Federal Court of Australia

AHG WA (2015) Pty Ltd v Mercedes-Benz Australia/Pacific Pty Ltd (No 2) [2023] FCA 1675

ORDERS

THE COURT ORDERS THAT:

1.    The claims of the fourth, twenty-first, twenty-eighth and thirty-sixth applicants be dismissed.

2.    If and to the extent that leave to appeal is required in respect of these orders under s 24(1A) of the Federal Court of Australia Act 1976 (Cth), leave to appeal be granted to the applicants or any of them or the respondent.

3.    The claims of all applicants, other than the fourth, twenty-first, twenty-eighth and thirty-sixth applicants, be stood over until the final determination on appeal in respect of the dismissal of the claims in order 1 or any other of these orders, or until further order.

4.    The time for the filing of any notice of appeal in respect of order 1 or any other of these orders be fixed pursuant to Rule 36.03(b) of the Federal Court Rules at 31 January 2024.

5.    The applicants pay 80% of the respondent’s costs of the proceedings to the date of this order on a party-party basis.

6.    The applicants’ application to set aside the costs orders made in favour of Mercedes-Benz Aktiengesellschaft (MBAG) on 21 February 2022, 3 May 2022, 9 May 2022, 16 June 2022, 25 July 2022, 12 August 2022, 22 August 2022, 25 August 2022 and 26 August 2022 is refused.

7.    The applicants pay MBAG’s costs of and incidental to the making of orders for non-party discovery and for disclosure of documents subject to a claim of confidentiality, including conferral as to the terms of orders, and appearance at case management hearings and at trial, on a party-party basis.

8.    The applicants pay MBAG’s costs of and incidental to MBAG’s interlocutory application dated 20 September 2023 made pursuant to ss 37AF and 37AG(1)(a) of the Act on a party-party basis.

9.    The applicants pay MBAG’s costs of and incidental to the making of these orders on a party-party basis.

10.    For the avoidance of doubt, MBAG’s claim for an indemnity costs order in respect of the matters in orders 7 to 9 is refused. Further, the leave to appeal granted under order 2 is not made in favour of MBAG in respect of such a refusal or in favour of MBAG as to orders 7 to 9.

11.    Liberty to apply on 3 days’ notice.

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

REASONS FOR JUDGMENT

BEACH J:

1    On 30 August 2023 I delivered judgment in this matter on questions of liability (AHG WA (2015) Pty Ltd v Mercedes Benz Australia/Pacific Pty Ltd [2023] FCA 1022).

2    That judgment has been partially redacted for confidentiality and I have made necessary orders under ss 37AF and 37AG of the Federal Court of Australia Act 1976 (Cth). I gave an email ruling for making such redactions at the time of publication and nothing more elaborate need be said here.

3    On 21 November 2023, I made consequential orders which flowed from my principal findings. Those orders were made after receiving competing sets of written submissions from the parties and further affidavit evidence. These are my reasons for making those orders; unless otherwise indicated I will use the terminology and definitions used in my principal reasons.

4    It is necessary to briefly address three topics. The first topic concerns the form of the dismissal orders. The second topic concerns the position of costs as between the applicants and MBAuP. The third topic concerns the position of costs as between the applicants and MBAG.

Dismissal orders

5    MBAuP says that any order dismissing the claims against the exemplar applicants should be extrapolated to all other applicants. It says that having regard to the pleadings and my judgment, the appropriate order is that the proceedings in their entirety be dismissed as against MBAuP rather than a more limited form of dismissal order.

6    I disagree.

7    First, the first stage trial was only set down concerning the claims of the four exemplar applicants.

8    Second, the individual claims of the non-exemplar applicants were not further progressed as a consequence of the case management hearing on 12 November 2021. On that occasion I indicated that at the first stage there would be a trial only of the cases of the four exemplar applicants. My orders made at that time reflected this.

9    Third, although the exemplar applicants provided a representative selection of all thirty-eight applicants in relation to the construction of the dealer agreements and the development and implementation of the agency model in Australia, these proceedings were not representative proceedings under Part IVA of the Act and so no formal distillation of any common issues was undertaken.

10    Fourth, I have not heard evidence from the other 34 applicants in relation to any individual claims that they might have against MBAuP that might give rise to additional or separate issues to those which have already been litigated.

11    In summary it is not appropriate at this stage to do anything other than to dismiss the individual claims of the four exemplar applicants.

MBAuP’s costs

12    Now prima facie, MBAuP should have its costs. But the applicants dispute their liability to pay MBAuP’s taxed costs to date.

13    They have advanced two main points. First, they say that they succeeded on many of the factual issues canvassed at the trial. Second, they say that key forensic decisions made by MBAuP significantly increased the time and complexity of the trial, as well as the pre-trial procedures. They say that an order for costs should not be made in favour of MBAuP or that if one is made there should be a substantial discount.

14    Now the applicants say that MBAuP’s success primarily involved success on legal issues. But the applicants say that approximately 70% of the factual issues at the trial were determined in the applicants’ favour.

15    They refer inter-alia to the following matters on which they had some success: (a) the nature of the investments in and the value of the dealership businesses; (b) the economic expert evidence and opportunistic conduct; (c) the acceptance of the applicants' claims in relation to the creation of customer equity; (d) the financial expert evidence as to dealers being worse off; (e) the analysis of the business cases, the Deloitte model and dealer walks to demonstrate that there was a transfer of value from the dealers to MBAuP under agency, and that agency commissions were set at marginal cost recovery; (f) the history of MBAG’s involvement and development of model D and agency; (g) the rejection of MBAuP’s claim about the immediacy of the threat of disruptors and aggregators; (h) the acceptance of significant parts of the applicants’ claims in relation to the Deloitte workshops and lack of negotiation of the agency agreements and terms; and (i) the rejection of many aspects of the evidence of Messrs von Sanden, Nomikos and Seidler.

16    The applicants say that drawing the legal and factual issues together to assess the ultimate success of MBAuP, in the context of the issues litigated and the amount of time spent at the trial it would be appropriate to award MBAuP no more than 40% of its taxed costs if there is to be a costs order in its favour.

17    Now MBAuP seeks an order that the applicants pay all of its costs on a party and party basis. MBAuP says that apportionment is not appropriate in this case because MBAuP’s success is not contestable, having regard to how various issues have been determined.

18    Moreover, it says that it is not appropriate to apportion a successful party’s costs where the issues decided against the successful party did not relevantly qualify its success, even if the successful party put the matter in issue, so long as the issue was reasonably raised.

19    Further, MBAuP says that the applicants’ analysis is flawed and that the percentages they attribute to various issues are unfounded. I largely agree with MBAuP on this aspect.

20    First, I agree with MBAuP that the applicants erroneously seek to limit MBAuP’s success to the legal issues. Now of course MBAuP’s success on the interpretation of the dealer agreements informed the ultimate outcome of the litigation. But MBAuP’s success on good faith and unconscionability also involved factual findings made in its favour.

21    Second, the applicants’ asserted success on the economic evidence is overstated. There were three central topics of economic evidence being the following: (a) franchisor opportunism, which I accepted in the applicants’ favour; (b) the relational contract theory which was a focus of Professor de Roos’ evidence and the applicants’ case and which I rejected as an Alice in Wonderland construct; and (c) goodwill, which was a focus of Professor de Roos’ evidence and the applicants’ case and which I did not accept wholesale.

22    Third, the applicants failed to establish that MBAuP developed and implemented the agency model solely at the direction of MBAG or only to implement a strategy of MBAG. Rather, I accepted MBAuP’s position that the case concerned decisions by MBAuP, which had been approved and encouraged by MBAG.

23    Fourth, the applicants’ marketing expert agreed that the dealer model was a lazy business model which was threatened by disruptors and needed to change.

24    Fifth, whilst the applicants’ case proceeded on a better off/worse off analysis, it did not follow that MBAuP acted unconscionably or in bad faith because a dealer was financially worse off under the agency model as compared to the dealer model.

25    In summary, on an issues based assessment, it seems to me that MBAuP has had very substantial success. Clearly it is entitled to a substantial costs order in its favour. But some discount is appropriate. Let me in this context refer to two patent cases discussing costs, the principles of which I have applied.

26    In Idenix Pharmaceuticals LLC v Gilead Sciences Pty Ltd (No 2) [2018] FCAFC 7, it was said by Nicholas, Beach and Burley JJ at [3]:

The power of the Court in relation to costs is well established. Section 43 of the Federal Court of Australia Act 1976 (Cth) gives the Court a wide discretion in awarding costs. The exercise of the Court's discretion is not without principles or practices; it must be exercised judicially (Les Laboratoires Servier v Apotex Pty Ltd (2016) 247 FCR 61 at [305] per Bennett, Besanko and Beach JJ). The ordinary rule is that costs follow the event, although a successful party may be awarded less than its costs, or costs may be apportioned, based upon success on the issues (Firebird Global Master Fund II Ltd v Republic of Nauru (No 2) (2015) 327 ALR 192; [2015] HCA 53 at [6] per French CJ, Kiefel, Nettle and Gordon JJ; Les Laboratoires Servier at [297] to [298] and [303]).

27    Earlier, in Les Laboratoires Servier v Apotex Pty Ltd (2016) 247 FCR 61, it was said by Bennett, Besanko and Beach JJ at [297] to [301], [303] and [305]:

There are two general approaches to the award of costs that have general application and have been the subject of numerous decisions:

(1) The successful party is generally entitled to its costs. That is, costs usually follow the event.

(2) It is also the case that a successful party may be awarded less than its costs, or there may be an order apportioning costs, on the basis of success on the issues.

This has been recently reiterated by the High Court (per French CJ, Kiefel, Nettle and Gordon JJ) in Firebird Global Master Fund II Ltd v Republic of Nauru (No 2) (2015) 90 ALJR 270 at [6], where their Honours observed that if the event of success cannot be seen as contestable, having regard to how separate issues have been determined, then:

There are no special circumstances to warrant a departure from the general rule, and good reasons not to encourage applications regarding costs on an issue-by-issue basis, involving apportionments based on degrees of difficulty of issues, time taken to argue them and the like.

Section 138(3) of the Act provides a number of separate grounds on which a patent may be revoked. Proceedings for revocation of a patent commonly raise a number of those grounds. Each is recognised as important and if such a ground is established then the patent, which, if valid, grants a monopoly, is liable to be revoked as invalid. It is not only in the interests of the party seeking revocation that an invalid patent be revoked; it is also in the public interest. That is not to say, however, that a party should invoke grounds that cannot be properly and reasonably supported by consideration of the patent and, where relevant, by evidence or grounds which are not seriously arguable.

The practice has developed that where a party relies on grounds that are not established and where time has been expended and costs incurred as a consequence, that party, although it may ultimately be successful, might not recover all of its costs. This, in turn, may depend on whether evidence and argument can be separated. For example, evidence from the skilled worker in the art may be relevant to different grounds of revocation and to an understanding of the patent for the purposes of construction and disclosure. Further, the question of apportionment is a matter of discretion and generally does not lend itself to mathematical precision, by reference to time or to importance. In any event, as the primary judge recognised, it has not hitherto been the case that such a successful party which obtains an order for revocation of the patent is ordered to pay the patentee’s costs.

On the other hand, Courts have been increasingly concerned, generally, to use all proper means to encourage parties to consider carefully what matters they will put in issue in their litigation. This has led to decisions whereby the successful party does not recover all of its costs where it has been unsuccessful on a discrete issue or in what is decided to be an unmeritorious objection. While it is acknowledged that, ordinarily, costs follow the event, the wide discretion in awarding costs has led to circumstances where a successful party who has failed on certain issues may be ordered to pay the other party’s costs of them (as discussed in Hughes v Western Australian Cricket Association (Inc) [1986] ATPR 40-748 per Toohey J), although warnings have been stated that care should be taken in such a course and consideration be given to whether the issues on which the successful party failed are clearly dominant or separable (Waters v PC Henderson (Australia) Pty Ltd (1994) 254 ALR 328 at 330-331 per Mahoney JA) and to whether the issues involved different factual enquiries in the one proceeding or multiple causes of action, even if based on a common substratum of fact.

…

Without amounting to an absolute rule, the principle remains that, subject to certain limited exceptions generally linked to the disentitling conduct of the successful party, a successful party in litigation is entitled to an award of costs (Oshlack per McHugh J at [67]-[68], in dissent but not in this aspect of the principle and with whom Brennan CJ agreed). That is not to punish the unsuccessful party but to compensate the successful party. There is no absolute rule that, in the absence of disentitling conduct, a successful party is to be compensated by the unsuccessful party, nor is there a rule that there is no jurisdiction to order a successful party to bear the costs of the unsuccessful party (Oshlack at [40] per Gaudron and Gummow JJ). However, the Courts have been slow to order a successful party to pay the costs where it has been unsuccessful on some issues. In Mok v Minister for Immigration, Local Government and Ethnic Affairs (No 2) (1993) 47 FCR 81, Keely J was of the view (at 84) that, without attempting to fetter the discretion, this power ought to be exercised only where the Court, on a consideration of all of the circumstances, has concluded that the raising of an issue by the applicant on which it has failed was so unreasonable that it is fair and just to make the order.

…

… [T]here is no limitation on the power granted in s 43 that is not found in the words used (Probiotec at [47]). The discretion is unconfined, except insofar as the subject matter, scope and purpose of the legislation indicate otherwise, yet it falls to be exercised judicially (Probiotec at [47], [50]).

28    In my view, just considering for the moment the question of success on various issues and who ultimately succeeded, it seems to me that MBAuP should receive a costs order in its favour for 80% of its costs. The discount of 20% reflects the applicants’ success on various of the forensic issues, although such success ultimately amounted to little in terms of the ultimate result and in some respects such issues were beside the point.

29    I should make one other point. The applicants referred to the level of expenditure incurred on various forensic issues on which they had some measure of success. I have considered this and taken this into account. But at the end of the day I am engaged in the task of an impressionistic assessment, and a discount of 20% overall is sufficient to do justice in the circumstances considering that MBAuP had overwhelming success on what were at the end of the day well-worn and hard-edged commercial law principles, save for the principles applying to one cause of action that had more nebulous boundaries and content. As will be apparent from my principal reasons, I eschewed indulging in putatively profound value-laden propositions dollied up in prettified prose of a type favoured by essayists.

30    Let me turn to another dimension to the applicants’ position which seeks to impugn the conduct of MBAuP.

31    The applicants say that an adjustment may be made to deprive a successful party of its costs where the successful party’s conduct has increased the length of the hearing. Such an adjustment may give effect to the overarching purpose in ss 37M and 37N of the Act.

32    The applicants say that the substantial increase in the time allowed for the trial can be seen in three areas which were all linked to the forensic decisions made by MBAuP to provide minimal evidence about the interaction between MBAuP and MBAG in the development of the agency model and the business cases. Specifically, the openings lasted more than 5 days not 2 as scheduled, MBAuP’s evidence took three times longer than allocated, and the documentary tender took 4 days.

33    Further, the applicants say that MBAuP’s affidavits were inadequate for the efficient conduct of the hearing, which led to the need to refer to and tender extensive numbers of documents, particularly in cross-examination to properly explain the development of the agency model in Australia.

34    Further, the applicants say that other issues generated significant and unnecessary costs, included Mr von Sanden’s evidence being taken in Spain, and the costs and delays occasioned to Mr Potter’s preparation of his report by reason of MBAuP’s confidentiality concerns.

35    It is said that these and other issues and their resultant impact significantly increased the length and cost of the trial. In the circumstances the applicants say that I should make no order as to costs. It is said that any other order would not provide a just allowance to the applicants for their costs incurred in dealing with the unsatisfactory forensic decisions of MBAuP. Alternatively, it is said that I should make a further discount on the outcome of the issues based analysis to achieve a just outcome as between the parties.

36    But I do not accept that the increase in trial time or inefficiency in the procedural preparatory steps was substantially caused by unreasonable forensic decisions made by MBAuP.

37    The trial was brought on expeditiously, with various aspects of pleadings, evidence and discovery occurring simultaneously rather than consecutively, as would normally be the case in litigation of this size. This may have resulted in some cost inefficiencies. But they are not due to any substantial unreasonable behaviour on the part of MBAuP.

38    Further, as the focus of the trial was on MBAuP’s conduct and involved scrutinizing MBAuP’s business, much of the evidentiary burden and the burden of discovery lay on MBAuP and MBAG.

39    Moreover, the applicants’ case proceeded on a distorted view as to what they were required to establish in the proceeding. It was the applicants’ conception of what they needed to establish in the proceeding concerning the decision-making process and the resulting extensive cross-examination of MBAuP’s witnesses, and their inaccurate attempt to reconstruct the history of the development of the agency model, that caused much of the increase in costs and hearing time.

40    In all the circumstances, I am not able to attribute increased trial time or cost to any unreasonable conduct on the part of MBAuP.

41    In summary, I will discount MBAuP’s entitlement to costs by 20%. This discount is justified on an issues based approach only, rather than on any unreasonable conduct by MBAuP in the preparation or running of this litigation.

42    There is one other matter. The applicants have sought to have the costs awarded against them apportioned such that each is only liable to MBAuP for a small percentage share of the overall costs awarded in favour of MBAuP. But there is no proper basis to so allocate costs. And I agree with MBAuP that such a complicated regime puts an unnecessary burden and risk on MBAuP in enforcing the costs order in its favour. The applicants should be jointly and severally liable for MBAuP’s costs reduced by 20%. They all acquiesced in and were potentially advantaged from the way the trial was structured and run. It is a matter for the applicants as between themselves to agree as to how they should share the burden between them.

MBAG’s costs

43    MBAG seeks orders for its costs of and incidental to the various applications for non-party discovery, the protection of claims to confidentiality in respect of such documents produced and of and incidental to its application for suppression orders with respect to the reasons for judgment. It also seeks that costs be payable to it by the applicants on an indemnity basis.

44    Now MBAG as a non-party was compelled to produce its confidential documents and obtain the operation of a confidentiality regime. And it has been required to take steps to protect the confidentiality of its documents, including by successfully defending claims to legal professional privilege, making submissions at trial with respect to the use and disclosure of its documents by the applicants notwithstanding the applicable confidentiality regime, and making an application for suppression of discrete parts of my principal reasons.

45    Now the applicants say that MBAG’s costs ought be treated in the same way as MBAuP’s costs for two reasons. First, they say that the orders made for discovery by MBAG as a non-party was done at MBAG’s request, for its own internal purposes involving compliance with EU regulations, although in substance it was “party” discovery. Second, they say that there were additional burdens imposed on the applicants arising from the way in which MBAG documents were produced and the confidentiality claims made by MBAG.

46    Now a non-party compelled to produce documents is ordinarily entitled to recover its reasonable costs and expenses of the application and production. And each of the costs orders previously made in favour of MBAG contained in the non-party discovery orders were made with the express consent or absence of opposition by the applicants. And contrary to the applicants’ position, there are no grounds for vacating those orders.

47    Further, MBAG’s corporate relationship to MBAuP, and its global connection to the business strategies pursued in Australia, do not detract from its entitlement to recovery of the costs it incurred.

48    Further, there is no ground to deny MBAG costs due to some documents taking longer to produce than others. The scope of discovery imposed by the multiple orders made was substantial, and involved extensive searches, review and document management. Although I accept that there were some delays in giving non-party discovery, these were not such as to disentitle MBAG to its costs.

49    Further, MBAG quite properly appeared with leave at the trial for the limited purpose of addressing disclosure by the applicants of its confidential information in documents produced in accordance with the applicable regime. The applicants had included numerous MBAG documents subject to the confidentiality regime in its tender bundle, and during their opening addressed me with respect to such documents.

50    In my view MBAG’s costs of and incidental to the non-party discovery orders were reasonably incurred in respect of compulsory production as a non-party.

51    Further, in my view the applicants should pay MBAG’s costs of the suppression application. MBAG was a non-party properly taking steps to protect the confidential information compulsorily produced at the instigation of the applicants.

52    Ultimately I do not accept the applicants’ position that the appropriate course is to treat MBAG’s costs as if they were part of MBAuP’s discovery costs, rather than as true non-party costs. Let me turn to another question.

53    MBAG seeks its costs on an indemnity basis. It says that because a non-party is entitled to recover its reasonable costs of making non-party discovery, the costs ordered in favour of MBAG should be payable on an indemnity basis.

54    But notwithstanding the usual position, in my view MBAG should not be awarded costs on an indemnity basis. True it is that MBAG was a non-party. But it is in a special position in contrast with the non-parties dealt with in the authorities cited by MBAG. MBAG had a direct interest in the litigation and its outcome.

55    The relationship between a non-party and a party is a relevant consideration in determining the costs payable in respect of the non-party’s production.

56    In the exercise of my discretion, I have had regard to the relationship between the party (MBAuP) and the non-party (MBAG). This was not a case where the non- party was a true third party, but was the parent company of the party, and one in which the non-party parent had played a significant role in the development of the agency model, including for example by approving the business cases that permitted the issuing of the NRNs.

57    But of course, given that the same firm acted for both MBAuP and MBAG, I would expect that any duplication of their costs, to the extent that there is any duplication, would be eliminated on a taxation.

58    In summary, MBAG will have a costs order in its favour but not on an indemnity basis.

Conclusion

59    For the foregoing reasons I made the earlier orders consequential on my principal reasons.

Associate:

Dated:    22 January 2024

SCHEDULE OF PARTIES