FEDERAL COURT OF AUSTRALIA

Pocketful of Tunes Pty Ltd v Copyright Tribunal [2015] FCAFC 146

THE COURT ORDERS THAT:

1.    The decision of the Copyright Tribunal of Australia made on 22 May 2015 be set aside.

2.    The question of costs in the proceedings in the Tribunal matter be remitted to the Tribunal for reconsideration and determination according to law.

3.    The second respondent pay the applicants' costs of this application for judicial review, as agreed or taxed.

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

REASONS FOR JUDGMENT

THE COURT

Introduction

1    By their originating application dated 12 June 2015, the applicants sought judicial review of a decision of the Copyright Tribunal of Australia (the Tribunal) made on 22 May 2015 under s 174(1) of the Copyright Act 1968 (Cth) (the Copyright Act). The decision concerned the disposition of the costs of a proceeding before the Tribunal. The applicants specifically challenged the Tribunal’s order that they pay the second respondent’s costs of the proceedings before the Tribunal from 26 July 2013 on an indemnity basis.

2    Amongst other things, the applicants sought an order quashing the decision of the Tribunal and either an order that the second respondent (the Commonwealth) pay the applicants’ costs of the proceedings before the Tribunal; or alternatively, an order remitting the matter to the Tribunal for reconsideration according to law.

3    After the hearing of the application on 19 October 2015, the Court made the following orders:

1.    The decision of the Copyright Tribunal of Australia made on 22 May 2015 be set aside.

2.    The question of costs in the proceedings in the Tribunal matter be remitted to the Tribunal for reconsideration and determination according to law.

3.    The second respondent pay the applicants' costs of this application for judicial review, as agreed or taxed.

The Court stated that it would deliver reasons subsequently. These are the reasons for the orders made by the Court on 19 October 2015.

background

4    The background to the application can be briefly stated. The second applicant (Bruce Woodley) is a well-known Australian composer. He is the sole author of the music and a joint author of the lyrics for the song “I am Australian” (the Song).

5    Pocketful of Tunes Pty Ltd (Pocketful of Tunes), the first applicant, is Mr Woodley’s trading company and is the owner of the copyright in the music of the Song and the right to reproduce the lyrics of the Song on the soundtrack to a film or other audiovisual presentation (the synchronisation right).

6    In July 2012, Mr Woodley became aware that the (then) Department of Immigration and Citizenship (the Department) had engaged a production company known as Radiowise Media Networks Pty Ltd (Radiowise), to create an audiovisual presentation for use in Australian citizenship ceremonies. The parties referred to this audiovisual presentation as ‘the Montage’. The soundtrack to the Montage contained a reproduction of the music and lyrics of the Song without the applicants’ consent and the Montage failed to identify Mr Woodley as the author of the Song's music or lyrics. The Song was performed by an artist other than Mr Woodley.

7    The Commonwealth paid an amount of $2,954.20 plus GST to Radiowise for music licences through the Australasian Performing Right Association and the Australasian Mechanical Copyright Owners Society. It did not, however, obtain a licence to the synchronisation right, the right to reproduce and use the lyrics on the sound-track to a cinematograph film or other audiovisual presentation.

8    On 18 February 2013 the applicants commenced proceedings in the Federal Court against the Commonwealth, Radiowise (which had since changed its name), and the sole director and shareholder of Radiowise, Peter Rubinstein, for infringement of copyright and moral rights by reason of the production and use of the Montage. The relief sought in the Federal Court proceeding (VID 93/2013) included damages for copyright infringement, delivery up and/or damages for detention and conversion, damages for infringement of moral rights, a public apology for infringement of moral rights, and interest.

9    On 17 April 2013, the Commonwealth filed its defence in the Federal Court proceeding, which included as a ground of defence that the production of the Montage was done for the services of the Commonwealth within the meaning of s 183(1) of the Copyright Act. The Commonwealth also filed a cross-claim against Radiowise and Mr Rubinstein.

10    On 26 July 2013, following an unsuccessful mediation, the solicitors for the Commonwealth sent an offer of compromise (the Offer) on behalf of all respondents in the Federal Court proceeding to settle the whole of the applicants’ claims for $250,000 plus $50,000 in costs.

11    The Offer was sent by email; and the subject field relevantly referred to “Pocketful of Tunes Pty Ltd & Anor v Commonwealth of Australia VID 93/2013 – Without Prejudice Except as to Costs”. In the opening paragraph, Christopher Behrens, a solicitor having carriage of the matter for the Commonwealth, wrote to the applicants’ solicitor, that “[o]n a without prejudice basis I am instructed to make the following settlement proposal on behalf of all Respondents for the resolution of the Applicants’ claims in these proceedings”.

12    The terms of that Offer were as follows:

1.    Respondents to pay the Applicants $250,000 plus $50,000 for costs (“Settlement Sum”)

2.    The Settlement Sum will be contributed to on a 50/50 basis by the Commonwealth (50% share) and the 2nd and 3rd Respondents (50% share).

3.    The Commonwealth contribution to the Settlement Sum of $150,000 will be paid within 28 days of the settlement being finalised in the manner proposed below (“Settlement Date”).

4.    The 2nd & 3rd Respondents’ contribution to the Settlement Sum will be paid by instalment payments as follows:

•    Instalment 1 - $100,000 – payable 6 weeks after the Settlement Date;

•    Instalment 2 - $15,000 – payable 1 year and 6 weeks after the Settlement Date;

•    Instalment 3 - $15,000 – payable 2 years and 6 weeks after the Settlement Date;

•    Instalment 4 - $20,000 – payable 3 years and 6 weeks after the Settlement Date.

5.    Apportionment of the Settlement Sum as between the Applicants will be as advised by the Applicants.

6.    The settlement to be finalised by way of executed deed of release containing appropriate terms dealing with the contribution amount, discontinuance of the proceedings (including cross-claims), procedures of enforcement of the instalment payments by the 2nd & 3rd Respondents and any other necessary terms.

In the case of the Commonwealth, we propose that liability be discharged upon payment of the Commonwealth proportion of the Settlement Sum. In the case of the 2nd and 3rd Respondents liability would be discharged after payment of the final instalment payment.

13    The Offer was to remain open for acceptance until close of business on Friday 9 August 2013.

14    The applicants did not accept the Offer. Instead, the applicants’ solicitors wrote to Mr Behrens by letter dated 8 August 2013 to “explain why we consider the Offer to be manifestly inadequate, and to invite the Commonwealth to reconsider its approach to the valuation of our clients’ claim”. The letter referred to the Commonwealth’s contention that the reproduction of the Song was a use of copyright material “for the services of the Commonwealth within the meaning of s 183” of the Copyright Act and then purported to set out the principles that governed “the fixing of terms” under that provision and to apply those principles to its own case. The letter opined that “[o]n any view … on a proper analysis the value of our clients’ claim is likely to exceed $1 million”; and that “[i]n those circumstances, an offer of $250,000 is plainly unreasonable”. The letter made a counteroffer, proposing that the matter be resolved “on the basis that the Commonwealth pay to our clients the sum of $900,000 plus $75,000 in legal costs”, which was open for acceptance until 16 August 2013. It too was not accepted.

15    On 6 September 2013 the applicants made an application to the Tribunal under s 183(5) of the Copyright Act to fix the terms as between the applicants and the Commonwealth for the reproduction of the music and lyrics of the Song on the soundtrack to the Montage. The parties subsequently agreed to stay the Federal Court proceeding pending the hearing and determination of the Tribunal proceeding. On 3 March 2015, the Tribunal ordered the Commonwealth pay Pocketful of Tunes a fee of $149,743.34 (exclusive of GST) in respect of the reproduction of the Song on the soundtrack to the Montage. The Tribunal subsequently increased this fee by $39,994 in interest to $189,737.34 (exclusive of GST).

16    On 22 May 2015, the Tribunal ordered the Commonwealth to pay the applicants’ costs up to and including 25 July 2013 on the ordinary basis, and the applicants to pay the Commonwealth’s costs from 26 July 2013 on an indemnity basis.

the tribunal’s decision

17    The Tribunal’s order that the applicants pay the Commonwealth’s costs of the proceedings before the Tribunal on an indemnity basis was based only on the applicants’ rejection of the Offer made on 26 July 2013.

18    The Tribunal rejected the applicants’ arguments that the Offer did not bear on the disposition of costs before the Tribunal, holding that:

(a)    the Offer was sufficiently certain to qualify as a “Calderbank offer” (Calderbank v Calderbank [1975] 3 All ER 333) because the applicants had, in a letter sent to the Commonwealth on 9 July 2014 (almost 12 months after the Offer was made), estimated the value of the moral rights component of their claims in the proceedings in the Federal Court to be “in the order of $20,000 to $30,000” and the Commonwealth had subsequently indicated it agreed with that assessment; and

(b)    the deferred payment scheme applicable to the Offer did not render the Offer uncertain or unquantifiable and none of the other matters relied on by the applicants were relevant to the validity or effect of the Offer; and

(c)    while it was not unreasonable for the applicants to maintain the calculations they ultimately advanced before the Tribunal, the consequence of the applicants’ rejection of the Offer was that the Commonwealth was entitled to its costs on an indemnity basis after the making of that offer.

19    The gravamen of the Tribunal’s reasons appears at paragraphs [41]-[43] of the Tribunal’s reasons for decision, where the Tribunal stated:

[41]    I accept that, in the negotiations that took place after the Lindgren evaluation and prior to the hearing, the applicants did not ultimately adopt an extreme position, in that the parties were apart only as to $15,000 and the mode of payment, and that it cannot be said that, at that stage, they adopted a position that was unreasonable. That is not the main basis of the     Commonwealth’s claim concerning costs. Rather, it is the fact that there was a Calderbank offer which was not accepted and that the applicants were less successful under the award made.

[42]    I do not accept that it was unreasonable or extravagant for the applicants to maintain the basis of the calculation advanced. I do, however, accept that the consequences of the rejection of the Offer are that the Commonwealth is entitled to its costs on an indemnity basis after the expiry of that offer.

[43]    The applicants are entitled to an order for costs up to the date of making the Offer. Accordingly, the applicants are entitled to costs up to (and including) Thursday, 25 July 2013. From Friday, 26 July 2013, the Commonwealth is entitled to indemnity costs (Jones v Bradley (No 2) [2003] NSWCA 258).

See Pocketful of Tunes Pty Ltd v The Commonwealth of Australia (No 2) [2015] ACopyT 2 at [41]-[43].

GROUNDS OF REVIEW

20    The applicants challenged the Tribunal’s costs decision and, in particular, to award the Commonwealth costs on an indemnity basis after 26 July 2013 on the following grounds:

(a)    that the Tribunal did not have jurisdiction to make the decision and/or the decision was not authorised by s 174(1) of the Copyright Act within the meaning of s 5(1)(c) and (d) of the Administrative Decisions (Judicial Review) Act 1977 (Cth) (ADJR Act);

(b)    that the decision involved an error of law or was otherwise contrary to law within the meaning of s 5(1)(f) and (j) of the ADJR Act;

(c)    that the making of the decision by the Tribunal was an improper exercise of the power conferred by s 174(1) of the Copyright Act within the meaning of s 5(1)(e) of the ADJR Act.

21    In their originating application the applicants gave particulars of each ground. With regard to s 5(1)(c) and (d) of the ADJR Act, the applicants said:

(a)    The Tribunal exceeded its jurisdiction by awarding costs against the Applicants on the basis of the Applicant’s [sic] rejection of the Second Respondent’s offer made on 26 July 2013 (the Offer), in circumstances where the Offer was made prior to the commencement of the proceedings before the Tribunal, on behalf of persons not party to the proceedings before the Tribunal, and in relation to claims which were different from those the subject of the proceedings before the Tribunal.

(b)    Alternatively, the Tribunal exceeded its jurisdiction by concluding that it was able to be satisfied the Applicants had achieved an outcome less favourable than the terms of the Offer for the purposes of awarding costs against the Applicants, notwithstanding that the Offer included the resolution of claims which were not before the Tribunal and were yet to be heard and determined by the Federal Court.

22    With regard to s 5(1)(f) and (j), the applicants reiterated that the Tribunal had exercised its discretion on a wrong basis “by concluding that the Applicants had achieved an outcome less favourable than the terms of the Offer” and had applied the wrong test “by failing to consider whether it was unreasonable for the Applicants to reject the Offer at the time it was made”.

23    With regard to s 5(1)(e), the applicants asserted that the Tribunal had erred in exercising its costs discretion “by refusing to take into account all matters relevant to … whether it was unreasonable for the Applicants to reject the Offer at the time it was made”. The applicants also drew attention to the fact that the Commonwealth had only sought an order that they pay its costs of the proceeding.

The Parties’ submissions

24    In written submissions, the applicants contended that the Tribunal erred by:

(a)    deciding the Offer was sufficiently certain to qualify as a Calderbank offer or otherwise support an order for indemnity costs;

(b)    deciding the applicants had in fact achieved an outcome that was less than the amount of the Offer;

(c)    failing to consider whether the applicants’ rejection of the Offer was unreasonable at the time it was made, and refusing to take into account all matters relevant to that question; and

(d)    failing to determine that it was not unreasonable for the applicants to reject the Offer at the time it was made.

25    It is worth noting, however, that the gravamen of the applicants’ attack on the Tribunal’s reliance on the Offer in the Federal Court proceedings to justify an award of indemnity costs in the Tribunal proceedings was contained in the following two paragraphs of their written submissions:

In this case, the Offer relied on by the Commonwealth involved the settlement of all the claims made by the Applicants against each of the respondents in the Federal Court proceedings, including the Applicants’ claims for damages for infringement of moral rights, interest pursuant to statute, and a public apology pursuant to s 195AZA of the [Copyright] Act … .

As those claims were not before the Tribunal, and had not been assessed at the time of the Tribunal's decision, in making its decision on costs the Tribunal was not in a position to determine whether the outcome achieved by the Applicants was in fact less favourable than the terms of the Offer. Accordingly, the Applicants contend the Tribunal ought to have decided that the Offer was not sufficiently certain to qualify as a Calderbank offer and disregarded the effect of the Offer on the question of costs. Cf Management 3 Group Pty Ltd v Lenny's Commercial Kitchens Pty Ltd (No 3) (2011) 278 ALR 754 at [26]-[37].

26    The applicants emphasised that there was “no basis for the Tribunal to conclude the parties had agreed on the quantum of the moral right claims at the time of the Offer or subsequently”.

27    The applicants relied on similar considerations to support their contention that the Tribunal erred in determining that, having regard to the terms fixed by the Tribunal for the use of the applicants’ copyright and the objective value of the applicants’ moral rights claims, they had obtained an outcome that did not exceed the amount of the Offer. The applicants’ submission was that the Tribunal could not in law be so satisfied because “such a determination had to be based on the actual value of the Applicants’ claims, rather than an estimate”. As this actual value had not been determined at that time by the Federal Court, then, so the applicants submitted, the Tribunal could not be satisfied that the applicants had not obtained an outcome that exceeded the Offer.

28    In reply submissions, the applicants submitted that the Tribunal’s decision that the Offer was sufficiently certain to qualify as a Calderbank offer, notwithstanding that it included the resolution of claims which had yet to be heard and determined by the Federal Court, involved the Tribunal proceeding on the basis of a misconception as to the existence of an agreement between the parties on the value to be attributed to the applicants’ moral rights claims at the time the Offer was made; and that for this reason the decision involved the Tribunal exercising its discretion to award costs on the basis of a wrong principle, and was therefore a decision that the Tribunal was not authorised to make for the purposes of s 5(1)(c) and (d) of the ADJR Act. Because the Tribunal proceeded on the basis of an estimate of the moral rights claims, the applicants submitted that the decision involved an error of law or was otherwise contrary to law within the meaning of s 5(1)(f) and (j) of the ADJR Act, citing Avon Downs Pty Ltd v Federal Commissioner of Taxation (1949) 78 CLR 353 at 360.

29    The applicants also argued that the Tribunal erred by failing to consider whether it was unreasonable for them to reject that offer at the time it was made, and by failing to take into account various matters that properly bore on that assessment, including the uncertainty of the Offer, the deferred payment terms to which it was subject, the admitted solvency risks surrounding Radiowise and Mr Rubinstein, the stage at which the Offer was made and the applicants’ understanding of the strengths and weaknesses of their case at the time the Offer was made. As the applicants said, the Offer was made early in the Federal Court proceedings, before any evidence was filed in those proceedings (or in the Tribunal proceedings), and before the parties had exchanged legal argument in support of their respective positions.

30    The applicants submitted that the Tribunal’s failure to apply the correct reasonableness test, and to take into account all of the considerations relevant to the question of reasonableness, meant that the making of the decision involved an error of law or was otherwise contrary to law for the purposes of s 5(1)(f) and (j) of the ADJR Act, and was an improper exercise of the power conferred by s 174(1) of the Copyright Act within the meaning of ss 5(1)(e) and 5(2)(b) of the ADJR Act.

31    In written submissions, the Commonwealth submitted that the offer was sufficiently certain to support an order for indemnity costs in the Tribunal. It submitted that the Offer clearly attributed $50,000 to legal costs, rather than offering an “all-in” amount for the claim and costs. The Commonwealth submitted that “the Offer was clear and capable of being understood by the Applicants at the time they rejected it” and that “the Offer could also be clearly compared by the Tribunal against the Applicants’ net monetary result from the litigation as a whole”.

32    The Commonwealth contended that it was open to the Tribunal to find that there was sufficient agreement as to the value of the moral rights claim in light of the Commonwealth’s statement that “the Commonwealth agrees with the position stated in the Applicants’ solicitor’s letter of 9 July 2014 that the value of the moral rights claim is ‘in the order of $20,000 to $30,000’, but would not exceed that range.” It also argued that the Tribunal had considered the reasonableness of the applicants’ rejection of the offer; and that their rejection of the offer was unreasonable. In particular, the Commonwealth submitted that “the key facts … were either known to the Applicants (the value of their licence to the Brisbane City Council) or matters of public record (the fact that Brisbane represents about one twentieth of Australia’s population);” and “[t]his was not a case where the true nature of the case would remain unknown to the Applicants until discovery of documents or cross-examination at trial”.

33    At the hearing, Mr Heerey, who appeared for the Commonwealth, submitted that the Tribunal’s decision as to costs was within the wide discretion conferred by s 174 of the Copyright Act. Mr Heerey argued that the application made to the Tribunal under s 183 of the Copyright Act, to fix terms appropriate to compensate the applicants for the use of the synchronisation right in the Song by the Commonwealth, was effectively part and parcel of the determination of issues raised in the Federal Court proceedings. In support of this submission, Mr Heerey characterised the applicants’ letter of 8 August 2013, to which we have already referred, as “probably the most relevant letter in the whole case” because it was written by the applicants’ solicitors while the Offer was still open to be accepted. We have already described the content of this letter, which Mr Heerey relied on in support of the proposition that “[t]he Tribunal proceeding is a necessary subset of the Federal Court proceeding, given that that’s where the section 183 issue first arose”. Since the Tribunal proceeding was, in his submission, properly characterised as a subset of the Federal Court proceedings, then it was open to the Tribunal to rely on the rejection of the Offer, to found an award of indemnity costs, and, having regard to the Offer and the Tribunal’s decision under s 183(5), to conclude that the applicants would have achieved a more favourable outcome had they accepted the Offer.

34    In this way, Mr Heerey sought to distinguish the decision of the High Court in Stewart (in his capacity as liquidator of Newtronics Pty Ltd (in liq)) v Atco Controls Pty Ltd (ACN 005 182 481) (in liq) (No 2) (2014) 252 CLR 331 and the decision of a Full Court of this Court in PTTEP Australasia (Ashmore Cartier) Pty Ltd v Commissioner of Taxation (No 2) [2014] FCAFC 96, which the Court drew to both parties’ attention at the commencement of the hearing.

35    Mr Heerey also emphasised the broad discretion as to costs that had been conferred on the Tribunal and, referring to Oshlack v Richmond River Council (1998) 193 CLR 72 at [31], submitted that the applicants were bound to show that the decision was “definitely extraneous to any objects the legislature could have had in view” in enacting s 174 of the Copyright Act. Mr Heerey accepted, however, that if the Tribunal had in fact applied a wrong principle in making the costs decision, then the appropriate course was to remit the matter to the Tribunal for re-consideration, under s 16(1)(b) of the ADJR Act.

36    After hearing Mr Heerey, the Court invited Mr Ryan SC, who appeared with Mr Rebikoff for the applicants, to limit his oral submissions to the question whether or not, if the applicants’ challenge were upheld, the appropriate course would be to remit the matter to the Tribunal for further consideration. Referring to Minister for Immigration and Ethnic Affairs v Conyngham (1986) 11 FCR 528, Mr Ryan submitted that the matter should not be remitted and instead that this Court should award costs in favour of the applicants. This was on the basis that, in effect, there would be no residual discretion to be exercised by the Tribunal on the question of costs as the only course open to the Tribunal would be to order that the applicants pay the Commonwealth’s costs of the Tribunal proceeding on the ordinary basis.

CONSIDERATION

37    Section 174 of the Copyright Act provides that the Tribunal may order that the costs of any proceeding before it incurred by any party shall be paid by another party. The Tribunal’s power to award costs is discretionary. In making their respective submissions, the parties in this case assumed that the principles that inform the exercise of a court’s power to award costs also inform an exercise by the Tribunal of the power conferred by s 174. For present purposes, we shall proceed on this uncontested basis, although we doubt that that assumption is correct, unless qualified in some way: cf. MGV Pty Ltd v Phonographic Performance Company of Australia Limited [2000] ACopyT 8 (Burchett J) and Re Application by Seven Dimensions Pty Ltd (1996) 35 IPR 1 at 21 (Sheppard J).

38    We emphasise that the Court had before it an application for judicial review under the ADJR Act. The applicants therefore invoked an aspect of the Court’s original jurisdiction and our decision is governed by the principles that apply in this context. For this, amongst other reasons, we do not consider that the statement by Gaudron and Gummow JJ in Oshlack v Richmond River Council 193 CLR 72 at [31], to which Mr Heerey referred, to be apposite here. The issue with which their Honours were concerned arose on appeal, where the appellate standard for consideration of a discretionary costs order was applicable; and in any event the statutory context (s 123 of the Environmental Planning and Assessment Act 1979 (NSW) conferring standing on any person to bring proceedings in the Land and Environment Court) was different from the present case. Further, the issue for the determination of the High Court was whether the primary judge, in referring to public interest considerations in deciding to make no order as to costs, had erred in the exercise of his discretion by taking into account an irrelevant consideration.

39    We also note at the outset that the Tribunal was only engaged in an exercise of power under s 183 of the Copyright Act. This meant that the issues before the Tribunal were different from those before the Federal Court; and, as the President of the Tribunal stated, there were only two issues for determination, namely:

•    What terms were appropriate to compensate the applicants for the use of the synchronisation right in the Song by the Commonwealth?

•    To which of the applicants should any payment be made?

40    Self-evidently, the determination of these issues concerned only the applicants and the Commonwealth. In contrast, the Federal Court proceedings concerned not only these parties but also Radiowise and Mr Rubinstein.

41    The following features of the Offer were also significant. The Offer was made in the Federal Court proceedings; and on behalf of persons (Radiowise and Mr Rubinstein) who were not parties to the proceeding before the Tribunal. As indicated, the Offer included the resolution of claims (the applicants’ claims for infringement of moral rights) which were not before the Tribunal and which had yet to be heard and determined by the Federal Court. The Offer was expressed to expire on 9 August 2013. It was made and expired before the Tribunal proceedings had begun.

42    Generally speaking, an offer of compromise expressed as made in one proceeding would not provide the basis for an indemnity costs order in another proceeding, particularly where that other proceeding was begun after the offer had lapsed.

43    This general principle is confirmed and illustrated by the decision of the High Court in Stewart (No 2) 252 CLR 331 and the decision of a Full Court of this Court in PTTEP (No 2) [2014] FCAFC 96.

44    In PTTEP (No 2) [2014] FCAFC 96, the appellant taxpayer made an offer of compromise under the Federal Court Rules in the proceedings at first instance and sought to rely on it in a subsequent successful appeal. The Full Court held that it was not open to the appellant to do so, observing (at [11]):

As to the costs of the appeals, the taxpayer relies solely on the Offer made in respect of each proceeding before the primary judge in support of indemnity costs orders in the appeals. However, the Offer only referred in its terms to compromising “this proceeding” by reference to VID 294 – 296 of 2013. No offer was made in relation to the appeals, being different proceedings to those heard by the primary judge at first instance. If a party wished to make an offer of compromise in an appeal it could do so - an appeal being in itself a “proceeding” as defined in the Federal Court of Australia Act 1976 (Cth). The considerations relevant to the making and acceptance of any offer of compromise would necessarily be different in the case of an appeal than in a matter at first instance.

45    Likewise in Stewart (No 2) 252 CLR 33 the High Court held (at [7]) that although a Calderbank offer was relevant to the disposition of costs in the intermediate appeal proceeding in which the offer was made, it was not relevant to costs in the appeal to the High Court because:

The application for indemnity costs with respect to the appeal to this Court stands on a different footing. At the time of this appeal, there was no extant offer by the appellants for the respondent to accept. There is consequently no failure on the part of the respondent that could found an order for indemnity costs.

46    In relation to this statement, the Court in Stewart referred to Trustee for the Salvation Army (NSW) Property Trust v Becker (No 2) [2007] NSWCA 194 at [9] and Monie v Commonwealth (No 2) [2008] NSWCA 15 at [71], where the New South Wales Court of Appeal applied the same principle.

47    In the present case, we accepted that the Tribunal’s statement that “the consequences of the rejection of the Offer are that the Commonwealth is entitled to its costs on an indemnity basis after the expiry of that offer”, without more, showed that the Tribunal’s decision turned on the application of a wrong principle, as to fall within s 5(1)(d) and to warrant the grant of relief under s 16 of the ADJR Act.

48    The general principle to which we have referred at [42] above applied in the circumstances with which the Tribunal was concerned. The Offer was only expressed to be made in and with respect to “Pocketful of Tunes Pty Ltd & Anor v Commonwealth of Australia VID 93/2013”, being the Federal Court proceeding. The Offer had expired before the Tribunal proceedings were commenced. It would not have been open to the applicants to accept the Offer in the Tribunal proceedings.

49    Other considerations also indicate that the general principle was attracted, including that the issues in the Tribunal were different to those in the Federal Court, so that the considerations relevant to the rejection of the Offer in the Court would necessarily be different to those that might have arisen had a similar offer of compromise been made in the Tribunal proceedings.

50    Furthermore, the Commonwealth accepted that, as against the Commonwealth and as a matter of arithmetic, the outcome in the Tribunal was better, so far as the applicants were concerned, than under the Offer had it been accepted.

51    Mr Heerey’s argument that Stewart (No 2) 252 CLR 331 and the general principle it illustrates did not apply because the Tribunal proceeding was properly characterised as a subset of the Federal Court proceedings heavily depended, as mentioned earlier, on the applicants’ letter of 8 August 2013. This letter did more than merely reject the Offer. The letter made a counteroffer and is to be read in large part as preparing a basis for that counteroffer. It does not seem to us that in this circumstance the letter can make good Mr Heerey’s characterisation, or alter the character of the Offer.

52    Whether or not the Tribunal proceeding was open to be characterised as Mr Heerey invited us to do was, however, somewhat beside the point, because the Tribunal did not characterise the proceeding in this way. Rather, contrary to general principle, the Tribunal stated that the rejection of the Offer was of itself sufficient to justify an indemnity costs order.

53    The rejection of a Calderbank offer at one stage of litigation may be relevant to the exercise of a court’s discretion as to costs at a subsequent stage in related proceedings, but one would ordinarily expect a court to refer to the factors that made that rejection significant (or, as here, determinative) when they informed a particular exercise of discretion. Similar considerations apply in this case. The Tribunal did not refer to any factors that, in its opinion, led it to treat the rejection of the Offer as justifying an indemnity costs order contrary to general principle. We inferred from this omission that there were none. Instead, the Tribunal apparently proceeded on an unexplored assumption that the Offer was relevant to both the Federal Court proceeding and the Tribunal proceeding. We concluded, therefore, that, in stating that “the consequences of the rejection of the Offer are that the Commonwealth is entitled to its costs on an indemnity basis after the expiry of that offer”, without more, the Tribunal’s decision did not apply the general principle in Stewart (No 2) 252 CLR 331 and the other authorities to which we have referred.

54    For reasons we canvassed with counsel at the hearing, we were not satisfied that the principle stated in Conyngham (1986) 11 FCR 528 applied. That is, we were not satisfied that there was only one answer to the exercise by the Tribunal of the discretion reposed in it by s 174 of the Copyright Act. Accordingly, we ordered that the decision of the Tribunal be set aside and the question of costs of the proceeding in the Tribunal be remitted to the Tribunal for further consideration according to law. Having heard the parties, we also ordered that the second respondent pay the applicants’ costs of the application for judicial review, as agreed or taxed.

Associate:

Dated:    20 October 2015