FEDERAL COURT OF AUSTRALIA

Elecspess Pty Ltd v LED Technologies Pty Ltd [2013] FCAFC 116

THE COURT ORDERS THAT:

1.    Pursuant to r 1.04(3) of the Federal Court Rules 2011, the Federal Court Rules as in force immediately before 1 August 2011 apply to the taxation of so much of the respondent’s costs, including its costs of the cross-appeal, as are to be paid by the first appellant.

2.    To the extent that the respondent’s costs satisfy both of the following conditions, namely,

(a)    they were incurred after 11 am on 10 April 2009; and

(b)    they are to be paid by the first appellant pursuant to –

i)    one or more of Orders 6, 7, 11 and 12 made on 23 December 2010, or

ii)    Order 3 below;

those costs be taxed on an indemnity basis.

3.    The first appellant pay the respondent’s costs of its application pursuant to the liberty reserved by Order 14 made on 23 December 2010.

Note:    Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

REASONS FOR JUDGMENT

1    Before the court is an application by the respondent, LED Technologies Pty Ltd (“LED Technologies”), for the costs to which it became entitled under final orders disposing of this appeal on 23 December 2010 to be taxed on an indemnity basis as against one of the four appellants in the appeal, Elecspess Pty Ltd (“Elecspess”). When the appeal was heard and determined, Emmett J was a member of the Full Court. He has since resigned from the court, and the present application is being dealt with by the remaining two members of the Full Court with the consent of the parties.

2    The original judgment of the primary Judge, which was adverse to each of the four companies which became appellants in this appeal, was delivered on 18 December 2008: LED Technologies Pty Ltd v Elecspess Pty Ltd (2008) 80 IPR 85. On 24 February 2009, the primary Judge made final orders conformably with her judgment of 18 December 2008: LED Technologies Pty Ltd v Elecspess Pty Ltd (No 2) [2009] FCA 141. Her Honour declared that products offered for sale and sold by Elecspess (and the other appellants) infringed LED Technologies’ registered design. She made an injunction binding upon the appellants, including Elecspess, and ordered them to pay damages to LED Technologies in the sum of $200,000 for infringement of registered design. On the designs case, her Honour ordered the appellants, including Elecspess, to pay the costs of LED Technologies. There had also been a claim of contravention of the Trade Practices Act 1974 (Cth), as to which her Honour made no orders, save an order that LED Technologies pay the appellants’ costs, including those of Elecspess.

3    On 17 March 2009, the appellants filed their notice of appeal. On 6 April 2009, LED Technologies filed a notice of cross-appeal.

4    On 9 April 2009, LED Technologies served an offer of compromise which, to the extent that it was addressed to Elecspess, provided as follows:

The Cross Appellant (LED Tech) hereby offers to compromise the whole of the claims the subject of proceedings numbered VID 316 of 2007, VID 167 of 2009, and VID 168 of 2009 (the Proceedings) and all costs payable by any party in respect of any of those Proceedings:

1.    with the First Respondent (Elecspess) on the basis that:

1.1    Elecspess admits for the purpose of the Proceedings that:

1.1 (a)    Australian Registered Design number 302,359 (the dual lens design) and Australian Registered Design number 302, 360 (the triple lens design) are valid;

1.1 (b)    the Condor product with the code number TL80RA embodies a design that is substantially similar in overall impression to the dual lens design;

1.1 (c)    the Condor products with the respective code numbers TL80RRA/TL80ARR, TL80ARW, TL100 AAR, TL100RAA, TL100ARW, TL125AAR/TL125RRA and TL125ARW embody a design that is substantially similar in overall impression to the triple lens design; and

 1.2    Elecspess pays to the Appellant, within 14 days of the date of acceptance of this offer:

1.2 (a)    damages in the sum of $103,000; and

1.2 (b)    costs in the sum of $75,000.

1.3    LED Tech and Elecspess waive all other claims against each other relating to the subject matter of the Proceedings.

The offer was addressed also to the other three appellants, but it contained the following provision:

5.    An offer consisting of paragraph 1, 2, 3, or 4 above may be accepted by the party (or parties) identified in that paragraph:

5.1    independently of whether or not an offer in another paragraph is accepted;

5.2    on or before Friday 24 April 2009.

The offer was not accepted by any party to which it was addressed.

5    The Full Court resolved the issues arising in the appeal and the cross-appeal (and in a second appeal with which the present appeal was associated) by a judgment delivered on 9 June 2010: Keller v LED Technologies Pty Ltd (2010) 185 FCR 449. After hearing the parties, on 27 August 2010 the Full Court ordered that the appeals of three of the four appellants, including that of Elecspess, be dismissed. The further final disposition of the appeals was delayed by the need to deal with a specific application made by the fourth appellant, Advanced Automotive Australia Pty Ltd (“AAA”). That application, and all remaining matters in the appeal, were disposed of by a judgment given, and orders made, on 23 December 2010: Keller v LED Technologies Pty Ltd (No 2) [2010] FCAFC 160. In those orders, the Full Court ordered three of the appellants, including Elecspess, to pay LED Technologies’ costs of the appeal. Because of the success which LED Technologies achieved on its cross-appeal, it was ordered that the cross-respondents pay 80% of LED Technologies’ costs of the cross-appeal and, additionally, that two of the cross-respondents, including Elecspess, pay 10% of those costs.

6    As part of its submissions as to the orders which should be made in consequence of the Full Court judgment of 9 June 2010, LED Technologies applied to have the costs in the appeal to which it became entitled taxed on an indemnity basis, to the extent that they were incurred after 9 April 2009. The Full Court dealt with that application in the following terms:

[75]    LED’s offer of compromise gives rise to issues of some complexity, not least because it was, as we have indicated, addressed to multiple parties by group, when some of those parties who were not all in the same group (the Corporate Respondents) were jointly and severally liable for a single sum by way of damages. We do not, however, need to address those issues at this point, since we consider that LED’s submission that we should order that its costs be paid on an indemnity basis is both misconceived and premature. The submission is misconceived because, if LED has achieved a result no less favourable than that proposed in its offer, O 23 r 11(4) operates according to its terms. In the absence of an order to some other effect, LED is entitled to have its costs taxed on an indemnity basis. The submission is premature because, until it is known for what sum the other parties are liable to LED in costs (taxed as between party and party), it will not be possible to determine whether LED has achieved a result no less favourable than that contained in its offer.

[76]    For the foregoing reasons, we are not disposed to treat LED’s submission on indemnity costs as an application for costs to be taxed on an indemnity basis, but, recognising that there may be questions which may yet require the attention of the Full Court on the subject, liberty to apply should be granted.

Conformably with these reasons, the Full Court then made the following order:

14.    The respondent/cross appellant have liberty to apply with respect to issues arising in connection with its Offer of Compromise dated 9 April 2009.

7    In the period which has elapsed since 23 December 2010, certain things have happened. The third and fourth appellants (Ren International Pty Ltd and Olsen Industries Pty Ltd respectively) have now been wound up. LED Technologies settled its claim against AAA. A provision of the settlement agreement was the following:

2.    Trial and appeal costs

AAA shall pay to LED, by no later than 4pm on Friday 25 March 2011 the sum of twenty thousand dollars ($20,000) in full and final satisfaction of LED’s claims for costs pursuant to:

5.1    paragraph 6 of the Final Trial Orders; and

5.2    paragraphs 2, 9(b), 9(d) and 11 of the Final Appeal Orders.

The costs to which LED Technologies was entitled as against the other parties in relation to the proceeding before the primary Judge have been taxed at $434,325.90. These costs have now been paid by Elecspess.

8    LED Technologies now applies, pursuant to the liberty granted on 23 December 2010, for the orders then made to be varied such that, to the extent that its costs would be paid by Elecspess, those costs be taxed on an indemnity basis after 9 April 2009.

9    The first issue presented by that application is whether it falls to be determined under the Federal Court Rules as they existed before 1 August 2011 (“the old rules”), or under the Federal Court Rules 2011 (“the new rules”), which commenced on that date. Rule 1.04 of the new rules provides as follows:

(1)    These Rules apply to a proceeding started in the Court on or after 1 August 2011.

(2)    These Rules apply to a step in a proceeding that was started before 1 August 2011, if the step is taken on or after 1 August 2011.

(3)    However, the Court may order that the Federal Court Rules as in force immediately before 1 August 2011 apply, with or without modification, to a step mentioned in subrule (2).

The present appeal was started before 1 August 2011. The new rules would apply, therefore, only in relation to a “step” in the appeal which was, or is to be, taken on or after 1 August 2011. In the submission of LED Technologies, the presently relevant step was the making of its offer of compromise, and Elecspess’s failure to accept that offer, both of which occurred in April 2009. In the submission of Elecspess, however, the relevant “step” is the taxation of LED Technologies’ costs. The orders made on 23 December 2010 did not, it was submitted, provide for LED Technologies’ costs to be taxed on an indemnity basis, and such an outcome is now being sought. If LED Technologies achieves what it seeks, that will be the result of a step now taken by the Full Court.

10    We consider that Elecspess has the better of the argument on this aspect. Whether in the sense of the order which LED Technologies seeks, or in the sense of the taxation of its costs, the “step” which is relevant to the present application must be regarded as one which is now about to be taken, and thus subsequently to 1 August 2011. In our view, the new rules apply to that step.

11    In the event that we might make a ruling along those lines, LED Technologies sought an order under subr (3) of r 1.04 of the new rules that the old rules should apply to that step. We consider that such an order should be made. The purpose of an offer of compromise, and of the rules of court which provide for the consequences of the failure to accept such an offer, is to provide the offeree with a powerful incentive seriously and conscientiously to assess the merits, and the likely outcome, of the litigation which he or she is prosecuting or defending. Viewed this way, the critical events in the present case occurred in April 2009 when LED Technologies served, and Elecspess declined to accept, the offer of compromise. At the time, both parties must be taken to have assumed that it would be under O 23 r 11 of the old rules that consequences of that non-acceptance would arise. It would, in our view, be unjust now to deprive LED Technologies of the benefit of those consequences. We shall, therefore, make an order pursuant to r 1.04(3) of the new rules that the rules in force immediately before 1 August 2011 apply to the taxation of LED Technologies’ relevant costs.

12    Turning to the old rules, therefore, in the application of O 23 r 11 to an appeal, the appellant (here, Elecspess) is relevantly the applicant, and the respondent (here, LED Technologies) is relevantly the respondent referred to in the rule. Within that setting, the present case is governed by r 11(6), which provided as follows:

If:

(a)    an offer is made by a respondent and not accepted by the applicant; and

(b)    the respondent obtains an order or judgment on the claim to which the offer relates as favourable to the respondent, or more favourable to the respondent, than the terms of the offer;

then, unless the Court otherwise orders:

(c)    the respondent is entitled to an order that the applicant pay the respondent’s costs in respect of the claim incurred up to 11 am on the day after the day the offer was made, taxed on a party and party basis; and

(d)    the respondent is entitled to an order that the applicant pay the respondent’s costs in respect of the claim incurred after that time, taxed on an indemnity basis.

13    As against Elecspess, did LED Technologies obtain an order or judgment in the appeal as favourable, or more favourable, to it than the terms of its offer of 9 April 2009? In our opinion, it did. Indeed, the contrary was not seriously suggested by counsel for Elecspess. The dismissal of Elecspess’s designs appeal meant that LED Technologies received a judgment on the substantive point involved no less favourable than that proposed in para 1.1 of the offer. LED Technologies was prepared to settle for damages in the sum of $103,000, and ultimately became entitled to $200,000 by reason of Elecspess’s joint liability. LED Technologies was prepared to settle for costs incurred to the date of acceptance of the offer in the sum of $75,000, and ultimately became entitled to more than $400,000. The condition referred to in O 23 r 11(6)(b) has, therefore, been satisfied.

14    Elecspess advances a number of arguments why the consequences for which r 11(6) provided should not follow. It first points to O 23 r 5 of the old rules, which provided that an offer might be made at any time before (relevantly to the present matter) the time “when the Court … pronounces the decision or begins to give reasons for the decision”. It was argued on behalf of Elecspess that, because the offer of compromise related, at least to a substantial extent, to the proceeding which had already been heard and determined by the primary Judge, 9 April 2009 was too late for the offer to have been made in accordance with that provision. We do not accept that argument. The offer was made in, and for the purposes of, the appeal. In point of content, the offer picked up the monetary and costs consequences of the orders which were under appeal, but that will almost inevitably be the case in appeals. For LED Technologies, the outcome of the appeal was more favourable to it than that which had been offered to Elecspess and it was that circumstance, in our view, which invoked the operation of O 23 r 11(6). We do not accept that the offer was made outside the time for which r 5 provided.

15    Elecspess next submits that O 23 r 11(6) entitled an offeror to have its costs taxed on an indemnity basis only where the offeree’s rejection of the offer was “imprudent or unreasonable”. It was submitted that a “gloss” to this effect was added to the provisions of O 23 r 11 by the judgments of the Full Court in Dukemaster Pty Ltd v Bluehive Pty Ltd [2003] FCAFC 1 (“Dukemaster”) and Seven Network Ltd v News Ltd (2009) 182 FCR 160 (“Seven Network”).

16    Dukemaster was decided before subr (6) was introduced into O 23 r 11 of the old rules (that subrule having commenced on 2 August 2008). At that time, although r 11 dealt with the situation created when a successful applicant had obtained judgment no more favourable than an earlier offer made by the ultimately unsuccessful respondent, it did not deal with the situation where an ultimately unsuccessful applicant had previously rejected an offer made by the ultimately successful respondent. It was a situation of the latter kind which arose in Dukemaster. In the circumstances, Sundberg and Emmett JJ said ([2003] FCAFC 1 at [6]-[7]):

[6]    In the events that happened, the offer did not fall within Order 23, because sub-rule (5) does not cover the case where a respondent’s offer has been rejected in circumstances where the applicant has been wholly unsuccessful. Nevertheless, the making of the offer remains a matter to be taken into account in determining whether the usual party/party costs order, or some order more generous to the appellant, should be made. See Coshott v Learoyd [1999] FCA 276.

[7]    The mere making of an offer of compromise and its non-acceptance, followed by a result more favourable to the offeror, does not automatically lead to an order for payment of costs on an indemnity basis: John S Hayes & Associates Pty Ltd v Kimberley-Clark Australia Pty Ltd (1994) 52 FCR 201 at 204-206; MGICA (1992) Pty Ltd v Kenny & Good Pty Ltd (No 2) (1996) 70 FCR 236 at 239. The applicant for a more generous award must show that the rejection of the offer was imprudent or plainly unreasonable: NMFM Property Pty Ltd v Citibank Ltd (No 2) (“NMFM”) (2001) 109 FCR 77 at 98; Australian Competition & Consumer Commission v Australian Safeway Stores Pty Ltd (No 3) [2002] FCA 1294 at [28]; Sydney Markets Ltd v Sydney Flower Market Pty Ltd [2002] FCA 283 at [16]-[17] and [23].

As is apparent from that passage, and from what their Honours went on to say in the passage which followed, they were confronted with an “offer of compromise outside the regime in [O] 23”. There was, in the circumstances, no presumptive entitlement of indemnity costs for the offeror. Rather, under general considerations usually associated with Calderbank v Calderbank [1976] Fam 93, the offeror would succeed in converting the normal basis of taxation into an indemnity basis only if the offeree’s rejection of the offer was “imprudent or plainly unreasonable”. The court’s practice in this regard was explained in CGU Insurance Limited v Corrections Corporation of Australia Staff Superannuation Pty Ltd [2008] FCAFC 173 at [75].

17    Seven Network was a similar case, in the sense that there too the applicant, which had rejected an offer of compromise, was wholly unsuccessful. Having rehearsed the authorities, the Full Court said (182 FCR at 404-405 [1108]-[1109]):

[1108]    Thus there are the decisions of two judges of this Court and a decision of the Full Court to the same effect; that is, that O 23, r 11 has no application in circumstances where the claim is for a sum of money; the respondents offer a sum by way of settlement; the offer is refused; and the applicant subsequently wholly fails.

[1109]    In our opinion, the subrule has no application to the circumstances which were before his Honour. He was right to follow the decision in Dukemaster Pty Ltd v Bluehive Pty Ltd [2003] FCAFC 1. It may be thought that the decision leads to an anomalous result. However, where an applicant has failed and there is no disqualifying conduct, it has to pay the respondent’s costs on a party and party basis. The respondent can seek a more favourable order if it can show that there is some special or unusual feature of the case which would enliven the discretion to order costs on an indemnity basis. A special or unusual feature might be that the applicant’s conduct was “imprudent or unreasonable”, but that will involve the exercise of discretion.

18    Returning to the present case, it was submitted on behalf of Elecspess that the introduction of subr (6) in August 2008 did not have effect of reversing the rulings given in Dukemaster and Seven Network, and that it was, therefore, still necessary for a successful respondent whose offer had been rejected to establish that the rejection was imprudent or unreasonable. We cannot accept that submission. As it seems to us, the very point of the introduction of subr (6) was to fill the lacuna which had previously been identified in the scheme of r 11. It produced the result, in effect, that a respondent who wholly succeeded would be no worse off than a respondent who failed, but in an amount less than that for which he or she had been prepared to settle. That there was, after the introduction of subr (6), no longer a requirement for a respondent in the former situation to establish that the rejection had been imprudent or unreasonable was the ruling of Full Courts in three decisions, namely, Futuretronics.Com.Au Pty Ltd v Graphix Labels Pty Ltd [2009] FCAFC 40 at [11]-[12]; IFTC Broking Services Ltd v Commissioner of Taxation (2010) 268 ALR 1 at 5 [12]; and Sagacious Legal Pty Limited v Wesfarmers General Insurance Ltd (No 2) [2011] FCAFC 66 at [6] (“Sagacious”).

19    As against the authorities to which we have referred, counsel for Elecspess relied on the judgment of the Full Court in Kooee Communications Pty Ltd v Primus Telecommunications Pty Ltd (No 2) [2011] FCAFC 141 (“Kooee Communications”). Procedurally, that appeal had something in common with the appeal which is before us in the present case. At first instance, formal offers of compromise had been made on 4 March 2008. The case was decided adversely to the offeror on 12 January 2011: Primus Telecommunications Pty Ltd v Kooee Communications Pty Ltd [2011] FCA 8. On appeal, that result was reversed: Kooee Communications Pty Ltd v Primus Telecommunications Pty Ltd [2011] FCAFC 119. That occurred on 9 September 2011, some five weeks after the commencement of the new rules. The offeree then sought indemnity costs by reason of the rejection of its offer of 4 March 2008. Although it is not entirely clear, the view appears to have been taken by the Full Court that, prima facie as it were, the new rules applied. The question to which their Honours’ turned their mind was whether an order should be made under r 1.04(3) displacing the new rules.

20    In dealing with that question, their Honours said ([2011] FCAFC 141 at [13]-[18]):

[13]    Under O 23 r 11(6) of the old Rules, if a respondent made an offer of compromise which was not accepted by an applicant and the respondent obtained an order or judgment as favourable to the respondent as or more favourable to the respondent than the offer then, unless the Court otherwise ordered, the respondent would be entitled to an order for costs on the usual basis up to the day of the offer and to an order for indemnity costs thereafter. The old Rules were repealed on 1 August 2011, and from that date the new Rules apply. Rule 1.04(2) of the new Rules provides that the new Rules “apply to a step in a proceeding that was started before 1 August 2011, if the step is taken on or after 1 August 2011”. Rule 1.04(3), however, provides that “…the Court may order that the Federal Court Rules as in force immediately before 1 August 2011 apply, with or without modification, to a step mentioned in subrule (2)”. Rule 25.14 of the new rules is in these terms:

(1)    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 a.m. 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.

(2)    If an offer is made by a respondent and an applicant unreasonably fails to accept the offer and the applicant’s proceeding is dismissed, the respondent is entitled to an order that the applicant pay the respondent’s costs:

(a)    before 11.00 a.m. on the second business day after the offer was served — on a party and party basis; and

(b)    after the time mentioned in paragraph (a) — on an indemnity basis.

[14]    As will be apparent from Rule 25.14(2) above, the new Rules expressly deal with the situation where a respondent makes an offer to an applicant (which is not accepted) and the applicant’s proceeding is dismissed. In that event, the presumption that an order for indemnity costs will be made applies if (but only if) the applicant “unreasonably” failed to accept the offer. We use the term “presumption” here because Rule 1.35 of the new Rules provides that the “Court may make an order that is inconsistent with these Rules and in that event the order will prevail”, which is equivalent to the “otherwise orders” provision that appeared in O 23 r 11(6) of the old Rules.

[15]    It should also be noted that, although the old Rules did not expressly deal with the situation where a respondent makes an offer to an applicant (which is not accepted) and the applicant’s proceeding is dismissed, Rule 25.14(2) of the new Rules largely reflects the principles which had been developed under the old Rules and in accordance with which the discretion as to costs was to be exercised. For example, in Coshott v Learoyd [1999] FCA 276 at [37] Wilcox J noted that:

Where an applicant makes an offer which is not accepted by the respondent and the applicant obtains a judgment not less favourable than the terms of the offer, the applicant is prima facie entitled to have costs on an indemnity basis as from the date of the offer. Where a respondent makes an offer that is not accepted and the applicant obtains a judgment not more favourable than the terms of the offer, the applicant is prima facie entitled to party-party costs until the day after the offer and the respondent to party-party costs thereafter. However, rule 11 does not cover the situation that occurred in this case, where a respondent’s offer is rejected and the applicant is wholly unsuccessful. […]

[16]    Following a review of relevant decisions, Wilcox J at [46] observed that:

Everybody agrees there can be no fixed rule; a proposition established for this Court by the terms of s 43 of the Federal Court of Australia Act 1976 conferring on the Court a discretionary jurisdiction in relation to costs. Everybody also agrees that, while the ordinary practice is to award costs on a party-party basis, it is sometimes appropriate to take a different course, including ordering indemnity costs against a party who has acted unreasonably.

[17]    More recently, in McDonald v Parnell Laboratories (Aust) (No 2) (2007) 165 FCR 591; [2007] FCA 2086 Buchanan J dealt with another case in which a respondent had made an offer of compromise which was not accepted and the applicant ultimately failed entirely in its claims. He also reviewed the relevant decisions and at [23] concluded in these terms:

If an offer is made under O 23 and an applicant is partially successful, although falling short of the offer, there is a presumptive right in the respondent to indemnity costs (see O 23 r 11(5)). In the present case the offer was a substantial one. Had Ms McDonald had a good measure of success, but not achieved a result exceeding the offer, the respondent’s presumptive right would have been enlivened. The absence of some provision accommodating the circumstance that an applicant fails altogether is anomalous (see also Seven Network [v News Limited [2007] FCA 1489] at [57]-[59]). Like Sackville J in Seven Network, I regard myself as bound by Dukemaster [Pty Ltd v Bluehive Pty Ltd [2003] FCAFC 1] not to approach the matter on the basis of a presumption, despite the anomaly. Nevertheless, I do not regard it as inconsistent with authority to follow the approach indicated by Wilcox J in Coshott [v Learoyd [1999] FCA 276] which was also referred to with apparent approval in Dukemaster. The respondents therefore have a ‘good start’ but I must also consider whether Ms McDonald was imprudent or (plainly) unreasonable to reject the offer at the time it was made.

[18]    If there is any material difference between the effect of the old and new Rules, it is that the new Rules make clear that the presumption of indemnity costs is not enlivened in these circumstances unless an applicant has “unreasonably” failed to accept a respondent’s offer of compromise. As we consider this to be effectively the same position as prevailed under the old Rules (despite the concern of some that this might be anomalous), we do not propose to make any order under Rule 1.04(3) displacing any part of the new Rules. Accordingly, the relevant question – at least insofar as the offer of compromise under O 23 is concerned – is whether, having regard to all the circumstances, Primus unreasonably failed to accept Kooee’s offer. As a matter of principle, the same criterion of unreasonableness governs the question whether rejection of the Calderbank offer should result in an order for indemnity costs against an unsuccessful party.

It was, in the circumstances, because the Full Court took the view that the same situation prevailed under the new rules as had prevailed under the old rules – namely, that a wholly successful respondent/offeror would not be entitled to have his or her costs taxed on an indemnity basis unless the rejection of the applicant/offeree had been unreasonable – that it decided not to make an order under r 1.04(3).

21    None of the three authorities to which we have referred at paragraph 18 above was, it seems, referred to by the Full Court in Kooee Communications. That was, in our respectful view, regrettable. In the current era of electronic searching, it is difficult to accept that counsel were not reasonably in a position to have located the judgment of the Full Court in Sagacious (to refer to the judgment which was, at the time, less than six months old) which, as noted above, made it clear that, in invoking the operation of O 23 r 11(6) in circumstances to which it otherwise applied, a successful respondent was not obliged to establish that the rejection of his or her offer of compromise had been unreasonable.

22    With respect, we cannot accept the correctness of the Full Court’s observation in Kooee Communications that, under the old rules, the situation where a respondent made an offer to an applicant, where the offer was not accepted, and where the applicant’s proceeding was dismissed, was not expressly dealt with. It was to cover a situation of that kind that r 11(6) was introduced in August 2008. The most obvious situation in which a respondent obtains judgment on a particular claim is one in which the claim is dismissed. Both of the first instance judgments to which the Full Court in Kooee Communications referred – Coshott v Learoyd [1999] FCA 276 at [37] and McDonald v Parnell Laboratories (Aust) Pty Limited (No 2) (2007) 165 FCR 591 – drew attention to what was regarded as an anomalous omission in the rules prior to the introduction of subr (6), namely, the failure to cover the circumstances of a wholly successful respondent whose offer of compromise had been rejected.

23    We should, of course, follow a previous Full Court judgment directly on point unless we take the view that it was plainly wrong. As it happens, we do take that view about Kooee Communications, to the extent that it involved the operation of O 23 r 11(6). However, we are faced with a situation in which the Full Court judgments referred to in para 18 above, which predated Kooee Communications and were not referred to in it, should also be followed. However we decide this aspect of the case, we will be doing so contrary to a judgment of the Full Court. In these circumstances, we are bound to express the view, which we hold, that Kooee Communications was, on this point, decided per incuriam in the sense that a previous judgment of the Full Court, directly on point, was not referred to.

24    In the view we take, consistently with Sagacious and the other authorities to which we have referred, an ultimately successful respondent whose offer of compromise was rejected was, under O 23 r 11(6) of the old rules, not required to establish that the rejection was imprudent or unreasonable before being presumptively entitled to have his or her costs taxed on an indemnity basis in accordance with the subrule.

25    From this point, Elecspess had two arguments as to why the consequences for which r 11(6) applied should not follow to the advantage of LED Technologies. The first was that LED Technologies had made an election between two inconsistent legal rights, and that it had, therefore, precluded itself from making the application which is now before the court. The two rights were said to be (1) the right to “prosecute or enforce or compromise its costs orders in the appeal” and (2) the right to await the taxation of its costs, as contemplated by para 75 of the reasons of the Full Court given on 23 December 2010, and then to apply to have those costs re-taxed on an indemnity basis. By adopting the first course in the case of AAA, it was said that LED Technologies had made an election which precluded it from adopting the second course in the case of Elecspess.

26    There is a short answer to this submission. The present is not a situation in which the doctrine of election can have any operation. As noted above, the offer of compromise was made to the appellants severally, as though a separate offer had been dispatched to each. Had one of them accepted the offer – or otherwise used the occasion to enter into negotiations which led to a settlement – LED Technologies’ rights as against the other appellants would have been unaffected. Had the other appellants chosen to contest the appeal, and lost it, for LED Technologies then to have asserted its entitlement under O 23 r 11(6) in relation to costs which became its due as against those other appellants would have involved no inconsistency as between different legal rights. LED Technologies’ rights as against the four appellants lay in parallel, as it were, and prosecution or compromise of any one of them would not affect, and certainly not impair, subsequent reliance on the others (although, as is accepted on the present occasion by LED Technologies, in relation to obligations to LED Technologies which were shared jointly as between the appellants, such as for costs, the result of such a prosecution or compromise may well affect the sum remaining to be paid by the other appellants).

27    Elecspess’s second argument was that we should make an order ousting the conventional operation of r 11(6) because of the unfair result that would otherwise arise, particularly given LED Technologies’ decision to settle with AAA. It was submitted on its behalf that, in the normal course, LED Technologies might be expected to have made the present application against all four appellants in the appeal. However, because they have been wound up, the third and fourth appellants are effectively out of the picture. That left AAA and Elecspess as the only two solvent appellants to whom LED Technologies could look for the costs of the appeal which were awarded in its favour. Instead of making them both respondents to the present application, however, LED Technologies settled with AAA. It was, from that point, contractually precluded from seeking from AAA more by way of costs than the amount for which it had settled. That explained why the present application was made against Elecspess only. Notwithstanding the settlement with LED Technologies, Elecspess might have had (and might still have) a claim for contribution against AAA in relation to the costs of the appeal which it will be obliged to pay. But it could not include in such a claim the additional costs to which it would be liable as a result of taxation proceeding on an indemnity basis because AAA would not be subject to an obligation to pay LED Technologies’ costs on that basis. In the submission of Elecspess, the position in which it finds itself is “grossly unfair” and is largely the result of LED Technologies having made what was described as an election to settle with AAA, thus effectively immunising AAA from the consequences of any such order as it now seeks in relation to Elecspess itself.

28    It must be remembered that the present application is not concerned with the broader question of by whom LED Technologies’ costs of the appeal should be paid. Neither is it concerned with the question whether Elecspess would have a claim for contribution, in relation to those costs, as against AAA. Subject to the latter possibility, the circumstance that Elecspess now finds itself practically obliged to pay a large part of the costs of LED Technologies is the unavoidable, and conventional, consequence of the fact that it has been found to be jointly liable for the costs of an appeal in which it made common cause with the other appellants. The application is concerned with whether those costs should be taxed on an indemnity basis, to the extent that they are to be paid by Elecspess. We cannot oblige LED Technologies to take the same approach with respect to the other three appellants since, in two cases, they have been wound up and, in the other case, there has been a settlement of which, save in respect of Elecspess’s “election” point, we have not been invited to be critical.

29    When Elecspess received LED Technologies’ offer of 9 April 2009, it had recently filed an appeal which included challenges, on a broad front, to the success which LED Technologies had achieved at first instance. It must be presumed that Elecspess was then conscious of the risk that, in the event of the appeal failing (or the cross-appeal succeeding), it might well be the last man standing, as it were, to satisfy a costs order in favour of LED Technologies. This ought to have been a consideration which it took into account when it considered the offer. It ought also to have realised the consequences for which O 23 r 11(6) provided. In other words, what has actually happened was always within the range of risks which ought reasonably to have presented themselves to Elecspess in April 2009. If anything, that ought to have given greater significance to the incentive to settle which LED Technologies’ offer involved. It was made clear in the offer that it was addressed to, and could be accepted by, Elecspess regardless of the course followed by the other appellants. Both the benefits and the risks, to Elecspess as a separate appellant, ought reasonably to have been apparent.

30    A consideration of the position of LED Technologies should also be placed on the scales. In April 2009, it gave Elecspess the opportunity to extract itself from the litigation on terms which, if accepted, would have reduced to a substantial degree its monetary exposure under the orders made by the primary Judge. Had the offer been accepted, LED Technologies would thereafter have been denied access to Elecspess for the purpose of paying, or making a further contribution to, its costs of the appeal. With the benefit of hindsight, it is now clear how much worse off LED Technologies would have been had Elecspess accepted the offer. We believe that LED Technologies should get credit for making such an offer, and that this would, in effect, be negatived if we were to deny it the conventional outcome for which the rule under which it made the offer provided.

31    For the above reasons, and while we can understand Elecspess’s frustration, we do not accept that the situation in which it now finds itself amounts to a sufficient discretionary basis to exclude the operation of r 11(6) in the circumstances.

32    The orders which we make will have the substantive effect of granting to LED Technologies the relief which it seeks. Costs should follow the event in that regard and, in accordance with the terms of the relief sought, those costs too should be taxed on an indemnity basis.

Associate:

Dated:    18 October 2013