FEDERAL COURT OF AUSTRALIA

Eat Media Pty Ltd v Mulready Media Pty Ltd [2009] FCA 1058

PRACTICE AND PROCEDURE — declaratory relief granted in absence of full hearing — claim for loss or damage withdrawn — costs — claim for no order as to costs — competing claim for party/party costs or indemnity costs

Held: costs on a party/party basis

Trade Practices Act 1974 (Cth) s 52

Federal Court of Australia Act 1976 (Cth) s 43

Federal Court Rules O 62 r 36A

Albarran v Theodorou [2006] NSWSC 9, cited

Australian Competition and Consumer Commission v AMV Holding Ltd [2009] FCA 605, cited

Australian Competition and Consumer Commission v Grove and Edgar Pty Ltd [2008] FCA 1956, [2008] ATPR 42-269, cited

Australian Securities Commission v Aust-Home Investments Ltd (1993) 44 FCR 194, applied

Australian Transport Insurance Pty Ltd v Graeme Phillips Road Transport Insurance Pty Ltd (1986) 10 FCR 177, applied

Boscaini v Corporation of Kensington and Norwood [1999] SASC 327, discussed

Champagne View Pty Ltd v Shearwater Resort Management Pty Ltd [2000] VSC 214, cited

Collier Constructions Pty Limited v Foskett Pty Limited (1992) 33 FCR 591, cited

Consolidated Byrnes Holdings Ltd v Hardel Investments Pty Ltd [2009] FCA 399, 176 FCR 348, discussed

Fountain Selected Meats (Sales) Pty Ltd v International Produce Merchants Pty Ltd (1988) 81 ALR 397, cited

Gribbles Pathology Pty Ltd v Health Insurance Commission (1997) 80 FCR 284, discussed

Hughes v Western Australian Cricket Association (Inc) (1986) ATPR 40-748, applied

MGICA (1992) Pty Ltd v Kenny and Good Pty Ltd (No 2) (1996) 70 FCR 236, cited

Nokia Corporation v Liu [2009] FCA 20, 80 IPR 286

Residential Property Conveyancers v Bagnato [2009] SASC 71, cited

Shahid v Australasian College of Dermatologists (No 2) [2008] FCAFC 98, cited

Sony Computer Entertainment Australia Pty Ltd v Dannoun (No 2) [2001] FCA 1530, applied

Tervonen v Minister for Home Affairs (No 2) [2008] FCA 872, cited

EAT MEDIA PTY LTD (ACN 121 658 795) v MULREADY MEDIA PTY LTD (ACN 108 019 941) AND ANOR

NSD 654 of 2009

FLICK J

21 September 2009

SYDNEY

THE COURT ORDERS THAT:

1.                  The Further Amended Application is dismissed.

2.                  The Respondents are to pay the costs of the Applicant of and incidental to the proceeding.

Note:    Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.
The text of orders can be located using eSearch on the Court’s website.

REASONS FOR JUDGMENT

1                     The Applicant, Eat Media Pty Ltd, engages in the business of supplying to cafes in Australia disposable coffee cups featuring the advertisements of its clients.

2                     The Second Respondent, Duncan Mulready, is the sole director and company secretary of the First Respondent, Mulready Media Pty Ltd.

3                     In May and June 2009, Duncan Mulready, on behalf of Mulready Media Pty Ltd, sent emails to a number of entities containing representations as to the Applicant’s coffee cups.

4                     On 2 July 2009 the Applicant commenced a proceeding in this Court alleging (inter alia) a contravention of s 52 of the Trade Practices Act 1974 (Cth). The Application filed together with the Statement of Claim sought declaratory and injunctive relief, together with damages and costs.

5                     The proceeding first came before a Judge of this Court, Jacobson J, acting as Duty Judge, on 3 July 2009. Leave was granted to the Applicant to serve a Notice to Produce. That Notice was in fact served and it emerged that emails had been sent to entities in addition to those identified in the Statement of Claim as filed.

6                     Thereafter the proceeding was listed for Directions on 16 July, 20, 26 and 31 August and 14 September 2009. On 31 August 2009, the Applicant was granted leave to file a Further Amended Application, which was subsequently filed.

7                     On 14 September 2009 the Court was advised that the Applicant’s claim for loss or damage was not to be further pursued. The only outstanding matter was then one as to costs. The Respondents opposed the making of any order as to costs and contended that each party should pay its own costs. The Applicant sought costs either on a party/party basis or on an indemnity basis.

8                     It is considered that the Applicant is entitled to an order for costs but that there should be no order that those costs be paid on an indemnity basis.

9                     The source of the Court’s power to make an order for costs is s 43 of the Federal Court of Australia Act 1976 (Cth) (“the 1976 Act”) which relevantly provides as follows:

Costs

(1)        Subject to subsection (1A) and section 570 of the Fair Work Act 2009, the Court or a                Judge has jurisdiction to award costs in all proceedings before the Court (including             proceedings dismissed for want of jurisdiction) other than proceedings in respect of which           any other Act provides that costs shall not be awarded.

(1A)     …

(2)            Except as provided by any other Act, the award of costs is in the discretion of the Court or Judge.

10                  The discretion, it has long been recognised, is unconfined but must nevertheless be exercised judicially: Hughes v Western Australian Cricket Association (Inc) (1986) ATPR 40-748. Toohey J there stated at 48,136:

Subsection 43(2) of the Federal Court of Australia Act 1976 vests the award of costs “in the discretion of the Court or Judge”. The Federal Court Rules do not purport to qualify that discretion. The only rule to which reference is necessary is O. 62, r. 15 whereby, when costs are reserved, those costs follow the event “unless the Court or a Judge otherwise orders”.

The discretion must of course be exercised judicially. There are decisions, both of Australian and English courts, that throw light on the way in which the discretion is to be exercised. I shall not refer to those decisions in any detail; I shall simply set out in a summary way what I understand to be their effect.

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.

Similarly, in Australian Transport Insurance Pty Ltd v Graeme Phillips Road Transport Insurance Pty Ltd (1986) 10 FCR 177 at 178, Woodward J accepted that the discretion, whilst “‘absolute and unfettered’ … must be exercised judicially”.

11                  In the exercise of this discretion, one matter to be considered is whether or not there has been any hearing on the merits. In the absence of a hearing, it has been said that each party must bear its own costs “except in special circumstances”: Gribbles Pathology Pty Ltd v Health Insurance Commission (1997) 80 FCR 284. Finkelstein J at 287 there cited with approval the following propositions formulated by Hill J in Australian Securities Commission v Aust-Home Investments Ltd (1993) 44 FCR 194 at 201 (citations omitted):

These cases seem to me to support the following propositions being made.

(1) Where neither party desires to proceed with litigation the Court should be ready to facilitate the conclusion of the proceedings by making a cost order ...

(2) It will rarely, if ever, be appropriate, where there has been no trial on the merits, for a Court determining how the costs of the proceeding should be borne to endeavour to determine for itself the case on the merits or, as it might be put, to determine the outcome of a hypothetical trial … This will particularly be the case where a trial on the merits would involve complex factual matters where credit could be an issue.

(3) In determining the question of costs it would be appropriate, however, for the Court to determine whether the applicant acted reasonably in commencing the proceedings and whether the respondent acted reasonably in defending them ...

(4) In a particular case it might be appropriate for the Court in its discretion to consider the conduct of a respondent prior to the commencement of the proceedings where such conduct may have precipitated the litigation ...

(5) Where the proceedings terminate after interlocutory relief has been granted, the Court may take into account the fact that interlocutory relief has been granted ...

The third proposition formulated by Hill J has, however, attracted repeated comment — both in this Court and in State courts. Thus, for instance, in Gribbles, Finkelstein J observed at 287:

For my own part I should wish to emphasise that in the absence of a hearing on the merits it is difficult to see how any order, other than an order that each party bear its own costs, can be made except in special circumstances. To do otherwise would require some prediction of the outcome of the case. It seems to me that the third proposition stated by Hill J was intended to cover the situation where the Court was in fact able to form a clear view about the merits of a case without a trial. So, if a claim is patently hopeless that would be a good reason to make an order for costs against the claimant. Likewise if a defence was bound to fail that would be good reason for awarding costs in favour of the claimant. But I venture to suggest that there will be very few cases where the issues will be sufficiently clear, in the absence of a hearing, for an order for costs to be made in favour of a party.

And in Boscaini v Corporation of Kensington and Norwood [1999] SASC 327, Debelle J observed:

[22] I immediately acknowledge the assistance of Hill J but suggest that proposition (3) is of limited assistance. The fact that a party has not conducted himself reasonably may disentitle him to costs. But, beyond that, the reasonableness of the conduct of the parties is not likely to assist in determining whether the applicant should recover his costs. The real question is whether the applicant had reasonable prospects of success. It seems preferable, therefore, to express proposition (3) in different terms.

Depending on circumstances, where the applicant has acted reasonably in commencing proceedings, has an arguable case, and it is reasonable to conclude that the respondent has acted in consequence of the commencement of proceedings, the court may be prepared to make an order as to costs in favour of the applicant.

Both of these observations were most recently addressed by Lander J in Consolidated Byrnes Holdings Ltd v Hardel Investments Pty Ltd [2009] FCA 399 at [353] to [354], 176 FCR 348 at 364. His Honour said at [359], 176 FCR at 364:

… I disagree with respect with Debelle J’s decision in Boscaini … A party may behave so unreasonably in the bringing or conducting of proceedings so that an order for costs against that party is required in the interests of justice without ever deciding whether the party had a good cause of action.

See also: Residential Property Conveyancers v Bagnato [2009] SASC 71 at [22] to [25] per Layton J. Reservation has also been expressed as to the constraint suggested by Finkelstein J in Gribbles that in the absence of a hearing on the merits it is difficult to see how any order, other than an order that each party bear its own costs, can be made except in“special circumstances”:Champagne View Pty Ltd v Shearwater Resort Management Pty Ltd [2000] VSC 214 at [47]. Each case, it was there correctly observed, “must depend upon its own circumstances”. See also: Tervonen v Minister for Home Affairs (No 2) [2008] FCA 872 at [19].

12                  The observations of Finkelstein J in Gribbles and those of Hill J in Aust-Home Investments Ltd nevertheless remain a useful guide to the general principles that may be relevant to the exercise of the discretion conferred by s 43 of the 1976 Act. The general and unconfined content of that discretion, however, remains to be exercised by reference to the facts and circumstances of each individual case. No constraint can be imposed upon the exercise of that discretion that precludes consideration of each individual case on its own merits or which seeks to give any one or other consideration any preconceived significance or weight in the exercise of that discretion.

13                  In seeking an order in the present proceeding that there be no order as to costs, Counsel on behalf of the Respondents contended that there had been no hearing on the merits and that there were presently no “special circumstances”.

14                  Those submissions are rejected.

15                  On 31 August 2009 declarations of contravention of s 52 of the Trade Practices Act 1974 (Cth) and s 42 of the Fair Trading Act 1987 (NSW) were made. On the day these declarations were sought, an outline of written submissions was provided by Counsel for the Applicant. Written reasons in support of the decision to grant declaratory relief were not sought by the parties. No written reasons have thus been published in support of the relief then granted. But, when granting the declaratory relief, the Court’s attention was drawn to the observations of Reeves J in Australian Competition and Consumer Commission v Grove and Edgar Pty Ltd [2008] FCA 1956 at [18] to [21], [2008] ATPR 42-269 at 49,818 to 49,819 and the approach that should be taken before granting such relief. Reference was also made to the summary of the authorities by Moore J in Australian Competition and Consumer Commission v AMV Holding Ltd [2009] FCA 605.

16                  This was the approach pursued on 31 August 2009. Indeed, express reference was made during the course of that hearing to the observations of both Reeves J and Moore J. Whether such a hearing constitutes a hearing on the merits may be left to one side. The facts of the present proceeding were considered with sufficient care to ensure that the granting of declaratory and injunctive relief was appropriate.

17                  The present proceeding is thus not considered to be one where the Court has not sufficiently considered the merits of the claim sought to be litigated by an Applicant that it is not in a position to form a view as to prospects of success. Indeed, relief in the form of declarations and injunctions — albeit relief not opposed by the Respondents — would not have been granted in the absence of such a view being formed.

18                  The present proceeding is thus not one where it is appropriate to make no order as to costs. Neither any general principle nor the merits of the proceeding warrant such a conclusion. The Applicant commenced its proceeding and has been successful in obtaining significant relief. The fact that it has obtained that relief without the necessity for a fully contested hearing does not diminish the success it has obtained.

19                  The potentially more difficult question to resolve is whether the Applicant is entitled to its costs on an indemnity basis.

20                  To warrant an order for costs on an indemnity basis the circumstances must be “special” and such as to take the case out of the “ordinary” category. It “must involve behaviour associated with the conduct of the proceeding … which is so unreasonable as to make it unjust that the other party should be limited in its recovery to party and party costs”: Sony Computer Entertainment Australia Pty Ltd v Dannoun (No 2) [2001] FCA 1530 at [4] per Lindgren J (citing NMFM Property Pty Ltd v Citibank Ltd (No 11) [2001] FCA 480, 109 FCR 77 and Waverley Council v Refkin Pty Ltd [2001] FCA 1469).

21                  One instance of such “special” circumstances emerges where “it appears that an action has been commenced or continued in circumstances where the applicant, properly advised, should have known that he had no chance of success”: Fountain Selected Meats (Sales) Pty Ltd v International Produce Merchants Pty Ltd (1988) 81 ALR 397 at 401 per Woodward J. Conversely, such an order may be appropriate where a view can be formed that a Respondent has no reasonable prospect of resisting the claims being advanced by an Applicant: Albarran v Theodorou [2006] NSWSC 9. The plaintiff had there commenced proceedings to remove a lapsing notice concerning a caveat and Campbell J (as His Honour then was) observed:

[5] Today, the lapsing notice has been withdrawn.

[6] It is quite clear that the plaintiffs had a caveatable interest. There was no basis for seeking its lapsing. That there was no basis has been amply demonstrated by the conduct of the second defendant, in withdrawing the lapsing notice today.

[7] The defendants have not appeared in the proceedings, but I am satisfied that the service of process has occurred.

[8] Requiring proceedings to begin, when there is no basis upon which those proceedings could be opposed, is one circumstance in which an indemnity costs order can be granted. I am satisfied that this is an appropriate case for making such an order.

Another instance is where a so-called “Calderbank” offer of settlement has been made and rejected: MGICA (1992) Pty Ltd v Kenny and Good Pty Ltd (No 2) (1996) 70 FCR 236 at 238 to 239 per Lindgren J.

22                  In the present proceeding there was undoubtedly a basis upon which an application for indemnity costs was properly made by Counsel on behalf of the Applicant. In very summary form it was contended on behalf of the Applicant that:

·                    letters had been forwarded to the Respondents by the solicitors then acting for the Applicant on 4 and 11 June 2009 alleging, amongst other things, misrepresentations being made by the Respondents and requesting undertakings that such conduct cease;

·                    a further letter was sent on 29 June 2009 from the new solicitors now acting for the Applicant to the solicitors acting for the Respondents stating that the Respondents had “refused to provide the written undertakings requested” in the 4 and 11 June 2009 letters and advising that the new solicitors had been “instructed to commence proceedings against your client”. Confirmation was sought that the Respondents’ solicitors had “instructions to accept service on your client’s behalf”. No distinction was sought to be drawn by reference to whether the 4 and 11 June letters had been sent to one or other of the Respondents;

·                    the proceedings were then commenced on 2 July 2009; and

·                    on 31 August 2009 declaratory and injunctive relief was granted substantially in the form as sought in the Applicant’s letters to the Respondents.

On this approach, it was contended that repeated offers had been made to accept the provision of undertakings — as the 4 June 2009 letter stated — “to avoid … a legal dispute …”. In contrast to the steps being taken by the Applicant to address the claims being advanced on its behalf, Counsel on behalf of the Applicant contended that:

·                    the only substantive response to the 4 June 2009 letter was a letter dated 10 June 2009 from the solicitors acting for the Respondents admitting that the emails in question were sent, but denying that “the contents of these emails have caused any damage to Eat Media’s goodwill and reputation. Accordingly, our client will not be providing to you the undertakings requested”.

23                  Rejected are attempts by Counsel on behalf of the Respondents to characterise the 4 and 11 June 2009 letters as involving a claim for damages and to then erect this aspect of the claim as the matter that really divided the parties. Certainly claims were made in those letters to the Applicant having suffered damage and claims made that ongoing damage would be suffered if the misrepresentations were to continue. But a central “demand” being made in those letters was the demand for an undertaking that the Respondents “cease making the representations” and an undertaking to forward corrective emails. Had those undertakings been provided, the distinct probability is that the present proceeding would not have been commenced. The Applicant expressly stated that it wished “to avoid … a legal dispute …”.

24                  Also rejected is a contention that the Respondents as late as 1 July 2009 were attempting to avoid the prospect of litigation. An email sent from a partner of the Respondents’ solicitors to his counterpart in the Applicant’s camp stated:

I am endeavouring to obtain instructions from my client and should be in a position to respond to you shortly.

Read in context, this email was referring to instructions with respect to acceptance of service rather than instructions with respect to the prospect of avoiding litigation.

25                  It is nevertheless not considered that the Respondents have acted in such an “unreasonable” manner that an indemnity costs order should now be made against them. The lapse of time as between 4 June 2009 (when the claims of the Applicant were first raised) and 2 July 2009 (when the present proceeding was commenced) is a comparatively short period. The basis upon which the undertakings were refused on 10 June 2009 may well have been ill-founded. And it may further be noted that there was an absence of any real explanation provided by the Respondents as to either any alternative steps being proposed “to avoid … a legal dispute …” or steps being taken to obtain more constructive instructions prior to the commencement of proceedings four weeks after the 4 June 2009 letter had been forwarded.

26                  The Applicant unquestionably had an entitlement to commence its proceeding and to have its claims resolved expeditiously. But neither the lapse of four weeks nor the absence of any constructive steps being taken by the Respondents to avoid the present litigation is sufficient to characterise the conduct of the Respondents as “unreasonable”. Although unnecessary litigation is to be avoided and parties encouraged to resolve disputes in advance of litigation, an Applicant need not give any advance notice of an intention to commence proceedings. In the present proceeding, the Applicant acted reasonably in giving such advance notice as it did to the Respondents. But the Respondents cannot be said to have acted so “unreasonably” as to attract an order for the payment of costs on an indemnity basis. From the outset the Applicant was claiming to have suffered damages — damage was claimed to have been suffered in the 4 and 11 June 2009 letters and in the Application as filed on 2 July 2009. But it was only on 14 September 2009 that the claim for loss or damage was formally not pressed. Part of the claim being resisted by the Respondents, not unreasonably, was the claim for loss or damage.  

27                  Any basis for an indemnity costs order is only further diminished if attention is focussed upon the conduct of the Respondents after the present proceeding was commenced. Thereafter the Respondents consented to an amendment to the Statement of Claim to take into account representations made to entities other than those initially particularised in the initiating Statement of Claim. Whether an amendment was required to further particularise those additional entities to whom false and misleading emails had been sent, as opposed to the more simple course of providing further particulars, is an issue which need not be resolved. Whatever course was pursued, the Respondents did not oppose the additional recipients of the offending emails being included within the ambit of the present proceeding. Nor did the Respondents oppose the grant on 31 August 2009 of declaratory and injunctive relief. Such conduct on the part of the Respondents has considerably assisted in the resolution of the present dispute.

28                  Albeit after the commencement of the proceeding, it is noted that the solicitors for the Respondents wrote to the Applicant’s solicitor communicating an offer of settlement and expressly invoked “the principles set out in Calderbank v Calderbank …”. The offer included an offer to send corrective emails and an offer to pay the Applicant’s costs up to the date of the letter. Thereafter the declaratory and injunctive relief was granted, albeit relief which was not addressed (perhaps unsurprisingly) in the letter. At the very least, the letter evidences reasonable steps being taken by the Respondents to resolve the present litigation.

29                  Neither before nor after the commencement of the present proceeding is there considered to be any basis upon which to conclude that the Respondents acted so unreasonably as to attract an order for the payment of costs on an indemnity basis.

30                  The Respondents sought to rely upon O 62 r 36A of the Federal Court Rules as a basis for further resisting or minimising the effect of any order for costs that may be made in favour of the Applicant, but this submission was subsequently abandoned. That Rule provides as follows:

Reduction in costs otherwise allowable

(1)        Where a party is awarded judgment for less than $100,000 on a claim (not including a                 cross‑claim) for a money sum or damages any costs ordered to be paid, including                disbursements, will be reduced by one‑third of the amount otherwise allowable under this             Order unless the Court or a Judge otherwise orders.

(2)        If the Court or a Judge is of the opinion that a proceeding (including a cross‑claim for a             money sum or damages) brought in this Court could more suitably have been brought in   another court or in a tribunal and so declares, then any costs to be paid, including               disbursements, will be reduced by one‑third of the amount otherwise allowable under this Order.

(3)        This rule does not apply to a proceeding under the Admiralty Act 1988.

The operation of that Rule, however, is “triggered by a money judgment” for less than $100,000: Collier Constructions Pty Limited v Foskett Pty Limited (1992) 33 FCR 591 at 593 per French J (as His Honour then was). His Honour further stated that “[i]n my opinion, the operation of subr (1) is not triggered by the simple grant of final declaratory relief”. His Honour, as has subsequently been held, “said nothing about the situation … where damages, declarations and injunctions were sought, but where the only final relied awarded … is by way of a money judgment”: Shahid v Australasian College of Dermatologists (No 2) [2008] FCAFC 98 at [14]. The Rule is not excluded where damages are sought together with declaratory or injunctive relief: Nokia Corporation v Liu [2009] FCA 20 at [32], 80 IPR 286 at 298 per Jessup J. Rule 36A, it is considered, has no application where the only substantive relief that is granted is declaratory and injunctive relief and where any claim for monetary relief is not pursued.

31                  It is thus considered that the Applicant is entitled to an order for costs — but not on an indemnity basis.

ORDERS

32                  The Orders of the Court are:

1.                  The Further Amended Application is dismissed.

2.                  The Respondents are to pay the costs of the Applicant of and incidental to the proceeding.

Associate:

Dated:         21 September 2009