FEDERAL COURT OF AUSTRALIA

Bellamy’s Australia Limited v Basil (No 2) [2019] FCAFC 169

ORDERS

THE COURT ORDERS THAT:

1.    The respondent’s application for indemnity costs is refused.

2.    The applicant pay the respondent’s costs of the application on a party/party basis.

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

ORDERS

THE COURT ORDERS THAT:

1.    The respondent’s application for indemnity costs is refused.

2.    The applicant pay the respondent’s costs of the application on a party/party basis.

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

REASONS FOR JUDGMENT

THE COURT:

1    On 23 August 2019, the Court dismissed the applications for leave to appeal from an interlocutory judgment in these proceedings, which are two formerly competing class actions that are being case managed together and are to be heard together: Bellamy’s Australia Limited v Basil [2019] FCAFC 147. The respondents now seek an order for indemnity costs from the date of the rejection by the applicant (BAL) of an offer contained in a letter dated 19 July 2019. The respondents’ offer was that they would “consent to [BAL] withdrawing its applications subject to an order that the Respondents’ costs of and incidental to the applications be costs in the cause in each of their (substantive) proceedings”. That is, BAL would be required to pay the respondents’ costs of the unsuccessful applications for leave to appeal only if the respondents ultimately win the substantive proceedings.

2    The respondents argued that BAL was on notice that its applications “would inevitably be denied” because BAL could point to no substantial injustice, even assuming the primary judge’s decision to be wrong, principally because the question of any duplicated or excessive costs could be dealt with later, on a retrospective basis. The respondents contended that, by drawing their attention to the Court’s recent decisions in Klemweb Nominees Pty Ltd (as trustee for the Klemweb Superannuation Fund) v BHP Group Limited [2019] FCAFC 107; (2019) 369 ALR 583 (Klemweb), Southernwood v Brambles Limited [2019] FCA 1021 and Zonia Holdings Pty Ltd v Commonwealth Bank of Australia Limited (No 2) [2019] FCA 1061 in their offer letter, the respondents reiterated their view that BAL’s applications had “no real prospect of success”.

3    The respondents submitted:

It was unreasonable for Bellamy’s not to have accepted the opportunity afforded to it to withdraw its applications on the basis set out in the respondents’ letter of 19 July 2019, particularly in light of the statutory imperatives in s 37M, which make it incumbent on a party not to bring or continue to persist in proceedings that, viewed objectively, are tenuous. It is appropriate that McKay and Basil have their costs of Bellamy’s application on an indemnity basis from the date of the rejection of that offer.

Legal framework

4    The respondents must demonstrate that there was a genuine offer of compromise, and that it was unreasonable for the offeree not to accept it: Black v Lipovac [1998] FCA 699; 217 ALR 386 at [217]-[218]; Brosnan v Katke [2016] FCAFC 156 at [6].

5    In Seven Network Ltd v News Ltd [2009] FCAFC 166; (2009) 182 FCR 160 at [1102], Dowsett and Lander JJ said:

Usually costs are ordered on a party and party basis but if there is “some special or unusual feature in the case to justify the Court exercising its discretion” costs may be ordered on some other basis: Preston v Preston [1982] 1 All ER 41 at 58. There must, however, be some justification to depart from the ordinary rule. The discretion to depart from an order for party and party costs will not be exercised unless there is some special or unusual feature or the justice of the case so requires: Re Wilcox; Ex parte Venture Industries Pty Ltd [1996] FCA 1942; (1996) 141 ALR 727. The categories of case in which it might be appropriate to do so are not closed: Colgate-Palmolive Company v Cussons Pty Limited [1993] FCA 536; (1993) 46 FCR 225. An applicant who should have known that his or her proceeding was foredoomed to failure could be obliged to pay costs on an indemnity basis: Smolle v Australia and New Zealand Banking Group Ltd (No 2) [2007] FCA 1967. A clearly hopeless proceeding may mean that the unsuccessful applicant should be subjected to an order for indemnity costs. An applicant who persists in prosecuting a proceeding without regard to the evidentiary difficulties in the case may be called upon to pay costs on some basis other than the usual basis: Yates Property Corporation Pty Ltd v Boland (No 2) [1997] FCA 760; (1997) 147 ALR 685. Specific examples of cases which might attract the exercise of the discretion to award indemnity costs were given by Sheppard J in Colgate-Palmolive Company v Cussons Pty Limited 46 FCR at 233.

6    In CGU Insurance Limited v Corrections Corporation of Australia Staff Superannuation Pty Ltd [2008] FCAFC 173 at [75], a Full Court said:

From the tenor of claims which have come before the court in recent years, there appears to be a view abroad that the failure of a party who has rejected a Calderbank offer ultimately to achieve a better outcome than provided for in the offer leads to a presumptive entitlement to indemnity costs with respect to the period subsequent to the offer. Such a view would be mistaken. Where a moving party (including a cross-claimant) offers to settle for a sum which is less than he or she eventually achieves at trial, there is a presumptive entitlement to indemnity costs under O 23 r 11(4) of the Federal Court Rules [the predecessor provisions to the Federal Court Rules 2011]. However, where recourse is not had to the O 23, but reliance is placed upon the court’s general discretion, it is necessary for the party seeking indemnity costs to demonstrate that the other party’s refusal of the Calderbank offer was unreasonable: Black v Lipovac [1998] FCA 699; (1998) 217 ALR 386, 432; Maniotis v JH Lever & Co Pty Ltd (No 2) [2006] FCAFC 28. It is not sufficient that the offer was a reasonable one: Alpine Hardwoods (Aust) Pty Ltd v Hardys Pty Ltd (No 2) [2002] FCA 224; (2002) 190 ALR 121, 128 [35]; Dais Studio Pty Ltd v Bullet Creative Pty Ltd [2008] FCA 42, [11]. In considering this question in a particular case, the matter of unreasonableness will be judged by reference to the circumstances facing the offeree at the time of the offer. While the eventual outcome in the case may go part of the way in this regard, there is no presumption that ultimate success in the proceeding for the offeror necessarily renders the offeree’s rejection unreasonable.

7    In Futuretronics.com.au Pty Ltd v Graphix Labels Pty Ltd [2009] FCAFC 40 at [5], a Full Court said:

The refusal of a Calderbank offer will not always attract an award of indemnity costs. The offeror must show that the rejection was unreasonable in the circumstances of the case: Black v Lipovac [1998] FCA 699; (1998) 217 ALR 386 at [217]-[218]. The respondents have not convinced us that the rejection was unreasonable. By the August 2008 offer all the respondents were offering to give up was any claim they may have to costs of the appeal. There was little in the offer that was attractive to the appellant. Of course the appellant was entirely unsuccessful on the appeal, for substantially the reasons explained by the respondents in their August letter. However the appeal was not on its face without any prospect of success. Counsel for the appellant was able, on the available material, to present arguments that required careful attention. It was only on a close examination of the documentation that the Court concluded that the appeal on liability should be dismissed. In retrospect, the appellant’s case was never a strong one, but on the principal points argued (liability) the appellant’s case was not so [weak] that it should be taken to have acted unreasonably in refusing the August offer, which offered little in the way of a genuine compromise.

Consideration

8    The respondents’ offer constituted a genuine offer of compromise. If accepted, BAL would have faced no immediate adverse costs exposure and would not have been liable to pay the costs of the application unless the respondents were eventually to succeed in the substantive proceeding.

9    At least with the benefit of hindsight, it is obvious that BAL’s applications were not strong, particularly in the light of the Full Court’s recent decision in Klemweb. The Court’s decision to hear the application for leave to appeal in advance of the substantive appeal and the ultimate delivery of judgment against BAL on the day of the hearing reflect the weakness of BAL’s case.

10    However, we are not persuaded that BAL’s contention of substantial injustice was so tenuous that it acted unreasonably in refusing to accept the respondents’ offer. Case management of duplicative class actions is a developing area within the courts and duplicated legal costs are liable to cause injustice. There was no decision directly on point against BAL. In those circumstances, it was not unreasonable for BAL to have considered that it may have had a prospect of obtaining leave to appeal in relation to the primary judge’s refusal to make cost capping orders in the duplicative proceedings.

Conclusion

11    The application for indemnity costs is refused.

Associate:

Dated:    30 September 2019