Hodgson v Amcor Ltd; Amcor Ltd v Barnes & Ors

2 As in the Principal Reasons for Judgment, the Amcor entities in both proceedings are collectively referred to as "Amcor" or the "Amcor Parties" with the composition of those entities changing from time to time in accordance with the context.

3 The joint trial was conducted in two parts: the "Hodgson Quantum Trial" conducted between 30-31 March 2011 (which dealt essentially with the quantum of Hodgson's claims in the Hodgson Proceeding), and the "Liability Trial" conducted between 1 April-1 August 2011 (which dealt essentially with Amcor's counterclaim in the Hodgson Proceeding and its claims in the Barnes Proceeding).

4 Following delivery of the Principal Reasons for Judgment, on 20 March 2012 judgment was entered for the Plaintiff in the Hodgson Proceeding, Mr James Hodgson ("Hodgson"), in the sum of $917,695.

5 In the Hodgson Proceedings, in Hodgson v Amcor Limited (No 9),[2] I then determined that the amount of interest should be calculated by reference to the Judgment Sum in the amount of $917,695 for the purposes of s 58 of the Supreme Court Act 1986 (Vic) (the "Supreme Court Act"). I was satisfied on the evidence that the amount of interest to which Hodgson is entitled in the Hodgson Proceeding, calculated from 1 October 2004 to 1 May 2012, is $771,341.32 and is continuing at the rate $263.99 per day thereafter until the Court pronounces judgment on this question. Thereafter interest accrues and is payable on the total judgment sum comprising principal and interest, pursuant to s 101 of the Supreme Court Act, without the need for any further order.

6 Costs therefore arise for determination in the Hodgson Proceeding resulting from the outcome determined in the Principal Reasons for Judgment and in the light of the subsequent entry of judgment in Hodgson's favour on 20 March 2012 and the interest determined to be payable thereon.

7 Costs in this ruling (No.10 in the proceedings) will also deal with the costs of the counterclaim in the Hodgson Proceeding.

8 Costs in this ruling will also deal with the claims and counterclaims in the Barnes Proceeding, with the exception of Amcor's claims against the First Defendant ("Barnes") and the Second-Fourth Defendants (the "Holihan Parties"). These claims have not been finally concluded in the Barnes Proceeding because the taking of accounts, which has been ordered against Barnes and the Holihan Parties, has not concluded. Nevertheless, no party took exception to the Court determining the issue of costs in relation to the balance of the proceedings on this or any other basis.

9 The outcome in the Principal Reasons for Judgment has given rise to complex cross-currents of considerations to be taken into account in determining the question of costs. In the exercise of the discretion of the Court I shall deal with the issues by reference to various parts of the Proceedings, as well as looking at the outcome overall.

10 In the Hodgson Proceeding, Hodgson as the Plaintiff claimed amounts due to him under his former contract of employment with Amcor consequent on the termination of his employment with that company which was found to have occurred on 1 October 2004.

11 The company has defended Mr Hodgson's claims, by challenging the quantum of the sum due to him, and on the basis that he is disentitled to the amounts he claims by reason of serious misconduct, as alleged in Amcor's counter-claim.

12 The trial of the quantum of Hodgson's claim in the Hodgson Proceeding was conducted in an earlier and separate trial. The balance of the issues, including Amcor's counter-claim, were heard in the principal trial which was conducted concurrently with the Barnes Proceeding.

13 Ultimately Hodgson succeeded I his claims in the Hodgson proceeding and judgment was entered in his favour in the sum of $917,695 together with interest awarded under s 58 of the Supreme Court Act as earlier described.

14 Hodgson was not a party to the Barnes Proceeding.

15 The Hodgson Proceeding included Amcor's counterclaim against Hodgson. Amcor did not succeed in obtaining an award of damages against Hodgson on its counterclaim, or any other relief.

16 Hodgson sought his costs in the Hodgson Proceeding against Amcor on a party/party basis up to 10 November 2006 and thereafter on an indemnity basis pursuant to r 26.08(2) of the Supreme Court (General Civil Procedure) Rules 2005 (the "Court Rules"). This rule provides for cost consequences arising from a failure to accept an offer of compromise made pursuant to Order 26 of the Court Rules.

17 During the course of the proceeding, Hodgson served four offers of compromise on Amcor to settle. I accept these as genuine offers to settle the proceeding on reasonable terms.

18 The first offer of compromise was dated 20 May 2005, some six months after the writ was issued. It was for $1,001,967. Hodgson did not succeed in achieving a result more favourable that his first offer. The judgment sum is $917,695 and interest to the date of the offer is calculated to be close to $70,000, giving rise to a total of about $987,000. This is some $15,000 short of the offer of compromise which sat at $1,001,967.

19 The second offer of compromise to settle the claim and counterclaim was made by Hodgson was dated 10 November 2006. The offer of compromise was for $700,000. When interest to the date of the offer at about $220,000 is added to the judgment sum, the sum of $1,137,000 is achieved. Hodgson handsomely exceeded his offer of compromise of that date by some $437,000.

20 The third offer of compromise made by Hodgson was dated 2 August 2007. This was for $198,926. Interest to that date on the judgment sum amounted to about $300,000. When added to the judgment sum, this amounted to $1,217,000. Hodgson exceeded his offer of compromise figure on this occasion by some $1,028,074.

21 Then fourth offer of compromise made by Hodgson was dated 5 April 2011. This was for $1,450,000. When interest is added to the judgment sum, Hodgson exceeded his offer of compromise on this further occasion by some $135,000.

22 Rules 26.08(1) and (2) of the Court Rules provide:

(1) This Rule applies to an offer of compromise which has not been accepted at the time of verdict or judgment.

(2) Where an offer of compromise is made by a plaintiff and not accepted by the defendant, and the plaintiff obtains a judgment on the claim to which the offer relates no less favourable to the plaintiff than the terms of the offer, then, unless the Court otherwise orders, the plaintiff shall be entitled -

(a) if the claim of the plaintiff is for damages for or arising out of death or bodily injury, to an order against the defendant for the plaintiff's costs in respect of the claim taxed on an indemnity basis;

(b) in the case of any other claim of the plaintiff, to an order against the defendant for the plaintiff's costs in respect of the claim up to and including the day the offer was served taxed on a party and party basis and for the plaintiff's costs thereafter taxed on an indemnity basis.

23 Rules 26.08(1) and (2) must be read in the context of the statutory regime which governs their application. Section 24(1) of the Supreme Court Act 1986 provides for an overarching but limited discretion as to the award of costs. The limitation may be provided by anything otherwise expressly provided "by this or any other Act or by the Rules" of Court. The section provides:

(1) Unless otherwise expressly provided by this or any other Act or by the Rules, the costs of and incidental to all matters in the Court, including the administration of estates and trusts, is in the discretion of the Court and the Court has full power to determine by whom and to what extent the costs are to be paid.

24 Rules 26.08(1) and (2)(b) apply in this case. Amcor is therefore exposed to a liability to pay Hodgson's costs in respect of the Hodgson Proceeding up to and including the day the offer was served, namely 10 November 2006, taxed on a party and party basis, and for Hodgson's costs thereafter to be taxed on an indemnity basis.

25 As observed in Blackman v Gant [No.2][3] a Calderbank offer to settle a proceeding is different from an offer of compromise served in accordance with Order 26. In Foster v Galea (No.2)[4] Byrne J contrasted the "fairly mechanical regime of Rule 26.08" with the "more flexible one of discretion as to costs" which exists with an offer of the Calderbank type.

26 The more inflexible costs regime established by Order 26 is emphasised by r 63.16 of the Court Rules which provides in relation to making a costs order following service of an offer of compromise:

Where an offer of compromise is served and the offer has not been accepted at the time of verdict or judgment, liability for costs shall be determined in accordance with Rule 26.08. [Emphasis added]

27 Rule 63.16 therefore limits the discretion of the Court as to costs and imposes a mandatory requirement to apply r 26.08 in accordance with its terms where an offer of compromise is served and the offer has not been accepted at the time of verdict or judgment.

28 The entitlement of a plaintiff to costs on the special basis provided for under r 26.08(2) arises "unless the Court otherwise orders".

29 Prima facie, Hodgson is entitled to his costs on a party/party basis up to 10 November 2006 and thereafter on an indemnity basis pursuant to r 26.08(2) of the Court Rules.

30 The question is whether Amcor is able to bring itself outside the operation of r 26.08(2) by advancing matters which would justify the Court in exercising its discretion not to approach the question of costs on this basis in this particular case.

Claims of Amcor in the Barnes Proceeding against Bayley and Mihelic

31 I turn now to consider the claims made by Amcor in the Barnes Proceeding against the Sixth Defendant ("Bayley") and the Seventh Defendant in that proceeding ("Mihelic").

32 I was submitted on behalf of Bayley and Mihelic that, upon application of the orthodox approach to costs whereby costs follow the event, because they have succeeded in the Barnes proceeding, as reflected in the fact that no order was made against them at the suit of the Amcor parties, they should have the costs of the proceeding. Reference was made to the note of McHugh J in Oshlack v Richmond River Council:[5] "By far the most important factor which courts have viewed as guiding the exercise of the costs discretion is the result of the litigation". I do not depart from this observation.

33 As to the outcome of the litigation for Bayley and Mihelic, the Court found that the two sale agreements in which they had been involved were not uncommercial and were not undertaken on uncommercial terms. The Court also found that the Amcor parties suffered no loss and that there was no basis for the award of equitable compensation. The Court also found that Bayley and Mihelic obtained no pecuniary benefit from the transactions and that no order for an account of profits should be made against either of them.

34 Further, it was submitted on behalf of Bayley and Mihelic that the object of the Amcor parties in the Barnes Proceeding was to obtain a substantial pecuniary remedy in its favour.

35 The Amcor parties founded their claims in the Barnes Proceeding on a "loss" basis. Some two months before the scheduled trial the Amcor parties filed Amended Particulars of Loss and Damage dated 4 March 2011. The particulars were based on the report of an expert accountant, Mr Owain Stone dated 14 February 2011. In these particulars, as to the First Sale Agreement a range of the loss and damage claimed was set out, with the high end of the range amounting to $507,697. As to the Second Sale Agreement, the high end of the range claimed was $26,372,192. However, the Amcor parties did not succeed on either claim and were not awarded any sum for loss or damage.

36 The Amcor parties also pitched their claims on a "gains" basis. However, it was found by the Court that Bayley and Mihelic had not been proven to have "ever received any pecuniary benefit derived from the ACB business, whether by way of a share in the profits or otherwise".

37 Consequently, the Amcor parties did not obtain any remedy, either on a "loss" basis or a "gains" basis against Bayley or Mihelic.

38 It was submitted, and I accept, that this was not a case in which the object of the action, either in whole or in part, was to establish a legal right, wholly irrespective as to whether any substantial remedy is obtained.[6]

39 In these circumstances the Amcor parties were said to be the unsuccessful parties with the result that the ordinary rule as to costs should apply, and Bayley or Mihelic should not be deprived of their costs unless they have been guilty of some sort of misconduct. It is to this issue that I will now turn.

Was there misconduct of the Defendants which is relevant to costs?

40 The authorities illustrate that a wholly successful defendant may nevertheless be deprived of some or all of his or her costs where he or she has done some wrongful act in the course of the transaction of which the plaintiff complains. Such conduct, depending upon the circumstances, may even result in a successful defendant being visited with the whole or part of the costs of the unsuccessful plaintiff, as contended for by the Amcor parties in this application.

41 The concept was expanded upon in some detail by Atkin LJ in Ritter v Godfrey[7] where it was observed:

In the case of a wholly successful defendant, in my opinion the judge must give the defendant his costs unless there is evidence that the defendant (1) brought about the litigation, or (2) has done something connected with the institution or the conduct of the suit calculated to occasion unnecessary litigation and expense, or (3) has done some wrongful act in the course of the transaction of which the plaintiff complains. These principles require further expansion.

By (1) is meant - has so conducted himself as to lead the plaintiff reasonably to believe that he had a good cause of action against the defendant, and so induce him to bring the action ...

(2) I think, would include improper conduct in or connected with the litigation calculated to defeat or delay justice. Such conduct would also be included in (3), which, I think, further extends to cases where the facts complained of, though they do not give the plaintiff a cause of action, disclose a wrong to the public: King v Gillard [1905] 2 Ch 11, by which I understand some criminal or quasi criminal misconduct, e.g., a fraud or crime or preparation for a fraud or crime, or possibly some act of serious oppression. Such conduct must, however, be in the course of the transaction complained of.

42 However, the observations of Atkin LJ in Ritter v Godfrey were not accepted without significant qualification by the Full Court of the Supreme Court of Victoria in Verna Trading v New India Assurance.[8] Although Kaye J accepted that "in an appropriate case any one of the three circumstances described by Atkin LJ in Ritter v Godfrey might not constitute a proper basis for the exercise of discretion adversely to a successful defendant",[9] "Nevertheless, in my opinion, the general discretion of a trial judge as to costs ought not to be fettered by the rules formulated by Atkin LJ".[10]

43 His Honour Kaye J in Verna Trading followed with the observation that:[11]

More compelling circumstances are required for the exercise of discretion as a result of which a successful defendant is not only denied his costs but [is] also compelled to pay the whole or part of the plaintiff's costs of the proceedings. This is for the reason that proceedings are initiated by the plaintiff and the plaintiff fails to gain the relief which he sought.

44 A similar view was expressed by Goldberg J in ACCC v Australian Safeway Stores Pty Ltd (No 3)[12] where his Honour noted in the context of considering the apportionment of costs where a respondent has been successful in the outcome, but unsuccessful on some issues, contrasted with the position where a successful applicant has raised some issues on which it has failed:[13]

I consider that a court should look more benignly on the question of costs of a respondent who has been compelled to come to court and defend itself on a ground not of its own choosing than on an applicant who chooses to raise issues on a ground of its choosing.

45 In the present case, serious and adverse findings were made in the Principal Reasons for Judgment as to the conduct of Hodgson, Sangster, Bayley and Mihelic in their capacity as serving executives of Amcor, and in the case of Hodgson additionally as an officer of Amcor pursuant to the Corporations Act.

46 It was found in the Principal Reasons for Judgment that:[14]

... [the Defendants, including Hodgson, Sangster, Bayley and Mihelic] each failed to disclose to their employer during the period of their employment, their ongoing interest in the businesses with which Amcor continued to have direct dealings. They maintained this position of secrecy while Amcor's subsidiaries, through the ongoing supply agreements, continued to have a commercial dealings in relation to the businesses in question.

This conduct, considered objectively, was manifestly incompatible with the employment relationship and was of a serious dimension.

47 The conduct was found to have amounted to breaches of their fiduciary duties to Amcor.

48 Breaches of duty to Amcor under s 183 Corporations Act were also found against Hodgson, Sangster, Bayley and Mihelic in their capacity as its employees and in relation to Hodgson in his capacity as an officer of the company, arising from improper use of information gained the course of their employment.

49 Hodgson was also found to have acted in breach of his duty of good faith to Amcor under s 181(1)(a) Corporations Act, and breached his duty to Amcor by withholding useful intelligence to his employer arising from the conflict of duty in which he had placed himself.

50 The conduct I have described was deliberate, and was undertaken contrary to the thrust of the legal advice the Defendant parties had obtained or to which they had access, namely the Dillman advice provided by the firm Deacons dated 19 December 2000, but consistently with that advice, the transactions were secretly entered into to avoid detection by their employer, Amcor.

51 The G5 Deeds which recorded the involvement of the relevant Defendants in the first sale transaction were maintained as confidential documents. In this context, the Court found:[15]

... the trust structure selected was designed to conceal the identity of the beneficial shareholders and to protect this information from being disclosed to Amcor. The structure was consistent with the proposed scheme outlined in the earlier Dillman Advice and was devised to avoid the consequences alluded to in that advice.

52 A similar regime of confidentiality was employed in the second sale transaction. In this regard, the purposes of the elaborate confidentiality structure were the subject of the following findings by the Court:[16]

... the principal purpose sought to be achieved by the confidentiality provisions of the various agreements and the corporate structure adopted was to conceal the interests of Amcor's managers from their employer. The approach was consistent with the Dillman Advice which had been given by letter of 19 December 2000.

The reason advanced by some of the Defendants that the confidentiality regime was to prevent "peer level scrutiny" and "peer level interference" may have been a factor in its inclusion in the agreements, however, I do not accept this as a full and candid explanation.

I am satisfied that the elaborate confidentiality structure was designed to conceal the ownership of the shares in the ACB Business, which as to 80 per cent of the ownership was divided equally between Hodgson, his wife and his company (Bankson); Barnes (Astra and Brobel); Sangster (Merrymen); Mihelic, his wife and his company (Sampson Solo); and Bayley, his wife and his company (CBB Investments).

53 These findings lead me to the conclusion that the Defendants before the Court in this application, namely Hodgson, Sangster, Bayley and Mihelic, fall within the third category of cases described above by Atkin LJ in Ritter v Godfrey, namely serious misconduct in the class of fraud or preparation for a fraud undertaken in the course of the transactions complained of.

54 The next question is how these findings can properly be reflected in a costs order. The following possibilities present themselves:

(a) an order that the successful Defendants pay the costs of the Plaintiff and on a special basis (on an indemnity or solicitor client basis);

(b) an order that the successful Defendants pay the costs of the Plaintiff and on the usual basis (on a party/party costs basis);

(c) an order that the successful Defendants be deprived of the costs to which they would otherwise have been entitled, in whole or in part.

55 I will consider this matter in the conclusion below, when the conduct of the parties is considered in the context of the proceedings considered as a whole.

Conduct of the parties in relation to discovery

56 Amcor submitted that the conduct of the Defendants was seriously remiss in undertaking their obligations in relation to discovery.

57 Discovery plays a central role in civil litigation in the adversarial system. Its importance cannot be understated.

58 The common-law system "leaves to partisans the work of gathering and producing the factual material upon which adjudication depends".[17] In other words, parties in a common law dispute rely on their own investigative processes to gather evidence relevant to their dispute.

59 Put simply, the purpose of discovery is to ensure that parties to a dispute disclose to each other all relevant, non-privileged documents. Paradoxically this process is to be undertaken, notwithstanding that such disclosure can hurt the providing party's case. It is this tension which gives rise to much of the difficulty with the procedure.

60 The fundamental objects of the exercise are twofold: First, to ensure that all parties to the litigation are placed in a position to know the case they have to meet; and second, the Court will have before it all of the relevant evidence required to achieve a just outcome.

61 These themes were emphasised by Lord Donaldson MR, in Davies v Eli Lilly & Co,[18] where the process of discovery was described in the following manner:

The right [to discovery] is peculiar to the common law jurisdictions. In plain language, litigation in this country is conducted 'cards face up on the table'. Some people from other lands regard this as incomprehensible. 'Why', they ask, 'should I be expected to provide my opponent with the means of defeating me?' The answer, of course, is that litigation is not a war or even a game. It is designed to do real justice between opposing parties and, if the court does not have all the relevant information, it cannot achieve this object.[19]

62 Cameron and Liberman, in their article "Destruction of Documents Before Proceedings Commence - What is a Court to Do?", expanded upon the rationale in the following terms:

Inclusion of discovery in the post-Judicature Acts rules of civil procedure was intended to reflect and advance the philosophy behind the Judicature Acts, especially to simplify procedure, to avoid trial by ambush and to increase the prospect of a court deciding a matter on the merits rather than on a technicality. Among the potentially beneficial attributes of the modern common law discovery process are: it assists the parties to prepare for trial; it facilitates settlement; it can (but often does not) reduce time and expense and provide relief for overcrowded court dockets; it may result in narrowing the issues in dispute; and it 'may prevent a party being taken by surprise at trial and enable the dispute to be determined upon its merits rather than by mere tactics'.[20]

63 This approach was embraced, for example, by the Litigation Law and Practice Committee of the Law Society of New South Wales in its submission to the Australian law Reform Commission, where the Committee noted that:

... discovery is essential to litigation to clarify the issues in dispute and to identify facts and evidence to assist the Court to determine the appropriate outcome. The Committee supports the general approach taken in the Consultation Paper that 'discovery is a legitimate and valuable mechanism that aids the transparency of litigation in the Federal Court and facilitates an informed analysis by the parties of the strengths and weaknesses of their respective cases'.[21]

64 Properly administered, discovery also performs another critical function in litigation. The contribution of discovery as an aid to successful mediation and the conduct of other alternative dispute resolution processes is important. Each party is afforded the opportunity to obtain all information relevant to their dispute and lawyers from both sides are able to assess the available documentary evidence and make an informed opinion as to the strength and weaknesses of their client's claims. Suspicion of "hidden" information may be reduced, thereby giving confidence to the parties that they are able to proceed to resolve their differences on the basis of a defined body of known information. Through these assessments, parties can participate in informed negotiations which may induce settlement, and thus alleviate their need to expend further time and resources in the courts. As noted by Sutherland:

[S]o long as each party is ignorant of what his opponent will be able to prove, their negotiations have nothing substantial to rest upon. Many a case would be settled, to the advantage of the parties and to the relief of the court, if the true situation could be disclosed before the trial begins.[22]

65 Indeed, it has been said that prior to the adoption of the United States Federal Rules of Civil Procedure in 1938, where pre-trial discovery was still an unknown phenomenon, courts in the United States were inundated with trials. However, since the adoption of the Federal Rules of Civil Procedure in 1938 and with it, the liberalisation of discovery, the resolution of disputes became based on:

... facts underlying the claims and defences with a minimum of court intervention, rather than on gamesmanship that prevented those facts from coming to light entirely, or at least too late in the process to serve the fair and efficient administration of justice.[23]

66 This highlights the need for discovery as a central forensic tool in the promotion of fairness between the disputing parties and the attainment of a just and cost efficient outcome squarely based on all available evidence, not only by determination through a curial judgment, but also through negotiated settlement. It is well recognised that in the absence of discovery, the outcome of litigation may too often turn on the ability of astute counsel to produce surprise evidence. It is for this reason that modern litigation processes by and large expressly prohibit parties from relying on undisclosed documents at trial to avoid the prospect of "ambush" discovery.

67 Discovery may therefore be viewed as an essential tool in the adversarial common law justice system, although, particularly with the advent of contemporary technologies which are able to produce documents on a grand and hitherto unforseen scale, it is a process which must be closely monitored and controlled by the courts.[24]

68 The processes of discovery are now buttressed by statute in the form of the Civil Procedure Act 2010 (Vic). One of the central planks of the Act is to provide for an "overarching purpose" described in the following terms by s 7:

(1) The overarching purpose of this Act and the rules of court in relation to civil proceedings is to facilitate the just, efficient, timely and cost-effective resolution of the real issues in dispute.

(2) Without limiting how the overarching purpose is achieved, it may be achieved by-

(a) the determination of the proceeding by the court;

(b) agreement between the parties;

(c) any appropriate dispute resolution process-

(i) agreed to by the parties; or

(ii) ordered by the court.

69 The Act imposes overarching obligations and duties upon the parties and their lawyers to "advance the administration of justice in relation to any civil proceeding".[25] This includes an obligation, now underlined in statutory form, to undertake the processes of discovery in a thorough and ethical manner in compliance with the well established standards.

70 The overarching purpose and obligations now apply to all civil proceedings commenced in Victoria after 1 January 2011.

71 Further, the inherently wide powers of the Court are given statutory recognition in the Act to effect its purposes, supported by sanctions, including sanctions as to costs,[26] for contravening the overarching obligations.[27] These sanctions may apply to a failure to provide adequate or any discovery in the appropriate case.

72 However, in this case I am not satisfied that any of the Defendant parties were remiss in providing discovery to the extent, at least, that this should have any impact on costs in the proceedings, either under the Civil Procedure Act 2010 or otherwise.

73 Although careful and thorough submissions were delivered on the point, in the end there were only a relatively small number of instances where the provision of documents, or the failure to do so, were the subject of serious criticism. In the end, I am satisfied by the explanations given by the Defendants that their conduct in relation to these documents did not give rise to any breach of the Act, or amount to any contravention of the discovery processes which ought to attract a costs penalty.

74 On 2 September 2010, approximately eight months before the joint trial, by a letter from their solicitor of that date sent to Amcor's solicitors, Bayley and Mihelic made a Calderbank offer to settle the proceedings against them in the Barnes Proceeding on the basis that they would pay $50,000 "all-in" to the Amcor parties.

75 The Calderbank offer was made well prior to the joint trial; it was left open for acceptance for one week; the offer was clear in its terms; it invited the recipient to contact the author if there were "any queries"; and the letter foreshadowed an application for costs on an indemnity basis of it was not accepted and if Amcor did not better the offer at trial.

76 There was no response by the Amcor parties to the Calderbank letter. In the circumstances, I am satisfied that the non-response to the Calderbank offer amounted to its rejection by the Amcor parties.

77 In the end, where the Amcor parties have not obtained any pecuniary remedy at all, Bayley and Mihelic have obtained a result more favourable than the terms of the offer.

78 Accordingly, applying well entrenched principles, if the Court is satisfied that the rejection of the Calderbank offer was unreasonable, the offerors would, in usual circumstances, be entitled to their costs from the date of the offer on either a solicitor client basis or an indemnity basis.

79 The leading authority is Hazeldene's Chicken Farm Pty Ltd v Victorian Workcover Authority (No 2).[28] The Court of Appeal (Victoria) comprising Warren CJ, Maxwell P and Harper AJA (as his Honour then was) held:[29]

In our view, these competing considerations can be sufficiently accommodated by applying a test of (un)reasonableness. The critical question is whether the rejection of the offer was unreasonable in the circumstances.[30] We see no justification for a more stringent test such as "manifestly" or "plainly" unreasonable. [Emphasis added]

Of course, deciding whether conduct is "reasonable" or "unreasonable" will always involve matters of judgment and impression. These are questions about which different judges might properly arrive at different conclusions. As Gleeson CJ said recently, "unreasonableness is a protean concept".[31] But a test of reasonableness is, we think, entirely appropriate to the exercise of a discretion such as this.

Factors relevant to assessing reasonableness

The discretion with respect to costs must, like every other discretion, be exercised taking into account all relevant considerations and ignoring all irrelevant considerations.[32] It is neither possible nor desirable to give an exhaustive list of relevant circumstances. At the same time, a court considering a submission that the rejection of a Calderbank offer was unreasonable should ordinarily have regard at least to the following matters:

(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;

(f) whether the offer foreshadowed an application for an indemnity costs in the event of the offeree's rejecting it.

80 The question as to what may amount to an unreasonable rejection of a Calderbank offer was further considered in Rickard Constructions Pty Ltd v Rickard Hails Moretti Pty Ltd.[33] McDougall J said in this regard:[34]

If, as decisions such as Jones establish, the failure to accept a Calderbank offer does not create a presumption as to indemnity costs when the offeror receives a more favourable outcome than that offered, then the corollary is that it is necessary to show that there exist sufficient circumstances to displace the general rule as to costs (where the offeror was a defendant and the offeree a plaintiff). In many cases - maybe most - that will be done by demonstrating that rejection of the offer was unreasonable in some way. In this context, I think, "unreasonable" may mean either that the rejection was not supported by any process of reasoning whatsoever or that the reasons for rejection that were advanced, or that may be inferred, were legally or factually (or both) inadequate. Further, where an offer on its face is reasonable, then I think that it is open to infer (absent some demonstration to the contrary) that the rejection was unreasonable. Thus, I think, where it is shown that a reasonable offer was made and rejected, and where the offeror does better than the offer, there is at least a persuasive burden on the offeree to show that its rejection of the offer was not unreasonable. [Emphasis added]

81 At trial the Amcor parties were in a position to advance a credible case to establish loss and damage through the calling of the forensic expert Mr Stone. In the end, the evidence of the Defendants' expert, Mr Meredith, was preferred to that of Stone. Further, there was evidence to the effect that had Amcor known of the identity of the purchasers behind the "front" purchaser of the two businesses, being executives of Amcor who were then employed by it, Amcor would not have proceeded with either sale.

82 The losses evidenced by Mr Stone in his expert reports well exceeded the total of $50,000 "all-in" offered by Bayley and Mihelic. I infer that, in the light of the evidence then available to Amcor, the offer appeared to be manifestly inadequate.

83 In these circumstances, I am of the view that the rejection of the Calderbank offer was not unreasonable, and provides no ground for the award of costs in favour of Bayley and Mihelic on any special basis.

Should there be an apportionment of costs by issue?

84 Ordinarily, and as part of the settled practice of the Court, costs follow the event and are awarded on a party/party basis unless there are special circumstances which warrant the Court departing from this practice and making some other order.

85 However, in some circumstances a successful party who has failed on certain issues may be deprived of its costs in relation to those issues.[35]

86 Relevant principles on this issue were set out by Toohey J in Hughes v Western Australian Cricket Association (Inc)[36] in the following passage:

1. Ordinarily, costs follow the event and a successful litigant receives his costs in the absence of special circumstances justifying some other order. Ritter v Godfrey (1920) 2 KB 47.
2. Where a litigant has succeeded only upon a portion of his claim, the circumstances may make it reasonable that he bear the expense of litigating that portion upon which he has failed. Forster v Farquar (1893) 1 QB 564.
3. A successful party who has failed on certain issues may not only be deprived of the costs of those issues but may be ordered as well to pay the other party's costs of them. In this sense, "issue" does not mean a precise issue in the technical pleading sense but any disputed question of fact or of law. Cretazzo v Lombardi (1975) 12 SASR 4 at p.12.

87 There is no question that the Rules of Court are sufficiently wide to permit an apportionment of costs according to issues or causes of action.[37]

88 Here it is not the case where the Defendants have been partially successful in the Barnes Proceeding. They have been wholly successful in the outcome, and the Amcor case has been a substantial failure in terms of achieving a tangible benefit by way of relief.

89 However, as the successful Defendants have been deprived of their costs by reason of their serious misconduct in the course of the transactions complained of by Amcor, a question arises as to whether, in the unusual circumstances of this case, they should nevertheless be awarded their costs apportioned in respect of the issues or causes of action relating to two matters on which Amcor failed:

(a) the allegations that the two sale agreements were uncommercial and contained uncommercial terms; and

(b) the allegations that the Amcor parties were entitled to be granted relief by the award of compensation against the Defendants under four broad heads, namely:

(i) common law damages against Hodgson for breach of his contract of employment;

(ii) statutory damages for breach of the various Corporations Act provisions;

(iii) equitable compensation for breaches of fiduciary and other equitable duties;

(iv) alternatively, the equitable relief of an account of profits.

90 The key findings of the Court on these matters in relation to each of the Defendants were these:

(a) When the First Sale Agreement is considered overall and in its context, it has not been established that it was an uncommercial transaction, and Amcor's contentions on the issue were rejected;[38]

(b) Nor was the Court satisfied that the First Sale Agreement was substantially for the benefit of Hodgson, the Service Containers Purchaser, Hottes, Barnes, Sangster and Bayley. Indeed it was found that, by the transaction, Amcor secured real benefits for itself;[39]

(c) Further, the Court was not satisfied that Amcor proved its case that any of the Defendants engaged in conduct or participated in the transaction in question in such a manner or to such a degree, in relation to any of the uncommercial terms alleged by Amcor, that was capable of giving rise to a breach of any duty owed to Amcor. Further, in the light of the finding that the transaction overall was not uncommercial, it followed that there could be no breach of any obligation to warn Amcor of such an acquisition, if any such duty arose;[40]

(d) Consequently it was found that Amcor was not entitled to any relief as a consequence of it entering the First Sale Agreement on the basis of any alleged uncommercial terms, and none of the Defendants were found to be liable for any breach of duty arising from the terms of the First Sale Agreement;[41]

(e) Finally, the Court was not satisfied that Amcor proved its case in respect of its claimed loss and damage arising from entry into the First Sale Agreement for the sale of the Service Packaging Business.[42]

(a) When the Second Sale Agreement is considered as a whole and in its context, it has not been established that it was an uncommercial transaction, and Amcor's contentions on the issue were rejected;[43]

(b) Nor was the Court satisfied that the Second Sale Agreement was substantially for the benefit of Hodgson, the Service Containers Purchaser, Hottes, Barnes, Sangster and Bayley. Indeed it was found that by the transaction, Amcor secured real benefits for itself;[44]

(c) The Court was not able to be satisfied that any of the Defendants procured the sale on uncommercial terms or were involved in the conduct of others to effect a sale on uncommercial terms.[45] Indeed, with one exception, relating to Barnes, the Court was not satisfied that any of the Defendants were materially involved in the formulation of any of the terms of the Second Sale Agreement alleged by Amcor to be uncommercial;[46]

(d) Consequently, it was found that there could be no breach of any obligation to warn Amcor of such an acquisition, if any such duty arose, and for these reasons Amcor was not entitled to any relief as a consequence of it entering the Second Sale Agreement on the basis of any alleged uncommercial terms, and none of the Defendants were held to be liable for any breach of duty arising from the terms of the Second Sale Agreement.[47]

(a) No Relief was granted in favour of Amcor against any of the Defendants, other that against Barnes and Holihan for an account of profits in relation to the Service Packaging Business;

(b) There was no evidence that any of the Defendants derived any financial benefit or derived any profit from the First Sale Agreement or the Service Packaging Business, either during the course of their employment with Amcor, or indeed at any time;[48]

(c) Amcor's claims to equitable compensation and an account of profits arising from the First Sale Agreement and the transfer of the Service Packaging Business were therefore dismissed;[49]

(d) In relation to the ACB Business, the Court was not satisfied that Amcor suffered any loss arising from the sale. Equitable compensation was therefore not available to Amcor;[50]

(e) There is no evidence that any of the Defendants, Holihan and Barnes aside, ever received any pecuniary benefit derived from the ACB Business, whether by way of a share in the profits or otherwise;[51]

(f) Further, as to any entitlement to future profits, these Defendants were found to have renounced any such entitlement;[52]

(g) The consequence of these findings was that no order was made against the Defendants, other than Barnes and Holihan, in respect of the profits of the ACB Business or for compensation on any other basis.[53]

91 As a result, Amcor comprehensively lost its case on the issue of the alleged uncommercial nature of both agreements, and, except in relation to the taking of accounts against Barnes and Holihan in respect of the Service Packaging Business, achieved no orders for compensation or any relief against any of the other Defendants.

92 These issues put the parties to expense. The Amcor parties called forensic accounting experts Mr Stone and the Defendants called Mr Meredith. Their reports were extensive and detailed. After consultation, the experts prepared a joint report which narrowed the issues somewhat. Nevertheless, examination and cross-examination of the experts at the trial on the outstanding issues occupied some time.

93 I am now in a position to stand back and make an overall assessment as to how costs should be properly awarded in this complex and unusual case.

94 I am satisfied that, by reason of their conduct, which amounted as I have found to serious misconduct in the class of fraud or preparation for a fraud undertaken in the course of the transactions complained of, in spite of these Defendants being successful in the proceedings, in the proper exercise of the discretion of the Court, they should be deprived in significant part of the costs to which they would otherwise have been entitled.

96 The Amcor parties should be ordered to pay the following categories of costs of the Plaintiff in the Hodgson Proceeding (Hodgson), and the Fifth Defendant (Sangster), the Sixth Defendant (Bayley) and the Seventh Defendant (Mihelic) in the Barnes Proceeding:

(a) All of their costs arising from or connected with:

(i) the briefing and engagement of all expert witnesses to give evidence and confer on the issue of the alleged uncommercial nature of both agreements in contention and any of the relief claimed by the Amcor parties by way of common law damages, statutory damages, equitable compensation, and an account of profits (together called the "expert evidence issues"), and all costs arising from or connected with such briefings or engagements;

(ii) all reports prepared by all expert witnesses on or relating to the expert evidence issues and all costs arising from or connected with such reports;

(iii) all joint conferences conducted between all expert witnesses on the expert evidence issues, and all costs arising from or connected with such conferences;

(iv) the calling of all expert witnesses to give evidence and be cross-examined at trial on the expert evidence issues, and all costs arising from or connected with such evidence;

(b) In the case of Hodgson, thirty five per cent (35%) of the balance of his costs of the "Liability Trial" conducted between 1 April-1 August 2011 and thirty five per cent (35%) of the balance of his costs of defending the counterclaim in the Hodgson Proceeding generally, other than the costs referred to in (a) above which shall be paid as ordered;

(c) In the case of Sangster, Bayley and Mihelic, thirty five per cent (35%) of the balance of their costs of the "Liability Trial" conducted between 1 April-1 August 2011 and thirty five per cent (35%) of the balance of their costs of defending the claim in the Barnes Proceeding generally, other than the costs referred to in (a) above which shall be paid as ordered;

(d) Thirty five per cent (35%) of all costs of Hodgson, Sangster, Bayley and Mihelic reserved in the Hodgson Proceeding and the Barnes Proceeding; and

(e) Any costs of Hodgson, Sangster, Bayley and Mihelic ordered in the Hodgson Proceeding or the Barnes Proceeding as "costs in the cause" shall be paid to the extent of thirty five per cent (35%) by the Amcor parties.

97 In order to reflect his offer of compromise, all costs awarded in favour of Hodgson as described above shall be paid on a party/party basis up to 10 November 2006 and thereafter on an indemnity basis pursuant to r 26.08(2) of the Court Rules.

98 By reason of the finding that Amcor's rejection of the Calderbank offer served by Bayley and Mihelic dated 2 September 2010 was not unreasonable, all costs awarded in their favour as described above shall be paid on a party/party basis.

99 As Sangster did not provide any offers of compromise or informal offers to Amcor which are before the Court, all costs awarded in his favour as described above shall be paid on a party/party basis.

100 The intention reflected in these proposed orders is that all costs of Hodgson, Sangster, Bayley and Mihelic arising from or connected with all expert witnesses engaged on the questions of the alleged uncommerciality of the two agreements and the monetary relief, if any, to which Amcor claimed to be entitled, should be first "carved out" and determined by agreement or upon taxation. Thereafter, 35% of the balance of their costs of the proceedings which are relevant to each of them should be paid by the Amcor parties.

101 The award of costs in favour of these Defendants, amounting to 35% of the balance of the costs of the "Liability Trial" conducted between 1 April-1 August 2011 and the defences of the relevant counterclaim and claims generally and all reserved costs and any costs ordered to be in the cause, is intended to approximate the time occupied in the balance of trial and all legal work done preparatory to the trial (after excluding such time spent in relation to the expert witnesses) consumed by Amcor's unsuccessful allegations as to the uncommercial nature of both agreements in contention, the involvement of the Defendant parties in the negotiation of those agreements, and the relief claimed by the Amcor parties by way of common law damages, statutory damages, equitable compensation, and an account of profits.

102 I will now deal with the costs of the claims made by Hodgson in the Hodgson Proceeding.

103 In the exercise of the Court's discretion as to costs, in respect of the claims made by Hodgson prosecuted at the Hodgson Quantum Trial conducted between 30-31 March 2011, I am of the view that Hodgson is entitled to his costs on a party/party basis up to 10 November 2006 and thereafter on an indemnity basis pursuant to r 26.08(2) of the Court Rules, such costs to comprise all costs directly arising from the prosecution of Hodgson's claims heard at the hearing of the Hodgson Quantum Trial and all costs preceding the hearing directly arising from Hodgson prosecuting those claims.

104 I will order that each party should bear their own costs of the applications for costs.

105 Orders will be made in accordance with these reasons.

[1] Hodgson v Amcor Limited and Amcor Limited & Others [2012] VSC 94. NOTE: This version was amended pursuant to the 'Slip Rule' by Order made 1 May 2012 and reasons: James George Hodgson v Amcor (No. 8) [2012] VSC 162.

[2] [2012] VSC 205.

[3] (2010) VSC 246.

[5] [1998] HCA 11; (1998) 193 CLR 72, 96 [66].

[6] See: Anglo-Cyprian Trade Agencies Ltd. v Paphos Wine Industries Ltd. (1951) 1 All ER 873 KBD 874 (Devlin J).

[8] [1991] VicRp 12; (1991) 1 VR 129, 154 (Kaye J).

[12] [2002] FCA 1294.

[14] Principal Reasons for Judgment, [1389]-[1390].

[15] Principal Reasons for Judgment, [646].

1. [17] John H. Langbein, "Restricting Adversary Involvement in the Proof of Fact: Lessons from Continental Civil Procedure" (Speech to the American College of Trial Lawyers, September 25, 1984).

[18] (1987) 1 All ER 801.

1. [20] C Cameron and J Liberman, "Destruction of Documents Before Proceedings Commence - What is a Court to Do?" [2003] MelbULawRw 12; (2003) 27 Melbourne University Law Review 273, 277-278.

[21] Law Society of NSW, Submission DR 22, 28 January 2011. Noted in the ALRC Report at page 50.

1. [22] Milberg LLP and Hausfeld LLP, "E-Discovery Today: The Fault Lies Not in Our Rules" (2011) 4(2) The Federal Courts Law Review 132, 138.

[23] The Sedona Conference, "The Case for Cooperation" (2009) 10 Sedona Conference Journal 339, 345.

[24] See: "Managing the Paper - Taming the Leviathan", Hon. Justice Peter Vickery, paper delivered at the Fourth International Construction Law Conference, Society of Construction Lawyers, Australia, Melbourne, 6-8 May 2012.

[25] Civil Procedure Act 2010 (Vic) s 16.

[26] Supra s 29(1)(a).

[27] Ibid Part 2.4, ss 28-29.

[28] [2005] VSCA 298; (2005) 13 VR 435.

[30] See, for example, Brymount (supra) [16]; Pearson v Williams (supra) [17]; Aljade (supra) [68] and the cases there cited.

[31] Re Minister for Immigration and Multicultural Affairs; ex parte Applicant S20/2002 [2003] HCA 30; (2003) 77 ALJR 1165, 1170 [20].

[32] See House v R [1936] HCA 40; (1936) 55 CLR 499, 505.

[35] See: Goldberg J in ACCC v Australian Safeway Stores Pty Ltd (No 3) Ibid, [51].

[36] [1986] FCA 382; (1986) ATPR 40-748, 48,136. These principles were accepted by the majority (Black CJ and French J) in Ruddock v Vadarlis (2002) 188 ALR 143.

[37] See: McFadzean v CFMEU [2007] VSCA 289; (2007) 20 VR 250, 290 [153] (Warren CJ, Nettle and Redlich JJA), citing Woolf v Burman [1940] VicLawRp 20; [1940] VLR 111; Byrns v Davie [1991] VicRp 93; [1991] 2 VR 568, 569 (Gobbo J).

[38] Principal Reasons for Judgment, [1206].