FEDERAL COURT OF AUSTRALIA

Becker Group Ltd v Motion Picture Company of Australia Ltd (No 2) [2004] FCA 740

COSTS – applicant succeeds in contract claim but fails in claim under Trade Practices Act 1974 (Cth) – the failed claim takes up the majority of time and was abandoned at a late stage – whether applicant should pay the costs of the failed claim

Federal Court of Australia Act 1976 (Cth) ss 43, 51A

Trade Practices Act 1974 (Cth)

Federal Court Rules O 23

Australian Competition and Consumer Commission v Amcor Printing Papers Group Ltd [2000] FCA 163 followed

Australian Competition and Consumer Commission v Universal Music Australia Pty Ltd (No 2) (2002) 201 ALR 618 cited

Sydney Markets Ltd v Sydney Flower Market Pty Ltd [2002] FCA 283 cited

Alpine Hardwoods (Aust) Pty Ltd v Hardys Pty Ltd (No 2) (2002) 190 ALR 121 cited

BECKER GROUP LTD v MOTION PICTURE COMPANY OF AUSTRALIA LTD (FORMERLY SCANBOX ASIA PACIFIC LTD)

N 404 of 2002

SACKVILLE J

SYDNEY

11 JUNE 2004

THE COURT ORDERS THAT:

1.         The respondent pay to the applicant damages in the sum of $725,402 (‘the damages amount’).

2.         The respondent pay to the applicant interest on the damages amount up to the date of judgment in the sum of $284,963 pursuant to s 51A of the Federal Court of Australia Act 1976 (Cth).

3.         Judgment be entered for the applicant against the respondent in the amount of $1,010,365.

4.         The applicant pay 20 per cent of the respondent’s costs of the proceedings.

Note:    Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.

REASONS FOR JUDGMENT

1                     In the judgment delivered in this matter on 24 May 2004, I directed the applicant to file and serve short minutes of order giving effect to the judgment and written submissions as to costs: Becker Group Ltd v Motion Picture Company of Australia Ltd [2004] FCA 630.  I also ordered the respondent to file and serve short minutes of order insofar as the respondent disagreed with those proposed by the applicant, and its written submissions as to costs.

2                     The applicant has proposed short minutes of order as follows:

‘1.        The respondent pay to the applicant damages in the sum of $725,402 (“the damages amount”).

2.                The respondent pay to the applicant interest on the damages amount up to the date of judgment in the sum of $284,963 pursuant to s 51A of the Federal Court of Australia Act 1976 (Cth).

3.                Judgment be entered for the applicant against the respondent in the amount of $1,010,365.

4.                The respondent pay one-half of the costs of the proceedings of the applicant as follows:

(a)               in respect of the costs incurred until 22 September 2003 – taxed on a party and party basis; and

(b)               in respect of the costs incurred after 22 September 2003 – taxed on an indemnity basis.’

3                     The respondent accepts that pars 1, 2 and 3 of the Short Minutes of Order reflect the intent of the judgment.  There is therefore no dispute as to these paragraphs.  The only remaining dispute relates to the appropriate costs order.  In the judgment I indicated that I was inclined to think that the respondent should be awarded the costs attributable to the applicant’s claim under the Trade Practices Act 1974 (Cth) (‘TP Act’), which, in large measure, had been abandoned by the applicant in final submissions.

4                     In its written submissions, the applicant accepts that, but for an offer of compromise made by it pursuant to Federal Court Rules (‘FCR’), O 23, it could not have resisted a costs order according with the prima facie view expressed in the judgment.  However, the applicant relies upon an offer of compromise made on 22 September 2003, in which it offered to compromise all causes of action in the proceedings on the basis that

‘judgment be given for the applicant against the respondent requiring the respondent to pay the applicant the sum of $500,000 as a debt due to the applicant for breach of a contractual obligation of the respondent to pay that amount’.

5                     The offer of compromise contemplated that the respondent would pay interest pursuant to s 51A of the Federal Court of Australia Act 1976 (Cth) (‘Federal Court Act’) and would also pay the costs of and incidental to the proceedings up to the date of judgment, being the date of acceptance of the offer of compromise in accordance with the FCR. 

6                     The applicant relies particularly on FCR, O 23 r 11(4), which provides as follows:

‘If:

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

(b)               the applicant obtains judgment on the claim to which the offer relates not less favourable than the terms of the offer;

then, unless the Court otherwise orders, the applicant is entitled to an order against the respondent for costs incurred in respect of the claim:

(c)               up to and including the day the offer was made – taxed on a party and party basis; and

(d)               after that day – taxed on an indemnity basis.’

It is common ground that the respondent did not accept the offer.  I am prepared to assume that the applicant is entitled to obtain a judgment which is ‘not less favourable than the terms of the offer’, within the meaning of O 23 r 11(4)(b).

7                     The applicant points out that the offer of compromise was made immediately following the mediation of the proceedings before the Registrar and well before the parties had commenced their pre-trial preparations.  The applicant also relies upon the policy underlying FCR, O 23, which it says is to impose a cost penalty upon a party which unreasonably refuses to compromise proceedings.  The applicant argues that it made a timely offer to surrender nearly one-third of the judgment debt to which it is now entitled and should be compensated for having done so by a partial award of indemnity costs.

8                     The applicant accepts that the respondent should not pay the costs of the abandoned TP Act claim.  However, it says that because the trial of the TP Act claim was ‘proximately referable to [the respondent’s] unreasonable conduct in refusing the offer’, the applicant should not have to bear the respondent’s costs of responding to the TP Act claim.  The applicant suggests that one-half of the costs of the proceedings should be attributed to the contract claim for the purpose of making an appropriate apportionment of costs between the parties.

9                     The respondent submits that, assuming the offer of compromise complied with FCR, O 23, the Court nonetheless retains a discretion as to costs pursuant to s 43(2) of the Federal Court Act.  It contends that I should take into account that:

• the applicant had failed completely in what it said in opening was its principal claim, namely that under the TP Act;
• the offer suggested on its face that the applicant was aware that its TP Act claim was hopeless;
• at the time the applicant made its offer and, indeed until the amendment of its pleadings during final submissions, the offer represented 100 per cent of the applicant’s claim in contract, plus interest and costs;
• in the circumstances, the respondent had not acted unreasonably in rejecting the applicant’s offer;
• the only reason the matter was in the Federal Court and not the District Court was because of the TP Act claim; and
• the bulk of the evidence and the bulk of the trial related to the applicant’s hopeless claim under the TP Act.

10                  Section 43(2) of the Federal Court Act provides that the award of costs is in the discretion of the Court.  In Australian Competition and Consumer Commission v Amcor Printing Papers Group Ltd [2000] FCA 163, at [9], I observed that:

‘The authorities in this Court have accepted that the rejection of a Calderbank offer (in the sense of an offer to settle specifically made with a view to being used, if not accepted, in relation to a costs application) does not of itself justify an order for costs on an indemnity basis if the offeree fails to secure a more favourable outcome in the proceeding: John S Hayes & Associates Pty Ltd v Kimberley-Clarke Australia Pty Ltd (1994) 52 FCR 201, at 206, per Hill J.  The significance to be attached to a Calderbank offer depends on its terms and the circumstances of the litigation, including the time at which the offer is made and the understanding of the parties as to the strengths and weaknesses of their respective cases…’

See, too, Australian Competition and Consumer Commission v Universal Music Australia Pty Ltd (No 2) (2002) 201 ALR 618, at 630-631, per Hill J; Sydney Markets Ltd v Sydney Flower Market Pty Ltd [2002] FCA 283, at [14]-[18], per Hely J; Alpine Hardwoods (Aust) Pty Ltd v Hardys Pty Ltd (No 2) (2002) 190 ALR 121, at 124-127, per Weinberg J.

11                  At the time the offer was made, the applicant claimed $500,919 for breach of contract.  The offer of compromise offer was expressed to relate to the claim in contract.  It is true, as the applicant’s costs submissions point out, that at the time the offer was made the applicant had on foot a claim under the TP Act for some $860,000 in damages.  However, in my opinion, it was not unreasonable for the respondent to regard the TP Act claim as adding nothing to the applicant’s contract claim.  In substance, so far as the respondent was concerned, the applicant was offering to settle the proceedings for the full value of its only seriously arguable claim.  In a real sense, therefore, the offer of compromise was not a compromise at all.  As I have noted, it was only in the course of final submissions that the applicant reformulated its claim to seek the amount of damages ultimately awarded, namely $725,402.

12                  To award the applicant the costs of its contractual claim on an indemnity basis would effectively amount to rewarding it for its failure to quantify its claim more precisely earlier in the proceedings.  In my opinion, it was not unreasonable for the respondent to consider, at the time the offer of compromise was made, that its maximum exposure under the contract claim was approximately $500,000 (plus interest) and that the applicant’s TP Act claim would add nothing to the latter’s case.  Similarly, it was not unreasonable for the respondent to take the view that the applicant was making no genuine concession in making the offer it did.  In the circumstances I think that, while the applicant should have its costs of litigating the contract claim, the costs order should be on the usual party and party basis.

13                  I remain of the view, expressed tentatively in the judgment, that the applicant should pay the respondent’s costs of the TP Act claim.  Although one aspect of the TP Act claim was pursued (unsuccessfully) as an alternative to the contract claim, the substance of the TP Act claim was misconceived and was rightly abandoned, but only at a very late stage of the proceedings.  Most of the hearing time and much of the preparation for the hearing was devoted to evidence that ultimately proved to be irrelevant to the issues that remained in dispute between the parties.

14                  The applicant points out that if a costs order is made against the respondent in respect of the cause of action in contract and against the applicant in respect of the TP Act cause of action, the parties may become embroiled in a costly exercise in quantification of the two costs orders.  I think that the better course is for me to make a single costs order that allows for the costs of the contract claim to be set off, at least notionally, against the costs of the TP Act claim.

15                  Considerably more preparation and hearing time was devoted to the TP Act claim than to the contract claim, although there was some small degree of overlap.  Doing the best I can on the materials before me, I would assess the TP Act claim as accounting for about 60 per cent of the parties’ preparation and hearing time and the contract claim as accounting for about 40 per cent.  On this basis, it is appropriate simply to order the applicant to pay 20 per cent of the respondent’s costs of the proceedings.

16                  I appreciate that it is not customary for a successful party to be ordered to pay even a portion of the costs of the unsuccessful party.  However, the unusual circumstances of the present case seems to me to justify such an order.  Had the applicant abandoned its discrete TP Act claim at an early stage of the proceedings, both parties would have been spared very considerable time and expense without any detriment to the applicant’s contractual claim on which it ultimately succeeded.

17                  For these reasons, the applicant should be ordered to pay 20 per cent of the respondent’s costs of the proceedings.

Associate:

Dated:                          11 June 2004