WSA Online Limited v Arms

Federal Court of Australia (Full Court)|2006-07-05|Before: Bennett JJ

the court: 1 By a judgment of 8 July 2005, Mr Arms was awarded damages against WSA Online Limited (in administration) of $58,331, but his claim against Mr Houghton and Mr Student in respect of the same loss was dismissed. 2 These reasons concern costs orders to be made in respect of two appeals from that judgment. 3 WSA Online Limited (in administration) v Arms [2006] FCAFC 45 (the WSA appeal) concerned the quantum of damages against WSA in respect of misleading or deceptive conduct pursuant to s 52 of the Trade Practices Act 1974 (Cth) (the TPA). The appeal was dismissed. The result was that the judgment against WSA in the sum of $58,331 was maintained. 4 Arms v Houghton [2006] FCAFC 46 (the Arms appeal) allowed an appeal against the dismissal of the claims against Messrs Houghton and Student so that, by reason of their conduct as employees of WSA, they too were adjudged liable to Mr Arms for $58,331. 5 In respect of each appeal costs were reserved and opportunity was given for submissions on the question of interest and costs.

Submissions by Mr Arms 6 Mr Arms was the successful party on both appeals. While he accepts that the general rule is that the Court will order the unsuccessful party to pay the successful party's costs to be taxed on a party/party basis, he contends that two letters from his solicitors constituted Calderbank letters (Calderbank v Calderbank [1975] 3 All ER 333) which it is proper to take into account so that he is awarded costs of each appeal on a more favourable basis. 7 The first letter was dated 12 October 2005. It was sent to solicitors for Messrs Houghton and Student. Mr Arms offered to resolve all outstanding matters between himself and Messrs Houghton and Student on the basis that Mr Houghton pay the sum of $58,331 to Mr Arms, plus interest at the rate of 10% from the date of judgment (8 July 2005), plus his costs of the proceeding at first instance on a party/party basis. He was prepared to release Mr Student from liability and to pay Mr Student his costs of the proceeding at first instance. Mr Arms also offered to discontinue his appeal against Messrs Houghton and Student on the basis that there be no order as to costs. 8 That offer was not accepted by Messrs Houghton or Student. 9 The second letter was dated 9 February 2006. It was sent to solicitors for WSA as well as to solicitors for Messrs Houghton and Student. Mr Arms offered to resolve all outstanding matters between the parties on the basis that Messrs Houghton and Student, and WSA, pay the sum of $125,000 in full and final settlement of all claims in the proceeding at first instance and of the appeals, so that both he and WSA would discontinue their respective appeals on the basis that there be no order as to costs, and all parties otherwise bear their own costs of all proceedings. 10 That offer also was not accepted. 11 In these circumstances, Mr Arms contends that his costs: (a) of the Arms appeal should be paid by Messrs Houghton and Student on an indemnity basis, or alternatively on a solicitor/own client basis; and (b) of the WSA appeal should be paid by WSA on an indemnity basis, or alternatively on a solicitor/own client basis. 12 Mr Arms submits that the purpose of the Calderbank style offer is to encourage parties to settle litigation. Therefore he submits that it is appropriate that where a reasonable offer has been made which is not accepted, there should be some adverse consequence for the party who did not accept the offer. Further, he contends that this is particularly the situation in a case such as the present, where the offer made involved a significant compromise by the offeror. 13 Mr Arms asserts that he has achieved a better result by far than that which is outlined in either of the offers of 12 October 2005 or 9 February 2006. The present position is that the judgment has been maintained against WSA, and judgment has been obtained against Messrs Houghton and Student for payment of the damages sum of $58,331. He submits that the judgment sum, the amount of interest that will be awarded, and the costs to be awarded for the trial and the appeal will in total far exceed the offered sum of $125,000. 14 He claims that WSA and Messrs Houghton and Student all have insurance cover for the claims against them from CGU Insurance and hence their legal representation takes instructions from the same source. There is no evidence to confirm that, and we do not take it into account. We note that Messrs Houghton and Student have been represented in both proceedings by the same solicitors and counsel. 15 Mr Arms submits that the interest payable by Messrs Houghton and Student on the judgment now entered against them should be referred for determination by the primary judge before whom already is the issue of the interest payable by WSA on the judgment against it. He suggests the interest will exceed some $66,000, but that is a matter for the primary judge.

consideration 16 A Calderbank offer is a less formal means of proposing resolution of a proceeding or proceedings than the procedure under O 23 of the Federal Court Rules. The regime under O 23, where it applies, gives rise to a presumptive entitlement to indemnity costs: See e.g. per Lindgren J in MGICA (1992) Pty Ltd v Kenny & Good Pty Ltd (No 2) (1996) 70 FCR 236 at 240. A Calderbank offer does not carry the same presumptive entitlement to indemnity costs, but the public policy of encouraging settlement of litigation should nevertheless lead the Court to make an order for indemnity costs where a Calderbank offer has been made in terms which are clear and where it is appropriate to do so. Issues as to the terms of the Calderbank offer, including the persons to whom it was made, whether it included interest and costs, and the period allowed for its acceptance, will be relevant to that question. There may be other matters relevant in particular cases. In this matter, Mr Arms contends that in all the circumstances, WSA and Messrs Houghton and Student unreasonably rejected his offers of settlement. 17 We are not persuaded that the costs of the WSA appeal should be awarded against WSA on an indemnity basis or on a solicitor/own client basis. In essence we accept its submissions for that conclusion. 18 Only the letter of 9 February 2006 concerned its position. However, the offer in that letter was not capable of being accepted by WSA itself, independently of Messrs Houghton and Student. It required their agreement. That is not a matter which conclusively operates against the costs order sought. See e.g. Amadio Pty Ltd v Henderson (1998) 81 FCR 149. In the present circumstances, where the offer required each of the offerees to assess its or his individual circumstances and prospects of success on the forthcoming hearing of the two appeals, it is a significant matter. Secondly, the offer in that letter is not shown clearly to propose a result which is less favourable to Mr Arms as against WSA than he has now achieved. It may prove to be the case. Mr Arms has maintained the judgment in his favour against WSA, and has an order for the costs of the appeal. However, the issues of interest on the judgment and the costs of the trial are still to be addressed by the primary judge. We do not know what matters may influence his Honour in dealing with those issues, so it is not possible to determine whether that offer (even if it could have been accepted by WSA alone) would have led to a less favourable outcome for Mr Arms than he will ultimately achieve against WSA. Finally, we are influenced by the fact that the offer did not break up the amounts proposed for costs of the hearing at first instance, and of the appeal, separately from the amount of the judgment plus interest: see the remarks of Spender J in Smallacombe v Lockyer Investment Co Pty Ltd (1993) 42 FCR 97 at 102; and of Goldberg J in Dr Martens Australia Pty Ltd v Figgins Holdings Pty Ltd (No 2) [2000] FCA 602 at [24]. Again, that is not a decisive consideration, but weighs in the balance in this matter where issues of interest and costs of the hearing at first instance are to be resolved by the primary judge. 19 For those reasons, we do not consider it was unreasonable for WSA to reject that offer. We would not impose an order on the WSA appeal for solicitor/client costs or indemnity costs in favour of Mr Arms. There will be an order that WSA pay Mr Arms' costs of the WSA appeal on a party and party basis. 20 The position of Messrs Houghton and Student in relation to the Arms appeal is a little different. They received both offers. The first was directed only to Mr Houghton. They were jointly represented. We do not think it appropriate to distinguish between their respective positions. Mr Arms' contentions did not do so. The letter of 12 October 2005 recognised that, at first instance, the primary judge did not need to decide which of them was responsible for the relevant representations. 21 The first offer involved Mr Houghton accepting liability for the amount of Mr Arms' loss, as quantified by the primary judge, together with interest at 10 per cent from 8 July 2005, and costs of that hearing. The proposal in effect gave away the costs of Mr Student at first instance, and sought to have no order for costs of the Arms appeal. In our view, given the decision of the primary judge that neither was liable, it was not unreasonable for Messrs Houghton and Student not to accept that liability. In essence, Mr Houghton was not benefiting from the offer at all. Mr Student obviously was, although it is unclear, when they were jointly represented, the amount of costs Mr Student would recover. The offer avoided him being exposed to the Arms appeal succeeding, but otherwise did not give him anything to which he was not then entitled. However, in the circumstances outlined where the offer was to them jointly, and Mr Arms' present submissions do not distinguish between their respective positions, it is appropriate to consider their position collectively. The proposal, viewed overall, was not one which it was unreasonable for Messrs Houghton and Student to reject. 22 For the same reason, the second offer does not in our view provide a basis for making the costs order sought. The offer, so far as it concerned Messrs Houghton and Student, required them to accept a liability for which, at that point, they had been found not liable. Simply on that basis, it was not unreasonable for them in this matter to reject it. The difficulties associated with the lump sum proposed, as discussed in relation to WSA, also apply; the offer did not break up the components for interest and costs. So too do the difficulties associated with the proposal being put to WSA and Messrs Houghton and Student collectively. 23 Accordingly, we consider the appropriate order for costs on the Arms appeal is that Mr Arms have his costs of that appeal against the respondents on the usual party and party basis. 24 The parties are agreed that the primary judge should determine the interest, if any, payable on the judgment now entered in Mr Arms' favour against Messrs Houghton and Student, and the issue of costs of the proceeding at first instance. We will remit the matter to his Honour for those purposes.

Costs certificate 25 In the Arms appeal, Messrs Houghton and Student by motion seek a costs certificate pursuant to s 6 of the Federal Proceedings (Costs) Act 1981 (Cth). Subsection (1) of that section provides that, subject to the Act, where a federal appeal succeeds on a question of law, the Court that heard the appeal may, on the application of a respondent to the appeal, grant to the respondent a costs certificate in respect of the appeal. Subsection (3) provides that the effect of the certificate is that it would be appropriate for the Attorney-General to authorise a payment under that Act to the respondent in respect of the costs incurred by the respondent in relation to the appeal. It is not uncommon for the discretion to be exercised in favour of the grant of a certificate in instances where the court appealed from has fallen into error of law for which the respondent bears no responsibility. 26 Messrs Houghton and Student submit it is appropriate for a certificate to be granted for two reasons. The first is that this was a case where the Full Court has held that the primary judge was directing his mind to a peripheral question when he held that the respondents could not be imputed with any 'independent or commercial interest' rather than whether they could be liable for their acts within the scope of their actual authority (at [39]). Secondly, whilst it is correct to say that at the date of his judgment there were in existence decisions at appellate level in Arktos Pty Ltd v Idyllic Nominees Pty Ltd (2004) ATPR 42-005 and Wong (as executor of the Estate of Wong (decd) v Citibank Ltd [2004] NSWCA 396 in which employee liability for acts in trade or commerce within the scope of actual authority had been accepted, the decision in Wong was handed down after argument before Ryan J had concluded. 27 In our view for those reasons this is an appropriate case for a certificate to issue.

I certify that the preceding twenty-seven (27) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justices Nicholson, Mansfield and Bennett.

Associate: Dated: 30 June 2006 VID 843 of 2005 Counsel for the Appellant: PG Cawthorn

Solicitor for the Appellant: Herbert Geer & Rundle

Trade Practices Act 1974(Cth)s 52

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