Solicitors:
Church & Grace Solicitors (Plaintiff)
Johnson Winter & Slattery (Defendants)
File Number(s): 2016/340194
[2]
Judgment
HIS HONOUR: On 21 June 2018, I gave judgment dismissing the substantive proceedings with costs, and reserving liberty to the successful defendants to apply for some further or varied costs order [1] . The defendants (for the most part, it is convenient to call them collectively "ACA") have exercised that liberty.
[3]
Background
The background to the litigation is set out at [1] to [3] of my earlier reasons. I set out those paragraphs:
On 28 April 2016, the first defendant (ACA) sent a letter in identical terms to a number of Ministers of the Crown for the States of this country. The letter was signed by the second defendant (Mr Persson), who was then ACA's Chairman. The letter asserted that a particular kind of electrical cable supplied in Australia by the plaintiff (Midland) failed to meet an applicable Australian and New Zealand Standard (the Standard), and was unsafe. The letter gave details of the testing that was said to establish those matters. It urged further investigation.
It is common ground that some of the representations made in the letter were incorrect.
Midland says that in sending the letter to the various Ministers, ACA and Mr Persson engaged in conduct that was misleading or deceptive, or likely to mislead or deceive, and that they did so in trade or commerce. That conduct, Midland says, breached s 18 of the Australian Consumer Law. Midland seeks declaratory relief establishing the alleged contravention, and an injunction to prevent recurrence. There is no claim for damages.
In essence, I concluded that Midland failed because, to the extent that the representations alleged, which were representations of opinion, had been made, they had not misled or deceived the Ministers, and were not likely to do so. I reached that conclusion because, in my view, it was objectively foreseeable, and indeed highly likely, that each of the Ministers would refer the letters for advice, and would act upon the basis of the advice given. It was also, in my view, objectively foreseeable, and again highly likely, that those from whom the Ministers would seek advice were qualified to comment upon the opinions represented in the letters.
I reasoned that if the Ministers, having sought advice, were told that the opinions were unfounded, or technically incorrect, it was, objectively, very unlikely that the Ministers would act upon those opinions. Conversely, if the Ministers were advised that the statements of opinion were soundly based, and technically accurate, then a fortiori there could be no misleading or deceptive conduct.
[4]
The costs application
ACA seek orders that their costs be paid on the ordinary basis up until, and on the indemnity basis from, either 5 September or 21 November 2017. They rely on what are said to be Calderbank letters [2] written on, respectively, 31 August and 1 November 2017. Indemnity costs are sought from the dates of rejection of those letters, being respectively 4 September and (according to ACA) 21 November 2017. In fact, the date of the letter rejecting the second offer was 23 November 2017.
[5]
The letters
The first letter pointed out that the pleaded representations (if made - and this was a point of dispute as to at least one pleaded representation) were representations of opinion, which could not be falsified by the matters pleaded. It noted that Midland had not sought damages, and said that the claim for an injunction was likely to fail because, among other things, ACA had stated that it had no intention of repeating the conduct. The letter noted, further, that although Midland sought declaratory relief and an order that ACA issue corrective statements to the Ministers, that relief was unlikely to be granted where the conduct was "one-off", had occurred more than 12 months previously, and was not to be repeated.
In those circumstances, the first letter pointed out, the costs of proceeding to hearing were likely to be "out of all proportion to the remedies [Midland] seeks". On that basis, the letter proposed that the proceedings be dismissed with no orders as to costs.
Midland's response, conveyed through its solicitors, was simple:
NUTS!
Midland sought to justify that somewhat cursory response by reference to history. The letter stated that Midland regarded ACA's offer "as being in the same vein as the German Commander's offer of surrender made to [Brigadier-General Anthony "Nuts" McAuliffe] the US Commander [of the 101st Airborne Division] during the Battle of the Bulge", and adopted the response of the latter to the former. The reference, although historically accurate [3] , is unilluminating as to motive. Even given the accuracy of the historical citation, its deployment could hardly be regarded as placatory.
ACA's second offer effectively repeated the matters referred to in the first. It noted that "costs… continue to increase significantly" and that those costs were "out of all proportion to this claim in circumstances where your client does not intend to seek any monetary relief".
The letter offered that ACA (in this case, referring only to the first defendant) would send to each of the Ministers a further letter effectively withdrawing the offending statements made in the earlier letters and accepting that Midland's cables were not defective as had been alleged. ACA also offered to provide an inter partes undertaking intended to back up that proposed further letter.
The second offer to settle again proposed that there be no orders as to costs. It added that all previous costs orders be vacated. Those previous costs orders included orders made by a judge of the Division striking out one of Midland's pleaded representations, and by the Court of Appeal when it granted leave to appeal from that decision and upheld the appeal.
Midland's response to the second offer to settle was somewhat more measured than the first. It engaged with the arguments put in the offer, but said that Midland could not assess the offer because of the need for ACA to file an Amended Commercial List Response.
On 22 November 2017, the amended list response was filed. Midland's solicitors returned to the costs issue the next day, 23 November 2017. They took issue with the formulation of the proposed letter and the proposed inter partes undertaking, made other comments on the merits of the case, and conveyed their client's rejection of the second offer to settle.
[6]
The parties' submissions
The submissions for ACA effectively re-emphasised the matters stated in the two letters. They pointed out that, given the absence of any claim for monetary relief, any success that ACA might enjoy was likely to be disproportionate to the amount spent to gain that success.
The submissions for Midland parsed and analysed the terms of, in particular, the draft letter and the draft undertaking attached to the second letter of offer. They contended that it had been justifiable for Midland to take its case to trial. More fundamentally, those submissions emphasised that:
1. although costs ordinarily follow the event (UCPR r 42.1), the normal expectation is that costs will be assessed on the ordinary basis (r 42.2); and
2. where an application for indemnity costs is founded on rejection or non-acceptance of a Calderbank offer, the applicant for indemnity costs generally needs to show that there was a genuine element of compromise and that it was unreasonable for the offeree to reject the offer (citing Tati v Stonewall Hotel Pty Ltd (No.2) [4] , which in turn cited Basten JA in Miwa Pty Ltd v Siantan Properties Pte Ltd (No.2) [5] ).
To a greater or lesser degree, the submissions for each side, on the question of costs, sought to reagitate some of the matters that (I thought) had been settled by my earlier decision.
[7]
Decision
I proceed on the basis that the application is to be assessed on the basis explained by Bathurst CJ in Tati. Thus, I need to consider whether there was a genuine element of compromise in each offer, and whether Midland had acted reasonably in rejecting each.
There is no doubt that an offer to settle on the basis that proceedings are dismissed with each party bearing its own costs (or, as was the present case, with no order as to costs) may be capable of amounting to a genuine compromise, particularly where it is obvious that (as must have been the case when the second Calderbank letter was sent) substantial costs have been incurred up until the date of the offer. See Szencorp Pty Ltd v Clean Energy Council (No 2) [6] and Alexander v Australian Community Pharmacy Authority (No 3) [7] . The point, that merely offering to forego any entitlement to costs may embody a substantial element of compromise, is of particular relevance where there is no claim for damages or compensation.
The requirement that there be a genuine element of compromise reflects the thinking that the court will not always reward those on whose behalf purported Calderbank letters are sent where, in all the circumstances, it may be seen that those letters are merely platforms upon which applications for indemnity costs may be constructed if the proceedings are resolved in favour of the offeror. In my view, that is a proper characterisation of the first offer to settle. Although it explained why, in the author's opinion, the proceedings were likely to fail, it did not offer much beyond the proposal that each party should pay its own costs. The little extra that it did offer was that "our clients have not indicated an intention to repeat" the conduct of which complaint was made in the proceedings. Even if that is read charitably, as an offer not to repeat that conduct, it was somewhat lacking in specificity.
In short, I think, the analogy invoked by Midland's response to the first offer to settle characterised that offer in an appropriate fashion: as an offer to capitulate. It evoked the obvious response.
The situation is different in respect of the second offer to settle. That offer proposed substantially more, including that ACA would write letters of retraction to the Ministers, and that ACA would give an undertaking inter partes to Midland not to repeat the conduct.
I do not propose to take up time in recounting and dealing with the detailed criticisms that Midland offered of the draft letter and the draft undertaking. No doubt, their wording could have been improved. However, it was open to Midland (for example) to propose some rewording. It may well have been that, so long as the rewording did not cause undue offence to ACA, ACA would have accepted it. All of that speculation can rise no higher than the level at which it is put, because Midland did not propose any redrafting.
Even with their asserted (although in my view, overstated) imperfections, the letter and the undertaking between them, if sent and given respectively, would have provided Midland with a substantial proportion of the success that it sought through its prayers for relief. I accept that the undertaking could only have been enforceable as a matter of contract and not through the machinery of contempt of court. However, the prospect that an entity in ACA's position, having given a solemn inter partes undertaking, would breach it, should be seen as relatively remote.
In those circumstances, I conclude that the second offer to settle did propose a real or genuine compromise.
The precise proportion of possible ultimate success offered by ACA is hard to evaluate. It was certainly more than 50%. It may have been 75%, or 80%, or 90%. It is unnecessary to evaluate the precise proportion, because the reality of the situation that emerged is that Midland was chasing complete success - 100% of all that it sought - in circumstances where a substantial proportion of that was available, as it were, through the stroke of a pen. In other words, Midland was hazarding the entire costs yet to be incurred (including the no doubt substantial costs of preparation for hearing and the hearing itself) upon a relatively small proportion of what originally it had sought. That does not seem to me, objectively, to be reasonable.
Another, and significant, point is that the final relief sought by Midland included more than a declaration that the conduct of ACA in sending the letters was misleading or deceptive, or likely to mislead or deceive. It sought, also, an injunction aimed at preventing repetition of that conduct, and the provision of a corrective statement to the recipients of the letters.
In my view, looking at the matter objectively, it was by no means certain that that further relief (injunction and corrective statement) would have been ordered even if Midland had succeeded in obtaining the first (declaration). Why would the court, having declared to be misleading or deceptive conduct which at the time of the hearing had occurred many months previously and had not been repeated, go further? There was no evidence of a likelihood of a threat of repetition. There was no need to issue a corrective statement, because the Ministers had been advised of the correct situation by or through their advisers. Thus, even if it be assumed that Midland had good reason to pursue its primary claim for relief - the declaration - it is by no means certain that its further claims for relief would have succeeded.
I add that if Midland had pleaded a claim for damages, and had put on evidence justifying that claim, the approach to the claim for indemnity costs might be very different. But Midland had never sought damages. Its claims for relief were always limited in the way that I have described.
It follows from what I have said that Midland's rejection of the second offer to settle was, objectively and in the circumstances prevailing when that offer was made, unreasonable.
I conclude that ACA have made good their claim to have costs payable on the ordinary basis up until 23 November 2017 (the date of rejection of the second letter of offer) and on the indemnity basis thereafter.
[8]
Order
I make the following further order:
1. order that the costs payable pursuant to order 2 made on 21 June 2018 be assessed on the ordinary basis up until 23 November 2017 and on the indemnity basis thereafter.
[9]
Endnotes
Midland Metals Overseas v Australian Cablemakers Association [2018] NSWSC 938.
Calderbank v Calderbank [1976] Fam 93.
See S. L. A. Marshall, Bastogne: The First Eight Days (Infantry Journal Press, 1946) at ch 14. The same source says that the German officer to whom the reply was delivered, puzzled by the vernacular, inquired whether it was "affirmative or negative?" He was told "definitely not affirmative".
[2012] NSWCA 124 at [10] (Bathurst CJ, with whom Allsop P and Beazley JA agreed).
[2011] NSWCA 344 at [8].
[2009] FCA 196 at [15] (Goldberg J).
[2010] FCA 506 at [31] (Bromberg J).
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Decision last updated: 20 July 2018