The offer of 8 June 2010
15 After judgment was entered against Mr Leslie and Showtime there remained the question of damages. That question was listed for hearing on 15-16 June 2010. On 8 June 2010 Flashback's solicitors wrote to Mr Leslie's solicitors in these terms:
We refer to the abovementioned proceedings and in particular, to the hearing in Sydney on 15 and 16 June 2010. We note that your client and his legal representatives have been ordered to appear in person on that date.
We write to make an offer of settlement of the matters in dispute between our clients as follows:
1. Your client pay our client $131,407.80 in cleared funds on or before 15 June 2010. This amount equates to 70% of our client's professional costs (excl. GST) and 70% of disbursements incurred in the proceedings.
2. Our client will forfeit its entitlement to damages.
3. Upon receipt of the abovementioned amount, the parties will immediately take all steps necessary to discontinue Federal Court proceedings NSD 680 of 2008 with no order as to costs.
This offer is not strictly made in accordance with the requirements of Order 23 of the Federal Court Rules because it is not intended that this offer be open for a period of 14 days. However, in the event that your client does not accept this offer, we have instructions to produce this letter to the Court on the question of costs.
Our client's willingness to settle the proceedings as set out above represents a genuine compromise of its position. Accordingly, we invite your client to carefully reconsider its position.
The offer contained in this letter will remain open for acceptance until 9am on Tuesday, 15 June 2010.
16 8 June 2010 was a Tuesday. The following Monday, 14 June 2010, was the Queen's birthday weekend and this was a public holiday. There were therefore only three working days between the date of the offer and the date of the hearing. It was probably possible to give notice of acceptance of the offer over the long weekend but the more critical issue was the letter's requirement that the sum of $131,407.80 in cleared funds be handed over before the commencement of the hearing on Tuesday 15 June 2010.
17 On Thursday 10 June 2010 the solicitors for Mr Leslie wrote back rejecting the offer. It was in these terms:
We refer to the above matter and your letter dated 8 June 2010 in particular.
We have now received our client's instructions on your client's offer to compromise these proceedings.
Please note that our client does not accept the offer. It is our client's contention that these proceedings were unnecessarily instituted, bearing in mind that our client too had a validly executed licensing agreement with Absolute Home Entertainment and Mr Jason Campbell.
We now note from Mr Hume's affidavit duly sworn and filed on the 4th of June 2010 that Mr Rehmie will not be attending Court for the damages proceedings. We object to Mr Rehmie not attending the damages proceedings as Mr Rehmie had sworn to numerous affidavits, which as it turns out now was not entirely correct. Yet due to those affidavits, significant interlocutory proceedings were instituted by your client which has caused our client pecuniary losses as well as destroyed our client's business.
We also note that the trial dates for the damages hearing was set last year in August 2009, and your client's legal representatives knew that Mr Rehmie will [sic] not be attending as Mr Hume says in his affidavit that Mr Rehmie's holidays were planned well in advance of the court date when the hearing dates were set.
We further note that the attachments to Mr Hume's affidavit has yet to be served on us and we are unable to consider appropriately Mr Hume's statements in his affidavit.
Please take note that it is our instructions to defend this matter most vigorously and your client will be put to strict proof regarding all mattes raised in its claim as to title and all statutory requirements under the Copyright Act 1968.
It is also our client's instructions to claim for costs from your client for all his legal costs incurred thus far. However in the interest of appropriate case management and minimising the Court's time on this case, our client will agree to waive any claim for costs provided your client:
1. withdraw the proceedings;
2. does not claim any damages;
3. agrees to each party bearing their own costs.
If your client consents to these conditions, our client will then consent to the proceedings being dismissed.
Please note that it [is] our intention to produce this letter in Court on the question of costs when the same arises.
18 The making of an offer to settle a proceeding and the refusal of the party receiving that offer can be relevant to the question of costs. The critical question is always whether the party declining the offer has acted in such a way as to require a departure from the ordinary costs rule. In answering that question it has been found to be of utility to gauge the offeree's conduct in refusing the offer by reference to standards of reasonableness. Where the conduct of the offeree in refusing the offer is sufficiently unreasonable to place it in the company of other unacceptable postures in litigation - such as the making of allegations of fraud known to be false, the pursuit of proceedings for ulterior motives, wilfully disregarding known facts or law, or the making of otherwise groundless allegations - then this may warrant the making of an indemnity costs order: Colgate-Palmolive Company v Cussons Pty Ltd (1993) 46 FCR 225 at 233 per Sheppard J. There is nothing special about the making of an indemnity costs order in those circumstances: it is inflicted because of unreasonable behaviour by a litigant and the indemnity costs order follows just as it does in any other case of unreasonable behaviour. Thus, and perhaps contrary to the understanding in some quarters, the making of an offer which is reasonable by no means ensures the subsequent making of an indemnity costs order should it be declined and the suit less favourably concluded. So much follows from the truth that some reasonable offers may be reasonably declined.
19 I do not think that Mr Leslie's conduct in declining Flashback's offer of 8 June 2010 was such an imprudent act that he is to be placed in the same company as those who make baseless allegations of fraud or pursue proceedings for ulterior motives. I accept, in Flashback's favour, that it was unlikely that Mr Leslie was going to do much better than what was on offer. Judgment had been entered against him and the question now was how much was he going to have to pay in damages? In those circumstances, the offer by Flashback to forego all of its entitlements to damages was hard to better, particularly since it was at least going to receive nominal damages.
20 The offer by Flashback to accept 70 per cent of its costs, put at $131,407.80, is a little more problematic. Mr Leslie had in his favour a costs order against Flashback from Flashback (No 1) and there had been, at least at that stage, no order as to costs in Flashback (No 4). The offer to accept 70 per cent of its costs therefore involved no element of compromise on Flashback's part since the 70 per cent figure, of course, reflected the popular wisdom that it is about that proportion of actual costs which is recovered upon taxation. The costs offer therefore assumed an entitlement to all of Flashback's costs. Although there were various ways in which the costs question might ultimately be determined - including the making of an indemnity costs order for Flashback (No 4) and Flashback (No 5) - none of that was certain. In those circumstances, I do not think that it was unreasonable for Mr Leslie to decline the costs aspect of the offer.
21 The offer which was made was, however, a single offer with two elements one relating to damages the other to costs. Whilst the costs element by itself could reasonably have been declined it has to be seen in context which includes the offer being part of an overall offer not to receive any damages. To my mind, that made the total offer an attractive one from Mr Leslie's perspective. It would have been wise for him to have accepted it.
22 The difficulty, I think, is the timeframe. Mr Leslie was left with three working days to obtain advice on the reasonableness of the offer, to raise - should it be suggested that he should accept the offer - the sum of $131,407.80 in cash and, all the while, have his lawyers and himself travel from Perth to Sydney to conduct the hearing and to prepare therefor. There are, no doubt, cases where Calderbank offers can be made close to a trial. In this case, however, the closeness of the trial and the need for practitioners to travel interstate were likely to present real impediments to the consideration of the offer. Those difficulties are augmented by the very short time-frame provided for the payment. In those circumstances, I do not think that the refusal of Mr Leslie to accept the offer can be described as being unreasonable. The appropriate order is, therefore, that he pay the costs of the damages part of the case on the ordinary basis.
23 I turn them to Flashback's argument that Mr Leslie should pay the costs of the entire proceedings on an indemnity basis. Apart from the circumstances giving rise to Flashback (No 4) and (No 5) I do not see any real basis for that contention. Showtime and Mr Leslie were, in fact, successful in Flashback (No 1) in requiring Flashback to join the owner of the copyright. Apart from the defaults associated with discovery there does not seem to be any particular conduct warranting a departure from the ordinary approach.
24 Because Flashback recovered less than $100,000 the provisions of O 62 r 36A apply. It provides:
(1) When a party is awarded judgment for less than $100,000 on a claim (not including a cross-claim) for a money sum or damages any costs ordered to be paid, including disbursements, will be reduced by one-third of the amount otherwise allowable under this Order unless the Court or a Judge otherwise orders.
25 It is true that this claim could, theoretically, have been brought in the Federal Magistrates Court. This is because s 131D of the Copyright Act 1968 (Cth) gives that Court jurisdiction in civil proceedings arising under that Act which would have included this case. However, the complexity of copyright proceedings is such that the general position has been that claims under it are properly commenced in this Court. The current case involved the question of the joinder of the foreign copyright owner, injunctive relief, an account of profits and infringement. To my mind it would have been unrealistic to have expected such a case to be conducted before the Federal Magistrates Court. That conclusion is consistent with a line of cases which confirm the appropriateness of this Court as a venue for copyright disputes: see the authorities collected by Besanko J in Futuretronics.com.au Pty Ltd v Graphix Labels Pty Ltd (No 3) [2008] FCA 896 at [11]-[13]. In those circumstances it is appropriate to make an order that O 62 r 36A(1) does not apply to these proceedings.
26 So far as the present costs application is concerned, both parties have had a measure of success and each party should bear its own costs.
27 The orders I make are:
1. Mr Leslie is to pay Flashback's costs of Flashback (No 4) and (No 5) on an indemnity basis.
2. Each party bear its own costs of the costs application.
3. Mr Leslie is otherwise to pay Flashback's costs of the proceedings.
4. Order 62 r 36A(1) Federal Court Rules does not apply to these proceedings.
I certify that the preceding twenty-seven (27) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Perram.