Entirity Business Services v Garsoft

REASONS FOR JUDGMENT 1 This judgment concerns what costs orders and other orders should be made consequential upon or to give effect to reasons I published on 10 February 2011: Entirity Business Services Pty Ltd v Garsoft Pty Ltd [2011] FCA 76. These reasons should be read in conjunction with those. 2 The parties filed written submissions in relation to costs. I do not propose to summarise the competing submissions though I will endeavour to deal in these reasons with the various propositions they advanced. The principles concerning the exercise of the power to award costs are well settled. A helpful recent decision in which many of the applicable principles are discussed in a broadly analogous case and referred to by the respondents in their submissions is the judgement of Jagot J in Haviv Holdings Pty Ltd v Howards Storage World Pty Ltd (No 2) [2009] FCA 652 together with the judgement of the Full Court on appeal: Howards Storage World Pty Ltd v Haviv Holdings Pty Ltd (2010) 182 FCR 84. Having regard to the relationship between Mr Garrard and the corporate respondents discussed in the earlier reasons it is appropriate to treat the respondents as one for the purposes of determining where, in principle, the benefit and burden of costs orders might lie though they should be treated separately in relation to the actual liability to pay costs. The respondents have been represented by the same solicitors and counsel. I accept, of course, that I cannot ignore the fact that Entirity prosecuted, in the proceedings, different causes of action (both common law and statutory) against different respondents. Entirity succeeded in its contractual claim against Garsoft but failed in its claim against Mr Garrard under the Corporations Law and the Fair Trading Act and its claim under the Copyright Act against Garsoft and Scion. I put to one side, for the moment, Garsoft's cross-claim. 3 I do not accept the submission of Entirity that, in some way, it can be viewed as having succeeded overall or substantially overall but lost on some issues. That type of approach is often, but certainly by no means always, reserved for cases where the ultimate outcome is one of success which could have been founded on one of a number of alternative bases, one or some of which were made out and one or some of which were not. However I do not consider it appropriate to simply identify success or failure in relation to each of the causes of action. That is because the causes of action can be grouped at least in so far as the evidentiary cases which were necessary to establish or resist Entirity's claims. The substratum of facts relevant to the contractual claim against Garsoft and the claim against Mr Garrard alleging contravention of s 180 was, broadly speaking, the same while the substratum of facts relevant to the Fair Trading Act case was different (though overlapping). The latter involved evidence concerning specific events at the time of the demerger (though also of some events leading to the demerger) together with evidence of Entirity's loss; the former involved evidence about the relationship between Mr Garrard and Mr Barlow from the time they formed Entirity, how the business was run (and in particular how the accounts were managed), problems with the accounts as they finally emerged together with steps taken to rectify them. Obviously I recognise that additional costs would have been incurred by the respondents in successfully resisting the claim against Mr Garrard such as the costs associated with preparing submissions on his liability as a director. That is costs additional to those in preparing and conducting their failed case concerning the contractual claim. 4 I think it can fairly be said that the majority of the evidentiary case of the parties concerned the substratum of facts relevant to the contractual claim (together with the director's claim) and this would include the procedural steps taken to prepare the case, including marshalling the evidence which would embrace discovery. Accordingly Entirity's success on the contractual claim (even though it failed on the related claim against Mr Garrard as a director) would slightly favour Entirity in apportioning the benefit and burden of costs as between the parties in relation to the litigation as a whole though accepting that the marshalling and presentation of the evidence was only one aspect, albeit an important one, of the conduct of the litigation. 5 In the result and subject to what follows, the unsuccessful respondent, Garsoft, should pay Entirity 55% of its costs of its application and Entirity should pay the respondents 45% of their costs of Entirity's application. Approaching the apportioning of cost this way is not novel: see the written decision of Besanko J in Rooney v ABB Grain Ltd (No 2) [2011] FCA 231. 6 I deal briefly with O 62 r 36A. The respondents do not rely on sub-rule (2). However they resist Entirity's request to be relieved, by order, from the effect of sub-rule (1). This sub-rule would operate (because Entirity will be awarded judgement for less than $100,000) to reduce by one third the amount Entirity would otherwise be allowed by way of costs under O 62 unless I otherwise order. I do not propose to make such an order. Entirity's claim had federal elements, namely the claim under the Copyright Act and the alleged contravention of the Corporations Act (both could have been prosecuted in the Federal Magistrates Court though that would be directly relevant to sub rule (2) rather than (1)). There is a line of authority discussed by Jessup J in Nokia Corporation v Liu [2009] FCA 20 that in copyright infringement proceedings, full costs can nonetheless be recovered even if the judgement amount was less than $100,000. However, in the present case, I think it can be fairly said that Entirity's copyright case certainly was not central to its claims and it can probably be said that it was pursued with a degree of comparative indifference. In any event, its infringement claim failed completely. The rationale underlying sub-rule (1) was discussed by Wilcox J in Universal Music Australia Pty Ltd v Miyamoto [2004] FCA 982 at [43]: The subrule was not inserted in order to punish applicants for coming to this Court when they might have gone elsewhere. It was inserted in recognition of the fact that the rates of remuneration adopted in the Federal Court Scale of Costs for Work Done and Services Performed are high rates, thought to be appropriate for work in complex, high-value cases, but that their full application is not necessarily appropriate in simpler, lower-value cases. The subrule was intended to improve the proportionality between the amount of costs required to be paid by a party in a particular case and the outcome of the case. Where less than $100,000 is recovered, prima facie the subrule should be applied, without its application being regarded as a criticism of anybody. Having regard to the subject matter of this litigation in all its manifestations, no case has been made out, in my opinion, to make an order relieving Entirity of the burden of sub-rule (1). As I apprehend the way this sub-rule operates, it is unnecessary to make an order reducing costs payable to Entirity by one third. The sub-rule operates of its own force. If this is not correct the order can be varied. 7 I do not propose to make an order under O 62 r 36A(2) concerning Garsoft's costs in its cross-claim. Having been brought to this Court by Entirity's proceedings, it was appropriate and reasonable for the cross-claim to be prosecuted as part of those proceedings. 8 The respondents advanced an argument that they were entitled to costs on an indemnity basis or at least on the ordinary basis from 24 May 2010. Foundational to that submission was an offer the respondents made on 21 May 2010 to pay Entirity $20,000 in full and final settlement of the proceedings (including the cross-claim), with each party to bear their own costs. The offer was open until 24 May 2010. Counsel for Entirity asserted in written submissions (an assertion not put in issue in later written submissions from the respondents) that the offer was served in the afternoon of a Friday (21 May 2010) and was expressed to expire on the Monday (24 May 2010). Again not disputed, was the assertion that Entirity did not reject the offer but simply did not respond within the stipulated time. It is accepted that the power to award indemnity costs can be enlivened by an imprudent refusal of an offer to compromise: Colgate-Palmolive Co v Cussons Pty Ltd (1993) 46 FCR 225 to [5] at 233 and more generally the recent discussion by Logan J in Olivaylle Pty Ltd v Flottweg GMBH & Co KGAA (No 5) [2009] FCA 571. Often this question is approached on the basis of whether the conduct of the party against whom indemnity costs are sought was unreasonable or imprudent: see Ruaro v Ferrari [2008] FCA 307 at [15]. 9 At the time the offer was made, the proceedings were well advanced towards hearing. While, with the benefit of hindsight, the offer was not unreasonable, what must be assessed for present purposes was the conduct of Entirity in not accepting the offer within the very short time frame demanded by the respondents. I do not consider Entirity's failure to accept the offer as a manifestation of imprudent or unreasonable conduct. To properly assess the offer, it would have been necessary for Entirity to have estimated its likely costs to that point (which would have been considerable) for which it would have been assuming responsibility, having regard to the terms of the offer together with evaluating its prospects of succeeding with its claim in the face of much of the evidence then filed and ultimately evaluating the worth of the offer. By effectively providing one working day, the respondents did not give Entirity adequate time in which to undertake those tasks and in not accepting the offer, Entirity did not act imprudently or unreasonably. 10 The last issue in relation to costs of Entirity's application concerns a notice of motion filed by the respondents on 30 March 2010. In that motion they sought dismissal of the proceedings for want of prosecution. In my opinion, a special order should be made in relation to that motion. While the prospects of the motion ultimately succeeding were, as Entirity has pointed out, limited, the application was made at a point in time when Entirity had failed to comply with a number of directions made in late 2009 and early 2010 in relation to serving their evidence in circumstances where the matter had been listed for hearing in June 2010. It was reasonable, in my opinion, for the respondents to move the Court as they did. They should have their costs of that motion. 11 As to Garsoft's cross-claim, it is entitled to its costs. The orders I make will reflect these reasons. In competing draft orders presented by the parties, the respondents claimed an amount by way of interest though Entirity did not. In the orders I will simply give judgement in the amounts I indicated in my earlier reasons plus interest in the expectation that there will be no dispute between the parties about what the amounts are. Set off of the amounts I will leave to the parties. I certify that the preceding eleven (11) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Moore.