FEDERAL COURT OF AUSTRALIA

Specsavers Pty Limited v Luxottica Retail Australia Pty Limited (No 2)

[2013] FCA 807

THE COURT ORDERS THAT:

1.    Order 2 made on 3 July 2013 is set aside.

2.    The applicant pay the respondent’s costs of the proceeding on a party-party basis, save that there be no order for costs in respect of the argument in relation to indemnity costs.

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

REASONS FOR JUDGMENT

Introduction

1    On 3 July 2013, I published my reasons for judgment in this matter (Specsavers Pty Ltd v Luxottica Retail Australia Pty Ltd [2013] FCA 648). Orders were made dismissing the originating application and ordering the applicant to pay the respondent’s costs. Upon delivery of the judgment, the respondent sought an opportunity to make submissions in support of a claim that it was entitled to an order for costs in its favour on an indemnity basis from 27 March 2013. The basis of its position was the applicant’s rejection of two “Calderbank” offers. I made directions for the filing of affidavits and brief outlines of submissions in respect of the costs issue. Both parties took advantage of that opportunity.

Summary of background facts

2    The respondent relies on the applicant’s rejection of two offers made by it in Calderbank letters, both dated 27 March 2013.

3    The first Calderbank offer was made on Wednesday, 27 March 2013 at 1:27 pm in an email sent by the respondent’s instructing solicitor to the applicant’s instructing solicitor. The offer was made on the day before the first day of the hearing. It was made in response to a without prejudice offer made by the applicant earlier on the same day. The respondent’s first Calderbank offer was expressed to be open for acceptance until 5:00 pm on 27 March 2013. The essence of the offer was that:

(a)    the respondent would agree to cease using certain specified “exact phrase combinations”, including the phrase “Better Frames, Better Lenses, Better Fit”, in any future advertising and marketing activities, as long as there was no restriction on the use of the phrase “Accufit exclusive to OPSM” either by itself or in combination with the other specified phrases;

(b)    the respondent would use its best endeavours to ensure that the current materials bearing the specified phrases were removed from OPSM stores and the internet promptly and, in any event, by 12 April 2013;

(c)    the proceedings be dismissed with each party to pay its own costs; and

(d)    the terms of settlement be kept confidential.

4    By a letter attached to an email sent at 2:52 pm on 27 March 2013, the applicant rejected the respondent’s first offer stating that “our client is confident that the Court will find in its favour in the Proceeding”. The letter pointed out that the respondent’s proposed undertaking did not address one of the central issues in the case, namely the use of the phrase “Better Frames, Better Lenses, And The Best Fit You’ve Ever Had”. Among other reasons given for the applicant’s rejection of the first offer, it was claimed that the expedited final hearing which was scheduled to commence the following day “was entirely the suggestion of your client and was in fact actively opposed by our client”. The applicant made a counter-offer (the details of which need not be set out). The counter-offer was expressed to be open for acceptance until 5:00 pm on 27 March 2013.

5    The respondent’s second Calderbank offer was made by way of an email sent at 8:44 pm on 27 March 2013. The second offer differed from the first in various respects, including by adding to the list of phrases which the respondent said it would no longer use in its future advertising and marketing activities, the phrase “Better Frames, Better Lenses, And The Best Fit You’ve Ever Had”. The reservation of the right to use the phrase “Accufit exclusive to OPSM” was maintained. Reasons were also given for not accepting certain aspects of the applicant’s counter-offer. The second Calderbank offer was said to be open for acceptance until 9:00 am the following day i.e. 28 March 2013, the day on which the hearing was scheduled to commence.

6    The parties’ instructing solicitors had several telephone conversations after 9:00 pm on 27 March 2013 in respect of the second Calderbank offer. During the course of those conversations, the applicant’s instructing solicitor said that she was instructed to decline the second Calderbank offer and to make a counter-offer, which entailed acceptance of the respondent’s second Calderbank offer save that it be made clear that the applicant was not precluded from bringing a future action in relation to the respondent’s use of the phrase “Accufit exclusive to OPSM” if it was used in a misleading way. The respondent rejected that counter-offer. A further counter-offer was made by the applicant later that evening and the respondent’s solicitor indicated that it was unlikely that she would be able to obtain instructions on that proposal that night.

7    At 9:30 am on 28 March 2013, i.e. shortly before the hearing commenced, the respondent’s instructing solicitor forwarded to the applicant’s instruction solicitor proposed terms of settlement. The applicant proposed some amendments to that document which were forwarded under cover of an email at 10:02 am on 28 March 2013. At approximately 11:00 am on that day the respondent’s instructing solicitor indicated that the revised offer was rejected. There were some further discussions between the parties concerning a possible compromise of the proceedings, but they have no relevance to the present issue.

8    As will emerge below, in resisting the application for indemnity costs, the applicant places particular emphasis on the difficulties it experienced at the relevant time in reviewing and responding to the respondent’s evidence. Having ordered that the hearing be expedited, directions had been given for the filing of evidence, which provided the applicant with only 28 hours to review the respondent’s evidence in answer. Ms Lynne Peach, who had primary carriage of the proceedings on behalf of the applicant, gave evidence, which I accept, that some logistical difficulties were experienced by her and those assisting her in forwarding to the applicant and to its expert copies of the respondent’s evidence in answer, primarily because of the bulk of the documentation. It is evident that those logistical problems distracted Ms Peach and her colleagues for some hours during the afternoon and evening of 26 March 2013. Well into the late evening on 26 March 2013 and throughout the following day, Ms Peach and her colleagues were very much focused on the task of preparing evidence in reply. At approximately 5:00 pm on 27 March 2013, the applicant’s solicitors forwarded to the respondent a second affidavit of Mr Simon Hawkins by way of evidence in reply. At approximately 10:00 pm on the same day, Ms Peach also forwarded to the respondent a second affidavit by Dr Stephen Downes, the applicant’s expert.

Summary of parties’ contentions

9    The parties are generally agreed as to the relevant legal principles. Their disagreement lies in the application of those principles to the particular circumstances.

10    The relevant principles may be summarised as follows:

    under s 43 of the Federal Court of Australia Act 1976 (Cth) (FCA Act), the Court has a power to award costs, which includes a power to award costs on an indemnity basis. The discretion to award costs must be exercised judicially;

    while various cases have identified various relevant factors, the presence or absence of which may be persuasive as to whether indemnity costs are appropriate, the exercise of the discretion in a particular case must depend on all relevant circumstances of that case (see MGICA (1992) Pty Ltd v Kenny & Good Pty Ltd (No 2) (1996) 70 FCR 236 at 238 per Lindgren J);

    the unreasonable or imprudent rejection of a Calderbank offer may result in indemnity costs being awarded. The mere rejection of a Calderbank offer followed by a result which is more favourable to the offeror and less favourable to the offeree than that represented by the offer does not automatically lead to the making of an order for payment of costs on an indemnity basis (MGICA at 239; Black v Lipovac (1998) 217 ALR 386 at 432 );

    Part 25 of the Federal Court Rules 2011 establishes a regime which, if utilised, gives rise to a presumptive entitlement to indemnity costs (see MGICA at 240 and Specsavers Pty Ltd v The Optical Superstore Pty Ltd (2012) 208 FCR 78). But that regime was not employed here. It might also be noted that, under that regime, an offer to compromise has to be open to be accepted for a period of not less than 14 days after the offer is made (r 25.05);

    the offeror needs to show that the conduct of the offeree was unreasonable and that conduct is to be viewed in light of the circumstances which existed at the time the offer was rejected. The fact that the offeree ultimately fails to make good their case does not mean that they acted unreasonably in rejecting an offer (Alpine Hardwoods (Aust) Pty Ltd v Hardys Pty Ltd (No 2) (2002) 190 ALR 121 at [28] per Weinberg J); and

    a helpful but non-exhaustive list of circumstances which may be relevant in determining whether the rejection of a Calderbank offer is reasonable or not is set out in Hazeldene’s Chicken Farm Pty Ltd v Victorian Workcover Authority (No 2) (2005) 13 VR 435 at [25] and includes:

        (a)    the stage of the proceeding at which the offer was received;

        (b)    the time allowed to the offeree to consider the offer;

        (c)    the extent of the compromise offered;

        (d)    the offeree’s prospects of success, assessed as at the date of the offer;

        (e)    the clarity with which the terms of the offer were expressed; and

        (f)    whether the offer foreshadowed an application for an indemnity costs in the event of the offeree’s rejection of it.

11    The respondent submits that both Calderbank offers were reasonable and that the applicant acted unreasonably in rejecting one or other of them because:

(a)    both offers involved “giving something away”. The respondent offered to cease using many of the phrases to which the applicant objected, to remove certain marketing materials by a particular date and to bear its own costs;

(b)    as at the date of the offers, the applicant had available to it all of the respondent’s evidence and was well-placed to make a realistic assessment of its prospects of success and the weaknesses in its own case; and

(c)    the applicant was wholly unsuccessful in respect of its claims.

12    The applicant says that its rejection of both the Calderbank offers was reasonable because:

(a)    both offers were received at a very late stage and shortly before the hearing was to commence. As at 27 March 2013, the applicant was not fully apprised of its position in relation to the respondent’s evidence in answer and it was heavily engaged in considering and preparing its evidence in reply and generally preparing to present its case the following day;

(b)    the applicant was given only very limited time to consider the offers, namely approximately three and a half hours in the case of the first offer and approximately twelve hours in respect of the second offer;

(c)    although the applicant itself was imposing similar short time frames on its own offers and counter-offers, the applicant placed no reliance on those offers, nor is there is any evidence to suggest that it would have done so if it had been successful in the proceedings;

(d)    neither of the respondent’s Calderbank offers involved “giving something away”, whether modestly or otherwise; and

(e)    it is impermissible to assess the applicant’s prospects of success by reference to the Court’s reasons for judgment because those prospects must be assessed at the date of the offer and it was not unreasonable for the applicant to have proceeded to litigate its claims that the relevant representations were likely to mislead or deceive.

Consideration

13    For the following reasons, I consider that this is not an appropriate case to make an order for indemnity costs.

14    First, the two Calderbank offers relied upon were made very late in the proceedings. Both were made on the day before the hearing was to commence. It is true that the proceedings were expedited after having been commenced on 14 March 2013, but I consider that the respondent had ample opportunity before 27 March 2013 to seek to compromise the proceedings. Because the proceedings were expedited in order to accommodate the parties’ respective commercial interests, this necessarily placed a heavy burden on the parties and their legal representatives to have the case ready for a hearing on 28 March 2013. Moreover, it is reasonable to expect that the pressure on the parties and their legal representatives would intensify as the hearing date approached. In my view, it was not reasonable of the respondent to delay until the day before the hearing to make the first of the Calderbank offers it now relies upon. The same comments apply equally to the second Calderbank offer, which was made later on the same day.

15    I respectfully agree with the following observations of the Court of Appeal of the Supreme Court of Western Australia in Maclean v Rottnest Island Authority [2001] WASCA 323 at [35]-[36]:

Calderbank letters may be useful in advancing the administration of justice by putting parties pursuing small or doubtful claims on notice and forcing them to review their position.

However, the Court should not encourage the use of a Calderbank letter delivered shortly before trial when the other party might reasonably be expected to have their minds on a number of matters. The use of a Calderbank letter is an aid to the administration of justice and should be encouraged. Its use as an indiscriminately wielded tactical weapon should be discouraged.

16    Secondly, and related to the first consideration, I consider that neither offer gave sufficient time to the applicant to consider whether or not the offer should be accepted. As noted above, the relevant periods were approximately three and a half hours and twelve hours respectively (the latter extending overnight). No doubt the short period the offers were open for acceptance was driven by the fact that the hearing was scheduled to commence the following day, but that simply serves to underline the fact that the offers ought to have been raised earlier. Merely because the applicant itself made offers with similarly tight deadlines does not diminish the respondent’s actions or render as unreasonable the applicant’s conduct in rejecting the offers. The fact that both parties left it very late to make offers of compromise with tight deadlines does not of itself render one party’s conduct reasonable, where otherwise it is unreasonable. Both parties are at risk that their individual actions might be viewed unfavourably if they subsequently seek to rely on a Calderbank offer which gave the other party inadequate time for proper assessment, taking into account the stage of the proceedings and the distraction presented by other demands of litigation.

17    Thirdly, I am prepared to accept the respondent’s argument that its offers did involve giving something of value away, in terms of its undertaking not to use some of the phrases complained of and to bear its own costs. But I consider that this factor is greatly outweighed by other considerations in the applicant’s favour.

18    Fourthly, I agree that the applicant’s prospects of success are to be assessed as at the date of the two offers and without the benefit of the hindsight provided by the reasons for judgment. Even though the applicant was ultimately unsuccessful in the substantive proceedings, I accept its submission that it was not unreasonable of it to press on with its claims, not the least because representation cases do involve matters of impression and there is ample scope for reasonable minds to differ on whether a particular representation is likely to mislead or deceive.

19    Finally, there is no contest that the terms of the offers were clearly expressed and both contained an express reference to the respondent’s intention to seek indemnity costs if the offers were rejected. But, again, those matters are substantially outweighed by the other considerations outlined above.

20    For these reasons, therefore, I reject the respondent’s application to be awarded indemnity costs from 27 March 2013. Accordingly, my previous order as to costs should remain, subject to one matter. I do not consider that it is appropriate that that order should apply to the argument in relation to indemnity costs. In my view, there should be no order for costs in respect of that argument. I will make orders accordingly.

Associate:

Dated:    13 August 2013