Technology Leasing Ltd v Lennmar Pty Ltd

JUDGE: COWDROY J DATE: 7 November 2012 PLACE: SYDNEY

REASONS FOR JUDGMENT 1 On 6 July 2012 the Court delivered judgment in the principal proceedings: see Technology Leasing Ltd v Lennmar Pty Ltd [2012] FCA 709. Pursuant to the orders of the Court, costs were reserved. Technology Leasing Ltd ('TLL') and Lennmar Pty Ltd ('Lennmar') have now provided their written submissions and the Court is now required to determine the nature of any order for costs to be made. 2 As is apparent from [5] of the Court's judgment referred to above, both TLL and Lennmar were partially successful in the substantive matter. The question is whether the circumstances of the proceedings has the consequence that the ordinary rule that costs should follow the event should not be followed. 3 The claim of damages in the initial proceeding was for $31,531.46. Even if one factors in the value of the cross-claim, it seems likely that the costs of these proceedings have significantly exceeded the value of the claims on each side. This renders the costs judgment the most valuable aspect of these proceedings; an outcome which can only be described as perverse. 4 It should be observed at the outset that pursuant to s 43 of the Federal Court of Australia Act 1976 (Cth) the Court has a broad discretion in the award of costs. It has been recognised that such discretion is not unqualified in that the power cannot be exercised capriciously: see Oshlack v Richmond River Council (1998) 193 CLR 72 ('Oshlack') at [65] per McHugh J.

SUBMISSIONS OF TLL 5 TLL submits that Lennmar should pay TLL's costs of the proceedings on an indemnity basis from 29 September 2011. On that date TLL made an offer pursuant to the principle in Calderbank v Calderbank [1975] 3 All ER 333 ('Calderbank') to settle the proceedings on the basis that Lennmar pay the sum of $3,153, being 10% of the amount claimed by TLL in the proceedings; with Lennmar keeping the equipment which had been supplied to it by Fresh Telecoms ('Freshtel'). TLL submits that Lennmar acted unreasonably in not accepting the offer or alternatively returning the equipment in its possession to TLL before the hearing. 6 Alternatively TLL submits that both parties have had some success and accordingly in view of the mixed success there should be no orders to costs on the basis that each party bear its own costs. In particular, TLL points to the fact that it succeeded in its claim and was partially successful on the issues raised by Lennmar's cross claim.

SUBMISSIONS OF LENNMAR 7 Lennmar submits that TLL should pay its costs on a party/party basis up to 15 April 2011 and on an indemnity basis thereafter, based upon an unaccepted Calderbank offer made by Lennmar's solicitors to the solicitors for TLL on 15 April 2011. The letter sent on that date followed an unsuccessful attempt to resolve the differences between the parties in mediation before a Registrar of the Court. The letter proposed the following orders: 1. Judgment for Lennmar 2. The cross claims issued in the respective proceedings be dismissed 3. TLL pay 70% of the costs of each of the parties assessed on a party/party basis as at the date of the acceptance of the offer. 8 Lennmar submits that it was unreasonable of TLL not to accept the offer and that the findings of the Court on the various critical issues, especially those related to unconscionable conduct by TLL, were upheld by the Court in favour of Lennmar. 9 Lennmar further submits that the parties were engaged in mediation for two days, on 8 March 2011 and 9 June 2011, and that during this mediation the position of each party was fully canvassed, yet TLL refused to accept the offer; and that Lennmar's offer was made over eight months before the commencement of the hearing and it remained open at all relevant times. Lennmar submits that its attempt to resolve the issue by making the offer was a genuine attempt to resolve the whole litigation. 10 Additionally Lennmar submits that none of the issues raised by it in the proceedings were spurious or without merit and that its defences were reasonably raised. It submits that it conducted the proceedings as a test case in view of the fact that similar cases with similar issues involving TLL were pending. Lennmar also states that it was required to pursue its arguments regarding agency (which were unsuccessful) because TLL refused to admit the operation of s 3 of the Trade Practices Act 1975 (Cth) ('the TPA') in the proceedings. Finally, Lennmar submits that the issue regarding the incorporation of the terms and conditions in the agreement between it and TLL (upon which it was again unsuccessful) resulted from the poor quality of documentation supplied. As the documentation was in the custody of TLL, the need for this issue to be raised was the fault of TLL.

CONSIDERATION 11 The principles concerning the different approaches to the award of costs and the apportionment thereof are set out in Roadshow Films v iiNet Ltd (No 4) (2010) 269 ALR 606 at [28]-[37]. The usual order as to costs is that a successful party will have its costs paid on a party/party basis by the unsuccessful party: see Dias Aluminium Products Pty Ltd v Ullrich Aluminium Pty Ltd (No 2) (2005) 225 ALR 569; Colgate-Palmolive v Cussons Pty Ltd (1993) 46 FCR 225 at 232-234. This results from the established practice that costs should ordinarily follow the event: see Hughes v Western Australian Cricket Association (Inc) (1986) ATPR 40-748 at 48,136. An award of costs may be diminished where a litigant has succeeded only in part of the claim: see Forster v Farquhar [1893] 1 QB 564. A party who is 'successful' may be required to pay the other party's costs of the issue which the successful party raised, albeit unsuccessfully: see Cretazzo v Lombardi (1975) 13 SASR 4 at 12. 12 In Oshlack at [69] McHugh J referred to an exception to the usual rule, namely that the conduct of the successful party might in some circumstances disentitle it to a court's 'beneficial exercise of the discretion' to award it costs: see also the observations of Devlin J in Anglo-Cyprian Trade Agencies Ltd v Paphos Wine Industries Ltd [1951] 1 All ER 873 ('Anglo-Cyprian'), as quoted by McHugh J in Oshlack at [69]. 13 The rule is simple to state, but its appreciation is often difficult, since it may be problematic to determine whether a party has in fact been 'successful'. Devlin J in Anglo-Cyprian found that plaintiffs who had taken up the time of the Court, and put the defendants to considerable expense over 15 working days, yet were only awarded two pounds, could not be said to be 'successful'.

FINDINGS 14 In the present matters, the Court is mindful of the fact that TLL succeeded in its claim of establishing that in fact there was a leasing agreement entered into between it and Lennmar. However to consider such result in isolation, and to segregate the various issues in respect of which each party succeeded or failed, would not provide a reliable assessment upon which to found an order for costs. To isolate the claim from the cross claim would bring an aspect of unreality to the proceedings. Whilst Lennmar disputed the actual contractual documents relied upon by TLL, the real dispute concerned the more technical issues whether TLL, by its servants and agents, had engaged in unconscionable conduct. This in turn gave rise to complex questions involving the application of various provisions of the TPA; whether Freshtel was TLL's agent; whether TLL contravened s 12CA(1) of the Australian Securities and Investment Commissions Act 2001 (Cth); and whether relief could be granted under s 7 of the Contracts Review Act 1980 (NSW). 15 The proceedings commenced in this jurisdiction by the filing of statement of claim on 1 October 2010. The cross-claim and defence to cross-claim were all filed promptly thereafter. Initially steps were taken to make these proceedings part of other representative proceedings but it subsequently emerged that such a course would be impractical and that such proposal was abandoned. 16 Significantly, at the first mediation which was held on 1 March 2011 the defence of Lennmar and the basis for its cross-claim were 'fully canvassed' according to the submissions of Lennmar. Lennmar's without prejudice Calderbank offer was made on 16 April 2011 to settle the proceedings on the terms referred to earlier in this decision. It follows that TLL must have had notice of allegations that Lennmar had been misled by statements made to Mr and Mrs Parton by Freshtel representatives, which induced Lennmar to enter into the lease agreement with TLL for the supply of the telephone equipment. Those allegations were subsequently contained in the affidavits of Mr and Mrs Parton filed on 21 October 2011. 17 No evidence was called by TLL to rebut any of the statements made by Mr and Mrs Parton concerning the misrepresentations and the Court found these statements proved. It might have been expected that, having been apprised of these allegations, TLL would have made inquiries to ascertain whether the assertions made by Mr and Mrs Parton were correct. The fact that no evidence was subsequently called to rebut these statements is a highly significant fact: see Jones v Dunkel (1959) 101 CLR 298. Further, in cross-examination of Mr and Mrs Parton no challenges were made to the Partons' truthfulness, nor was it submitted that they were untruthful witnesses. 18 Consequently, the Court can infer that TLL was aware that the unchallenged evidence of the Partons would prove what had been made clear to them by Lennmar during the mediation on 8 March 2011; that conduct had been engaged in by Freshtel which was misleading and deceptive and that TLL had aided and abetted such conduct. 19 In the Court's consideration, this circumstance transcends all other technicalities relied upon. TLL ought to have known if it was not possible to challenge the Partons' statements then the Court almost certainly would have accepted the Partons' evidence and found Lennmar's claims proved. In the absence of any evidence to the contrary to rebut those allegations, TLL must have known it had no defence to the charges of misrepresentation. 20 It follows that the litigation should never have proceeded beyond this point, and that by its conduct in pursuing its claim TLL has caused Lennmar to incur costs which the Court can accept must be substantial. Apart from interlocutory procedures, approximately nine days were occupied with the hearing. This fact renders moot TLL's submission that it was successful on particular isolated issues for determination.

THE CALDERBANK LETTERS 21 The next issue for consideration is whether TLL's conduct in rejecting the Calderbank offer made by Lennmar in its letter of 16 April 2011 was imprudent or unreasonable. 22 Indemnity costs do not automatically follow from an unsuccessful party's refusal to accept a Calderbank offer. It must be established that such refusal was imprudent or unreasonable: see Keays v JP Morgan Administrative Services (No 2) [2011] FCA 547 ('Keays') at [18]; Black v Lipovac (1998) 217 ALR 386 at [217]; Alexander v Australian Community Pharmacy Authority (No 3) [2010] FCA 506 at [22]-[24]. 23 There is no set formula that a Calderbank offer must follow. The question is whether the offer is made in terms that enable the offeree to give proper consideration to it: see Monie v Commonwealth (No 2) [2008] NSWCA 15 at [13]. 24 A Calderbank offer must be reasonable and must contain a statement of reasons why the opposing party's claim must fail: see Keays at [19]; Dukemaster Pty Ltd v Bluehive Pty Ltd [2003] FCAFC 1 at [8]; NMFM Property Pty Ltd v Citibank Ltd (No 2) (2001) 109 FCR 77 at [87]-[88]; Cutler v Derwent Howard Media Pty Ltd (subject to Deed of Company Arrangement) (No 3) [2011] FCA 1127; GM Holden Ltd v Paine (No 3) [2011] FCA 693. 25 The respondent's Calderbank offer dated 15 April 2011 does not contain any reasons at all to explain why the applicant's application was doomed to fail. The letter merely rejects the applicant's offer and sets out the terms according to which the respondent would be prepared to settle the matter. The failure to include this information means that it was not unreasonable for the applicant to reject the offer. Without including critical information about the perceived deficiencies in the applicant's case, the offer was not made in terms that could enable the applicant to give proper consideration to it. 26 With respect to TLL's Calderbank offer to Lennmar, the Court has made the finding that costs should be paid by TLL. Accordingly, it is unnecessary to consider the implications of such offer. 27 For the above reasons, the Court orders that the applicant pay the respondent's costs, albeit on the usual basis. I certify that the preceding twenty-seven (27) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Cowdroy.