FEDERAL COURT OF AUSTRALIA

Australian Competition and Consumer Commission v Breast Check Pty Ltd (No 3) [2015] FCA 327

THE COURT ORDERS THAT:

1.    The respondents pay the costs of the applicant in the proceeding

2.    The costs payable be as taxed but reduced by 15%, unless otherwise agreed.

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

REASONS FOR JUDGMENT

1    On 10 March 2014, I delivered judgment in this proceeding and found that the first respondent, Breast Check Pty Ltd, contravened the consumer laws at material times in connection with the publication of a breast imaging pamphlet and thermography pamphlet to members of the public and representations conveyed by these materials. I also found that the second respondent, Dr Alexandra Boyd, was liable as an accessory to these contraventions. See Australian Competition and Consumer Commission v Breast Check Pty Ltd [2014] FCA 190; [2014] ATPR 42-479.

2    Following a hearing on penalty on 10 June 2014 (penalty hearing), the Court ordered declarations, injunctions, pecuniary penalties and non-punitive orders against the respondents. See Australian Competition and Consumer Commission v Breast Check Pty Ltd (No 2) [2014] FCA 1068.

3    In my reasons for judgment at [125], I indicated that, on the face of the relief the Court was prepared to grant, and the basis upon which it would do so, I would have expected that the Australian Competition and Consumer Commission (ACCC) should have the costs of the proceeding. The parties were, however, given an opportunity to file written submissions on the question of costs and an order was made that this matter be dealt with on the documents.

4    Breast Check notes that ACCC has assessed its legal costs in this matter as being approximately $270,000, not including its internal costs or the costs of a prior investigation, and that ACCC has offered to accept $200,000 in payment of those legal costs.

5    In Breast Check’s submission, having regard to the case pleaded, the evidence led by ACCC, and the findings of the Court as to the scope and extent of the contravening conduct, this figure demonstrates that ACCC has taken a disproportionate and unrealistic approach in this proceeding, particularly due to its failure to accept an offer of settlement Breast Check made on 17 August 2012 (Breast Check’s offer).

6    ACCC rejects this submission and says the usual rule that costs follow the event should apply. It contends that the respondents should pay its costs of the proceeding, as it was successful in establishing contraventions of the relevant consumer laws, which the respondents contested at trial, and also largely obtained the relief it sought.

7    While Dr Boyd (who has been declared bankrupt) did not file any submissions on costs, it is understood that generally she adopts Breast Check’s submissions to the extent they apply to her circumstances.

8    The issue for determination is whether the Court should depart from the usual rule as to costs and whether Breast Check is entitled to its costs incurred after 17 August 2012 on an indemnity basis.

Is Breast Check entitled to its costs on an indemnity basis following its offer of settlement?

Breast Check’s submissions

9    Breast Check says that it offered to pay a pecuniary penalty of $100,000, and to otherwise agree to all other substantive orders sought in the application, on 17 August 2012. It submits ACCC’s rejection of this offer by letter dated 20 August 2012, and insistence upon a penalty of $375,000, is explicable only by its continued reliance on its case that the patients of Dr Boyd and her clinic (patients) constituted “the public”.

10    Breast Check submits that while ACCC commenced and prosecuted the proceedings on the basis that the patients constituted “the public”, the Court accepted that there was no evidence of wide publication. Breast Check contends that the limited scope of the publication should have been obvious and taken into account by ACCC from the outset.

11    Breast Check says that ACCC did not communicate any revised penalty figure until after the Court’s judgment was delivered, which included the Court’s finding that there was no contravention established by any of the publications to the patients. At this time, ACCC proposed a penalty of $250,000.

12    In the result, Breast Check contends that in commencing the proceedings, rejecting Breast Check’s offer and prosecuting the pleadings as pleaded, ACCC acted unreasonably and should be ordered to pay Breast Check’s costs on an indemnity basis.

13    In the alternative, Breast Check submits that by asserting a penalty position which was so disconnected from the underlying circumstances of the case in relation to the scope of publication, ACCC did not engage with or pay significant attention to the evidence to be relied upon by it, and consequently failed in its obligation to seek sensible resolution of the dispute.

14    Breast Check submits that ACCC ought not to be entitled to a costs order in its favour in respect of the proceedings at all, or alternatively not for costs incurred after Breast Check’s offer; and further not for costs incurred as to the penalty hearing. Breast Check contends that it is entitled to a costs order on an indemnity basis for costs incurred following ACCC’s rejection of Breast Check’s offer.

ACCC’s submissions

15    In ACCC’s submission, there is no basis for an order that ACCC should pay Breast Check’s costs of the proceeding, including those of the penalty hearing, or those incurred after Breast Check’s offer. Further, ACCC states there is no justification in this case for a departure from the usual rule that costs follow the event, and that ACCC is entitled to an order that the respondents pay its costs of and incidental to the proceeding, including the costs of and incidental to the penalty hearing.

16    ACCC submits that in the absence of special circumstances, costs follow the event. It says the usual order is that costs are payable on a party and party basis unless there is some special or unusual feature justifying departure from the ordinary rule, and that Breast Check has not discharged its onus to prove that such a circumstance exists.

17    First, ACCC says there are no relevant circumstances that warrant the making of an order for indemnity costs, such as the making of false allegations of fraud, particular misconduct that causes loss of time to the Court and to other parties, the pursuit of proceedings for ulterior motives, the wilful disregarding of known facts or law, the making of otherwise groundless allegations or the imprudent or unreasonable refusal of an offer of compromise: see Colgate-Palmolive Company & Anor v Cussons Pty Ltd [1993] FCA 801; (1993) 46 FCR 225 at 233.

18    Secondly, ACCC contends the rejection of Breast Check’s offer was not unreasonable, having regard to the stage of the proceeding at which the offer was received, the time allowed to consider the offer, the extent of the compromise offered, the offeree’s prospects of success as assessed at the time of the offer, the clarity with which the terms of the offer were expressed and whether the offer foreshadowed an application for indemnity costs if rejected: See Hazeldene’s Chicken Farm Pty Ltd v Victorian WorkCover Authority (No 2) [2005] VSCA 298; (2005) 13 VR 435 at [25].

19    ACCC submits that, in the circumstances of this case, it was not open to it to accept Breast Check’s offer. It says such orders can only be made by the Court upon it being satisfied that the proposed orders and the amount of penalty are appropriate, based on a statement of agreed facts or after hearing evidence at trial: see Minister for Industry, Tourism & Resources v Mobil Oil Australia Pty Ltd [2004] FCAFC 72; [2004] ATPR 41-993 at [51]; NW Frozen Foods Pty Ltd v Australian Competition and Consumer Commission (1996) 71 FCR 285 at 298-9.

20    ACCC submits Breast Check’s offer was not expressed to be a Calderbank offer and made no reference to the Calderbank principles. In ACCC’s submission, it was made without any admission of the facts to ground liability or any concessions as to the basis upon which the Court could make the orders proposed. It did not set out any reasoning as to why the offer made was reasonable and should be accepted. It did not provide a time by which the offer was to be accepted, failing which Breast Check would seek an order for indemnity costs. It did not state that Breast Check would seek an order for its costs on any basis if the offer was not accepted, nor did it make any offer in relation to ACCC’s costs. As such, ACCC submits Breast Check’s offer was not an offer which, in its terms, was capable of acceptance.

21    If, in the alternative, Breast Check’s offer was capable of acceptance, ACCC submits that the mere refusal of a Calderbank offer (or any offer of compromise) does not of itself warrant an order for indemnity costs, even where a result more favourable to the offeror is obtained, and that the party seeking indemnity costs on the basis of a Calderbank offer must show that the rejection of the offer was unreasonable to justify such an order: Black v Lipovac [1998] FCA 699; (1998) 217 ALR 386 at 432-3.

22    ACCC submits Breast Check has not demonstrated the rejection of Breast Check’s offer was unreasonable so as to justify an order for indemnity costs. It says while parties are expected to respond reasonably to proposals for compromise of proceedings, parties are not required to resolve their disputes once an offer from one side has been made: see Australian Competition and Consumer Commission v Harris Scarfe Australia Pty Ltd (No 2) [2009] FCA 433 at [32]. Further, ACCC says the fact that the recipient of the offer is ultimately “worse off” than if it had accepted the offer does not mean the rejection of that offer was unreasonable, and the assessment of the unreasonableness of the rejection depends on the circumstances of the case, to be assessed at the time the offer was made, not with the benefit of hindsight: see Ford Motor Company of Australia Ltd v Lo Presti [2009] WASCA 115; (2009) 41 WAR 1 at [1], [18], [31], [89].

23    In ACCC’s submission, Breast Check’s submissions misrepresent the nature of settlement discussions, which began in February 2012 and continued until shortly before trial in November 2012. ACCC says it attempted to discuss the process for settlement on eight occasions, with no response except for Breast Check’s offer by letter dated 17 August 2012 and an email from Breast Check on 15 October 2012, in which Breast Check indicated that it saw little practical benefit in continuing to negotiate a settlement unless ACCC was prepared to agree to an offer of about $100,000 for a pecuniary penalty (with no offer in relation to ACCC’s costs and no offer to agree a statement of facts).

24    ACCC submits that while it did not accept Breast Check’s offer, it remained open to accepting a lower pecuniary penalty as part of any settlement. It requested further information as to Breast Check’s financial position and, following receipt of that information, made further attempts to settle the matter on 12, 16 and 30 October 2012 and 9 November 2012. ACCC submits that in circumstances where Breast Check did not engage with it to discuss a statement of agreed facts, made no admission of liability to ground the relief ultimately awarded and contested ACCC’s allegations, it could not simply agree to and accept a pecuniary penalty in any amount, and had no alternative but to proceed to trial and incur costs, including that of the extensive expert evidence of Associate Professor Nehmat Houssami. Further, ACCC says it achieved considerably more at trial than was offered by Breast Check, given Breast Check’s offer did not include any admission of the facts giving rise to liability.

25    Thirdly, ACCC contends it did not take a disproportionate and unrealistic approach to the matter, as submitted by Breast Check. It submits that the fact the Court did not find that the patients constituted a separate section of the public to whom the representations were made is not material to the question of costs, as little, if any, additional time was spent on this issue during the trial and Breast Check has not identified what additional costs, if any, have been incurred in relation to this particular issue. ACCC says there was no separate evidence adduced by any party in relation to the patients other than the small sample of 10 breast health reports and report information included at tabs 15-24 of the trial bundle, which were tendered by consent.

26    Finally, ACCC emphasises it did not consider that a pecuniary penalty of $100,000 was appropriate, given the nature of Breast Check’s representations that constituted the false, misleading or deceptive conduct found to have contravened the relevant consumer laws, and the serious, potentially fatal, risk of harm to consumers who were or may have been diverted to use Breast Check’s breast imaging service.

Consideration

27    The principles governing the exercise of the Court’s costs discretion, including as to when indemnity costs might be awarded, have been accurately and adequately set out in the submissions of the parties above.

28    What might be called the primary submission of Breast Check is that, because it offered to pay a pecuniary penalty of $100,000 and to otherwise meet all other substantive orders sought in the application, which offer was rejected by ACCC by letter of 20 August 2012, it should have its costs from that date on an indemnity basis.

29    However, for the reasons advanced by ACCC above, I do not accept that submission.

30    While the result of the proceeding was that the Court imposed on Breast Check a pecuniary penalty of $75,000, less than the $100,000 suggested in Breast Check’s offer, and made the other orders proposed by ACCC, the issues raised in the contravention proceeding were serious and not easy of resolution. It was not, in all the circumstances, unreasonable at that point for ACCC to have rejected the offer.

31    Additionally, as ACCC points out, the assessment of a penalty was far from an easy task prior to the resolution of the matter in court, because the facts upon which a penalty might have been agreed were not the subject of final agreement.

32    I accept the submission made by ACCC that there were negotiations about resolution, but that the circumstances were such that there was no consensus about the facts upon which the penalty might be agreed, and that some information relating to the financial basis of Breast Check was not fully available to it.

33    The inferred basis of the costs complaint by Breast Check is that the costs of the proceeding, in the result, may well exceed the penalties imposed on both respondents in the proceeding. That of itself, however, cannot be the controlling factor in deciding that either an indemnity costs order ought to be imposed or for applying some discount so that the ordinary party and party costs order should be reduced by some percentage.

34    The Court, however, considers there is merit in the submission made, on behalf of Breast Check, that some consideration or allowance should be given when ordering costs to the fact that the Court did not find that Dr Boyd’s patients relevantly constituted “the public” for the purposes of certain pleaded representations.

35    While ACCC submits that this issue did not take up any appreciable time at the trial and there is no proper basis upon which to respond to that submission, I would disagree. The matter was the subject of significant submissions on the law and the evidence concerning the nature of the relationship between Dr Boyd and those patients. These submissions, and the materials generated in relation to which it was alleged representations were conveyed to patients, all had to be considered.

36    In my view, there should be some appropriate percentage discount allowed in favour of Breast Check, and for Dr Boyd, for that reason.

37    In the result the Court would order that the usual order as to costs should be made, namely that the respondents pay the costs of ACCC, but that, following assessment, the sum assessed be reduced by 15%.

Conclusion and orders

38    For the reasons given above, the Court orders:

(1)    The respondents pay the costs of the applicant in the proceeding

(2)    The costs payable be as taxed but reduced by 15%, unless otherwise agreed.

Associate:

Dated:    9 April 2015