Australian Securities and Investments Commission v Bettles

Federal Court of Australia|2023-11-23|Before: Markovic J

The defendant's application that his costs of the proceeding be paid on an indemnity basis from 28 May 2022 inclusive made in his submissions filed on 1 September 2023 is dismissed. Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

MARKOVIC J: 1 On 18 August 2023 I made orders dismissing this proceeding and for the plaintiff, the Australian Securities and Investments Commission (ASIC), to pay the defendant's, Jason Walter Bettles, costs. I also made orders permitting any party wishing to apply to vary the costs order made in favour of Mr Bettles to file and serve submissions setting out the orders sought and the reasons for seeking those orders: see Australian Securities and Investments Commission v Bettles [2023] FCA 975 (ASIC v Bettles). 2 In accordance with those latter orders Mr Bettles has filed submissions seeking to vary the costs order to require ASIC to pay his costs on an indemnity basis from 28 May 2022 inclusive. ASIC has filed submissions in response opposing Mr Bettles' application for indemnity costs. 3 In summary, Mr Bettles contends that he is entitled to his costs on an indemnity basis from the nominated date because of ASIC's unreasonable and imprudent rejection of an offer of compromise made by him in accordance with the principles in Calderbank v Calderbank [1975] 3 All ER 333.

Background 4 This proceeding was commenced by the filing of an originating process and concise statement on 7 November 2019. 5 In its originating process ASIC relevantly sought orders that: Mr Bettles' registration as a registered liquidator be cancelled; Mr Bettles be prohibited from reapplying for registration as a registered liquidator for such period as the Court considered appropriate; and Mr Bettles be prohibited from consenting to any appointment and acting as a liquidator for such period as the Court considered appropriate. ASIC also sought an order for its costs. ASIC contended, in its further amended statement of claim, that the orders that it sought for Mr Bettles to be prohibited from reapplying for registration as a registered liquidator and from consenting to any appointment and acting as a liquidator should be for his "lifetime": see ASIC v Bettles at [16]. 6 On 28 May 2021 the solicitors of Mr Bettles, Norton Rose Fulbright Australia, sent a letter to the solicitors for ASIC, Colin Biggers and Paisley Pty Ltd (CBP). That letter included: Costs of the proceeding … 4 We also refer to our previous correspondence clearly identifying the deficiencies in the Concise Statement and Supplementary Concise Statement, as well as the Statement of Claim and the need for further and better particulars of the same. 5 Pursuant to section 23 of the Act and rule 1.32 of the Rules, the Court has power to make orders of any kind as the Court considers appropriate and in the interests of justice. The Court has discretion to award costs and, as provided in section 43(3)(g) of the Act, may order that costs awarded against a party be assessed on an indemnity basis. 6 The categories of circumstances are not closed as to when the Court may exercise its discretion to award indemnity costs. In our view, this proceeding warrants the exercise of such discretion, having some "special or unusual feature" which warrants the Court departing from the usual course of awarding costs on a standard basis. 7 Your client (the Regulator) has put our client (an individual practitioner) through enormous and burdensome litigation (as evidenced itself by the volume of your client's Statement of Claim) and sought severe and substantial relief, affecting his ability to earn an income. In doing so, your client has maintained most (if not, all) allegations in the Concise Statement and Supplementary Concise Statement within its Statement of Claim, despite us (and the Court) cautioning that many contentions are groundless and/or could not be sustained, or ought never to have been made. 8 Given the numerous opportunities to refine its allegations, and your clients decision to fundamentally persist with the same despite our client's complaints, we put your client on notice that - in the circumstances our client is successful in the proceedings - our client intends to seek that its costs be awarded and assessed on an indemnity basis, having been unreasonably subjected to the expenditure of very significant costs in defending himself in this proceeding. 7 On 21 June 2021 CBP responded to the letter referred to in the preceding paragraph refuting the assertion made at [7] of that letter that "the Court has cautioned 'that many contentions [in the concise statement and supplementary concise statement] are groundless and/or could not be sustained, or ought never to have been made.'" 8 On 18 May 2022 CBP sent to a letter to Norton Rose which was expressed to be made "Without Prejudice Save as to Costs". That letter set out the terms upon which ASIC was prepared to settle the proceeding and was expressed to be made pursuant to the principles in Calderbank v Calderbank. ASIC's offer, which remained open for acceptance until 4 pm on 1 June 2022, was that: (1) Mr Bettles make admissions as to certain of the pleaded conduct; (2) Mr Bettles' registration as a liquidator be cancelled; (3) Mr Bettles be prohibited from applying for registration as a liquidator for a period of five years from the date of cancellation; and (4) the parties agree to seek orders by consent to the effect of paragraphs 1, 2 and 3 above, supported by a statement of agreed facts and contraventions, and for Mr Bettles to pay ASIC's costs of the proceeding in the sum of $500,000 and to forego any costs liability standing in his favour in the proceeding. 9 By letter dated 26 May 2022, which was also expressed to be "Without Prejudice Save as to Costs" and subject to the principles in Calderbank v Calderbank and like decisions, Norton Rose rejected ASIC's offer on behalf of Mr Bettles and made a counter-offer in the following terms: 1 There is no admission of liability by our client. 2 Our client's registration as a registered liquidator be suspended for 18 months, after the conclusion of which your client will make no objection to our client's continued registration as a liquidator on the basis of any fact or matter which has been pleaded in the Proceeding. 3 Our client agrees to pay your client's costs of and incidental to the Proceeding in the amount of $350,000. This represents an allowance of $500,000 for your client's costs less $150,000 for our client's costs of successfully striking out your client's concise statement and supplementary concise statement, which resulted in the costs order awarded by the Court in our client's favour on 14 May 2021. 4 Orders be sought in accordance with these paragraphs, by consent. (26 May 2022 Offer.) Norton Rose's letter stated that if ASIC did not accept the 26 May 2022 Offer and did not achieve a better result at trial Mr Bettles would produce the letter to the Court on the question of costs and seek an order that ASIC pay Mr Bettles' costs of the proceeding from the date of the letter on an indemnity basis. The offer remained open for acceptance until 4 pm on 3 June 2022. On 27 May 2022 ASIC rejected the 26 May 2022 Offer.

Legal principles 10 Section 43 of the Federal Court of Australia Act 1976 (Cth) confers a broad discretion on the Court to award costs in a proceeding including to make an order that costs awarded against a party are to be assessed on an indemnity basis or otherwise: see s 43(3) of the Federal Court Act. 11 In Anchorage Capital Partners Pty Limited v ACPA Pty Ltd (No 2) [2018] FCAFC 112 at [5]-[8] a Full Court of this Court (Nicholas, Yates and Beach JJ) set out the principles in relation to an award of indemnity costs: 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. 12 Given the nature of this proceeding the observations of Allsop CJ in Australian Competition and Consumer Commission v Baxter Healthcare Pty Limited [2005] FCA 860, a civil penalty proceeding in which the first respondent sought an order that its costs be assessed on an indemnity basis, are apt. At [12] his Honour relevantly said: … A rejection of an offer in a penalty case such as this brings with it considerations of public responsibility for the administration of an important piece of Commonwealth legislation that do not attend an offer in a civil suit. I am not prepared to criticise the assessment or decision of the applicant in running the case in the face of the offer to settle it, in particular in the light of Bass. 13 In Australian Competition and Consumer Commission v Colgate-Palmolive Pty Ltd [2020] FCA 598 at [19] Bromwich J, in considering an application for indemnity costs by the successful second respondent, Colgate-Palmolive Pty Ltd, against the unsuccessful appellant, the Australian Competition and Consumer Commission, said: There must also be some recognition, in conducting the assessment of unreasonableness, of the position of the Commission as the regulator, especially in an area where the concern is in enforcing competition laws designed to advance a broader public interest. That is not to say that the Commission is entitled to behave unreasonably with impunity; it is not immune from an indemnity costs order that is otherwise appropriate, and did not contend otherwise. Rather, as Gray J pointed out in Australian Competition & Consumer Commission v Leahy Petroleum Pty Ltd [2007] FCA 1844; (2007) ATPR 42-200, a case in which strident criticism was directed to the way in which the Commission conducted its case (at [24]): The ACCC is a statutory body, established by s 6A of the Trade Practices Act. It has a number of functions conferred on it, including functions of a regulatory nature. By s 77(1) of the Trade Practices Act, the ACCC may institute a proceeding in this Court for the recovery on behalf of the Commonwealth of a pecuniary penalty. The provisions for contravention of which pecuniary penalties may be imposed are listed in s 76. They include s 45. The ACCC is the only possible applicant for a pecuniary penalty. By other provisions of the Trade Practices Act, the ACCC may apply for other kinds of orders under the provisions of that Act, although its capacity to do so is not always exclusive of the capacity of other persons to apply for particular orders. For instance, under s 80(1), the ACCC or any other person may apply for an injunction in respect of a contravention of a number of provisions, including s 45. It is apparent that the ACCC has cast upon it significant responsibilities on behalf of the public, to ensure as far as practicable that there is compliance with the provisions of the Trade Practices Act. When the ACCC has commenced and pursued a proceeding in respect of alleged contraventions of a provision of the Trade Practices Act, and there is no suggestion that it has acted with any ulterior motive, the Court should not be quick to award costs against it on anything other than the usual party-party basis when the ACCC has suffered a loss in the proceeding. Excessive readiness to force the ACCC to compensate the winning party to a greater extent than the normal party-party costs incurred might operate as a deterrent to the ACCC against bringing proceedings in the exercise of its public functions. (Emphasis in original.) 14 To like effect in Australian Competition and Consumer Commission v Colgate-Palmolive Pty Limited (No 5) (2021) 151 ACSR 26; [2021] FCA 246 (ACCC v Colgate-Palmolive (No 5)) at [16] Wigney J observed that civil penalty proceedings are not as "amenable to commercial settlement as ordinary civil litigation. The issues involved in such litigation extend well beyond commercial considerations and dollars and cents".

The parties' submissions 15 There is no dispute between the parties that costs ought to follow the event and no challenge to the order made on 18 August 2023 that ASIC pay Mr Bettles costs of the proceeding on the ordinary basis, that is on the party-party basis. The question is whether the order sought by Mr Bettles for ASIC to pay his costs assessed on an indemnity basis from 28 May 2022 should be made. 16 Mr Bettles submits that: ASIC's rejection of the 26 May 2022 Offer was imprudent and unreasonable; the 26 May 2022 Offer was considerably more favourable to ASIC than the result it achieved at trial; if ASIC had accepted the offer it would have secured both a significant sanction against Mr Bettles and a significant costs order. However, it has achieved neither and faces a substantial adverse costs order; the 26 May 2022 Offer involved a genuine and substantial compromise. He would have been unable to practise in his profession for 18 months with likely attendant adverse financial and reputational consequences and would have been subject to a significant adverse costs order; and ASIC's case lacked merit such that its prospects of success did not reasonably justify rejection of his offer. 17 ASIC submits that an indemnity costs order is not warranted given the proceeding was brought under cl 45-1 of the Insolvency Practice Schedule (Corporations) (IPS) being Sch 2 to the Corporations Act 2001 (Cth) and raised very serious matters of public interest which, if established, would likely have given rise to cancellation of Mr Bettles' registration as a liquidator. It submits that this proceeding was not "ordinary civil litigation" and "important public policy questions" arose, as was the case in ASIC v Colgate-Palmolive (No 5). ASIC likens its role to that described by Gray J in Australian Competition and Consumer Commission v Leahy Petroleum Pty Ltd (2007) ATPR 42-200; [2007] FCA 1844 at [24] (see [12] above). 18 ASIC submits that it engaged in settlement negotiations with Mr Bettles and proposed to resolve the proceeding on terms that represented a significant compromise to the orders sought by it in its originating process and thus accounted for and responded appropriately to the risks of proceeding to trial. ASIC also submits that pursuant to cl 45-1(1) of the IPS it is for the Court to make such orders as it thinks fit and thus it was not open to ASIC and Mr Bettles to agree a penalty and bring the litigation to an end. At most they could have agreed jointly to propose a penalty. 19 ASIC observes that the 26 May 2022 Offer was on the basis that Mr Bettles made no admission of liability and that in those circumstances there would have been no underlying factual basis to support Mr Bettles' offer for his registration to be suspended. It submits that without a sufficient factual foundation to justify ordering that Mr Bettles' registration be suspended, and the resulting difficulties in the Court's sanctioning resolution of the proceeding in accordance with the 26 May 2022 Offer, it should not be considered a genuine attempt at compromising the proceeding nor was it capable of being accepted on its terms by ASIC. 20 ASIC submits that there was a genuine contest on the facts in the proceeding in some regards but in others the contest involved inferences to be drawn from the facts as proved. It notes that to a large extent the Court declined to draw the inferences submitted by ASIC and that it does not follow from the fact that the outcome was not in ASIC's favour that it acted unreasonably in proceeding to trial.

Consideration 21 Having regard to the nature of the proceeding I am not satisfied that it is appropriate to make the order sought by Mr Bettles that ASIC pay his costs on an indemnity basis from 28 May 2022. My reasons for reaching that conclusion follow. 22 True it is that, had ASIC accepted the 26 May 2022 Offer it would have achieved a considerably better result than it did at trial and true it is that ASIC failed to prove almost all of its pleaded case. But there are other factors of relevance to the exercise of the discretion in this case. 23 First, ASIC sought orders pursuant to s 45-1 of the IPS which empowers the Court to make such orders as it thinks fit in relation to a registered liquidator. That is, as ASIC submits, it is for the Court to determine the appropriate sanction, not the parties. The most the parties can do is to jointly propose to the Court the orders that they recommend should be made. The Court then must satisfy itself that those orders are appropriate having regard to the agreed facts. A term of the 26 May 2022 Offer was that there be no admission as to liability on the part of Mr Bettles. In other words, Mr Bettles did not propose that there be any facts to put before the Court based on which the Court could determine whether the proposed length of suspension of his registration as a liquidator was appropriate. That factor supports a conclusion that ASIC's rejection of the 26 May 2022 Offer was not imprudent or unreasonable. 24 Secondly, ASIC's role as a regulator means that, like the Australian Competition and Consumer Commission, ASIC "has cast upon it significant responsibilities on behalf of the public, to ensure as far as practicable that there is compliance with the provisions of the [Corporations Act]". There is no suggestion that ASIC acted with ulterior motive. It brought the proceeding in relation to alleged conduct by Mr Bettles that fell short of what it contended was conduct expected of a liquidator, who is an officer of the Court and over which office ASIC has regulatory oversight. Its rejection of an offer in a case such as this brings with it considerations of public responsibility for the administration of the Corporations Act and its role as regulator. Its position is to be contrasted to that of a party in a civil suit to whom an offer is made. 25 Thirdly and to similar effect, as ASIC submits there was a genuine contest on the facts in the proceeding in some respects but, in others, the contest involved inferences to be drawn from the facts as proved (and, in some instances, as accepted by Mr Bettles). A proceeding by a regulator based on the state of mind of an individual will, necessarily, usually be inferential. In this case, I declined to draw the inferences which ASIC urged me to draw. However, it does not follow from the fact that the outcome was not in ASIC's favour that it acted unreasonably in proceeding to trial. As Yates J held in Australian Securities and Investment Commission v Whitebox Trading Pty Ltd (No 8) [2019] FCA 1139 at [34]: As a regulator, acting in the public interest, ASIC was not obliged to reach a compromise with the defendants which did not reflect the true nature of the conduct which its investigations had led it to believe had taken place. There is no reason to think that the assessment it reached in that regard was not a genuinely-held and supportable view on the evidence before it, despite the ultimate result of the proceeding.

Conclusion 26 For those reasons I decline to make the order sought by Mr Bettles that ASIC pay his costs assessed on an indemnity basis from 28 May 2022 inclusive and will make an order to that effect. Order 2 made on 18 August 2023 will stand undisturbed. I certify that the preceding twenty-six (26) numbered paragraphs are a true copy of the Reasons for Judgment of the Honourable Justice Markovic.

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