FEDERAL COURT OF AUSTRALIA

Nextra Australia Pty Limited v Fletcher (No 2) [2014] FCA 682

THE COURT ORDERS THAT:

The respondent pay the costs of the applicant on a party-party basis, to be taxed if not otherwise agreed.

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

REASONS FOR JUDGMENT

1    In Nextra Australia Pty Limited v Fletcher [2014] FCA 399 I found that the respondent, Mr Fletcher, had engaged in misleading or deceptive conduct in contravention of s 18 of the Australian Consumer Law ((“ACL”) (Sch 2 to the Competition and Consumer Act 2010 (Cth)). On 16 May 2014 I made the following orders giving effect to the terms of the judgment:

1.    By 23 May 2014 the Respondent permanently remove from the blog known as the “Australian Newsagency Blog” at http://www.newsagencyblog.com.au the article titled “Nasty campaign from nextra misleads newsagents” and responses thereto.

2.    The Respondent be restrained by himself, his servants, agents or otherwise from republishing this article on any other blog or in any other form or medium.

3.    Within 7 days of the date of this Order the Applicant file and serve any affidavit it relies on in support of its costs argument.

4.    Within 14 days of the date of this Order the Respondent file and serve any affidavit it relies on in support of its costs argument.

5.    Within 21 days of the date of this Order each party is to file and serve its written submissions in support of its costs argument.

2    The parties have complied with these orders and provided submissions and material to enable me to determine the issue of costs on the papers. I now turn to this issue.

Submissions of the parties

3    In summary, the position of the applicant is that on 26 February 2013 it made an offer to the respondent which was less favourable to the applicant than the terms of the judgment it has now received. Accordingly, the applicant seeks an order for costs to be taxed on a party-party basis until 28 February 2013 and thereafter on an indemnity basis, pursuant to r 25.14(3) of the Federal Court Rules 2011 (Cth) (“Federal Court Rules”).

4    In a letter dated 26 February 2013 the applicant offered, by way of compromise:

    that the respondent take down the relevant article (and its responses) and not republish the article in any other form, plus pay the applicant costs of $10,000; or, in the alternative

    the same terms, but also requiring an agreement not to make further public comments disparaging the Nextra or News Extra franchises, under which arrangement the parties would bear their own costs.

5    Further, on 21 October 2011 the Court reserved costs occasioned by the applicant amending its statement of claim. As a general proposition reserved costs follow the event. There is no reason to depart from this general proposition in this case.

6    The respondent’s position is that the applicant should pay its costs from 28 March 2013 on a party-party basis. This is because, in summary:

    The applicant commenced proceedings on 23 June 2011 claiming, inter alia, financial compensation or damages, however that aspect of the claim was subsequently withdrawn. The Court is entitled to draw the inference that the proceedings could have been commenced in the Federal Circuit Court (as it now is).

    The applicant amended its statement of claim and orders reserving the respondent’s costs thereof were reserved on 21 October 2011.

    The respondent made several settlement offers to the applicant, both of which were rejected. These offers were:

        o    a first settlement offer on 5 March 2012 in which the respondent offered to settle the proceedings on the basis that the applicant discontinue its application and pay the applicant the sum of $5,000 in costs;

        o    a second settlement offer on 26 March 2012 in which the respondent offered to settle the proceedings on the basis that it would remove the Article and the blog posts from the Blog, and the applicant pay its costs. The respondent submits that this second settlement offer is the crux of the determination of the costs issue presently to be decided.

    The evidence before the Court is that up until 28 March 2012 the applicant had an estimated expenditure of nearly $20,000 in legal costs, and by the time the applicant made its own settlement offer it had expended in excess of a further $22,000 in legal costs. In rejecting the respondent’s second settlement offer the applicant has engaged in misconduct within the meaning discussed by Lord Devlin in Anglo-Cyprian Trade Agencies Ltd v Paphos Wine Industries Ltd [1951] 1 All ER 873.

    The outcome of the trial was no better than was offered by the applicant on 26 February 2013.

    In any event, the offer of the applicant of 26 February 2013 was ambiguous because:

        o    it was silent in respect of the respondent’s reserved costs concerning the amendment to the applicant’s statement of claim;

        o    properly read, the first limb of the applicant’s offer of 26 February 2013 imposed a requirement that the respondent not only remove the Article and the Blog posts but also not engage in conduct disparaging the applicant.

    In light of principles outlined by the Court of Appeal of Victoria in Hazeldene’s Chicken Farm v Victorian Workcover Authority (No 2) (2005) 13 VR 435, the applicant’s offer of 26 February 2013 came nearly a year after the respondent’s second settlement offer, in similar terms, and cannot be considered to be a true compromise.

    It would be appropriate for the Court to apportion any costs claim on the basis that the respondent had successfully resisted two of the distinctively sought remedies of the applicant, with the damages claim being withdrawn on 6 March 2012.

Consideration

7    In this case the applicant was successful in its case against the respondent, in that the Court ordered the removal of the relevant Blog post and made a restraining order against the respondent in respect of future conduct. Section 43(2) of the Federal Court of Australia Act 1976 (Cth) provides that except as provided by any other Act, the award of costs is in the discretion of the Court or Judge. I accept the general proposition that costs follow the event, and consider that, unless there are compelling reasons why the proposition should not apply, the applicant is entitled to its costs in the proceedings: Oshlack v Richmond River Council (1998) 193 CLR 72. However two outstanding issues remain for determination, namely:

    whether the applicant is entitled to indemnity costs in accordance with r 25.14 of the Federal Court Rules; and

    whether costs to which the applicant would otherwise be entitled should be discounted for any reason, and whether the respondent is entitled to any costs.

Rule 25.14

8    Rule 25.14 of the Federal Court Rules provides as follows:

25.14    Costs where offer not accepted

(1)    If an offer is made by a respondent and not accepted by an applicant, and the applicant obtains a judgment that is less favourable than the terms of the offer:

(a)    the applicant is not entitled to any costs after 11.00 am on the second business day after the offer was served; and

(b)    the respondent is entitled to an order that the applicant pay the respondent’s costs after that time on an indemnity basis.

(2)    If an offer is made by a respondent and an applicant unreasonably fails to accept the offer and the applicant’s proceeding is dismissed, the respondent is entitled to an order that the applicant pay the respondent’s costs:

(a)    before 11.00 am on the second business day after the offer was served—on a party and party basis; and

(b)    after the time mentioned in paragraph (a)—on an indemnity basis.

(3)    If an offer is made by an applicant and not accepted by a respondent, and the applicant obtains a judgment that is more favourable than the terms of the offer, the applicant is entitled to an order that the respondent pay the applicant’s costs:

(a)    before 11.00 am on the second business day after the offer was served—on a party and party basis; and

(b)    after the time mentioned in paragraph (a)—on an indemnity basis.

Note 1:    Costs on an indemnity basis is defined in the Dictionary.

Note 2:    The Court may make an order inconsistent with these rules—see rule 1.35.

9    In its letter of 26 February 2013 the solicitors for the applicant specifically framed its offers of compromise as being made pursuant to r 25.01. Further, the letter stated:

These offers are more than reasonable and ought to be accepted. Your client will not be able to obtain any better result at trial. The article is in several respects misleading and any one of those aspects of the article will be sufficient for the Court to award the relief sought.

Your client is on notice that if neither offer is accepted, then under the Rules our client will be entitled to an order for costs to be assessed on the indemnity basis.

10    The terms of this letter left the respondent in no doubt that the applicant intended the offers in that letter to fall within the terms of r 25.14(3).

11    Having regard to the material before the Court however, I consider that the applicant is not entitled to indemnity costs from the respondent as it has claimed.

12    As Basten JA observed in Anderson Group Pty Ltd v Tynan Motors Pty Ltd (No 2) (2006) 67 NSWLR 706 at [8]:

It is well established that an offer which does not involve a real and genuine element of compromise, will not be taken into account in relation to costs, either under the general law principles established by Calderbank v Calderbank, or under rules of Court: see, for example, Leichhardt Municipal Council v Green [2004] NSWCA 341; Manly Council v Byrne (No 2) [2004] NSWCA 227 and Herning v GWS Machinery Pty Ltd (No 2) [2005] NSWCA 375.

13    I am not satisfied that the offers made by the applicant on 26 February 2014 reflected genuine offers of compromise.

14    In its amended originating application filed 28 June 2012, the applicant sought orders:

    requiring the respondent to remove the Article from the Blog, as well as any responses he may have received;

    restraining the respondent from publishing the Article in any other form;

    requiring the respondent to publish on the Blog a retraction of the Article and an apology to the applicant.

15    Comparing these claims with the offers of the applicant in its letter of 26 February 2013, I note that the applicant “offered” that the respondent:

    remove the Article from the Blog, as well as any responses he may have received; and

    refrain from publishing the Article in any other form; plus

    (depending on which form of the “offer” was accepted) pay the applicant’s costs in the amount of $10,000 or the parties bear their own costs.

16    While the evidence now before the Court indicates that the costs incurred by the respondent on a party-party basis exceed the amount of the costs the subject of the applicant’s “offer”, and to that extent the applicant claims it has “compromised”, nonetheless in terms of the substantive relief sought by the applicant the letter of 26 February 2013 did not contain any offer of compromise. In substance, the applicant sought complete capitulation from the respondent in terms of the claims of the applicant in its originating application, in addition to assumption of costs liabilities. In this context I note cases including Townsend v Townsend (No 2) [2001] NSWCA 145 at [5] and Hancock v Arnold (No 2) [2009] NSWCA 19 at [17], as well as the discussion and cases cited in Dal Pont GE, Law of Costs (3rd ed, LexisNexis Butterworths, 2013) at 368-369.

17    While an offer by an applicant to a respondent for the respondent to capitulate can, in limited circumstances, trigger indemnity provisions of the Federal Court Rules, traditionally Courts have taken the approach that the case of the respondent would need to be something approaching frivolous or vexatious for an offer for the respondent to capitulate to constitute a genuine offer of compromise by the applicant: Regency Media Pty Ltd v AAV Australia Pty Ltd [2009] NSWCA 368 at [31]; Robb Evans of Robb Evans & Associates v European Bank Ltd (No 2) [2009] NSWCA 170 at [20]; Prosperity Advisers Pty Ltd v Secure Enterprises Pty Ltd [2012] NSWCA 192 at [111]. The rationale for this approach is that if the position were otherwise, the public policy to encourage settlement would rarely be served, in an all or nothing case (Regency Media at [31]). In this case I am not satisfied that the defence of the respondent could be characterised as either frivolous or vexatious.

18    I note that the applicant’s “offer of compromise” took place almost twelve months after the respondent had (on 26 March 2012) offered to settle the proceedings on the basis that the respondent withdraw the Article and the blog postings, and the applicant file a notice of discontinuance and pay costs to the respondent in the amount of $5,000. The evidence of Mr McGowan for the applicant is that considerable costs were incurred by the applicant during that time. In summary, and to adopt the words of Habersberger J in Enerka Apex Belting Pty Ltd v Vickers Systems Pty Ltd (No 2) [2002] VSC 409 at [14]. I am satisfied that the applicant’s “offer of compromise” was:

made more in the hope of obtaining an advantage on costs rather than for the purpose of genuinely compromising the dispute.

Is the respondent entitled to any costs?

19    As I have already noted, in this case the respondent also made offers which appeared to be Calderbank offers (as that term is generally understood following the decision in Calderbank v Calderbank [1975] 3 All ER 333). In particular, the respondent relies on its offer to compromise made on 26 March 2012, and contends that the applicant unnecessarily continued its case following that settlement offer.

20    Further, the respondent refers to costs reserved following the applicant’s amendment to its statement of claim on 4 October 2011.

21    Finally, the respondent submits that costs should be apportioned because the applicant abandoned the damages aspect of its claim in the period leading to trial.

22    In my view these issues may be dealt with swiftly.

23    The claim that the applicant “unnecessarily” continued its case after 26 March 2012 would be considerably more persuasive if the respondent had offered to pay the applicant’s costs to that date rather than require the applicant to pay the respondent’s costs. While clearly made without prejudice, nonetheless the offer of the respondent of that date acknowledges the crux of the applicant’s claim as concerning the removal of the Article and responses thereto, and that legal costs had been incurred (undoubtedly by both sides) in conducting the litigation. In circumstances where the applicant’s case clearly had merit, I am not persuaded that the applicant acted unreasonably in rejecting an offer where it would have been out of pocket in respect of both its costs and some of the respondent’s costs, or that in continuing to press for resolution of its claim – including costs – the applicant acted “unnecessarily”.

24    Further, I am not satisfied that any order in favour of the respondent ought be made in relation to costs reserved following my order of 21 October 2011. As a general proposition, reserved costs follow the event: r 40.03. The applicant submits that:

    the amended statement of claim provided further particulars that had been sought by the respondent;

    the only new allegations in the amended statement of claim were contained in paragraphs 19A, 20A and 21A. In addressing these paragraphs the respondent simply denied the allegations and repeated other allegations in the defence;

    the respondent failed in respect of its pleaded defence.

25    These contentions are supported by the material before the Court and the outcome of the proceedings. No reason of substance has been advanced by the respondent as to why I should make any order other than that the costs of the respondent reserved by my order of 21 October 2011 be borne by the respondent.

26    Finally I am not satisfied in this case that an apportionment of costs ought be made because the applicant withdrew its damages claim on 6 March 2012. This aspect of the applicant’s claim was discontinued early in the proceedings – indeed some sixteen months before the trial. In my view this circumstance is not akin to one where a successful party has prosecuted through to trial on an issue which fails, and which has required the unnecessary expenditure of time and resources by the respondent. In this respect the applicant acted properly in withdrawing its damages claim, and cannot be said to have unreasonably multiplied issues such that it should suffer in costs: cf observations of Burchett J in Australian Conservation Foundation v Forestry Commission (1988) 81 ALR 166 at 169.

Conclusion

27    In conclusion, I am satisfied that the appropriate order is that the respondent pay the costs of the applicant on a party-party basis, to be taxed if not otherwise agreed.

Associate:

Dated:    26 June 2014