant's costs of the proceedings, including any amount paid by the applicant to the second respondent hereunder, save for such amounts paid to the second respondent as are referable to costs solely incurred of and incidental to the joinder of the second respondent in these proceedings, and save for costs of and incidental to the evidence of the witnesses Pearn, De Domenico, Wilson and Coombes incurred on or after 20 March 2003. 15 There will be a further order that the applicant pay the second respondent's costs of and incidental to the proceedings, excluding costs of and incidental to the evidence of the said witnesses incurred on or after 20 March 2003. I certify that the preceding fifteen (15) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Dowsett.