the primary judge's decision on costs of damages hearing
15 On 20 June 2012, the primary judge conducted a hearing in relation to the costs of the damages hearing. On 21 June 2012, her Honour delivered judgment, ordering Specsavers to pay 65% of both TOS's and the licensees' costs of their claims: Specsavers Pty Ltd v The Optical Superstore Pty Ltd (No 4) [2012] FCA 652. This is the judgment now appealed from.
16 The primary judge approached the costs issue, first, on the basis of costs payable up until the September 2011 offer of compromise was made, and secondly, in respect of the costs payable after the offer was made.
17 The primary judge noted that that offer, which was open for 14 days, took the following form:
1. [Specsavers] pay [TOS] the sum of $100,000 (inclusive of GST, if any);
2. [Specsavers] pay [TOS's] costs of the proceedings in respect of the Standard TVC on a party/party basis;
3. [TOS] pay [Specsavers] costs of the proceedings in respect of the Tailor-made TVC on a party/party basis; and
4. The proceedings otherwise be dismissed.
18 The primary judge noted that no further offer of compromise had been made despite the fact that on 20 October 2011 the licensees were added as second to eighth respondents.
19 The primary judge noted, at [8] of her reasons for judgment, that the Court has a general discretion as to costs under s 43 of the FCA Act, which must be exercised judicially and not against a successful party except where there is a reason for doing so that is connected with the case. Her Honour noted that ordinarily costs follow the event and that a successful litigant should recover their costs, unless there are special circumstances justifying a different order, as observed in Ruddock v Vadarlis (No 2) [2001] FCA 1865; (2001) 115 FCR 229 at [9], [11] (per Black CJ and French J).
20 The primary judge then noted, at [9], that R 25.14(1) of the Rules provides that:
If an offer is made by a respondent and not accepted by an applicant, and the applicant obtains a judgment that is less favourable than the terms of the offer:
(a) the applicant is not entitled to any costs after 11.00 am on the second business day after the offer was served; and
(b) the respondent is entitled to an order that the applicant pay the respondent's costs after that time on an indemnity basis.
21 The primary judge accepted that, despite the terminology, R 25.14(1) creates a rebuttable presumption in favour of, rather than an entitlement to, indemnity costs where the conditions triggering the operation of the Rule are made out, referring to Kooee Communications Pty Ltd v Primus Telecommunications Pty Ltd (No 2) [2011] FCAFC 141, where it was held that by R 1.35 the Court may make an order inconsistent with the Rules, including R 25.14. Nonetheless, her Honour noted that the onus is on the party resisting an order to show why it should not be made, as noted in Futuretronics.com.au Pty Ltd v Graphix Labels Pty Ltd [2009] FCAFC 40 at [10] in respect of a similar rule under the old Rules (Federal Court Rules 1979 (Cth)).
22 The primary judge then stated that the questions that arose were: whether TOS was in fact successful on the damages assessment; whether it had acted unreasonably; whether the September 2011 offer was an offer of compromise under the Rules; and, if so, whether the sum awarded was less favourable than the terms of the offer.
23 The primary position of Specsavers was that it did not rely on the first offer of compromise made in the proceedings, but rather claimed that TOS had acted unreasonably in declining to respond to several offers and for this reason should recover no costs of the damages proceeding. Specsavers in this regard relied on s 37M(3) of the FCA Act, contending that that section requires that the discretion to award costs must be exercised in the way that best promotes the overarching purpose of civil procedure, which by s 37M(1) is to "facilitate the just resolution of disputes according to law and as quickly, inexpensively and efficiently as possible". Specsavers also submitted to the primary judge that parties have a duty to conduct proceedings (including settlement negotiations) in a way that is consistent with the overarching purpose, as provided for by s 37N(1). Specsavers contended that the lawyers of the parties were required to take account of that duty and assist their clients to comply with it, as provided for by s 37N(2).
24 The primary judge accepted, at [25] of her reasons for judgment, that in exercising the discretion to award costs she was obliged to take into account any failure to comply with the duty imposed by s 37N(1) or (2) on the parties and their lawyers.
25 Before the primary judge, on behalf of TOS, senior counsel submitted that the first offer referred to was unreasonable because it made no allowance for the costs of TOS, although Specsavers had failed in its claim concerning the Standard TVC. Her Honour noted, at [27], that it also made no allowance for damages on the undertaking. Her Honour further noted that a second offer (not the September 2011 offer) purported to cover both costs and compensation under the undertaking, although in an amount TOS considered unreasonable.
26 The primary judge, at [28], then noted that whether or not the Specsavers' offers were unreasonable did not seem to her to bear upon TOS's conduct. Her Honour observed that:
Even if they were, that would not excuse its silence in the face of the several overtures Specsavers made to settle the proceeding. The Optical Superstore appears to have treated Specsavers' offers with contempt. It chose not to dignify any of them with a response.
27 Her Honour then added, at [28]:
A party genuinely committed to conducting a proceeding in a way that is consistent with the overarching purpose would, at least, respond to an offer of settlement.
28 Her Honour, at [28], further criticised TOS for failing to engage in the process of seeking to resolve the whole of the undertaking proceeding. In the absence of any evidence to explain its position, her Honour said, she was not able to draw any inference in favour of TOS to the effect that it may have thought that Specsavers' offers indicated that any negotiations were likely to prove fruitless.
29 The primary judge, at [29], then found that, as a result of TOS's apparent "intransigence" the parties were put to considerable expense and the proceedings were protracted.
30 Her Honour also noted that R 40.08 of the Rules enables a party to apply to the Court for an order that any costs and disbursements payable to another party be reduced by an amount specified by the Court where the applicant has claimed damages and been awarded a sum less than $100,000. Her Honour noted that Specsavers did not invoke the Rule but that it was open to the Court to exercise that power on its own initiative, having regard to R 1.40. Her Honour also noted that O 62, rule 36A(1) of the old Rules, which applied when the main proceeding commenced and when TOS indicated it would enforce the undertaking, provided for an automatic one-third reduction in costs (including disbursements) unless the Court or a judge otherwise ordered.
31 In these circumstances, in relation to the costs of the damages proceeding up to the September 2011 offer, her Honour ordered, at [31], that TOS should recover its costs but there should be a reduction to reflect the size of the award it achieved (being less than $100,000) and the fact that the costs necessarily incurred were out of proportion to the amount recovered, and therefore the value of the claim. Her Honour expressly stated that the order should also reflect the failure of TOS to fulfil its duty under s 37N. She therefore proposed that Specsavers pay TOS 65% of its costs and disbursements up to the September 2011 offer.
32 At [32], the primary judge began her consideration of the question of costs in respect of the period after the September 2011 offer was made. Her Honour said that, for the purposes of R 25.14(1), the first question was whether the judgment was less favourable than the terms of the offer. Her Honour accepted, at [33], that, in that regard, the offer must be read as a whole.
33 On behalf of TOS, senior counsel argued that the offer unambiguously made no allowance for the costs of the second part of the proceeding dealing with the assessment of damages on the undertaking and, for this reason, the judgment was not less favourable than the terms of the offer, it being reasonable to assume that the successful party would recover its costs in addition to its damages. Alternatively, senior counsel submitted, the offer was ambiguous in its terms and the ambiguity should be resolved in favour of TOS.
34 On behalf of Specsavers, senior counsel submitted that the offer provided in effect for the costs of all the proceeding relating to the Standard TVC and that necessarily included the claim for damages under the undertaking, and so on any view of the matter the offer was more favourable than the amount awarded to the respondents.
35 At [35], her Honour rejected the primary argument of TOS that the offer was unambiguous but accepted that it was ambiguous. Her Honour accepted that the question of the costs of the first, liability part of the proceeding remained to be determined at the time the September 2011 offer was made. While accepting it was possible to read Specsavers' offer in the way it contended, her Honour considered the references to the costs of the proceedings in respect of the two TVCs could be construed as references to the costs of the first part of the proceeding only, and not to encompass the costs of the claim under the undertaking. Her Honour then added: "A careful reading of the earlier offers gives rise to the inference that this was Specsavers' intention".
36 Her Honour said, at [36], that by the time the September 2011 offer was made, the bulk of TOS's costs had been incurred. Her Honour said that because she was persuaded that the offer "did not make provision for the costs of the claim under the undertaking", she was not satisfied the judgment was less favourable than the terms of the offer. Her Honour added that that did not mean that the offer should necessarily be ignored. She said that it could be taken into account in the exercise of the Court's discretion. But she finally considered that, in all the circumstances and having regard to the level of costs likely to have been incurred by the point in time when the offer was made, she did not think that it could be said that TOS was imprudent or unreasonable in failing to accept it.
37 In the result her Honour, at [37], rejected Specsavers' claim for indemnity costs from 9 September 2011 and found that it followed that TOS's costs of the claim should be paid "on the same basis as before", being a reference to the costs order that she had already found to be appropriate up to the time that the September 2011 offer was made.