FEDERAL COURT OF AUSTRALIA
Australian Competition and Consumer Commission v
Australian Safeway Stores Pty Limited (No 3)
[2002] FCA 1294
COSTS – where successful respondent had made offer of compromise which was rejected – where unsuccessful applicant was successful on some aspects of case– whether successful respondents entitled to costs incurred following rejection of offer of compromise on an indemnity basis – whether unsuccessful applicant’s refusal of offer of compromise was unreasonable or imprudent – whether part of unsuccessful applicant’s case was maintained in wilful disregard of available evidence or involved groundless contentions which unduly prolonged case – whether award of costs to successful respondents should be reduced to reflect fact they were unsuccessful on some aspects of case.
EVIDENCE – whether “without prejudice” communications admissible on questions of costs – effect of s 131(2)(h) Evidence Act 1995 (Cth) on admissibility of “without prejudice” communications.
Evidence Act 1995 (Cth): s 131(2)(h)
Bruinsma v Menczer (1995) 40 NSWLR 716, considered
Marks v GIO Australia Holdings Ltd (No 2) (1996) 66 FCR 128, considered
Nobrega v Trustees of the Roman Catholic Church for the Archdiocese of Sydney (No 2) [1999] NSWCA 133, considered
NMFM Property Pty Ltd v Citibank Ltd (No 2) (2000) 109 FCR 77, applied
Colgate‑Palmolive Company v Cussons Pty Limited (1993) 46 FCR 225, referred to
Re Wilcox; Ex parte Venture Industries Pty Ltd (No 2) (1996) 72 FCR 151, referred to
Ruddock v Vadarlis (2002) 188 ALR 143, referred to
Walker v Wilsher (1889) 23 QBD 335, referred to
Rabin v Mendoza & Co [1954] 1 WLR 271, referred to
Cutts v Head [1984] Ch 290, referred to
Rodgers v Rodgers (1964) 114 CLR 608, referred to
Rush Tompkins Ltd v Greater London Council [1989] AC 1280, referred to
Field v Commissioner for Railways for New South Wales (1957) 99 CLR 285, referred to
Hughes v Western Australian Cricket Association (Inc) (1986) ATPR 40‑748, applied
Australian Competition and Consumer Commission v Boral Limited (No 2) (2000) ATPR 41‑738, applied
Australian Competition and Consumer Commission v Australian Safeway Stores Pty Limited (No 2) [2001] FCA 1861; (2002) ATPR (Digest) 46-215, referred to
Queensland Wire Industries Proprietary Limited v The Broken Hill Proprietary Company Limited (1989) 167 CLR 177, applied
Australian Competition and Consumer Commission v Australian Safeway Stores Pty Limited [1999] FCA 1269, referred to
AUSTRALIAN COMPETITION & CONSUMER COMMISSION v AUSTRALIAN SAFEWAY STORES PTY LIMITED & ORS (No 3)
VG 762 of 1996
GOLDBERG J
22 OCTOBER 2002
MELBOURNE
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IN THE FEDERAL COURT OF AUSTRALIA |
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BETWEEN: |
AUSTRALIAN COMPETITION AND CONSUMER COMMISSION Applicant
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AND: |
AUSTRALIAN SAFEWAY STORES PTY LIMITED (ACN 004 319 939) First Respondent
GEORGE WESTON FOODS LIMITED (ACN 008 429 632) Second Respondent
MARK JONES Third Respondent
BERNIE BROOKES Fourth Respondent
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DATE OF ORDER: |
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WHERE MADE: |
THE COURT ORDERS THAT:
1. The applicant pay the first and third respondents’ costs of and incidental to the application.
Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules
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IN THE FEDERAL COURT OF AUSTRALIA |
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VICTORIA DISTRICT REGISTRY |
VG 762 of 1996 |
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BETWEEN: |
AUSTRALIAN COMPETITION AND CONSUMER COMMISSION Applicant
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AND: |
AUSTRALIAN SAFEWAY STORES PTY LIMITED (ACN 004 319 939) First Respondent
GEORGE WESTON FOODS LIMITED (ACN 008 429 632) Second Respondent
MARK JONES Third Respondent
BERNIE BROOKES Fourth Respondent
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JUDGE: |
GOLDBERG J |
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DATE: |
22 OCTOBER 2002 |
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PLACE: |
MELBOURNE |
REASONS FOR JUDGMENT
1 On 21 December 2001 I published reasons for judgment in this matter and ordered that the application against the first and third respondents be dismissed: Australian Competition and Consumer Commission v Australian Safeway Stores Pty Limited (No 2) [2001] FCA 1861; (2002) ATPR (Digest) 46‑215 (“my earlier reasons”). I reserved the issue of costs for further consideration. Written submissions in relation to costs were filed by the parties and I heard further argument on costs on 18 April 2002.
2 The following issues arise for consideration and determination:
(1) The first respondent (“Safeway”) and the third respondent (“Mr Jones”) seek an order for their costs on a party/party basis until 17 May 1999. This order is not opposed by the applicant (“the Commission”).
(2) Safeway and Mr Mark Jones seek an order for their costs after 17 May 1999 on an indemnity basis. They contend that:
(a) the Commission’s refusal of an offer to compromise the proceeding was unreasonable and imprudent;
(b) the Commission’s case in relation to Safeway’s policy was either maintained in wilful disregard of the available evidence or involved groundless contentions which unduly prolonged the case.
The Commission opposes any order for indemnity costs.
(3) The Commission accepts that it should pay costs on a party/party basis but contends that it should not be ordered to pay more than 80% of those costs as it succeeded on a number of issues. Those issues were:
(a) Safeway’s defence of res judicata and issue estoppel;
(b) the issue and significance of planograms;
(c) Mr Jones’ evidence generally, and in particular in relation to the Frankston and Albury May 1995 incidents;
(d) the Commission’s case based on s 46 of the Trade Practices Act 1974 (Cth) (“the Act”);
(e) the Preston Market incident; and
(f) the admissibility of certain Tip Top invoices.
Preliminary issues
3 Two issues of admissibility of evidence arose, namely the admissibility of certain communications between the parties’ solicitors which were said to be “without prejudice”, and the admissibility of evidence establishing what costs were incurred by Safeway and Mr Jones following the occurrence of those “without prejudice” communications.
Are certain “without prejudice” communications between the parties’ solicitors admissible?
4 On 10 May 1999 the solicitor for Safeway, Mr Michael Corrigan, telephoned the solicitor for the Commission, Mr Graham Thorley. Mr Corrigan made a file note of the conversation shortly after it occurred which he has verified as an accurate summary of the effect of his discussions with Mr Thorley. The file note was in the following terms:
“I rang Graham Thorley and he returned my call. I said I wished to discuss without prejudice with him. I referred to the discussions some time ago between Bathurst QC and Fajgenbaum QC about compromise of the matter. I said that I had instructions to enquire again as to whether the applicant had any interest in compromise of the matter on the lines that there would be admissions made in relation to the price fixing allegations at Preston involving the conduct of Messrs Lovett & Feldgen but no other part of the case. I indicated I had instructions to put a penalty offer of $1.5M plus an appropriate measure of costs. I added that by consent orders could be made that the First Respondent and the Third Respondent not again engage in conduct of any of the kind described in the Statement of Claim but this would be without admissions in relation to the other aspects of the case. I explained that this meant no concessions or admissions regarding the s.46 allegations for example.
Thorley said he understood this.
I said that this was similar to the proposal put between Bathurst QC and Fajgenbaum QC some time ago which I understood had not been of interest to the Applicant. However, as we have now served the statements of Brookes and Jones and their position was on the table I thought it would be of value to enquire again whether that proposal was of interest. He indicated that he would speak to ‘the powers that be’ and would come back to me.”
The Commission objected to the admissibility of the file note on the ground that the conversation recorded in it was expressed to be “without prejudice”.
5 On 1 June 1999 Mr Thorley wrote a letter to Mr Corrigan which was headed “WITHOUT PREJUDICE” and was relevantly in the following terms:
“I refer to the offer of settlement of the above proceedings which you conveyed to me on behalf of your client, Safeway.
The Commission has considered the terms of the offer but has decided not to accept it.
I am instructed to advise that the Commission appreciates receiving the offer however, as was made clear at the mediation and also at the meeting between the parties executives’ earlier this year, one of the Commission’s key concerns in this matter relates to the allegations of conduct in respect of Section 46 of the Act. Any offer of settlement which does not contain admissions of liability in respect of conduct in breach of Section 46 of the Act, and in relation to the Section 45 conduct involving Preston Market, is not acceptable to the Commission.
Should your client wish to put forward a proposal in those terms then the Commission would consider such an offer.”
The Commission objected to the admissibility of this letter on the ground that it was a “without prejudice” communication.
6 At common law the contents of without prejudice communications were not admissible in evidence. Communications did not have to be expressly identified or stated as being “without prejudice” in order for the protection from admissibility to be accorded to them. Such communications would be given “without prejudice” protection if they were undertaken for the purpose of seeking to resolve, compromise or settle an existing dispute: Rodgers v Rodgers (1964) 114 CLR 608 at 614; Rush & Tompkins Ltd v Greater London Council [1989] AC 1280 at 1299‑1300. The rationale for such protection is founded on public policy and the agreement or acceptance by parties that they should have the opportunity for discussions protected from use in subsequent proceedings: Rush & Tompkins Ltd v Greater London Council (supra) at 1287‑1288. This rationale was succinctly explained in Field v Commissioner for Railways for New South Wales (1957) 99 CLR 285. Dixon CJ, Webb, Kitto and Taylor JJ said at 291‑292:
“The law relating to communications without prejudice is of course familiar. As a matter of policy the law has long excluded from evidence admissions by words or conduct made by parties in the course of negotiations to settle litigation. The purpose is to enable parties engaged in an attempt to compromise litigation to communicate with one another freely and without the embarrassment which the liability of their communications to be put in evidence subsequently might impose upon them. The law relieves them of this embarrassment so that their negotiations to avoid litigation or to settle it may go on unhampered. This form of privilege, however, is directed against the admission in evidence of express or implied admissions. It covers admissions by words or conduct. For example, neither party can use the readiness of the other to negotiate as an implied admission. It is not concerned with objective facts which may be ascertained during the course of negotiations. These may be proved by direct evidence. But it is concerned with the use of the negotiations or what is said in the course of them as evidence by way of admission. For some centuries almost it has been recognised that parties may properly give definition to the occasions when they are communicating in this manner by the use of the words ‘without prejudice’ and to some extent the area of protection may be enlarged by the tacit acceptance by one side of the use by the other side of these words: [citations omitted].”
7 However, Safeway relied upon the provisions of s 131(2)(h) of the Evidence Act 1995 (Cth) in support of its submission that the communications were admissible in evidence. Section 131 of the Evidence Act provides:
“(1) Evidence is not to be adduced of:
(a) a communication that is made between persons in dispute, or between one or more persons in dispute and a third party, in connection with an attempt to negotiate a settlement of the dispute; or
(b) a document (whether delivered or not) that has been prepared in connection with an attempt to negotiate a settlement of a dispute.
(2) Subsection (1) does not apply if:
…
(h) the communication or document is relevant to determining liability for costs; or
…”
8 The Commission submitted that any communications between the parties which they agreed were to be “without prejudice” and which they thereby agreed were not to be used for any purpose, were not rendered admissible under s 131(2)(h) of the Evidence Act because they were not relevant to determining liability for costs as a result of the agreement between the parties. The Commission relied upon a line of authority going back many years which established that “without prejudice” communications are to be protected not only as a matter of public policy to encourage parties to settle disputes but also based on an agreement between parties that such communications should not be admissible in evidence in any manner or form: Walker v Wilsher (1889) 23 QBD 335 at 337 and 339; Rabin v Mendoza & Co [1954] 1 WLR 271 at 273; Cutts v Head [1984] Ch 290 at 307. In Cutts v Head (supra) Oliver LJ said at 307:
“Once, however, the trial of the issues in the action is at an end and the matter of costs comes to be argued, this [preventing statements in negotiations being used as admissions] can have no further application for there are no further issues of fact to be determined upon which admissions could be relevant. One is, therefore, compelled to seek some additional basis for the decision in Walker v. Wilsher, 23 Q.B.D. 335 and it is, as it seems to me, to be found in an implied agreement imported from the marking of a letter ‘without prejudice’ that it shall not be referred to at all. This certainly derives some support from the judgment of Bowen L.J. where he says, at p. 339, that ‘The agreement that the letter is without prejudice ought, I think, to be carried out in its full integrity’ and it accords with the view expressed by Denning L.J. in Rabin v. Mendoza & Co. [1954] 1 W.L.R. 271, 273 …”
9 The Commission submitted that s 131(2)(h) did not render the communications expressed to be “without prejudice” admissible because the parties had, by so designating their communications, agreed that the communications would not be admissible and therefore not relevant to any issue before the Court. Put another way, it was submitted that because the parties had expressly agreed, by designating their communications “without prejudice”, that they would not be admissible in evidence, the communications could not then be said to be “relevant to determining liability for costs” as the parties had agreed that they would not be so relevant.
10 The concept of “relevant” evidence is defined in s 55(1) of the Evidence Act in the following terms:
“The evidence that is relevant in a proceeding is evidence that, if it were accepted, could rationally affect (directly or indirectly) the assessment of the probability of the existence of a fact in issue in the proceeding.”
By reference to this definition, the communications between Mr Corrigan and Mr Thorley would certainly be relevant in determining the extent of the Commission’s liability for costs. But can this definition and its consequence for admissibility be over‑ridden by what is said to be an agreement between the parties? The definition in s 55 does not, in its terms, allow for evidence to be agreed by parties to a dispute to be relevant or not relevant; rather the issue of relevance is determined by reference to principle.
11 This particular issue, whether designating a communication as “without prejudice” means that the parties to it have agreed it is not relevant, in the legal sense, to any issues between the parties before the court, does not appear to have arisen before for determination. Section 131(2)(h) of the Evidence Act has been the subject of judicial consideration. In Bruinsma v Menczer (1995) 40 NSWLR 716, Santow J considered whether he could admit into evidence an offer of compromise made in accordance with Div 1, Pt 22 of the Supreme Court Rules 1970 (NSW). Part 22 r 6 provided that an offer made in accordance with Div 1 shall be taken to have been made “without prejudice” unless the notice of offer otherwise provided. Santow J was inclined to the view that the relevant offer did not “otherwise provide” so as to fall outside Pt 22 r 6 but did not need to determine the issue having regard to the view he had formed as to the applicability of s 131(2)(h) of the New South Wales Evidence Act 1995 which is in identical terms to s 131(2)(h) in the Commonwealth Evidence Act.
12 Santow J said at 719:
“Clearly, [the offer of compromise] is ‘relevant to determining liability for costs’ and thus within the gateway in par (h). Indeed it is strongly arguable that the document, also a letter offering to settle … being clearly admissible, as is not in dispute, would, if left uncontradicted or unqualified, suggest that this was the only attempt to settle the dispute. In particular so left, it would imply that there was no more favourable offer later made to the defendant, as in fact occurred with [the offer]. Thus there is much to be said for the view that the alternative gateway in par (e) would apply, but in any event I am satisfied that par (h) applies.”
Santow J’s analysis of s 131(2)(h) would deny the proposition that a “without prejudice” communication is to be considered as an express agreement by the parties to the communication that the communication is not relevant to any issue of costs. However, this particular submission was not put to, or considered by, Santow J.
13 A similar view can be taken of the reasoning of Einfeld J in Marks v GIO Australia Holdings Ltd (No 2) (1996) 66 FCR 128. The successful applicants applied for indemnity costs and sought to tender “without prejudice” correspondence between the parties’ solicitors during the preliminary stages of the proceeding. Objection was taken to the admissibility of the correspondence. The applicants relied upon s 131(2)(h) of the Evidence Act. The respondents contended that the form of words used in s 131(2)(h) was directed towards the “Calderbank” style of “without prejudice” negotiation, this being a reference to Calderbank v Calderbank (1976) Fam 93.
14 Einfeld J noted the well-established common law position in relation to “without prejudice” communications and continued at 135:
“However, irrespective of the common law position, the legislative framework is now clear and unambiguous. Section 131(2) of the Evidence Act clearly allows for ‘without prejudice’ communications between the parties which are relevant to the issue of costs to be admitted into evidence on that issue. For this reason I hold that the applicants may adduce evidence of such communications which are relevant to the determination of the question of costs.”
This line of reasoning does not allow for the Commission’s submission although it was not specifically addressed by Einfeld J.
15 In Nobrega v Trustees of the Roman Catholic Church for the Archdiocese of Sydney (No 2) [1999] NSWCA 133, an appeal was dismissed and the successful respondent sought an order for indemnity costs relying upon a “without prejudice” letter which its solicitors had sent to the appellant’s solicitors prior to the hearing of the appeal in which they said the respondent would agree to the appeal being discontinued on the basis that each party paid its own costs. Initially the tender of the letter was objected to but ultimately the appellant conceded that the letter was admissible. Powell JA (with whom Priestley JA and Sheppard AJA agreed) observed that this concession was “undoubtedly correct” because although such an objection to admissibility would inevitably have been upheld prior to the coming into operation of the Evidence Act 1995 (NSW), s 131(2)(h) of that Act changed the position so that the letter was admissible on any argument as to costs. His Honour cited, with apparent approval Bruinsma v Menczer (supra). See also KC v Shiley Incorporated (Tamberlin J, 11 July 1997, unreported).
16 I do not consider that the characterisation of communications as being “without prejudice” is making any statement about the relevance of the communications. Rather that appellation is calculated to ensure that the communications are not adduced into evidence because of the nature of the communications and their potential effect and impact on the tribunal of fact. The nature of communications made “without prejudice” pre‑supposes that they may be relevant on some issue in an evidentiary sense so that they should be excluded from admissibility. I do not consider that the parties who express communications as “without prejudice”, such as in the present case, are making any statement as to the negativing of the probative value or probative nature of the contents of the communications by labelling them “without prejudice”. Indeed, on one view the characterisation of a communication as “without prejudice” is a recognition of its potential probative value or probative nature and that its relevance is not to be utilised in the proceeding.
17 The authorities to which I have referred make it clear that the policy lying behind s 131 of the Evidence Act is twofold. First, it is to lay down a statutory basis for excluding evidence of communications relating to attempts to settle disputes. Secondly, it is to provide specific exceptions to such exclusion. The exception found in s 131(2)(h) relates to the probative value or probative nature of the contents of the communication and not to the manner in which the communication came initially to be subjected to the protection from being adduced into evidence found in subs (1) of s 131.
18 Although a consensual arrangement or agreement underlies the basis or part of the basis upon which “without prejudice” communications are protected from admissibility, that consensual aspect does not determine the issue of relevance for the purposes of s 131(2)(h) of the Evidence Act. The relevance there provided for is to be judged and determined by reference to legal principle rather than the decision of the parties.
19 I am therefore satisfied that Mr Corrigan’s file note and Mr Thorley’s letter are admissible in evidence. No point was taken by the Commission that the file note was not an accurate record of the conversation between Mr Corrigan and Mr Thorley or that, if the communication over the telephone was otherwise admissible in evidence, I should not have regard to Mr Corrigan’s file note recording that conversation.
Is the evidence of the costs incurred by Mr Jones and Safeway after the “without prejudice” communications admissible?
20 Safeway also tendered evidence of the costs incurred after these communications occurred. Mr Corrigan said that for the period 17 May 1999 to the conclusion of the hearing on 20 October 1999 Safeway incurred costs and disbursements in respect of the proceeding of approximately A$2,033,000 and US$250,700. Mr William Keane, the solicitor who had the carriage of the matter for Mr Jones until 9 March 2002, said that for the period 17 May 1999 to 20 October 1999 Mr Jones incurred costs and disbursements in respect of the proceeding of approximately $740,200. He has concluded, as a preliminary assessment, that Mr Jones might recover approximately $415,000 of the costs incurred for that period, which would leave a shortfall of approximately $325,200. This evidence was objected to by the Commission on the ground that it was not relevant to any issue before the Court.
21 I do not consider that the evidence led by Safeway and Mr Jones as to the quantum of costs incurred subsequent to 17 May 1999 is relevant to any issue before me. All that evidence demonstrates is that a substantial amount of costs was incurred after 17 May 1999 and subsequent to the rejection of the offer or proposal on 1 June 1999. I do not consider that the quantum is relevant to the determination of whether it was reasonable or unreasonable for the Commission to reject the offer or proposal. The determination of that issue must be made as at the time, or within a reasonably short time after, the offer or proposal was propounded. At that time all that was relevant was that if the offer or proposal was rejected, substantial costs would be incurred thereafter as Safeway and Mr Jones had to open and put their cases and call their witnesses. Such costs would not, even if the application was dismissed, be recovered in their entirety because of the divergence between party/party and solicitor/client costs. In my view, to take into account the quantum of costs actually incurred after the making and rejection of an offer or proposal would be to use the benefit of hindsight in an inappropriate and inadmissible way.
Should the Commission pay the costs that Mr Jones and Safeway incurred after 17 May 1999 on an indemnity basis?
23 Safeway submitted that the Commission’s response on 1 June 1999 ignored the then state of the evidence. Safeway submitted that its case was supported by the witness statements of Mr Jones and Mr Bernie Brookes. It was said that those statements supported Safeway’s case that the policy required that case deals be sought before a deletion and was designed to allow Safeway to be competitive. It was said that this evidence was corroborated by the plant bakers’ evidence and that the evidence did not change after June 1999. Safeway submitted that the Commission’s response which required Safeway to admit the breaches of s 46 of the Act alleged before the Commission was prepared to settle was unreasonable as it required Safeway to accept that case deals either were not sought, or were sought for an improper purpose, contrary to the evidence of Messrs Jones and Brookes and independent witnesses.
· As noted earlier, the Commission submitted that Mr Corrigan’s telephone conversation with Mr Thorley on 10 May 1999 and Mr Thorley’s written reply on 1 June 1999 were inadmissible in evidence on the basis that they constituted evidence of express “without prejudice” communications.
· The Safeway offer in the telephone conversation was not an offer of compromise but was rather a floating by Mr Corrigan of a possible basis for compromise. It contained no offer which was capable of being accepted but was merely a basis for further negotiation as was the Commission’s response.
· The Safeway offer did not express at all, or with any sufficient particularity, any reason why the Commission would fail in any aspect of its case. In the absence of such expression, the non‑acceptance of the offer was not imprudent or unreasonable.
· The Commission’s response to the offer was reasonable. It enlarged the area of negotiation and suggested a basis for discussion.
· No offer was made by or on behalf of Mr Jones who was separately represented and there is no foundation for any indemnity costs in his favour on this basis.
Was it unreasonable and imprudent for the Commission not to accept Safeway’s offer of compromise
25 In considering whether the Commission’s response to what Safeway described as its “offer” was unreasonable it is necessary to analyse what was proposed by Safeway. Mr Corrigan said that he was enquiring as to whether the Commission “had any interest” in compromising the matter “on the lines” to which he referred. Those lines included “an appropriate measure of costs” and “no concessions or admissions regarding the s.46 allegations”. Mr Corrigan referred to a similar proposal put between counsel which had not been of interest to the Commission and concluded that he thought “it would be of value to enquire again whether that proposal was of interest” as the statements of Mr Brookes and Mr Jones had been served.
26 Whether it was unreasonable not to accept the proposal put by Safeway is not necessarily to be determined by reference to the preciseness of the language used in formulating and propounding the proposal. Nevertheless, the approach taken by the Commission and the reasonableness and prudence of that approach must be judged by reference to what was being put to it. The offer or proposal substantially involved the following elements:
· an admission of contravention of s 45 of the Act in relation to Preston Market on the basis of conduct by Mr Raynor Feldgen but not Mr Jones;
· abandoning the s 46 case;
· abandoning the case in relation to the nine incidents at Frankston, Cheltenham, Vermont/Forest Hill, Traralgon, Lalor/Thomastown, Geelong, Albury in May and November 1995 and Ferntree Gully;
· no contraventions or accessorial liability being accepted or admitted by Mr Jones.
The Commission’s response was to require admissions in relation to conduct under s 46 but not to require admissions in relation to the exclusive dealing allegations made under s 47 or the resale price maintenance allegations made under s 48.
27 It is also relevant to consider the basis upon which it was being put that the Commission should compromise the proceeding. The proposal was not put on the basis that there was any particular defect or deficiency in the Commission’s case. For example it was not put that Safeway had a “killer point” which could not be answered by the Commission. Although the identification of the terms and content of Safeway’s policy was very much in issue on the date of the conversation between Mr Corrigan and Mr Thorley, on 10 May 1999 the determination of the content of that policy in favour of Safeway did not undermine all the other aspects of the Commission’s case. There was nothing in the conversation between Mr Corrigan and Mr Thorley which propounded a reason or reasons why the Commission’s case would fail in any particular aspect or why the Commission should be considering a compromise. Put shortly, the Commission was not being told – you are vulnerable on this issue or these particular issues and you should consider a compromise for this reason or these reasons. Rather it was put on the basis – you now have statements from Mr Brookes and Mr Jones and you know what they are going to say.
28 The burden is upon Safeway to establish imprudence or unreasonableness in the Commission’s response to the offer of compromise. Safeway is not able to point to particular matters to which it drew the Commission’s attention, and to which the Commission failed to pay particular or adequate regard. In this context the observations of Lindgren J in NMFM Property Pty Ltd v Citibank Ltd (No 2) (2000) 109 FCR 77 are apposite. Lindgren J noted that a party seeking indemnity costs bears the onus of establishing that the non‑acceptance of an offer of settlement was imprudent or plainly unreasonable. His Honour then considered the terms of the offer of settlement which had been made and said at 98:
“No doubt where a party puts with sufficient particularity to the opposing party the reasons why the latter must fail, yet the latter does not recognise the inevitable, this will be a factor pointing to an award of indemnity costs. But in my view HB’s letter did not satisfy these requirements.
The requirements of ‘sufficient particularity’ and ‘inevitability of failure’ are important. In their absence, it would be open to parties to put their respective cases to the opposing party urging it to recognise the merit of what is put in the hope that if it ultimately finds favour with the Court, an award of indemnity costs will follow. If this were correct, one might ask rhetorically, ‘Why write a letter as distinct from simply relying on the pleadings?’ In my opinion, the view could reasonably and prudently be taken by NM that what HB was putting in their letter would not ultimately prevail, particularly in view of the nature of its case as one of the selling of a ‘package’ by a person acting simultaneously as the agent of two principals. In these circumstances, NM was entitled to pursue its claim without running the risk of an order for indemnity costs. The considerations advanced by HB in their letter were not so obviously correct that NM behaved imprudently or plainly unreasonably in not accepting with alacrity the small element of compromise present in the offer made.”
See also Davids Holdings Pty Ltd v Coles Myer Limited (1995) ATPR 41‑383 at 40,303; Australian Competition and Consumer Commission v Amcor Printing Papers Group Ltd [2000] FCA 163 at [18].
29 All that Safeway’s solicitors did was, in effect, to put Mr Brookes’ and Mr Jones’ statements on the table and leave it to the Commission and its advisers to evaluate the significance of the contents of the statements which had not at that time been subjected to cross‑examination. There may have been difficulties in the Commission’s case on Safeway’s policy at that time but the significance of those difficulties was dependent in part on resolving inconsistencies in the evidence of some of the plant bakers.
30 Safeway submitted that those witness statements supported its case that its policy required that case deals be sought before a deletion and that the policy was designed to allow Safeway to be competitive. However, it was not unreasonable at that point of time for the Commission not to accept Mr Brookes’ and Mr Jones’ evidence at face value. Although I found that there was corroboration of the policy contended for by Safeway by some of the plant bakers, that evidence had to be teased out in cross‑examination and it also had to be evaluated against other evidence which did not support Safeway’s case such as the instances of over‑deletion of bread products and the evidence of Mr Raymond Cooper from Buttercup.
31 In the absence of specific issues or difficulties being put to it, I do not consider that it was imprudent or unreasonable for the Commission to decline to accept Safeway’s offer or proposal which was put in the telephone conversation having regard to the factual and legal complexity of the issues involved and the number of incidents relied upon by the Commission as constituting contraventions of various provisions of the Act.
32 Safeway submitted that the Commission’s response failed to pay appropriate attention to the weakness of the Commission’s position. However, to assess the Commission’s case on 17 May 1999 (seven days after the telephone conversations between Mr Corrigan and Mr Thorley) as significantly weak is to do so with the benefit of hindsight and, in particular, my ultimate findings. By the time of the conversation between Mr Corrigan and Mr Thorley on 10 May 1999 the Commission was in possession of statements by Mr Brookes and Mr Jones. Mr Brookes’ statement was dated 20 April 1999 and I assume it was served shortly after that date. Mr Jones’ statement was dated 3 May 1999 and I assume it was served shortly after that date. On 17 May 1999 the cross‑examination of Mr Brookes and Mr Jones had not commenced. Mr Brookes was not called to give evidence until 19 May 1999 and Mr Jones was not called until 8 June 1999. It was not unreasonable for the Commission at that time to be adopting the position that Mr Jones’ credit was in issue. I made a number of findings in relation to Mr Jones’ credibility, but it was not unreasonable for the Commission to take the view that his evidence might not be accepted on critical issues. Although I found that there was documentary evidence to support the existence of the policy as contended for by Safeway, there was no particular contemporary document or series of inter‑connected documents which specifically recorded the terms of the policy as articulated by Mr Brookes. Further, although I ultimately found that the policy was in the terms and in the form contended for by Safeway there was also evidence available by reference to which findings could be made that the policy was not implemented or followed according to its terms. I made such findings in relation to the Albury May 1995 incident and the Frankston incident. Mr Jones and Mr Brookes may, as Safeway submitted, have adhered to their evidence as to the purpose of the policy but it was not unreasonable for the Commission on 17 May 1999, and again on 1 June 1999, to adopt the position that until cross‑examination of both Mr Brookes and Mr Jones had concluded the evidence might change.
33 The crux of Safeway’s submission rests on the contention that the Commission’s witnesses had confirmed the policy, as contended for by Safeway, before Mr Brookes and Mr Jones were called for cross‑examination. Safeway submitted that because Tip Top and Sunicrust witnesses, in cross‑examination, had agreed that the policy explained to them by Mr Brookes included a requirement that the plant bakers be asked for a case deal before a deletion would occur the Commission was effectively constrained in the way it could conduct its case against Mr Brookes and Mr Jones.
34 It is true that I made findings that the evidence of plant bakers corroborated the evidence of Mr Brookes and Mr Jones that requesting a case deal before deletion was part of the policy, but the reasonableness of the Commission’s response to the offer or proposal for compromise by Safeway must be judged by the evidence as it stood at the date of the offer or proposal, namely 10 May 1999, or more appropriately within a reasonable time thereafter being around 17 May 1999 which was the date upon which the trial resumed.
35 At those points of time, although there was evidence from some of the plant bakers from which it could be concluded that the policy was in the terms contended for by Safeway, there was other evidence which supported the terms of the policy for which the Commission contended. I refer, for example, to the over deletions of bread products which had occurred in a number of the incidents which was inconsistent with the terms of the policy for which Safeway contended. An example of evidence which, on one view, if accepted, supported the Commission’s case on purpose was that of Mr Jones’ Category Manager Assistant, Ms Felicity Austin. Although I reached conclusions in relation to Ms Austin’s evidence which did not support the Commission’s case, it was not unreasonable for the Commission on 10 and 17 May 1999 to consider that on one view, Ms Austin’s evidence supported its case. There was also the issue about the choice of price‑fighting bread. In short, there was an evidentiary basis from which, if satisfied, I might have drawn inferences the other way in the absence of evidence from Mr Brookes and Mr Jones.
36 Thus, at the time the offer or proposal was made some of the evidence was equivocal on the terms of the policy, some of the evidence supported the policy as contended for by Safeway and some of the evidence supported the policy as contended for by the Commission. The problem was that a clear, unequivocal, specific statement of the policy and its terms was not to be found in any document or chain of connected documents but rather it had to be teased out of a number of unconnected conversations and meetings and a number of documents which referred to the policy, sometimes in oblique terms. The Commission was propounding a case which depended in part for its success on establishing a particular purpose for the policy. The ascertainment of that purpose required a very careful evaluation of the evidence from the plant bakers whose memories in a number of respects were less than clear. The architect of the policy and the person in charge of executing the policy and carrying it into effect had not yet been cross‑examined. In those circumstances I do not consider that it was unreasonable or imprudent for the Commission not to respond affirmatively to the offer or proposal propounded by Safeway.
37 It was by no means clear on 17 May 1999 or at the commencement of the cross‑examination of Mr Brookes two days later that the Commission’s case predicated on s 46 was bound to fail, nor was it clear that the Commission could not make out its primary case based on a policy that no case deal was sought by Safeway before it implemented the deletion of plant bakers’ products, or that it could not make out its alternative case that Safeway made a request for case deals knowing the requests would be refused and that the plant bakers would refuse the requests because of the damage to the goodwill and the value of their proprietary bread products. It is true that there were a number of difficulties in what was said to be the alternative case but there was some evidence from some plant bakers from which it would have been open to me to make a finding that they refused case deals because of their concern that such case deals might damage the goodwill or value attached to their proprietary bread products.
38 I do not consider that it was unreasonable on 10 or 17 May 1999 for the Commission not to agree to abandon its s 46 case and not to agree to abandon its case based on each of the nine particular incidents other than the Preston Market incident which involved allegations also in contravention of s 47 and s 48 of the Act. None of the allegations supporting those aspects of the case were groundless or vexatious and it could not be said on 17 May 1999 that the evidence at that point of time was overwhelmingly in favour of Safeway or that the Commission was bound to fail on the allegations other than those relating to the Preston Market incident.
39 In any event, no order for indemnity costs in favour of Mr Jones is warranted on this basis as the offer or proposal was not put on his behalf, but only on behalf of Safeway.
Was the Commission’s case in relation to Safeway’s policy maintained in wilful disregard of the available evidence or did it involve groundless contentions which unduly prolonged the case?
40 The second further amended statement of claim which was filed in May 1998 introduced the claims alleging a contravention of s 46 of the Act. On 14 May 1998 Mr Corrigan wrote a letter to Mr Thorley in which he noted that the respondents would not oppose the application for leave to amend, and foreshadowed an application for indemnity costs if the Commission was unsuccessful in relation to the causes of action introduced by the amended statement of claim. It is true that those amendments substantially increased the complexity, length and costs of the proceeding but it does not follow that an order for indemnity costs should therefore follow because the Commission failed in respect of those allegations introduced by the amended statement of claim. I do not consider that the Commission’s case in any respect was maintained in wilful disregard of the available evidence or involved groundless contentions which unduly prolonged the case.
41 The critical issue in relation to the s 46 allegations was the purpose for which the Safeway policy was introduced and implemented. The Commission alleged a policy which did not have as a component a prior request for a case deal before a deletion whereas such a component formed part of the policy for which Safeway contended. Although there appeared in the respondents’ contentions filed on or about 17 December 1998 the contention that the policy adopted by Mr Brookes involved the seeking of case deals before consideration was given to whether to delete bread products from the stores, such an allegation did not appear in Safeway’s defence. Safeway submitted that the position taken in its contentions was supported by the evidence which it had filed of Mr Michael Luscombe, Mr Timothy Bray and Ms Elissa Miller. But neither Mr Luscombe nor Mr Bray had been cross‑examined prior to 17 May 1999. Ms Miller’s evidence was not always consistent and it required very careful evaluation. Further, Mr Bray’s version of the policy was not in the same terms as explained by Mr Brookes: see par [169] in my earlier reasons.
42 It was not unreasonable for the Commission to amend its statement of claim to plead what has been called earlier (although the appellation was not accepted by the Commission) the Commission’s alternative case. As I have also noted earlier, there was some evidence from some plant bakers upon which it would have been open to me to make a finding that they refused case deals because of their concern that such case deals might damage the goodwill or value attached to their proprietary bread products. I did not make such findings as I ultimately found that the evidence did not support such a conclusion. Nevertheless, the evidence which existed at the beginning of the trial and continued throughout the trial was not all one way.
43 As Safeway submitted, whether or not case deals were sought before deletions was a critical factual issue in determining the purpose of the policy. Although the approach of the Commission to the issue of requests for case deals varied from time to time, I do not consider that the totality of the evidence was such that it was not open to the Commission to argue by reference to some of the evidence that case deals were not sought before deletions occurred. Indeed, the state of the evidence was such that I was able to find that a case deal had not been sought before deletion in the case of the Albury May 1995 incident and the Frankston incident.
44 When I granted leave to the Commission on 18 March 1999 to amend its statement of claim to include the alternative allegations, I did so because I found that the reason for the amendments arose out of the cross‑examination of the Commission’s witnesses. I found that the issues which the Commission wished to raise by way of the amendment were not found in the defence and were only obliquely referred to in the respondents’ outline of contentions.
45 As a result of those amendments the trial was adjourned on 18 March 1999 to 17 May 1999 to permit Safeway and Mr Jones to meet the amended case put against them.
47 It was open to the Commission to rely on s 46(7) of the Act which enabled it to establish a purpose proscribed by s 46 even though that purpose could only be inferred from the conduct of Safeway, other persons or from other relevant circumstances. The fact that the alternative case was propounded by the Commission, albeit by way of amendment after the trial started, does not lead to the conclusion that at the time the Commission’s primary case must fail. The amendment was a reasonable amendment to make having regard to the manner in which Safeway had pleaded its defence and cross‑examined the Commission’s witnesses.
48 I do not accept Safeway’s submission that the Commission’s primary case in relation to the policy, as formulated in par 6D(h) of the statement of claim, was groundless or at least bound to fail in light of the evidence. I also reject Safeway’s submission that the evidence of both sides overwhelmingly pointed against the Commission. That submission is not borne out by the evidence. In par [274] of my earlier reasons I said:
“There are certainly aspects of the implementation of the policy that may be said to be inconsistent with the purpose of the policy as claimed by Safeway. I have already referred to the issue of over‑deletions and the choice of the price‑fighting bread which was introduced when a deletion occurred.”
I also refer to the matters set out in par [175] of my earlier reasons.
49 The Commission’s primary case had its difficulties in the light of the cross‑examination of some of the plant bakers but, as I have noted earlier, there was other evidence from which it was open to me, if I was prepared to accept that evidence, to find that the policy was not the policy for which Safeway contended. The Commission’s case was not maintained or continued in disregard of known facts or clearly established law.
50 After Mr Brookes and Mr Jones had been cross‑examined there were still numerous live issues in relation to the factual basis for the Commission’s case on the various contraventions of the Act which had been alleged. Further, Mr Jones’ and Mr Brookes’ credibility remained an issue after their cross‑examination. I referred to a number of respects in which I did not accept their evidence or found it inconsistent in pars [74]‑[77], [263]‑[270], [359], [360]‑[368], [378], [397], [494]‑[498], [628]‑[629], [697] and [702]‑[706] of my earlier reasons.
Should the costs awarded to Safeway and Mr Jones be reduced?
“1. Ordinarily, costs follow the event and a successful litigant receives his costs in the absence of special circumstances justifying some other order. Ritter v. Godfrey (1920) 2 K.B. 47.
2. Where a litigant has succeeded only upon a portion of his claim, the circumstances may make it reasonable that he bear the expense of litigating that portion upon which he has failed. Forster v. Farquhar (1893) 1 Q.B. 564
3. A successful party who has failed on certain issues may not only be deprived of the costs of those issues but may be ordered as well to pay the other party’s costs of them. In this sense, ‘issue’ does not mean a precise issue in the technical pleading sense but any disputed question of fact or of law. Cretazzo v. Lombardi (1975) 13 S.A.S.R. 4 at p.12.”
These principles were accepted by a majority of the Full Federal Court (Black CJ and French J) in Ruddock v Vadarlis (supra) at 147.
52 It is true that in respect of a number of issues Safeway’s and Mr Jones’ submissions were not accepted. Most of those issues may be conveniently described as a “disputed question of fact or of law” as referred to by Toohey J in Hughes. But there are other factors to be taken into account.
54 In such a case it is not unreasonable to expect a respondent to raise whatever defences it considers are fairly open to it having regard to the relevant facts in order to respond to the serious allegations that have been made. I adopt with respect the observations of Heerey J in Australian Competition and Consumer Commission v Boral Limited (No 2) (2002) ATPR 41‑738 (“Boral”) at 40,560:
“Whether or not a proceeding under Pt IV is properly characterised as quasi‑criminal, the fact remains that such cases are at a level of seriousness beyond ordinary civil contractual and tortious disputes (and the quasi-tort of s 52). The greatly increased penalties imposed by Parliament reflect a view that contravention of Pt IV can go beyond the immediate parties and seriously affect the economic well‑being of the nation. Today a finding of substantial contravention of Pt IV would rightly be seen as carrying a stigma, especially for a major corporate group. That being so, I do not think the respondents can be criticised for contesting the case at every point. Put another way, it is somewhat unrealistic to expect companies in the position of the respondents to make formal admissions that they intended to eliminate or substantially damage competitors, or to deter or prevent persons from engaging in competitive conduct, especially when they have provided detailed submissions to the Commission as to why the matter should not proceed at all, the grounds for such submissions having been eventually vindicated in the Court’s judgment.”
56 I turn to the specific issues in respect of which the Commission submitted there should be a reduction in the costs awarded to the respondents.
The res judicata and issue estoppel defence
57 Although I rejected this defence by Safeway and Mr Jones, it occupied very little time in submissions and virtually no time prior to final submissions. It was not a vexatious defence and I do not consider that it contributed in any way to the length or complexity of the proceeding. If there were to be any reduction of costs because of the failure of this defence the reduction would be de minimis.
The planogram defence
58 As was submitted by the Commission, the approach of Safeway to planograms changed during the hearing. Ultimately, the planogram defence was not pressed although it took up time with a number of witnesses and the tender of a number of documents. It played a part in contributing to the extent of the evidence called and the time taken in cross‑examination of some witnesses, I consider that this should be regarded as falling to be decided according to the principle to which I referred in par [53]-[55] above. It is also relevant that witnesses who gave evidence on this issue and who were cross‑examined on this issue were also required to give evidence on other relevant matters.
The findings in relation to Mr Jones’ evidence
59 Although I made findings that in a number of respects Mr Jones’ evidence was not credible or was demonstrably wrong, at the end of the day Mr Jones was successful in the proceeding. Although I found against Mr Jones on the facts in respect of the Frankston and Albury May 1995 incidents, my findings in relation to the proper construction and application of s 46 of the Act when applied to the facts meant that no contraventions of the Act were established as a result of Mr Jones’ conduct. I consider it would be inappropriate to penalise Safeway and Mr Jones in relation to the costs of the Albury May 1995 and Frankston incidents. Although the determination of the purpose of each such deletion might be regarded as a separate issue, that is separate from other issues and incidents, I do not consider it appropriate to reduce the costs to be awarded to Safeway and Mr Jones for this reason as they were ultimately successful in relation to the Frankston and Albury May 1995 incidents.
The s 46 case
60 I did not accept Safeway’s submissions as to the identification of the relevant market in respect of which Safeway had a substantial degree of market power. Although analytically identification of the market is a different matter from the issue whether Safeway took advantage of its market power, the issue of market identification is integrally tied up with the issue of whether Safeway took advantage of its market power. As I noted in my earlier reasons at [1017]-[1018], there is an overlap in the analysis of the factors or integers which make up a contravention of s 46 of the Act: Queensland Wire Industries Proprietary Limited v The Broken Hill Proprietary Company Limited (1989) 167 CLR 177 at 187‑188.
61 Although the definition of the relevant market was critical to the s 46 case propounded by the Commission, I reached the ultimate conclusion that there was no contravention of s 46. In these circumstances I do not consider it appropriate to reduce the costs awarded to Safeway and Mr Jones notwithstanding the fact that a significant amount of time was taken up in the issue of market definition and the calling of expert evidence in that respect.
The Preston Market incident
62 The Commission’s submission that costs should be reduced in relation to this incident are based on the fact that I rejected the respondents’ substantial attack on the credibility of Mr Feldgen and Mr Leslie Lovett and I rejected Mr Jones’ evidence that he was not involved in the reinstating of Tip Top bread at Safeway Preston. I do not consider that these matters are properly to be regarded as sufficiently separate and discrete issues such as to warrant the reduction of costs having regard to my findings in relation to them.
The Tip Top invoices
63 The Commission submitted that it was successful against Safeway and Mr Jones in the argument in relation to admissibility of certain Tip Top invoices: Australian Competition and Consumer Commission v Australian Safeway Stores Pty Limited [1999] FCA 1269. Although oral and written arguments were presented on this issue I do not consider it to be a sufficiently separate or discrete issue of fact or law such as to warrant a reduction of the costs to be awarded to Safeway and Mr Jones.
Conclusion as to reduction of costs to be awarded
64 I am not satisfied that these issues, whether taken individually or together, constitute special or particular circumstances which warrant a reduction in the order for costs in favour of the respondents and a departure from the ordinary rule that costs follow the event. In particular, I am not satisfied that the costs to be ordered in favour of the respondents should be reduced by 20 per cent which is no more than an arbitrary figure nominated by the Commission. That figure has not been shown to be calculated by reference to the time taken in the trial by reference to any of the particular issues taken individually or together.
65 It therefore follows that I do not accept that this is a case in which it is appropriate, notwithstanding the dismissal of the application, that the costs to be awarded in favour of the successful respondents should be reduced.
66 The order of the Court will be that the applicant pay the first and third respondents’ costs of and incidental to the application.
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I certify that the preceding sixty‑six (66) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Goldberg. |
Associate:
Dated: 22 October 2002
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Counsel for the Applicant: |
Mr J I Fajgenbaum QC & Mr D Star |
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Solicitor for the Applicant: |
Australian Government Solicitor |
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Counsel for the First and Third Respondents: |
Mr R M Smith SC & Mr P R Whitford |
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Solicitor for the First and Third Respondents: |
Clayton Utz |
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Dates of Hearing: |
18 April 2002 |
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Date of Judgment: |
22 October 2002 |
