FEDERAL COURT OF AUSTRALIA

Australian Competition and Consumer Commission v Colgate-Palmolive Pty Ltd [2020] FCA 598

ORDERS

THE COURT ORDERS THAT:

1.    The second respondent’s interlocutory application for indemnity costs be dismissed.

2.    The second respondent pay the appellant’s costs of and incidental to the interlocutory application as assessed or agreed.

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

REASONS FOR JUDGMENT

BROMWICH J:

Introduction

1    On 24 May 2019, a Full Court, of which I was a member, dismissed an appeal by the applicant before the trial judge: Australian Competition and Consumer Commission v Colgate-Palmolive Pty Ltd [2019] FCAFC 83 (Appeal Judgment or AJ). The respondent to that appeal was the second respondent before the trial judge, PZ Cussons Australia Pty Ltd, against whom the case brought by the Commission failed: Australian Competition and Consumer Commission v Colgate-Palmolive Pty Ltd (No 4) [2017] FCA 1590; 353 ALR 460 (Trial Judgment or TJ). The case against the remaining respondents settled.

2    The Full Court ordered the Commission to pay Cussons’ costs as assessed or agreed. The Commission does not dispute its liability to pay costs upon the ordinary basis. Seven months after the delivery of the Appeal Judgment, Cussons filed an interlocutory application dated 23 December 2019, seeking an order pursuant to r 40.02(a) of the Federal Court Rules 2011 (Cth) that the Commission pay its costs of the appeal proceedings on an indemnity basis, and in the alternative upon an indemnity basis for costs incurred either after 11.00 am on 11 May 2018 or alternatively after 23 May 2018.

3    Section 25(2B)(ab) of the Federal Court of Australia Act 1976 (Cth) provides that a single judge, sitting in chambers or in open court, or a Full Court, may “make an interlocutory order pending, or after, the determination of an appeal to the Court”. The question of the jurisdiction of a single judge to hear Cussons’ interlocutory application was raised with the parties in light of that provision. It was not disputed that, as a single judge, I had jurisdiction to exercise the Court’s appellate jurisdiction and hear and determine Cussons’ interlocutory application for indemnity costs.

4    The three-hour hearing of the application took place online using Microsoft Teams. Cussons relied upon two affidavits by solicitors (read without objection or cross-examination). Both parties furnished written submissions prior to the hearing and made oral submissions. A transcript was subsequently prepared, taking only a little longer than usual. Observers attended, including from the media. The hearing was therefore relevantly indistinguishable from a hearing taking place in Court, as it would have been prior to the COVID-19 pandemic.

5    Cussons’ application for indemnity costs primarily relies upon acceptance of its characterisation of the appeal as a proceeding that the Commission should have known was bound to fail, such that it was unreasonable to bring the appeal at all. Alternatively, Cussons relies upon an offer of compromise dated 9 May 2018, which it contends the Commission unreasonably failed to accept.

6    The Commission contends that neither basis for the award of indemnity costs has been made out. Instead, the Commission characterises its appeal as raising legitimate legal matters concerning questions of principle for consideration by the Full Court as to the operation of the Competition and Consumer Act 2010 (Cth) which the Commission is responsible for enforcing. The Commission contends that the appeal was no more than the unexceptional exercise of ordinary appeal rights, the failure of which was itself unexceptional. The Commission also asserts that special considerations apply to the question of unreasonableness in a case brought in good faith by a regulator discharging its public duties in the public interest.

7    For the reasons that follow, the Cussons’ application for indemnity costs must be dismissed with costs, to be assessed upon the ordinary basis, or as agreed.

Background

8    As both the Trial Judgment and Appeal Judgment are lengthy and detailed, these reasons must be read with both to the extent that is necessary. This is so as to avoid lengthy repetition on the relatively narrow question of, in effect, the basis upon which the costs order already made, and not disputed, should be quantified. It is, however, useful to reproduce the introductory paragraphs of the Appeal Judgment in order to frame the reasons that follow:

[1]    In the year 2008, the Australian laundry detergent market was large with approximate sales of $500 million. The Respondents, PZ Cussons Australia Pty Ltd (‘Cussons’) and Colgate-Palmolive Pty Ltd (‘Colgate’), together with Unilever Australia Limited (‘Unilever’) (collectively, ‘the Suppliers’) were the largest manufacturers and wholesale suppliers of laundry detergents in the Australian market having between them around an 80% market share.

[2]    In March 2009 there was a significant change in the market for powdered laundry detergents. The Suppliers each launched new formulations of their existing laundry powders which were twice the concentration of their existing powders. They supplied these new ‘ultra-concentrate’ formulations (as they were called) to their main customers: Woolworths Limited (‘Woolworths’), Coles Group Pty Ltd (‘Coles’) and the wholesaler, Metcash Limited (‘Metcash’). Over a relatively short period, and at approximately the same time, they ceased supplying their standard concentration laundry powders to Woolworths, Coles and Metcash, although they did continue to supply some of these powders to other independent retailers and variety stores. The overall effect, however, was that in a large part of the market for laundry powders all of the standard concentrate products disappeared and were quickly replaced by ultra-concentrate products.

[3]    Arising out of this event, the Appellant (‘the Commission’) sued Colgate and Cussons alleging anti-competitive conduct on their part. It also sued Woolworths and an officer of Colgate contending that they were knowingly concerned in or a party to the alleged contraventions. The Commission did not commence proceedings against Unilever, apparently because it was an immunity recipient. Prior to trial, all of these parties except Cussons settled with the Commission but the trial continued against Cussons. The Commission’s basic case was that the largely simultaneous and almost uniform transition from standard to ultra-concentrated powders resulted from a collusive arrangement or understanding between Colgate, Cussons and Unilever that they would hold off bringing the ultra-concentrate products to market until a date in March 2009 and at the same time cease supplying the standard concentrates thereafter.

[4]    Were it to be established, such an arrangement or understanding between Colgate, Cussons and Unilever would be between competitors containing exclusionary provisions restricting the supply of goods into a market. In the interests of brevity, it is useful to refer to this alleged arrangement or understanding as the Withhold Supply Arrangement, it being understood that the reference to an arrangement includes a reference to an understanding. There are complex prohibitions preventing, in many instances, the reaching by competitors of arrangements or understandings of this kind and there are related prohibitions against giving them effect. In the interests of completeness, we explain these provisions in the next section but they are of little moment for the purposes of the present appeal for there is no debate that if the Commission failed, as a matter of fact, to prove the existence of the Withhold Supply Arrangement, then its case had to fail. At trial, the Commission failed precisely on that basis. The trial judge concluded that the Commission had not succeeded in proving that Cussons had arrived at the Withhold Supply Arrangement with Colgate and Unilever. Whilst his Honour accepted that Colgate, Cussons and Unilever were conscious they were all going to transition to ultra-concentrates at the same time, his Honour did not think this was because they were acting pursuant to a collusive arrangement or understanding. Rather, the trial judge was impressed by evidence which suggested that it was Woolworths and Coles which had largely driven the timing of the transition to ultra-concentrates. This was so they could devote less shelf space to laundry powders, a product range which they did not regard as particularly profitable (that is, they did not wish to have both ordinary strength powder and ultra-concentrates taking up shelf space). The trial judge also accepted evidence which suggested that Cussons was, to a large extent, ignorant of what the other Suppliers and retailers were doing in the lead up to the transition in March 2009.

[5]    It is from these adverse conclusions that the Commission now appeals. By its amended notice of appeal, the Commission pursues ten grounds of appeal which it grouped together under five sections labelled A-E. Section A, which comprised Grounds 1-3, involved the basic contention that the trial judge, whilst correctly identifying the legal nature of an arrangement or understanding for the purposes of the Trade Practices Act 1974 (Cth) (‘TPA’), had in substance erroneously applied a higher standard by requiring the Commission to prove the existence of a contract or agreement. Under Section B (Grounds 4-5), the argument was that [the] trial judge had erred in preferring the hypothesis of conscious parallelism over the existence of the Withhold Supply Arrangement. Under Section C (Grounds 6-7) the Commission took issue with the trial judge’s conclusion that the switch to ultra-concentrates had been driven by the attitudes of Woolworths and Coles. Under Section D (Grounds 8-9), the Commission argued that, in the event that it established on appeal that the Withhold Supply Arrangement had been reached, it had also been implemented. Under Section E (Ground 10) the Commission contended that the trial judge had made 11 errors of fact, which were identified in an annexure to the amended notice of appeal. In the event that the Commission succeeded in establishing error on the part of the trial judge, it then identified how its case operated at trial and invited the Full Court to reach the conclusions that the trial judge had refused to reach.

(Emphasis added to the definitions for ease reading and for the reasons that follow)

9    After considering the two statutory schemes that applied during the period covered by the alleged conduct, the evidentiary landscape was summarised by the Full Court at AJ [20]-[41]. Each of the appeal grounds were then addressed, grouped in the five sections identified at AJ [5] reproduced above, some of which did not required any elaborate consideration due to preceding adverse conclusions.

10    It is convenient to refer generically to the arrangements or understandings that the Commission alleged as the alleged arrangements.

Overview of the basis for the indemnity costs application

11    Cussons primarily submit that an order for indemnity costs is appropriate because the Commission, properly advised, should have known that the appeal was bound to fail and therefore should never have been commenced, and once commenced should not have been maintained, let alone prosecuted to hearing and thereby to judgment. In the alternative, Cussons rely upon an offer of compromise that it contends the Commission unreasonably refused.

12    The central plank for Cussons’ primary basis for seeking indemnity costs is the assertion that the trial judge had made factual findings that were said to be required to be overturned for the appeal to succeed, but which were not challenged on appeal by the Commission. The Commission seeks to meet that contention by related and contrary arguments, namely that the Appeal Judgment was not framed or conditioned in the way that Cussons suggests; that the factual findings relied upon were in any event not indispensable to success on the appeal; and that this was an unremarkable exercise of the Commission’s appeal rights. In substance, the Commission’s response amounts to a contention that Cussons’ argument is misconceived when examined more closely. It is therefore necessary to consider those competing arguments in some greater detail. The offer of compromise basis for seeking indemnity costs must only be considered in circumstances where the primary ground is not successful as to unreasonableness.

Indemnity costs principles

13    The source of the power to award costs in s 43 of the Federal Court of Australia Act (further detailed in r 40.02 of the Rules, including providing for a lump sum costs order) extends to indemnity costs and is unfettered except as follows. The power must be exercised judicially, taking into account the overarching principles in s 37M of that Act, and in particular the application of those principles to the conduct of proceedings, including settlement as provided for by s 37N(1) and (4): see Australian Competition and Consumer Commission v The Construction, Forestry, Mining and Energy Union (No 4) [2018] FCA 684 at [95]-[115]; see also LFDB v SM (No 2) [2017] FCAFC 207 at [7]. The principles to be applied in the exercise of that power in the particular context of an application for, or consideration of the award of, indemnity costs may be briefly summarised as follows:

(1)    There is no distinction in principle between awarding indemnity costs at the trial or appeal stages: Australian Competition and Consumer Commission v Oceana Commercial Pty Ltd [2004] FCAFC 174 at [196].

(2)    An order for indemnity costs requires some special or unusual feature; indemnity costs are compensatory, not punitive, and made upon the basis that a court considers it was unreasonable for the party against whom the order is made to have subjected the innocent party to the expenditure of any costs: Melbourne City Investments Pty Ltd v Treasury Wine Estates Limited (No 2) [2017] FCAFC 116 at [5], citing the Full Court decision in Hamod v New South Wales (2002) 188 ALR 659 at 665.

14    The Full Court in Melbourne City Investments (also at [5]) gave examples of the sorts of circumstances in which it may be found to be unreasonable for the other party to be subjected to the expenditure of any costs, drawn from the following authorities:

(1)    allegations that should not have been made, including the undue prolonging of a case by groundless contentions: Ragata Developments Pty Ltd v Westpac Banking Corporation [1993] FCA 115; 217 ALR 175 at [15], [17];

(2)    where the applicant properly advised should have known he had “no chance of success”: Fountain Selected Meats (Sales) Pty Ltd v International Produce Merchants Pty Ltd (1988) 81 ALR 397 at 401; see also De Alwis v Minister for Immigration and Multicultural and Indigenous Affairs [2004] FCAFC 77 at [7]

(3)    where the moving party persisted in what should, properly considered, be seen to be a “hopeless case”: J-Corp Pty Ltd v Australian Builders Labourers Federated Union of Workers (WA Branch) (No 2) [1993] FCA 70; 46 IR 301 at 303 – French J described the case brought against one of the applicants for indemnity costs as “paper thin”, apparently turning on very slight, inconclusive and objectively insufficient evidence to justify bringing the proceeding against that respondent in the first place.

15    In Fountain Selected Meats, much cited in many costs decisions both reported and unreported, Woodward J gave additional colour to his Honour’s analysis by noting that, in a case which had no chance of success, it must be presumed that the action was commenced or continued for some ulterior motive, or because of some wilful disregard of known facts or clearly established law. His Honour noted this was fortunately rare, but when it occurred required a court to consider how it should exercise its discretion. That additional observation was quoted with approval by the Full Court in Hamod at [19]. That is, even a hopeless case does not automatically result in the award of indemnity costs, that being found to be so in an aspect of LFDB v SM (No 2) at [13]. However, as French J pointed out in J-Corp at 303, the additional presumed feature identified in Fountain Selected Meats of a possible ulterior motive, or wilful disregard of facts or law in bringing a case which had no chance of success, is not a precondition to the award of indemnity costs, it being sufficient in the circumstances before his Honour that the case was “hopeless”.

16    Subsequently, in Seven Network Ltd v News Ltd [2009] FCAFC 166; 182 FCR 160, the principles justifying a departure from an ordinary costs order in favour of awarding indemnity costs were again summarised by reference to further decisions after Ragata Developments, Fountain Selected Meats and J-Corp (at [1102]):

Usually costs are ordered on a party and party basis but if there is “some special or unusual feature in the case to justify the Court exercising its discretion” costs may be ordered on some other basis: Preston v Preston [1981] 3 WLR 619 at 637. There must, however, be some justification to depart from the ordinary rule. The discretion to depart from an order for party and party costs will not be exercised unless there is some special or unusual feature or the justice of the case so requires: Re Wilcox; Ex parte Venture Industries Pty Ltd (No 2) (1996) 72 FCR 151. The categories of case in which it might be appropriate to do so are not closed: Colgate-Palmolive Company v Cussons Pty Ltd (1993) 46 FCR 225. An applicant who should have known that his or her proceeding was foredoomed to failure could be obliged to pay costs on an indemnity basis: Smolle v Australia and New Zealand Banking Group Ltd (No 2) [2007] FCA 1967. A clearly hopeless proceeding may mean that the unsuccessful applicant should be subjected to an order for indemnity costs. An applicant who persists in prosecuting a proceeding without regard to the evidentiary difficulties in the case may be called upon to pay costs on some basis other than the usual basis: Yates Property Corporation Pty Ltd v Boland (No 2) (1997) 147 ALR 685. Specific examples of cases which might attract the exercise of the discretion to award indemnity costs were given by Sheppard J in Colgate-Palmolive Company v Cussons Pty Ltd [(1993) 46 FCR 225] at 233.

17    While none of these characterisations of “no chance of success”, or “hopeless”, or “foredoomed to failure”, or references to some kind of impropriety in the commencement or conduct of a case, are any kind of fixed test or threshold to be surmounted before favourably exercising the discretion, they assist in making clear the unavoidable pejorative conclusion of unreasonableness on the part of a party against whom indemnity costs are to be awarded. The unreasonableness must be not only present, but sufficient to warrant a departure from the ordinary award of costs, whether that be in the commencement or continuation of the proceeding, or the way in which it was conducted, or in declining to settle the proceeding, or in some other way. This is a high hurdle to surmount.

18    In addressing that high hurdle, and determining whether it has been met, there is a need to be wary of hindsight reasoning. As Goldberg J pointed out in Kingsheath Club of the Clubs Limited (In liq) [2003] FCA 1589 at [5], it is “easy with hindsight to make an observation that an action has no chance of success, after the matter has been fully argued and has enjoyed considered attention of experienced solicitors and senior and junior counsel”.

19    There must also be some recognition, in conducting the assessment of unreasonableness, of the position of the Commission as the regulator, especially in an area where the concern is in enforcing competition laws designed to advance a broader public interest. That is not to say that the Commission is entitled to behave unreasonably with impunity; it is not immune from an indemnity costs order that is otherwise appropriate, and did not contend otherwise. Rather, as Gray J pointed out in Australian Competition & Consumer Commission v Leahy Petroleum Pty Ltd [2007] FCA 1844; (2007) ATPR 42-200, a case in which strident criticism was directed to the way in which the Commission conducted its case (at [24]):

The ACCC is a statutory body, established by s 6A of the Trade Practices Act. It has a number of functions conferred on it, including functions of a regulatory nature. By s 77(1) of the Trade Practices Act, the ACCC may institute a proceeding in this Court for the recovery on behalf of the Commonwealth of a pecuniary penalty. The provisions for contravention of which pecuniary penalties may be imposed are listed in s 76. They include s 45. The ACCC is the only possible applicant for a pecuniary penalty. By other provisions of the Trade Practices Act, the ACCC may apply for other kinds of orders under the provisions of that Act, although its capacity to do so is not always exclusive of the capacity of other persons to apply for particular orders. For instance, under s 80(1), the ACCC or any other person may apply for an injunction in respect of a contravention of a number of provisions, including s 45. It is apparent that the ACCC has cast upon it significant responsibilities on behalf of the public, to ensure as far as practicable that there is compliance with the provisions of the Trade Practices Act. When the ACCC has commenced and pursued a proceeding in respect of alleged contraventions of a provision of the Trade Practices Act, and there is no suggestion that it has acted with any ulterior motive, the Court should not be quick to award costs against it on anything other than the usual party-party basis when the ACCC has suffered a loss in the proceeding. Excessive readiness to force the ACCC to compensate the winning party to a greater extent than the normal party-party costs incurred might operate as a deterrent to the ACCC against bringing proceedings in the exercise of its public functions.

(emphasis added)

20    This topic was revisited in passing by Allsop J (as the Chief Justice then was) in Australian Competition and Consumer Commission v Baxter Healthcare Pty Ltd [2005] FCA 860 when, in the context of considering an indemnity costs application made against the Commission upon the basis of the refusal to accept a settlement offer, his Honour observed (at [12]) that the “rejection of an offer in a penalty case such as this brings with it considerations of public responsibility for the administration of an important piece of Commonwealth legislation that do not attend an offer in a civil suit”.

Cussons’ primary argument – failure to appeal four sets of factual findings

21    Cussons’ primary argument relies upon factual findings by the trial judge in four key respects, all of which it contends had to be successfully challenged in order for the appeal to succeed. It asserts the following:

(1)    That the Commission failed to challenge findings that neither Mr Davey, nor Mr Fatouros, made the alleged arrangement on behalf of Cussons, asserting that the Commission’s case at trial was that these two men had made those proscribed arrangements. It therefore followed, Cussons argues, that the appeal could not have succeeded unless the Commission’s case in this respect was confirmed.

(2)    That the trial judge made unchallenged findings that, at a 25 August 2008 meeting involving an industry organisation known as Accord, Mr Davey said expressly and directly to both Colgate and Unilever representatives that Cussons would not agree to any proposal which required it to move all its brands to ultra concentrates at once or by a certain date, but rather would prefer an opt-in or opt-out policy in which manufacturers could transition in a staggered way.

(3)    None of the five key Unilever executives who were called gave evidence that they understood that Unilever was party to any relevant arrangement or that they were carrying out their activities upon the basis of such an arrangement, with the trial judge making findings not challenged on appeal that were only consistent with the conclusion that those executives were unware of the existence of that alleged arrangement. This was inconsistent with the Commission’s circumstantial case that the probable explanation for that transition was the existence of the alleged arrangement. The Commission did not challenge those findings.

(4)    The Commission did not challenge findings in relation to Woolworths and Coles to the effect that they would not continue to accept standard concentrates once ultra concentrates were introduced. There was no “realistic chance” that the Commission’s appeal could succeed in light of these factual findings because they rendered untenable the overall contention that the probable explanation for the transition was the existence of the alleged arrangement, instead demonstrating that the equally likely explanation, was that the retailers did not want to buy standard concentrates once ultra concentrates were introduced.

(1)    Unchallenged trial findings that Mr Davey and/or Mr Fatouros did not make the alleged arrangement on behalf of Cussons

22    This argument by Cussons depends upon the proposition that the Commission’s case at trial was nothing less than that Mr Davey and/or Mr Fatouros made the alleged arrangement on its behalf, relying in particular upon the following paragraphs of the Trial Judgment: [215], [446]-[447], [516]-[518], [548], [627]. Cussons takes aim at the contention made by the Commission at the appeal that someone other than Mr Davey or Mr Fatouros might have made the arrangement on its behalf, characterising this as a hopeless argument. Cussons submits that it was not possible to put to one side the significance of the involvement of Mr Davey or Mr Fatouros in the Commission’s formulation of its case. It contends that the Commission cannot on appeal “run a new case based upon a different theory”, characterising this as not being supported by any evidence “whatsoever”, and as “contriving some other unspecified basis for an arrangement on the appeal”. Thus Cussons pitches its argument on this first factual issue by way of a quite confined characterisation of the Commission’s case at trial. This is the foundation for correspondingly limiting the case that could conceivably succeed on appeal as a matter of foresight, not hindsight.

23    The Commission counters by submitting that Cussons misstates both its case, and the trial judge’s recording of that case. Rather, the Commission submits, its closing trial submissions in reply (20 July 2016 at [5], a copy of which was placed before me) stated (footnotes omitted; emphasis added):

The Court asked the ACCC to identify the persons that it contends were responsible for causing Cussons to enter into the Withhold Supply and Aligned Transition Arrangements. The ACCC candidly states that it does not know which individual was responsible for causing Cussons to enter into the relevant Arrangements. That is unsurprising in a case of this kind where the relevant arrangements and understandings are illegal by their nature and Cussons chose not to call a great many relevant witnesses.

24    Cussons’ response to the Commission’s reply submissions (1 August 2016 at [10], a copy of which was placed before me) stated (footnotes omitted):

The Court asked the ACCC to identify the individuals that it says made the alleged arrangements. The ACCC has been unable to do so but has submitted that this is unsurprising because (a) PZ Cussons chose to not call many witnesses and (b) the alleged arrangements are illegal by nature.

The following paragraphs of those response submissions then took issue with the Commission’s reply submissions, characterising them as lacking merit and explaining briefly why that was said to be so. However, they did not suggest any understanding that the Commission’s case was confined to the alleged arrangement being brought into existence, on Cussons’ behalf, only by Mr Davey and/or Mr Fatouros.

25    These opposing sets of closing trial submissions are consistent with what was earlier said in oral closing submissions for the Commission on 5 July 2016, especially in response to prior questions from the trial judge. It is important to read the extracts of those oral closing submissions reproduced below in the context of one another, and also in the context of portions not reproduced. The following is illustrative of both the broader and the narrower ways in which the Commission put its case, principally, but not only, relying upon an inference it sought to have drawn from all of the evidence:

(1)    at transcript page 1001, lines 6 to 14 (Mr Scerri QC, senior counsel for the Commission):

We haven’t heard from Mr Fatouros. But from Mr Davey we have heard that he had objections to the Colgate proposal version 1 and version 2; didn’t like that. But he was in favour of agreement in principle to transition at the same time. And he has given evidence. The answer to your Honour’s question of who within Cussons, you know, made this arrangement, because a company is an artificial entity and it can’t make arrangements, well, we say those two people, and especially Mr Fatouros, ultimately has to be the person responsible. The reason I say that, your Honour, is that there were people below them who acted on the basis that that’s what was happening.

(2)    at transcript page 1002, lines 11 to 25 (Mr Scerri QC, senior counsel for the Commission):

Now a direct answer to your Honour’s question is, who made the agreement and when: we can’t say. We can’t say Mr Fatouros admitted that in a phone call or in … a meeting he agreed with his counterparts of the other companies.

We say – and this is where we accept that our case is circumstantial in this sense, that you add up all the communications. And that’s why we put the annexure where you put the communications with the different parties in the same – in the chronological context, that you infer from that there must have been an agreement. It has been said in many cases that [with] these sorts of arrangements, you don’t normally have a piece of paper where it is all written down and everyone has formally signed it and witnessed it. But the court – our case is no higher than the court can infer from these communications and these documents and what the witnesses said and understood was happening, that the court can infer there was the relevant arrangement or understanding.

(3)    at transcript page 1013, lines 21 to 32:

HIS HONOUR: And as I have said, circumstantial cases can be overwhelming on occasions. I’m not deprecating it on the fact it is circumstantial but it really just – that point just does emphasise, it is really inferences that flow from documents.

MR SCERRI: It is. And with hindsight I’m happy to say we would say that the court could conclude that by August the arrangement had been entered into, in terms – one of your Honour’s questions was when; we would say by August it is safe to conclude [it] had been such an arrangement. Because that’s what Cussons[’] people were saying. I still can’t answer the question of who did it and that’s the nature of the circumstantial case. We don’t have – some cases, you know, I have been in cases for the commission where someone goes along with a secret recorder and records the arrangement. That’s not this sort of case.

26    The Commission therefore submits that while it identified Mr Davey and Mr Fatouros as people who may have entered into the alleged arrangements, it did not exclude any other persons by this approach. The Commission places reliance upon the trial judge’s reasons at [444], to which I add the paragraphs before and after for context, where his Honour said:

[443]    In relation to the date on which the Withhold Supply Arrangement was alleged to have been entered into or arrived at, the Commission maintained, after all the evidence had been tendered, that it did not and could not contend that the arrangement was entered into at any particular time prior to January 2009. It did, however, submit that it would be open to the Court to find that the arrangement had been entered into by August 2008. The primary basis of that submission, it would seem, was the statement in Cussons’ NPD1 document that “[r]etailers are driving timing based on collaborative advice and agreement to launch between Colgate, Unilever and [Cussons]”. The NPD1 document was discussed in detail earlier in the context of the chronology of facts and evidence. For the reasons given then, on balance that statement in the NPD1 document was more likely than not simply a poorly worded reference to the discussions that had been taking place in the context of the Accord proposal. Considered in context, it does not support an inference or finding that Cussons had entered into, or arrived at any arrangement or understanding with Unilever and Colgate in August 2008, let alone one that included the Withhold Supply Provisions.

[444]    In relation to who, from Cussons, was said to be responsible for causing Cussons to enter into or arrive at the arrangement or understanding, in its closing submissions the Commission appeared to submit that two people may ultimately have been responsible in that regard: Mr Fatouros and Mr Davey.

[445]    The Commission’s case that Mr Fatouros must have been ultimately responsible appeared to be based on the evidence concerning three events involving him: first, his attendance at the 30 April 2008 Accord meeting; second, his 24 July 2008 email to Ms Capanna and the other attendees at the 30 April Accord meeting; and third, his telephone call to Mr Pedersen of Colgate shortly after the October 2008 Accord meeting. The Commission also relied on the fact that Mr Fatouros did not give evidence and the Jones v Dunkel inference that it contended should be drawn from that fact.

27    In reply, and in oral submissions, Cussons relies upon particular passages of the Appeal Judgment, suggesting that this discloses not merely another formulation of an inference, but rather acknowledging what the trial judge decided for what it was, being a finding of fact that the inference sought to be drawn by the Commission was not available. Cussons submits that the following passages of the Appeal Judgment are to be read as meaning that the reliance upon Mr Davey and Mr Fatouros as forming the requisite intention was so fundamental to the cogency of the Commission’s case that it could not be dispensed with on appeal:

[131]    The tenth finding challenged by the Commission was that:

[i]f any collusive arrangement or understanding had been reached by Cussons, Mr Davey and Mr Wilson would have been aware of it.

[132]    This is said to relate to [549] and [561]:

That is an important consideration in all the circumstances. Given Mr Davey’s position and involvement in aspects of Project Mastermind, including the Accord meetings, if any collusive arrangement or understanding with Unilever and Colgate was made, arrived at or existed, it is difficult to imagine that Mr Davey would not have been aware of it.

…

Nothing that was put to Mr Wilson in cross-examination, and none of the evidence that he gave, suggested in any way that he was involved in or had any knowledge of the existence of any arrangement or understanding along the lines of the alleged Withhold Supply Arrangement. As was the case with Mr Davey, that is of some significance. If any collusive arrangement or understanding with Unilever and Colgate was entered, arrived at or existed, it is difficult to imagine that Mr Wilson would not have been aware of it.

[133]    We reject this submission. As Cussons pointed out in its submissions, the Commission in fact alleged that Mr Davey and Mr Wilson made the arrangement on Cussons’ behalf. It was not coherent to suggest that they could have made the arrangement on Cussons’ behalf unknowingly. The Commission also said that this submission was dealt with in ‘Section C’. Neither Section C of the amended notice of appeal nor of the Commission’s written submissions deal with this fact.

28    The above passages of the Appeal Judgment are addressing the narrower primary case based on Mr Davey and Mr Fatouros, but in the process acknowledging the existence of the wider secondary case that the Commission made at trial going beyond those two men being responsible for making the alleged arrangements. The point being made by the Full Court as relevant to the present submission by Cussons was that the wider case had a logical conundrum identified by the trial judge at TJ [561]. This was that even if Mr Davey (or Mr Wilson) was not a person who made the alleged arrangement on behalf of Cussons (thereby acknowledging the wider case that the Commission was bringing), it was difficult to imagine that he (or Mr Wilson) would not have been aware of its existence. This was in the context of the trial judge’s reasoning on the issue being somewhat less than emphatic – that it was “difficult to imagine” that Mr Wilson would not have been aware of the alleged arrangements. The Full Court took that a step further in regarding this as a harder logical barrier to the wider case succeeding, but necessarily not a denial of its existence, or of the Commission’s continued reliance upon it. Of course, such a conclusion of non-awareness was not available in relation to Mr Fatouros, because he did not give evidence, leaving open the possibility that if the alleged arrangement had been proven, Mr Fatouros could have been aware of it, without being the person involved in it being brought into existence. Thus, there was an appeal finding that the trial judge’s finding on the narrower case contained a firm logical difficulty that stood as a barrier to the wider case still maintained. It was a nuanced conclusion, but it is going too far to say, as Cussons’ seems to, that it was inevitable because it was logical, and that therefore the Commission had no alternative in bringing a viable appeal but to challenge directly the finding made on the narrower case. An argument ultimately found to be weak because of a logical flaw, is not inevitably the same as a hopeless argument.

29    Cussons also submits in reply that the Commission is overlooking its closing submissions at trial, quoting from the portion of transcript reproduced at [25(1)] above, to which has been added the last sentence omitted from those submissions which refers to the alleged involvement of lower level people. Cussons submits upon this basis that the Commission’s case was confined to the alleged arrangements being made only by Mr Fatouros and Mr Davey, a submission that cannot survive the subsequent passages also reproduced above. Once again, Cussons’ focus is incorrectly confined to the Commission’s primary case, ignoring its wider (and weaker) case that, it is tolerably clear, was never abandoned, even if it did have significant difficulties once the narrower, stronger, case was found wanting.

30    Cussons further submits in reply that the trial judge was not using the word “may” at TJ [444] to imply the existence of other potential responsible persons, but rather in the sense that such a finding as to Mr Davey and Mr Fatouros being responsible was open. The most that can be said about this reference in Cussons’ favour is that, as it appears in the Trial Judgment, this paragraph might be read as ambiguous. However, that is not how I would read it, especially in the context of the oral and written submissions for the Commission reproduced above, which clearly enough support the Commission’s interpretation by making clearer what his Honour most likely had in mind. His Honour was plainly enough aware that the Commission was advancing a broader circumstantial case, but principally relied upon their narrower, stronger, but ultimately insufficient case, said to be supported by particular events.

31    It incorrect for Cussons to submit that there was no evidence whatsoever for anyone other than Mr Davey or Mr Fatouros to have made the alleged arrangement on behalf of Cussons. While the circumstantial evidence ended up falling well short of satisfying the trial judge that the arrangement existed, that is not the same as there being no evidence of that at all. As his Honour acknowledged in the trial transcript passage reproduced above at [25(3)], the Commission’s case was based on inferences flowing from documents, and such cases can ultimately be found to be strong or weak. Circumstantial cases can improve or worsen at trial, being upheld upon, or not surviving, the searching scrutiny of an astute trial judge. Such a process may result in more benign inferences being drawn, or conclusions being reached, as happened in this case.

32    The final point made by Cussons in reply is that the notion advanced by the Commission that the appeal might have succeeded because someone other than Mr Davey or Mr Fatouros was responsible for the alleged arrangement is absurd. I did not find this rhetorical submission a helpful way to evade the problem for Cussons that the Commission’s case, however unconvincing it ended up being to the trial judge, was plainly not as narrow as Cussons contends. The Commission was not barred from contending for the wider case on appeal, even if that contention was difficult to sustain.

33    The conclusion that I reach is that while the Commission’s strongest and therefore primary case was that Mr Davey and/or Mr Fatouros made the alleged arrangement on behalf of Cussons, that was not its only case. The Commission also candidly said that it did not know for sure who had made the alleged arrangements. Right up to and including its closing oral and written submissions at the trial, the Commission left open the possibility, however difficult to make out, that other, unidentified persons at Cussons could have been responsible. It follows that I reject Cussons’ argument that the success of the Commission’s appeal necessarily turned on the Full Court finding that only one or both of those two men were responsible for any arrangement entered into. Certainly that was the Commission’s narrower and higher case, but it was not its entire case. I am unable to accept that success on appeal was inevitably dependent upon overturning this aspect of the conclusions reached by the trial judge. It is not to the point that the Appeal Judgment favoured the trial judge’s reasoning on this issue, and took it a measure further, by relying upon awareness rather than intention as a barrier to success. An alternative outcome cannot fairly be characterised as prospectively devoid of any reasonable prospect of success. This first aspect of Cussons’ primary application for indemnity costs therefore does not succeed because I am not satisfied that it was unreasonable for the Commission to bring the appeal without challenging the factual findings upon which the rejection of its narrower case was based.

(2)    Unchallenged trial findings that Mr Davey told the Accord meeting Cussons would not agree to move all its brands to ultra concentrates at once or by a certain date, preferring an opt-in or opt-out policy

34    Cussons relies upon the trial judge’s finding that Mr Davey’s comments at the Accord meeting on 25 August 2008 left the Unilever representative at that meeting, Ms Moss, with “no idea about what Cussons’ plans for the transition to ultra concentrates were”: TJ [308]. Cussons submits that this finding was not challenged on appeal because there was no basis for doing so, especially given that there was an email in evidence that Ms Moss sent to others at Unilever after the meeting which recorded the substance of what Mr Davey had said. Ms Moss’s email concluded that the net effect of the meeting was that there was a very strong message that Cussons would not be moving all their brands to “super concentrate” the next year, such that Unilever’s risk had gone up.

35    Cussons contends that the Commission’s case – at least implicitly its sole case as presented in Cussons’ written submissions in chief for this application – was that the alleged arrangements “were made by August 2008”, being around the time of the Accord meeting, and were made by Mr Davey. Cussons therefore submits that unless successfully challenged, the trial judge’s findings to the contrary represented an insurmountable obstacle to the Commission’s appeal succeeding. That is reasoned to be so because those findings “patently” showed that Cussons did not intend to be understood as giving any relevant commitment or undertaking in relation to the introduction of ultra concentrates, and because Unilever did not understand any such commitment had been made or undertaking given. As such, Cussons submits that the relevant alleged arrangements could not have existed.

36    The Commission counters by pointing to its pleaded case being that the alleged arrangements had come into existence by the end of January 2009 (that is, by February 2009), albeit that its case was also that this could have occurred by August 2008. This was expressly acknowledged by the trial judge at TJ [292]. The Commission also relies upon its 20 July 2016 reply closing trial submissions at [6], acknowledging that the trial judge had raised the time at which it was contended the alleged arrangements had arisen, and reiterating that it contended that those arrangements arose by at least January 2009, but that there was evidence by which his Honour could infer that they arose as early as August 2008. To this submission was footnoted a reference to oral submissions recorded on the transcript at page 1055 at lines 10 to 14, reproduced below, stating this contention “for an abundance of clarity”. Thus, the Commission submits, its case was never confined to the alleged arrangements existing by August 2008, and accordingly overturning the trial judge’s finding that it had not occurred by the earlier time was not indispensable to the appeal succeeding on the grounds advanced.

37    In its written reply submissions, unlike in its written submissions in chief, Cussons acknowledges that the Commission did not “entirely” abandon its pleaded case, but contends that in closing oral submissions it appeared to “limit” its post-August 2009 case to “certain integers of the alleged arrangements”, citing a passage from the Commission’s closing submissions at transcript page 1055, lines 22-25. However that passage needs to be considered in the context of what had been said immediately prior to that. The entire relevant portion of the transcript at page 1055, from lines 4 to 25 are as follows, with the more limited passage reproduced in Cussons’ submissions emphasised:

DR HIGGINS: … And the other very short matter is that both Mr Scerri and I addressed the question of the timing of the arrangement or understanding.

HIS HONOUR: Yes.

DR HIGGINS: And for an abundance of clarity the ACCC’s position is that its pleaded case, as your Honour is aware, is that the withhold supply arrangement and align transition arrangement were reached on or by February 2009. However, the Commission does submit that it’s open for the court to conclude that the arrangement had been reached, at least in certain respects, by August 2008.

HIS HONOUR: Well, that’s within the terms of your pleaded case.

DR HIGGINS: Yes.

HIS HONOUR: In a sense, yes.

DR HIGGINS: As reflected in NPD1. And your Honour may find that by that date certain integers were agreed, for example all products, all manufacturers, two times, but your Honour might conclude that other aspects of the arrangement were not reached until later, for example on pack communication.

38    In context, far from the passage relied upon by Cussons assisting their argument, it undermines it, especially when regard is had to the emphasis placed in the middle main passage on the wider pleaded case. The argument is also undermined by TJ [443], reproduced above. Contrary to Cussons’ submission, it is clear that his Honour understood that the Commission advanced the case that the arrangement could have been made as early as August 2008, but still relied upon a broader case that this point had not been reached until a later, undefined point prior to the end of January 2009.

39    The balance of Cussons’ written reply submissions on this point continue to focus on the Commission’s narrower case that the alleged arrangements had been made by August 2008. This does not advance the refutation of the point that the Commission had maintained its circumstantial case that the alleged arrangements could also have been made at some later date up to the end of January 2009.

40    Again, Cussons confuses the stronger and better case advanced unsuccessfully at trial with the broader, more general, and thereby arguably weaker case that was also advanced by the Commission, but never abandoned. Success on the appeal cannot therefore fairly be regarded as indispensably turning on reversing the stronger case that failed. Success on the points raised on appeal did not inevitably depend upon such a reversal and certainly the appeal points were not cast in that way. This second aspect of Cussons’ primary application for indemnity costs therefore also does not succeed because I am not satisfied that it was unreasonable for the Commission to bring the appeal without challenging the factual findings upon which the rejection of its narrower case was based.

(3)    Unchallenged trial findings that key Unilever executives did not give evidence that Unilever was party to any relevant arrangement or that they were carrying out their activities upon the basis of such an arrangement

41    The findings relied upon by Cussons on this issue may conveniently be reproduced from its submissions in chief (omitting footnotes), identifying succinctly the point made about the Unilever witnesses:

Ms Katz (the leader of Unilever’s project for introducing ultra concentrates) was not aware of the existence of any arrangement. She did not even believe that Unilever refused to supply standard concentrates as alleged;

Ms Moss (the Unilever representative at each of the Accord meetings) had no idea what PZ Cussons’ plans for the transition to ultra concentrates were and considered that nothing the PZ Cussons representatives said at the Accord meetings could possibly amount to agreeing to any relevant arrangement – or even a willingness to consider such an arrangement;

Mr Campbell called Mr Courtier (of PZ Cussons), in which Mr Campbell sought surreptitiously to extract some information from PZ Cussons, which would have been unnecessary if he had been aware of a relevant arrangement on foot;

Mr Basha called Ms Gill (of PZ Cussons) about ultra concentrates, the fact of which suggested … the absence of any relevant arrangement or understanding. Further, Mr Basha’s view was that it was Woolworths that “wanted the standard concentrates gone”;

Similarly, Mr Bellingham (of Unilever) considered that it was Woolworths that did not want to buy standard concentrates once ultra concentrates were introduced.

42    Cussons submits that there was “no realistic prospect” of the Full Court finding Unilever to be a party to the alleged arrangements in the light of the above findings. It submits that if that arrangement had been made, it had to have been by one or more of those executives on behalf of Unilever, and it was not “coherent to suggest that they could have made the arrangement unknowingly”.

43    In response, the Commission relies upon [33] of its appeal reply submissions dated 3 August 2018 addressing the same issue, in which it was said (omitting footnotes and submission and Trial Judgment references):

Evidence as to a meeting of minds: Cussons draws attention to the fact that certain witnesses refuted a meeting of minds concerning the Withhold Supply Arrangement, and that no Unilever witness gave evidence of a communication involving Cussons concerning the arrangement, or of being aware of such an arrangement. Although a Court may be less likely to draw inferences favourable to a party who refrains from asking questions of its own witness on an issue, it does not matter in this case. First, it is not to be expected that the subjective knowledge of these witnesses would have been probative of the requisite understanding in any event. A tacit understanding does not require an expressly communicated commitment. It may involve mere signalling by words or acts of an intention to act in a particular way, or a commitment that is inferred or implied from the parties’ dealings. If so, it cannot be expected that any of the relevant executives knew of any express communication concerning the arrangement or understanding, or were consciously aware of any commitment, when the relevant understanding was tacit and to be inferred from the parties’ dealings. Secondly, it is to be recalled that what the Act prohibits “is a decision which the maker has undertaken with others to make or has entered into a contract, arrangement or understanding with them that he will make. When he makes that decision it is necessarily a decision made “in accordance with” that arrangement or understanding although it might have been made without the decision maker having the arrangement or understanding in his mind”: Trade Practices Commission v TNT Management Pry Ltd (1985) 6 FCR 1 at 68 at 270 (Smithers J). Thirdly, even were this matter relevant, Cussons did not call the witnesses most apt to have such propositions put to them, such as its Managing Director (Mr Fatouros).

44    The Commission further submits that any assertion by a witness as to the existence or non-existence of an arrangement or understanding, in the sense of its legal character, would not have been admissible or probative of any matter in issue. This is submitted to be the case because the existence of such an arrangement or understanding is a matter of law to be determined by the trial court. In support of this argument the Commission cites authority to the effect that a statement by a person involving the application of law to a factual situation is essentially meaningless, namely Dovuro Pty Ltd v Wilkins [2003] HCA 51; 215 CLR 317 at [69]-[70] per Gummow J, and Australian Prudential Regulation Authority v Kelaher [2019] FCA 1521; 138 ACSR 459 at [135]-[136] per Jagot J. In Dovuro at [70], Gummow J quoted with approval the following passage from the judgment of Glass JA in Grey v Australian Motorists & General Insurance Co Pty Ltd [1976] 1 NSWLR 669 at 676:

By extorting from a party an admission that he was negligent, or that he was not provoked, or that his grandfather possessed testamentary capacity, there is added to the record something which is, not merely of dubious value, but by definition valueless, owing to the witness’ unfamiliarity with the standard governing his answer.

45    The Commission further submits, as it did in its appeal submissions reproduced above, that its case at trial was that there was a tacit arrangement, and it is decisions in accordance with such an arrangement which are prohibited. The Commission points out that the Competition and Consumer Act prohibits the making of decisions in accordance with such an arrangement or understanding, whether or not the decision-maker had such an arrangement in his or her mind at the time of the decision. In that regard, the Commission relies upon the observation of Franki J in Trade Practices Commission v TNT Management Pty Ltd (1985) 6 FCR 1 at 68, where his Honour endorsed an earlier finding of Smithers J in Tradestock v TNT (Management) (1978) 32 FLR 420 at 432-433; (1978) 1 ATPR 40-056 at 17,571, saying that “a decision is made ‘in accordance with’ an arrangement or understanding although it might have been made without the decision-maker having the arrangement or understanding in [his or her] mind”. Thus, the Commission submits that its inability to call evidence of knowledge of the alleged arrangements and the Unilever witnesses not giving evidence of a state of mind did not stand in the way of a possibly successful appeal. As such, the Commission submits, the evidence of the Unilever witnesses, and thus the conclusions on this by the trial judge, were not dispositive of the appeal.

46    In reply, Cussons asserts that the Commission has failed to engage with its submissions in chief concerning the evidence of the Unilever witnesses because the Commission’s argument entails a submission that an arrangement can be reached unknowingly. Cussons relies upon the Appeal Judgment at [133] in support of that argument because of the finding there said to have been made that such a proposition is incoherent. If I understand this submission correctly, Cussons is relying upon a distinction between giving evidence of the lack of knowledge of the existence of an arrangement as evidence to infer that it did not exist, as opposed to evidence going to the legal character of such an arrangement, which would not be admissible because that is a matter for the tribunal of law to determine.

47    Moreover, Cussons submits that the suggestion that the Unilever witnesses could not have given admissible or probative evidence of the existence of the alleged arrangements did not stand in the way of them giving evidence that was fatal to the Commission’s appeal and was in any event incorrect for the following three reasons:

(1)    As found by the trial judge at TJ [461], if the Unilever witnesses (or those from Colgate or Cussons) considered they were constrained to act in accordance with the alleged arrangements, their state of mind to that effect was admissible, and further would have helped to explain their conduct, including supporting any inference that effect had been given to such an arrangement;

(2)    Such a state of mind was relevant and admissible, following, for example, Top Performance Motors Pty Ltd v Ira Berk (Queensland) Pty Ltd (1975) 5 ALR 465 (at 469 per Smithers J, emphasis added):

... the existence of an arrangement of the kind contemplated in s 45 is conditional upon a meeting of the minds of the parties to the arrangement in which one of them is understood, by the other or others, and intends to be so understood, as undertaking, in the role of a reasonable and conscientious man, to regard himself as being in some degree under a duty, moral or legal, to conduct himself in some particular way, at any rate so long as the other party or parties conducted themselves in the way contemplated by the arrangement.

Thus, it is said, if the Unilever witnesses intended to give a relevant commitment to Colgate and Cussons, or understood that they intended to give such a commitment, that would be directly relevant and admissible, not being opinion evidence to which s 76(1) of the Evidence Act 1995 (Cth) applied.

(3)    The Commission ran its case upon the basis that such evidence was in fact relevant and probative, the trial judge noting at TJ [461] that its evidence was replete with statements of the understanding of Unilever witnesses and extensive cross-examination of witnesses as to their own understanding and that of others.

48    This dispute has been difficult to resolve, partly because the competing views are not in truth competing at all, but rather posing different evidentiary issues to which different legal principles apply. The conclusion I reach is that while evidence of a state of mind of awareness of the facts relied upon by the Commission to demonstrate the existence of the alleged arrangements would undoubtedly have strengthened its hand, it was not indispensable for the appeal to succeed in the way it was brought, as Cussons contends. This third aspect of Cussons’ primary application for indemnity costs therefore also does not succeed, because again I am not satisfied that the appeal could not have succeeded without the state of mind of the Unilever witnesses being established as asserted by Cussons.

(4)    Failure to challenge findings that Woolworths and Coles would not continue to accept standard concentrates once ultra concentrates were introduced

49    Cussons contends that the trial judge’s findings, at TJ [626] and [629], that the two main retailers would not buy standard concentrates once ultra concentrates were introduced denuded the Commission’s case of a reasonable prospect of succeeding by demonstrating on the balance of probabilities that the inferential explanation for the transition to ultra concentrates by Cussons, Colgate and Unilver was the alleged arrangement. The Commission submits that a “critical plank” of its appeal was to challenge, legally and factually, the trial judge’s finding that Woolworths and Coles drove the transition, citing appeal ground 6 and Annexure A ground 1 of the amended notice of appeal. Thus, the Commission submits, none of Cussons’ submissions establish a proper basis for an appreciation that the appeal was clearly foredoomed to fail. In reply, Cussons submits that it was not enough for the Commission to refer to paragraphs of the trial judge’s reasons in the notice of appeal relied upon, especially as no submissions were directed to the findings that were made. On this reasoning, unless there was a proper challenge to those findings, the critical plank itself could not succeed.

50    To resolve this dispute it is necessary to consider both the parts of the amended notice of appeal relied upon by the Commission, and the treatment of them in the Appeal Judgment. Paragraph 6 of the amended notice of appeal, under a heading referring to the role of Woolworths and Coles, asserts that the trial judge erred in law by finding that Woolworths and Coles:

(1)    drove the timing and scope of the transition; and

(2)    decided that once the three main suppliers began supplying ultra concentrates they would cease to stock standard concentrates.

These findings were asserted, as part of this ground of appeal, to be inconsistent with the facts agreed between the parties, the undisputed facts and the documentary evidence, and to be against the weight of the evidence. This was largely replicated in paragraph 1 of Annexure A to the amended notice of appeal.

51    The Appeal Judgment at [76] noted that only the first proposition concerning the retailers driving the timing and scope of the transition was pursued in written submissions, and characterised this as a challenge to the trial judge’s findings of fact in five identified respects at TJ [624]-[632]. Each of those challenges were then considered. Taking the first as an example, the Full Court accepted that while a different finding of fact could probably have been made, that fell short of establishing error by the trial judge: AJ [79]. Each of the other asserted errors in the factual findings by the trial judge were similarly not found to be made out. But they were challenged, albeit by reasoning that was not accepted by the Full Court.

52    I therefore cannot accept that the Commission failed to challenge at all the findings that Cussons submits had to be challenged for the appeal to succeed. It is not to the point that the challenge was not successful, or even that the Full Court found fault in the way that aspect of the appeal was advanced. This fourth aspect of Cussons’ primary application for indemnity costs therefore also does not succeed.

Cussons’ alternative argument – unreasonable rejection of an offer to compromise

53    Rule 25.14(2) of the Rules provides as follows:

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.

54    Because there is a dispute as to the terms of the offer that was made, and as to the effect of the correspondence that followed, it is convenient to set out the relevant text in full:

(1)    By a letter dated 9 May 2018 sent by its solicitors, Cussons offered to settle the Commission’s appeal. After detailing why Cussons said that the Commission’s appeal was bound to fail, the letter stated:

2    Offer to settle the proceeding: offer of compromise and Calderbank offer

Although [Cussons] maintains that the [Commission]’s case is bound to fail, in order to avoid further unnecessary costs [Cussons] is prepared to settle this proceeding on the following basis:

1    The parties will take immediate steps to obtain orders, by consent, that the [Commission]’s appeal is dismissed;

2    [Cussons] will forego its costs entitlement pursuant to order 1 made by Wigney J on 15 October 2015 against the [Commission] in respect of an interlocutory application heard on 15 October 2015 in which the [Commission] unsuccessfully sought discovery: Australian Competition and Consumer Commission v Colgate-Palmolive Pty Ltd [2015] FCA 1520;

3    The [Commission] and [Cussons] will bear their own costs of and incidental to the appeal; and

4    The [Commission] is to release [Cussons] from all actions, claims or suits of any nature in respect of the appeal filed by the [Commission] and agrees to execute a formal release embodying the terms of settlement prepared by [Cussons].

We enclose a Notice of Offer to compromise, which reflects the terms outlined above. In making this offer, [Cussons] notes that it has incurred costs to date and is prepared not to seek recovery of those costs.

[Cussons] considers that its offer to forego its cost entitlement associated with the interlocutory application filed by the [Commission] in which it unsuccessfully sought discovery, and its offer that the parties bear their own costs of the appeal, is reasonable. The offer reflects the [Commission]’s prospects of success in the appeal. The offer also reflects a reasonable estimate of the [Commission]’s costs relating to the appeal up to and including the date of this offer.

The enclosed offer is made in accordance with Rule 25.01 of the Federal Court Rules 2011 (Cth). This offer will remain open for acceptance by the [Commission] in writing until 4pm on 23 May 2018. At that time the offer will lapse.

If the offer is not accepted and the appeal proceeds to hearing and the [Commission]’s appeal is dismissed, we put you on notice that [Cussons] reserves its right to tender this letter and the enclosed offer and seek a costs order under Rule 25.14 of the Federal Court Rules 2011.

If the enclosed offer is not a valid offer of compromise under Rule 25.01 of the Federal Court Rules 2011, it is also intended to take effect as an offer made by [Cussons] without prejudice save as to costs in accordance with the principles set out in Calderbank v Calderbank [1975] 3 All ER 333. Therefore, in the event that this offer is not accepted and the appeal proceeds to hearing and the [Commission] fails to obtain a judgment against our client which is substantially better than this offer, we put you on notice that this letter will be tendered and a special costs order sought that, as from the time of the expiry of the offer, the [Commission] pay [Cussons’] costs on an indemnity basis.

(2)    The letter enclosed a formal “Notice of offer to compromise”, which stated:

[Cussons] offers to compromise this proceeding. This offer relates to the whole of the [Commission]’s claim in the proceeding. The offer is on the following terms:

a)    The parties will take immediate steps to obtain orders, by consent, that the [Commission]’s appeal is dismissed;

b)    [Cussons] will forego its costs entitlement pursuant to order 1 made by Wigney J on 15 October 2015 against the [Commission] in respect of an interlocutory application heard on 15 October 2015 in which the [Commission] unsuccessfully sought discovery: Australian Competition and Consumer Commission v Colgate-Palmolive Pty Ltd [2015] FCA 1520;

c)    The [Commission] and [Cussons] will bear their own costs of and incidental to the appeal; and

d)    The [Commission] is to release [Cussons] from all actions, claims or suits of any nature in respect of the appeal filed by the [Commission] and agrees to execute a formal release embodying the terms of settlement prepared by [Cussons].

This offer is inclusive of costs.

This offer of compromise is open to be accepted for 14 days after service of this offer of compromise.

This offer is made without prejudice save as to costs.

(3)    By a letter dated 23 May 2018, the Commission’s solicitors stated:

We refer to your without prejudice letter dated 9 May 2018.

The [Commission] rejects your client’s offer to settle [the] proceeding. The [Commission] also rejects your client’s characterisation of the [Commission]’s case at first instance and its prospects on appeal.

Further, the [Commission] notes that your client’s offer is not in accordance with Part 25 of the Federal Court Rules 2011, nor is it an effective Calderbank offer. Amongst other things, your client’s offer does not reflect a genuine compromise, nor is it made on clear terms. For example, the terms proposed in part 2 of your letter do not address the position in relation to the parties’ costs at first instance, other than those relating to the discrete discovery application heard on 15 October 2015.

(4)    By a letter dated 30 May 2018, Cussons’ solicitors stated:

We refer to our client’s offer of compromise and Calderbank letter dated 9 May 2018, and your letter dated 23 May 2018.

Your letter says that [Cussons’] offer dated 9 May 2018 was unclear. It gave one example of the alleged lack of clarity, namely that the terms of the offer ‘do not address the position in relation to the parties’ costs at first instance, other than those relating to the discrete discovery application heard on 15 October 2015’. Our client does not understand how the fact that the offer does not refer to the costs of the proceeding below (save for the costs of the discovery application) creates any uncertainty. As the offer does not refer to the costs of the proceeding below (save for the costs of the discovery application), the parties’ rights in respect of those costs will not be affected if the offer is accepted. Please explain how this alleged lack of clarity arises.

If there are any other aspects of the offer that the [Commission] considers to be unclear, please identify them.

(5)    By a letter dated 18 July 2018, the Commission’s solicitors stated:

We refer to your without prejudice letter dated 30 May 2018.

As noted in our letter dated 23 May 2018, your client’s offer did not reflect a genuine compromise, nor was it made on clear terms.

In response to your queries regarding lack of clarity and certainty of your client’s offer, we note the following:

(1)    As previously mentioned, the offer did not address the parties’ costs at first instance (other than those relating to the discrete discovery application heard on 15 October 2015). In particular the offer did not inform the [Commission] whether or not your client was intending to preserve any rights to costs of the proceeding below, or its position in relation to any other matters. Nor did the offer make clear whether and, if so, to what extent the [Commission] would have been able to contest matters relating to the costs of the proceeding below had it accepted the offer, in circumstances where:

(a)    the [Commission]’s Notice of Appeal seeks amongst other things an order that your client pay the [Commission]’s costs of the proceeding below; and

(b)    the offer required the [Commission] to release your client from all actions, claims or suits of any nature in respect of the appeal filed by the [Commission].

(2)    The offer did not state the quantum of costs incurred by your client in connection with the discovery application heard on 15 October 2015, either specifically or relative to your client’s overall costs of the proceeding below.

(3)    The offer also lacked clarity and certainty because it required that the [Commission] agree to execute a formal release in terms unknown to the [Commission], to be prepared by your client apparently without consultation with the [Commission].

55    Six months after the Commission’s appeal was dismissed, on 26 November 2019 Cussons’ solicitors again wrote foreshadowing an application that the Full Court’s costs order made on 24 May 2019 be paid on an indemnity basis, relying upon the rejection of its offer to settle the appeal as set out above, and characterising the appeal as hopeless. The letter indicated preparedness to accept payment of Cussons’ costs up to 9 May 2018 on a party-party basis, and upon an indemnity basis thereafter, with almost 10 times the costs being incurred after 9 May 2018 compared to prior to that date. The Commission’s solicitors responded, rejecting the characterisation of its case at first instance and on appeal, and again asserting that the 9 May 2018 offer was not in accordance with the Rules, nor an effective Calderbank offer, in particular asserting that the offer did not reflect a genuine compromise and was not on clear terms.

56    The parties’ respective stances do not appear to have shifted.

57    Cussons accepts that it must show that its offer was effective under the Rules (or in the alternative as a Calderbank offer), and that the Commission’s rejection of that offer was unreasonable. If those thresholds are met, Cussons asserts that there is a presumption that an indemnity costs order will be made: Barnes v Forty Two International Pty Limited (No 2) [2015] FCAFC 19 at [29], citing Kooee Communications Pty Ltd v Primus Telecommunications Pty Ltd (No 2) [2011] FCAFC 141 at [14]. That is subject to the residual discretion to make an order inconsistent with the Rules under r 1.35, but that is mainly addressed to facilitating some degree of flexibility, such as where there is partial success falling short of the offer, providing an additional focus on the reasonableness of the refusal: Kooee Communications at [15]-[18].

58    Cussons relies upon a non-exhaustive list of circumstances as being relevant in determining whether the rejection of the offer by the Commission was reasonable, conveniently identified by Griffiths J in Specsavers Pty Ltd v Luxottica Retail Australia Pty Ltd (No 2) [2013] FCA 807 at [10], last dot point; adopted by Besanko J in Australian Competition and Consumer Commission v Prysmian Cavi E Sistemi S.R.L. (No 13) [2017] FCA 851 at [88(4)]. I prefer to set out the full summary of principles in Specsavers at [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.

59    Thus the issues to be determined are whether the offer made complied with r 25.14(2) (or, if needs be, was an effective Calderbank offer), and if so, whether the refusal of the offer was reasonable in all the circumstances.

Genuine offer to settle

60    An offer to compromise under r 25.14(2) must constitute a genuine compromise: see Romero v Farstad Shipping (Indian Pacific) Pty Ltd (No 4) [2017] FCA 120 at [73], and the cases there cited. As White J recently pointed out in Hanson-Young v Leyonhjelm (No 5) [2020] FCA 34 at [48], authorities dealing with settlements other than those in which a respondent concedes everything or an applicant discontinues the proceeding and pays costs indicate that “offers to settle a proceeding are offers which involve some element of compromise or, at least, that an offer which does not involve some realistic or genuine attempt to resolve the proceedings by agreement, is not an offer of the requisite kind”. One such authority quoted by White J was Tickell v Trifleska Pty Ltd (1990) 25 NSWLR 353, in which, after noting that on a literal reading of the rule under consideration there was an entitlement to indemnity costs, it was said (at 354-5):

To arrive at a correct result it is necessary to remind oneself of the concepts which underlie the whole theory of compromise and of offers of compromise.

It is the primary aim of any judicial system to attempt to bring the parties to a point where, with fairness to themselves, they are able to dispose of the dispute between them by compromise. It is only in the last resort that a dispute should proceed to trial and to determination. That is for any number of reasons. It is in the interests of the community that scarce resources, such as the court, should not be over-taxed. It is in the interests of the community and of the parties themselves that they should not engage in the rancour which a dispute in court necessarily entails. It is in the interests of the parties themselves to save themselves the expenditure of time and energy necessarily entailed in participation in contested court proceedings.

61    Based on the above principles, the Commission contends that an invitation to accept all the relief that Cussons was seeking, namely abandonment of the appeal, was not seeking compromise, but rather capitulation. The Commission further contends that what it characterises as a token compromise was made more in the hope of obtaining a costs advantage than for the purpose of a genuine compromise of the dispute, a characterisation given to an offer to settle in Enerka Apex Belting Pty Ltd v Vickers Systems Pty Ltd (No 2) [2002] VSC 409 at [14]. The Commission relies upon the observation made in TX Australia Pty Ltd v Broadcast Australia Pty Ltd [2012] NSWSC 1200 at [8] that the purpose of the parallel rule of the Supreme Court Rules 1970 (NSW) was to encourage settlement by giving an incentive to accept reasonable offers, and a reward to offer them, not to “establish a regime that would have the practical effect of conferring on a successful party an entitlement to indemnity costs if it made an offer containing but a slight concession that did not involve an objectively realistic endeavour to bring about a compromise of the proceedings”.

62    While I accept the above principles as being generally apposite in the determination of an indemnity costs application, they more readily apply to a trial proceeding than to an appeal proceeding. The outcome of a trial will be more likely to present a wider range of possible outcomes, and the real possibility of success in parts and failure in others. Those principles, especially when applied to a trial setting, encourage each party to examine the respective strengths and weaknesses in their case. They encourage a party to anticipate what the outcome of the trial is most likely to be, including whether the cost of achieving it is worth it, and to reach that reasonably likely position by agreement rather than by adjudication. There is therefore generally more scope for give and take and real compromise at the trial stage.

63    The same may apply to certain kinds of appeal proceedings in which some grounds will be stronger than others, and a range of appeal outcomes are possible, such that the appeal settlement offer has the capacity to mirror the features of a trial settlement offer. However, this was not such an appeal. The Commission was seeking nothing less than a reversal of the failure of its trial case on liability. In those circumstances, it is difficult to see how the outcome could be otherwise than binary, being the appeal either succeeding or failing to achieve that global objective. The only room for compromise that I can readily see in this case beyond forgoing the costs of the Commission’s failed interlocutory application, to which I attach only very limited weight, was appeal costs incurred by the time of the offer, and avoidance of costs up to and including the appeal hearing.

64    Such a “walk away” offer, which was the real substance of the offer made by Cussons, can be the subject of a proper offer of compromise: see Barnes v Forty Two International at [18] and the cases there cited. In context, Cussons’ attempt to bring the appeal to an end by offering that each party walk away and pay their own costs up to that date, involving a substantial, but not huge, amount of money, before much more substantial costs were incurred, a significant amount and proportion of which would be irrecoverable in the absence of an indemnity costs order, was a real compromise. In these particular circumstances, the costs component of the offer involved a sufficient element of compromise. I therefore decline to find that the offer made by Cussons was not a genuine offer to settle the appeal proceeding brought by the Commission.

Sufficiently clear offer

65    It has been said that an offer to settle must be expressed in terms that are unambiguously clear and leave no reasonable doubt as to the nature and extent of what is being offered: see Grbavac v Hart [1997] 1 VR 154, at 160 and at 155 respectively. While I would not dispute that requirement generally, the approach to be taken should be practical and realistic. Here, the Commission contends that the offer made by Cussons did not meet that description because it was expressed to be subject to entry into a deed of unknown terms, which was therefore not capable of acceptance. Cussons counters by pointing out that this objection was not articulated during the offer period, and, at least implicitly, could readily enough have been addressed by seeking the provision of a draft deed if that was really a problem.

66    If this had been an offer to settle a trial proceeding, I think that the Commission’s concern might well have had significant traction, because of the potential uncertainty as to what the final resting place would be for the rights of the parties upon settlement. A party is entitled to know just what it is giving away, at least in substance, and usually in reasonable detail, before agreeing to abandon a proceeding. To require less is to invite continued disputation.

67    It doubtless would have been better for Cussons not to have sought and maintained a need for a deed of undefined terms. It was not demonstrated why such a deed was necessary, nor what it would achieve beyond the appeal being abandoned. Cussons should have either not sought such a deed in the first place, or should have provided a draft at the outset or soon after. However, despite those conclusions, noting that requiring a deed might in another case prove fatal to an application for indemnity costs due to uncertainty or lack of clarity, for the following reasons I am unable to accept that requiring a deed by which the Commission does no more than release Cussons from all actions, claims or suits of any nature in respect of the appeal to be abandoned, including agreeing to execute a formal release embodying the terms of settlement prepared by Cussons, has, in a real and practical way, the failings identified in the letter sent on behalf of the Commission reproduced above.

68    Given the nature of the appeal, and given that the deed was to be tied to matters in “respect of the appeal”, it would have been wholly lacking in bona fides for such a deed to be drafted and presented in a way that in truth offered much, if anything, of substance beyond the fact of the Trial Judgment standing unsullied once the appeal was discontinued. Given those obvious limitations in what seems to be a rather pointless deed, I find it difficult to see how the proposed deed could realistically lack sufficient clarity and certainty because it required the Commission to agree to execute a formal release when the precise terms were unknown, and were to be prepared by Cussons. If that had been a real concern, the Commission surely would have said as much in its first response to the offer.

69    I am unable to be satisfied that the deed sought could have done more than to make express what the ordinary effect of abandoning the appeal would have been. I therefore reject the Commission’s contention that the deed aspect, limited to this particular context, rendered the offer relevantly either as lacking clarity or as leaving any real and reasonable doubt as to the nature and extent of what was being offered. As already observed, ordinarily a deed cannot safely be sought as a condition of a settlement unless its contents are going to be obvious, or they are spelt out, or a draft is provided.

The reasonableness of the refusal of the offer

70    I have already found that there was a genuine offer involving a sufficient degree of compromise and that the offer was clear enough. I also consider that the offer was timely enough, and enough time was given to consider whether to accept it. There was a clear warning that an application for indemnity costs would be made if the appeal failed. The question that remains is whether the refusal of the offer was nonetheless reasonable. Cussons submits that the appeal had such a poor prospect of success as to be hopeless, and in substance argues that no more is needed. This takes the ultimate determination back to the principles considered earlier in these reasons.

71    The Commission counters that it was not unreasonable to refuse to accept the offer to abandon its appeal, with each party paying their own costs. The only part of that submission that now needs to be considered is the prospects of success and related issues. On that topic, apart from its successful arguments on the merits of the appeal as challenged by Cussons, the Commission submits that its appeal raised legitimate matters for appellate consideration, addressing questions of principle as to the operation of the Competition and Consumer Act which it is responsible for enforcing. The Commission further contends that the proceedings were brought in the public interest by the Commission as a public regulator, in the exercise of a right of appeal, and not involving frivolous or vexatious arguments, nor for any ulterior purpose. While each of those features, which I am prepared to accept as fair and accurate, support the Commission’s argument, if the appeal was hopeless (or something akin to that), they would probably not have been enough to resist an indemnity costs order in this case.

72    The only real bases that Cussons advances in support of its contention that the appeal was hopeless were the arguments advanced unsuccessfully as to why the Commission had to, and did not, successfully challenge the four sets of factual findings dealt with above. No real attempt was made to address, at least in any detail, the grounds of appeal that were brought, and which ultimately did not succeed. The appeal grounds were certainly ambitious, but that was as much a function of the strength of the trial judge’s analysis and findings, which were always going to be difficult to challenge successfully. However, that did not render them foredoomed to fail or any like descriptor. While, following close and detailed consideration, none of the appeal grounds succeeded, as was necessary for the indemnity costs application to be brought in the first place, each of those that was ultimately prosecuted to judgment warranted that degree of consideration. It is not to the point, as Cussons suggests, that in the final analysis none ended up being finely balanced. In my view none of the grounds of appeal, viewed prospectively as required, deserved the pejorative description of being hopeless, let alone the appeal overall being tainted in that way.

73    I am not satisfied that Cussons has made good its contention that the Commission’s refusal of its offer was unreasonable. I do not need to go any further. But it is important to note that if the appeal had deserved that description, there was nothing more that would have stood in the way of an indemnity costs order.

Conclusion

74    Cussons’ interlocutory application for costs already ordered to be paid to be awarded on an indemnity basis must be dismissed with costs.

Associate:

Dated:    06 May 2020

SCHEDULE OF PARTIES