Pampered Paws Connection Pty Ltd (on its own behalf and in a Representative Capacity) v Pets Paradise Franchising

IN THE FEDERAL COURT OF AUSTRALIA SOUTH AUSTRALIA DISTRICT REGISTRY GENERAL DIVISION SAD 142 of 2008

(ACN 116 460 621) (ON ITS OWN BEHALF AND IN A REPRESENTATIVE CAPACITY)

JUDGE: MANSFIELD J DATE: 30 AUGUST 2013 PLACE: ADELAIDE

REASONS FOR JUDGMENT 1 This judgment deals with the costs of the application. 2 On 16 August 2013, I published Reasons for Ruling prompted by the submissions on costs of the first, second, third and fifth respondents: Pampered Paws Connection Pty Ltd (on its own behalf and in a Representative Capacity) v Pets Paradise Franchising (Qld) Pty Ltd (No 12) [2013] FCA 829. Those reasons set out the way in which the submissions had progressed. In part, to understand this judgment and the reasons for it, it is necessary to refer to those reasons. I do not propose to repeat them. I fixed 28 August 2013 as the date upon which final orders as to costs would be made. 3 To that time, there had been no application by any of the respondents to seek to vary the directions given on 19 March 2013 or 11 July 2013 or for any extension of time to comply with them. For the reasons then given, I will not make any order for costs in favour of the respondents. 4 On 27 August 2013, the first, second, third and fifth respondents (all of whom are in receivership, by appointments made on 30 July 2012) applied for an extension of time to seek an order for costs in their favour, or in favour of the respondents generally, in the light of the Reasons for Ruling referred to above. That application came on immediately before the delivery of the judgment for costs which the Reasons for Ruling had foreshadowed. It was supported by an affidavit of Charles Liam McCusker of 26 August 2013. Counsel for those respondents also sought to rely on paragraph 8.3 of the affidavit of Joshua Luke Richards sworn on 1 August 2013 and paragraph 21 of the affidavit of Melanie Catherine Bird sworn on 17 June 2013. 5 In my view, the first, second, third and fifth respondents have not adequately explained their failure to comply with the directions given by the Court on 19 March 2013 which set a timetable for the respondents to file and serve their submissions as to costs. The material now shows that the receivers and managers of those respondents, through their solicitors, were communicating with solicitors for the respondents in this matter in the period from March to May 2013, and more recently after the directions hearing on 11 July 2013. However, there is no satisfactory evidence to explain why the receivers and managers of those respondents did not comply with those directions. The inference I draw is simply that they chose not to make any such submission on costs within the time specified, or at all, until after the directions hearing on 11 July 2013. I do not accept that they were unable to do so because of a lack of resources. There is no evidence as to resources available to them, or as to any approach to the entity or entities which appointed them for funding to support such a conclusion. There is no evidence as to the state of their administration, or as to funds available in the administration or the way in which they have been expended. I do not draw the inference that they were unable to comply with the directions given on 19 March 2013 because of a lack of resources. In that regard, I note that neither para 21 of the affidavit of Ms Bird, nor para 8.3 of the affidavit of Mr Richards in which he asserts a "shortage of funds", nor the communications exposed by the affidavit of Mr McCusker between solicitors for them and solicitors for the respondents generally in this application provide any such material. That material shows that those respondents unsuccessfully sought to have the solicitors for the respondents generally in this application continue to act without fee. That does not support an inference that they could not give instructions due to a lack of resources. 6 The first respondent did not prosecute at the directions hearing on 11 July 2013 the cross-vested proceeding referred to in [26] below. It would have been quite straightforward for the receivers and managers of the first respondent, or of the other respondents now represented, to have adduced more cogent evidence of an inability in practical terms to comply with the orders of the Court if that were in fact the case. Accordingly, I do not draw the inference that the receivers and managers of the first, second, third and fifth respondents had a particular shortage of funds which impeded their ability to comply with the directions of the Court. 7 It now appears that the solicitors for the respondents in this matter have now been prepared to act without fee in pursuing a claim for costs on behalf of those respondents. It may well be that they are prepared to do so in anticipation of an order for costs in favour of the respondents they now retain, and then an order for payment to those respondents (to be paid to the solicitors towards their outstanding costs) of the moneys presently paid into Court on behalf of the applicants. The more recent instructions in the circumstances also says little or nothing about why the first, second, third, fourth and fifth respondents did not comply with the earlier directions of the Court, or to warrant the exercise of the discretion in their favour which they now seek. 8 I do not consider that the potential interest of the solicitors for the respondents provides a proper reason for excusing the non-compliance with the earlier direction of 19 March 2013. As a matter of principle, it seems to me that the arrangements between those solicitors and their clients (some of whom have now reinstructed them on a limited basis) is a matter which should not weigh in the scales in favour of exercising the discretion which those four respondents now seek. Even if I were wrong on that, there is no evidence sufficient to persuade me that the solicitors cannot recover their costs from the respondents generally (other than the fourth and sixth respondents), and in particular from the eighth respondent who has simply failed to give any instructions to his former solicitors and about whom there is simply no information as to his financial status. Nor is there sufficient information to be satisfied that the liability of the first, second, third and fifth respondents to their solicitors in this proceeding cannot, or will not, be met by them. 9 I am left with no satisfactory explanation on the part of any of the respondents, and in particular on the part of the first, second, third and fifth respondents, for their failure to comply with the earlier directions. They have put the applicants to additional expense. Although they may have been entitled to an order for costs to some degree (as appears below), I see no adequate reason for exercising the discretion to extend the time for them to make a claim for costs. 10 For those reasons, I will not extend the time for those respondents to comply with the directions given on 19 March 2013. In my view, they appear to have made a decision not to take up the opportunity to seek an order for costs of the proceedings and they have not explained adequately why there is now such a change in circumstances as to warrant the exercise of that discretion in their favour. I will not make any order for costs in favour of any of the respondents, I incorporate the reasons given in the Reasons for Ruling of 16 August 2013 for that view. 11 It is therefore necessary only to consider the applicants' claim for costs, having regard to the submissions of the first, second, third and fifth respondents of 2 August 2013 as a response to the applicants' submissions on costs. 12 The applicants seek an order that they should recover 50% of their costs of the proceeding, including all reserved costs but excluding particular costs which have already been separately dealt with, or should be separately dealt with, arising from particular notices of motion. They also seek an order that the sum of $100,000 paid into Court as security for the respondents' costs of the application be paid to them by payment to their solicitors' trust account. 13 For reasons which appear below, I do not propose to make any order for costs in favour of the applicants. I will discharge the orders for costs of particular motions previously made (so far as I can determine and as identified by the parties they are the costs orders made on 27 February 2009 on the applicants' motion of 23 September 2008, on the respondents' motion of 10 October 2008, on the applicants' further motion of 23 September 2008, and on the respondents' motion of 25 November 2008 in favour of the respondents; the costs orders made on 9 July 2009 on an oral application then addressed; and the costs orders made on 23 June 2010 in favour of the applicants made on the respondents' notice of motion of 22 June 2010). The costs of those motions were partly in favour of the applicants and partly in favour of the respondents. It is now more sensible to address the costs overall. In addition, where orders have been made to reserve costs, or where costs were said to be in the proceedings or in the cause, they are to be encompassed within the general order for costs which I propose to make. 14 I have considered the relevant principles as set out in the submissions of the applicants at [62] and of the respondents at [3]-[12] and (on particular matters) at [82]-[85]. I have also considered the detailed submissions on behalf of the applicants relating to the significance of any changes in the Federal Court Rules 1976 (Cth) from the Federal Court Rules 2011 (Cth) (operative from 1 August 2011). For reasons which are no doubt apparent, it is unnecessary for me to address them in detail. 15 The general principles are not in dispute. The discretion to award costs under s 43(2) of the Federal Court of Australia Act 1976 (Cth) is a general one. The overriding discretion is what is just in all the circumstances. Given the complexity of this matter, I do not think it is appropriate to award costs apportioned to the success or failure of the parties on particular issues, or on disputed questions of fact and law. It is appropriate nevertheless to consider their respective success or the overall outcome for the parties in the proceedings generally, and if there is to be an apportionment of cost to do so as a matter of impression and judgment rather than as a matter of mathematical calculation. So much was recognised by Toohey J in Hughes v Western Australian Cricket Association Inc [1986] ATPR 40-748 at 48-136. 16 My overall firm impression is that the applicants succeeded to only a relatively minor degree in respect of the claims which they pursued. That success is reflected in the limited declaratory orders made and in the fact that no damages were proven to my satisfaction to have been suffered by reason of the contraventions which were made out. As a starting point, I would have been inclined to apportion the respective degrees of success and failure in the proceedings only partly in favour of the applicants, and on balance a greater percentage in favour of the respondents. After considering the detailed submissions of the parties, I adhere to that view. 17 In circumstances where the respondents have not properly sought costs, but where an order for costs in favour of the applicants would work an injustice to the respondents by them being liable for costs for which they would not otherwise have incurred a liability, in my view the appropriate order is simply that there should be no order for costs of the proceedings generally. 18 I have referred to the particular motions or interlocutory steps in which costs previously have been ordered on a particular basis or bases (either costs in any event or respondents' or applicants' costs in the cause). As I have said, I propose to discharge those orders on the basis that, in the overall picture, those particular aspects of the costs proceedings are relatively insignificant. 19 It is necessary to refer briefly to why I would have reached that conclusion. 20 The applicants' claims alleged nine misrepresentations against one or other or more of the respondents of which only one, described as the Recurring Payments Representation, was established. I was not persuaded that that representation was relied upon by the applicants in any significant way or that it caused any of them any loss or damage. Moreover, bearing in mind that the claim was part of a group action, it was a misrepresentation which was peculiar to the circumstances of the first applicant Pampered Paws Connection Pty Ltd and would not avail any of the potential members of the group on behalf of whom the action was brought. 21 The second cause of action was based upon breaches of the Franchising Code of Conduct. Six were alleged, and four established, although there was overlap between them to some extent. Again, the applicants did not prove that those breaches of the Franchising Code of Conduct were relied upon by Pampered Paws Connection Pty Ltd in any material way or were causative of any loss or damage to it. 22 I also found that up to 31 December 2006, when s 47(6) of the then Trade Practices Act 1974 (Cth) was amended, two contraventions of s 47(1) of that Act were made out concerning dealings with the fourth respondent and in relation to IT Visions Business Systems Pty Ltd. An allegation in respect of exclusive dealing concerning the fitout of franchised premises by Budget Shopfitters Pty Ltd failed. The two instances of exclusive dealing that were made out to 31 December 2006 were not proved to have been productive of any loss or damage to Pampered Paws Connection Pty Ltd but for reasons which I explained in the second judgment led to the making of two declarations of contravention of that provision. Principally that was in case such declarations may be of utility in the future to putative group members of the group on whose behalf the action was then also being maintained. 23 The unpaid labour claims brought by the second and third applicants failed for the reasons which were given. 24 In summary, the claims to vary or set aside the franchise agreement and related agreements, to have various provisions of the Global Supply Agreement and the IT Visions rental agreement declared void were unsuccessful. The claims for damages were unsuccessful. Limited contraventions of the Trade Practices Act were found, but they did not lead to the grant of any relief, other than the declaratory relief in respect of the two contraventions of s 47(1) of the Trade Practices Act 1974 (Cth) as in force up to 31 December 2006. I found that the fourth respondent and the eighth respondent counselled and procured and were directly knowingly concerned in those contraventions. Indeed, it was not in issue that, to the extent to which contraventions were found to exist, whether or not they were ultimately reflected in the declaratory or other orders the Court made, the eighth respondent counselled and procured and was directly knowingly concerned in them. That was a matter which ultimately was not in dispute in the proceedings. 25 On 19 March 2013, I also ordered that the proceeding no longer continue as a representative proceeding under Pt IV of the Federal Court of Australia Act 1976 (Cth), subject to allowing a short period of time within which any group member or person or entity previously falling within the description of a group member sought to make use of the current proceedings to pursue a claim against any of the respondents. No such application was made. 26 A related action which had been cross-vested to this Court and to be heard with this action (Supreme Court of Victoria matter SCI D6019 of 2009) amounted to a cross-claim by the first respondent against the first applicant. That claim has separately been the subject of final orders. It is not necessary to make any further orders with respect to it. 27 There remains the question of whether, given my overall assessment of the respective levels of success of the applicants on the one hand and the respondents on the other, it is appropriate to allow the applicants to recover that small portion of the costs which I might separately have ordered in their favour, and which otherwise would have been set off against the costs likely to be ordered in favour of the respondents. Having regard to the justice of the case, in my view it would be inappropriate to make an order that the respondents (other than the fourth and sixth respondents who are in liquidation) pay to the applicants any costs, not even a small proportion of the costs, of the application in the particular circumstances. Although they have simply chosen to take no role in the costs issues except as noted above, I cannot overlook my analysis of the relative success or otherwise of the applicants and the respondents generally. It would in my view be unjust to order any of them to pay costs in favour of the applicants. The fourth and sixth respondents are in liquidation and no order can be made against them; no leave to proceed against them has been sought. 28 In reaching that conclusion, I have taken into account the individual circumstances of the respondents. The first, second, third and fifth respondents are in administration. It would be unfair that their creditors be burdened with a significant liability for costs where, had they properly pursued a claim for costs, that claim may well have succeeded. The eighth respondent has simply chosen not to give instructions to his former solicitors. His circumstances are unknown. Overall, despite his inactivity from 19 March 2013, again I think it would be unfair to him to burden him with a liability when my view is that he (and the other respondents) may well have succeeded in obtaining an order for costs in their favour. 29 There is one qualification to that conclusion. The applicants have been put to expense by the respondents' failure to comply with directions given on 19 March 2013. I propose to order that they recover their costs incurred since (but not including) 19 March 2013 as the costs are directly the result of that failure on the part of the respondents, excluding their costs directly incurred and in relation to the preparation of other proposed orders for costs and the submissions in support of it. 30 I note that the second and third applicants were joined in these proceedings only on 24 March 2010, shortly before the hearing commenced. I do not think it is necessary to distinguish their position from others in the light of the form of orders which I propose. 31 Accordingly, I propose to make no order as to costs (including the occasions where there were any earlier orders for costs on motions or interlocutory orders), save that the first, second, third, fifth and eighth respondents pay to the applicants their costs of and incidental to the conduct of these proceedings from, but not including 19 March 2013. That will mean that: 1. There be no costs of the application awarded in favour of the applicants, other than costs after 19 March 2013. 2. The respondents (other than the fourth and sixth respondents) pay to the applicants their costs incurred after 19 March 2013, other than their costs directly incurred in the preparation of their proposed order for costs and the submissions in support of it. 3. There be no costs awarded in favour of any of the respondents. 4. In relation to the fourth and sixth respondents, both of which are in liquidation, there be no order as to costs either against them or in their favour. 5. In respect of those matters where previously there has been a specific order for costs in favour of one or other of the applicants or the respondents, those orders are now discharged to the intent that the costs relating to those various matters be dealt with by the decision to make no order for costs. 32 There will accordingly also be an order that the monies paid into Court by the applicants as security for costs be paid out to the solicitors of the applicants, together with any interest accrued thereon. I certify that the preceding thirty-two (32) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Mansfield.