Australian Competition and Consumer Commission v 4WD Systems Pty Ltd

[2003] FCA 1090

FEDERAL COURT OF AUSTRALIA

Australian Competition & Consumer Commission v 4WD Systems Pty Ltd
[2003] FCA 1090

AUSTRALIAN COMPETITION AND CONSUMER COMMISSION v 4WD SYSTEMS PTY LTD ACN 008 134 861 & ORS

No S170 of 2001

SELWAY J
10 OCTOBER 2003
DARWIN (HEARD IN ADELAIDE)

IN THE FEDERAL COURT OF AUSTRALIA
SOUTH AUSTRALIA DISTRICT REGISTRY	S 170 OF 2001

BETWEEN:

AUSTRALIAN COMPETITION AND CONSUMER COMMISSION
APPLICANT

AND:

4WD SYSTEMS PTY LTD ACN 008 134 861
FIRST RESPONDENT

4WD SYSTEMS AUSTRALIA PTY LTD ACN 085 343 219
SECOND RESPONDENT

RALEIGH JULIAN HOBERG
THIRD RESPONDENT

THOMAS DAVID HEWITSON
FOURTH RESPONDENT

JUDGE:

SELWAY J

DATE OF ORDER:

10 OCTOBER 2003

WHERE MADE:

DARWIN (HEARD IN ADELAIDE)

THE COURT ORDERS THAT:

1.the first, second and third respondents pay 50 per cent of the applicant’s costs of the proceedings the amount of such costs to be taxed in the absence of agreement;

2.no order is made in relation to the costs of the fourth respondent;

3.any previous orders for costs in these proceedings are vacated.  Any costs in relation to which previous orders have been made in favour of the applicant are included in the applicant’s costs for the purpose of order 1.

Note:    Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.

IN THE FEDERAL COURT OF AUSTRALIA
SOUTH AUSTRALIA DISTRICT REGISTRY	S 170 OF 2001

BETWEEN:

AUSTRALIAN COMPETITION AND CONSUMER COMMISSION
APPLICANT

AND:

4WD SYSTEMS PTY LTD ACN 008 134 861
FIRST RESPONDENT

4WD SYSTEMS AUSTRALIA PTY LTD ACN 085 343 219
SECOND RESPONDENT

RALEIGH JULIAN HOBERG
THIRD RESPONDENT

THOMAS DAVID HEWITSON
FOURTH RESPONDENT

JUDGE:	SELWAY J
DATE:	10 OCTOBER 2003
PLACE:	DARWIN (HEARD IN ADELAIDE)

REASONS FOR JUDGMENT

1. Both the applicant and the respondents seek an order for costs in their favour.  For the reasons given below the first, second and third respondents are jointly and severally responsible for the payment of 50 per cent of the applicant’s costs of the proceedings.

2. On 13 August 2003, I delivered judgment in Australian Competition and Consumer Commission v 4WD Systems Pty Ltd [2003] FCA 850. In broad terms the applicant was successful in obtaining declarations and injunctions against the first three respondents, but not against the fourth respondent, Mr Hewitson. However, the applicant did not succeed on all aspects of its action as pleaded. Indeed, I was critical of some aspects of the applicant’s case. I was also critical of some aspects of the case presented by the respondents. I summarised those criticisms in pars [235] and [236] of my reasons:

   ‘The respondent says that the claims made by the applicant are exaggerated and unrealistic. It says that the applicant has made an ambit claim. There is more than a little truth in this. As an obvious example, the pleaded allegation of fraudulent misrepresentation was not made out. In fact the applicant had no obvious basis for making such a pleading. In my view similar comments can be made in relation to the ambit of the claim for unconscionability; for the ambit of some of the remedies sought by the applicant and so on.

   The respondents, on the other hand, whilst complaining of the exaggeration within the case made by the applicant, have themselves taken the unrealistic position that they are entirely innocent of each and every of the allegations made against them. The respondents have also made claims against the various complainants called as witnesses by the applicant. Those claims were largely irrelevant to the issues before me. In the result the trial of this case has been unnecessarily prolonged and the material requiring consideration has been unnecessarily extensive.’

3. The judgment given on 13 August 2003 did not deal with the question of costs.  That question was adjourned so that the parties could consider their position(s) in light of the judgment and the reasons.  Given that opportunity both the applicant and each of the respondents seek an order for costs in their favour.  Indeed the respondents seek an order for costs on an indemnity basis.

4. The applicant says that it has been successful in the proceedings, albeit not as successful as it had claimed.  Taking account of the criticisms made of it in my reasons, the applicant concedes that it is appropriate to make some sort of discount.  It refers to the time spent at trial in addressing the issues on which it was successful and the ones on which it was not and says that it would be appropriate for the applicant to receive 70 per cent of its costs.  The applicant accepts that no order for costs should be made against Mr Hewitson, but says that the order for costs should be made jointly and severally against the first and second respondents and the third respondent, Mr Hoberg.

5. The respondents put a number of submissions.  Without wishing to limit the breadth of the options I was invited to consider it is probably sufficient to refer to the main ones.  First they say that Mr Hewitson should have his costs in any event, given that no orders were made against him.  Then they say that by reason of various offers (described in the submissions as ‘Calderbank’ offers) that they made which (it is said) the applicant should have accepted, the respondents are entitled to their costs on an indemnity basis.  Alternatively, they are entitled to their costs on a party party basis.  Then they say that, in any event, a fair assessment of the behaviour of the parties would have the result that each party should bear their own costs.  Finally they submit that no order for costs should be made against Mr Hoberg.

6. I should also mention that the respondents agreed with the applicant that it would be convenient and appropriate for me to make a broad allocation of costs to the extent it is possible to do so, rather than dividing costs between the parties on the basis of particular issues.  Both parties were of the view that an order dividing up costs between the parties would impose a significant burden on both of them.

7. The legal principles applicable to the question of costs in this Court are clear enough.  They were usefully summarised by Toohey J in Hughes v Western Australian Cricket Association (1986) ATPR 40-748. I do not need to repeat them.

8. Ordinarily costs follow the event.  On the face of it the applicant has been successful and is entitled to its costs.  Are there any special circumstances that would justify the exercise of my discretion to make any other order?

9. The first question concerns Mr Hewitson.  Mr Sallis, who appeared for the respondents, accepted that Mr Hewitson had been indemnified for his costs by the first and second respondents.  That is not necessarily an end to the matter.  Given the relationship between the first and second respondents and Mr Hewitson, the first and second respondents might well be entitled to reimbursement of any costs they incurred that were specifically and separately involved in Mr Hewitson’s defence and which would not otherwise have been incurred.  However, Mr Sallis very properly accepted that in this case there were no extra, separate costs occasioned in relation to Mr Hewitson.  Even if Mr Hewitson had not been a party to these proceedings he still would have been called by the respondents; he still would have had the same involvement.  Of course, as no orders were made against Mr Hewitson no order for costs should be made against him.  But in the circumstances it is also inappropriate to make any order for costs in his favour.

10. The next issue concerns the various offers that were made by the respondents in an attempt to settle these matters.  Mr Sallis described these offers as ‘Calderbank’ offers in reference to the offer made in the case of Calderbank v Calderbank [1975] All ER 333. There was some debate before me as to whether the offers made by the respondents could be so described or not. To a certain extent that debate missed the point. This is not an issue involving some inflexible legal rule. The issue is whether the offer(s) that were made were offers that should have been accepted and, if they were, what consequences flow from that in terms of costs.

11. It is unnecessary to set out in any detail the offers that were made.  In some respects some of the offers have some features that might be considered to exceed some features of the orders that I made.  This includes issues such as refunds to the franchisees and the agreement made by the respondents in at least some of the offers to take part in compliance programmes.  However, none of the offers involved any acceptance that the quality of goods supplied by the respondents, or the timeliness of delivery of those goods was other than in accordance with industry standards.  Nor was there any acceptance that the Australian manufactured lock-right was a different product from the US manufactured product.  These were the core issues upon which I found that the respondents breached the Trade Practices Act 1974 (Cth) (‘TPA’). They are the core issues upon which the applicant succeeded. I made declarations in relation to those issues and injunctions in relation to some of them. In doing so I drew attention to the public interest (as reflected in the TPA) in making such orders in order to reinforce the normative effect of the TPA. In these circumstances I do not think that it can be said that the offers made by the respondents can be said to exceed the terms of the orders ultimately made. Nor do I think it can be said that the actions of the applicant in not accepting the offers that were made were unreasonable. In this regard it is appropriate to have regard to the statutory role and function of the applicant.

12. Indeed, it is probably unnecessary even to consider the issue by looking at the terms of the declarations and orders made and comparing them with the terms of the offer.  It is probably sufficient to point out that only one offer (or, at best, only two of the offers) contained any offer in relation to the applicant’s costs, and that was limited to the payment of $20,000 on account of costs.  As Mr Sallis conceded the applicant’s costs were self-evidently many times in excess of $20,000 at the relevant time.  Plainly enough, it was not unreasonable for the applicant to reject an offer that made no provision as to costs that would otherwise be ordered. 

13. It is also necessary to say something of the alternative submission of Mr Sallis that it was incumbent upon the applicant to respond to the offers made by the respondents in some meaningful way. I do not mean to suggest that there may not be cases where it is appropriate to have regard to the negotiating position of the parties in determining whether a particular order for costs should be made. But it would not be appropriate in this case. First, there is insufficient material properly before me to make any such assessment. And secondly it is not possible to infer that any reasonable counter offers that might have been put by the applicant would have been accepted. Indeed, given the offers that were made by the respondents and the position taken by the respondents at trial it is probably a fair assumption that the respondents did not accept that they breached the TPA in the way that I eventually found that they did. Consequently, it cannot be assumed that the respondents would not have been prepared to agree to settlement offers, if they had been made, based upon such an acceptance.

14. The next issue is whether the ordinary rule that costs follow the event should be varied in this case because the applicant did not succeed on all of the issues raised in its pleading.  Ms Layton QC, who appeared for the applicant, properly conceded that some discount should be made.  She suggested that the discount should be 30 per cent of the applicant’s costs on the basis of a broad assessment of the relative proportion of the trial taken up with the issues on which the applicant was successful.  Mr Sallis argued that the applicant was only successful in about 15 per cent of the case that it pleaded.  He drew attention to the time spent by the respondent in addressing some of these ‘ambit’ claims.  He also drew attention to issues such as the applicant’s negotiating position which has already been discussed.  He argued that the appropriate order would be that each party bear its own costs.  

15. In my view the discount of 30 per cent suggested by Ms Layton pays insufficient regard to the respondents’ costs in relation to some of the issues upon which the respondents succeeded.  If I were intending to make a division of costs as between the parties on the basis of particular issues then the respondent would probably have been entitled to its costs on some issues, particularly the pleas in relation to fraud and unconscionability.  And the respondents’ case was also exaggerated, including in relation to those issues where the applicant was unsuccessful.

16. I also think that the 30 per cent discount suggested by the applicant pays insufficient regard to the statutory role of the applicant.  In making an order for costs a Judge might well make some allowance for a private litigant who has made claims that were exaggerated or, at least, upon which that litigant was not entirely successful.  In assessing the reasonableness or otherwise of the private litigant’s actions the Court may well take into account ordinary expectations of commercial behaviour.  But I do not think that that it is necessary to make the same allowance in relation to a statutory body performing a regulatory function.  The reasonableness of the regulator’s actions must be understood in the context of its function and role.

17. The counter-argument by Mr Sallis based upon the relative success of the applicant in the number of claims that the applicant pleaded fails to address the extent of costs incurred in relation to those claims.  In my view it does not provide a sound basis for the assessment of costs.

18. Finally I note that the divisions suggested by both parties are, at best, estimates.  I suspect that both of the estimates are probably somewhat generous to the case of the party putting it forward.

19. Clearly enough opinions might differ as the appropriate discount that should be made.  Nevertheless, in my view it is appropriate and fair that the applicant have 50 per cent of its costs. 

20. The final question is whether the third respondent, Mr Hoberg should also bear a responsibility for payment of the applicant’s costs. Mr Sallis argued that the primary responsibility and liability for the breaches of the TPA was that of the first two respondents who were and are trading corporations. I have discussed Mr Hoberg’s involvement in the breaches of the TPA and the statutory basis for the orders made against Mr Hoberg at pars [228] and [229] of my reasons for judgment. In my view it is appropriate that Mr Hoberg be jointly and severally liable with the first and second respondents for that proportion of the applicant’s costs that should be paid by the respondents.

I certify that the preceding twenty (20) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Selway.

Associate:

Dated:             10 October 2003

Counsel for the Applicant:	RA Layton QC
Solicitor for the Applicant:	Australian Government Solicitor
Counsel for the Respondents:	R Sallis
Solicitor for the Respondents:	Mc Namara Business and Property
Date of Hearing:	2 October 2003
Date of Judgment:	10 October 2003