Dorrian and Anor v Rushlyn Pty Ltd and Anor (No.2)
[2013] FMCA 159
FEDERAL MAGISTRATES COURT OF AUSTRALIA
| DORRIAN & ANOR v RUSHLYN PTY LTD & ANOR (No.2) | [2013] FMCA 159 |
| CONSUMER LAW – COSTS – Offer to settle before commencement of litigation – offer of compromise. |
| Trade Practices Act 1974, ss.51AD, 52 Federal Magistrates Court Rules 2001, rr.1.05, 6.12, pt.2 of sch.3 Federal Court Rules 2011, r.25.14 |
| Dorrian v Rushlyn Pty Ltd [2013] FMCA 101 BHP Billiton Ltd v Parker (2012) 113 SASR 206 Dye v Commonwealth Securities Ltd (No. 2) [2012] FCA 407 Facton Ltd v Seo (2011) 91 IPR 135 Mobile Innovations Limited v Vodaphone Pacific Limited [2003] NSWSC 423 Hughes v Western Australia Cricket Association Inc (1986) ATPR 40–748 |
| First Applicant: | COLIN EDWARD DORRIAN |
| Second Applicant: | SHARRON MAY DORRIAN |
| First Respondent: | RUSHLYN PTY LTD (ACN 061 269 690) |
| Second Respondent: | ROBERT MARK JAMES |
| File Number: | ADG 222 of 2010 |
| Judgment of: | Cameron FM |
| Hearing date: | 5 March 2013 |
| Date of Last Submission: | 5 March 2013 |
| Delivered at: | Sydney via videolink to Adelaide and Melbourne |
| Delivered on: | 13 March 2013 |
REPRESENTATION
| Counsel for the Applicants: | Mr M. Hoile |
| Solicitors for the Applicants: | Belperio Clark |
| Solicitors for the Respondents: | Mason Sier Turnbull |
ORDERS
The first respondent pay seventy-five per cent of the applicants’ costs of the proceedings against the first respondent and of the cross claim, those costs to be taxed in accordance with Part 40 of the Federal Court Rules 2011.
The applicants’ costs incurred before 11.00am on 8 June 2011 be taxed on the party and party basis.
The applicants’ costs incurred at and from 11.00am on 8 June 2011 be taxed on the indemnity basis.
The applicants pay the second respondent’s costs, those costs to be taxed in accordance with Part 40 of the Federal Court Rules 2011.
| FEDERAL MAGISTRATES COURT OF AUSTRALIA AT ADELAIDE |
ADG 222 of 2010
| COLIN EDWARD DORRIAN |
First Applicant
| SHARRON MAY DORRIAN |
Second Applicant
And
| RUSHLYN PTY LTD (ACN 061 269 690) |
First Respondent
| ROBERT MARK JAMES |
Second Respondent
REASONS FOR JUDGMENT
Introduction
These reasons concern the costs to be ordered consequent upon the judgment in Dorrian v Rushlyn Pty Ltd [2013] FMCA 101 (principal decision”).
The applicants brought a number of claims against the respondents which were determined in the principal decision. In brief, the applicants were successful in proving that the first respondent had breached the franchise agreement which it had entered into with them in 2009 and that, by breaching the Franchising Code of Conduct (“Code”), it had also breached s.51AD of the Trade Practices Act 1974 (“TPA”). Although no damages were awarded for the breach of the Code, judgment for the first respondent of $658,993.40 was ordered, made up of $545,792 damages for breach of contract and $113,201.40 for pre-judgment interest. Additionally, the first respondent’s cross claim against the applicants, for payment of the outstanding portion of the purchase price under the franchise agreement, namely $150,000, was dismissed.
Several of the applicants’ allegations against the first respondent were unsuccessful, most relevantly their allegations that it had engaged in misleading or deceptive conduct contrary to s.52 of the TPA. Also associated with those unsuccessful allegations were allegations that the second respondent had accessorial liability for certain of the first respondent’s alleged contraventions of the TPA and was also liable as principal for certain alleged contraventions of the Fair Trading Act 1987 (SA) (“FTA(SA)”).
The applicants sought costs against the first respondent on an indemnity basis from the commencement of the proceeding or, alternatively, on and from 8 June 2011. They submitted in respect of their unsuccessful claim against the second respondent that, rather than make a separate order in the second respondent’s favour, the Court should make no order as to the second respondent’s costs but should, instead, make an appropriate reduction in the amount payable by the first respondent.
The respondents argued that any costs which the first respondent must pay to the applicants ought to be reduced by a very significant percentage to reflect the fact that the claims on which the applicants did not succeed were the most significant and time consuming elements of the litigation while the matter on which they did succeed involved much less time and effort. They submitted that the second respondent should have his costs.
Submissions
Applicants’ submissions
The claim for indemnity costs for the whole proceedings was based on an email which the first applicant sent to the respondents on 17 May 2010 offering to “resolve the present situation” by proposing that:
a)the first respondent forgive their $150,000 vendor finance amount;
b)the first respondent pay the applicants $250,000; and that
c)certain consequential arrangements be implemented.
It was submitted that this offer should be understood to have been an informal offer to settle in the sense discussed in BHP Billiton Ltd v Parker (2012) 113 SASR 206 at 265 [264] – [265] which, had it been accepted, would have entirely avoided the need for the proceedings.
The applicants’ alternative position, that they be awarded indemnity costs on and from 8 June 2011, was based on an offer of comprise which they served on 3 June 2011 and in which they offered to settle on terms that:
a)they be released from any obligation to pay the first respondent the sum of $150,000 pursuant to the franchise agreement; and
b)there be judgment in their favour against the respondents jointly and severally in the sum of $300,000.
The applicants submitted in relation to this offer that they had obtained a judgment very much more favourable to them than the settlement proposed and that this created a presumptive right to indemnity costs in accordance with the Federal Court Rules 2011: Dye v Commonwealth Securities Ltd (No. 2) [2012] FCA 407 at [6]. In this connection they submitted that if the Court decided not to order indemnity costs from the commencement of the proceedings, it should instead order the first respondent to pay their costs on a party and party basis up to and including 8 June 2011 and on an indemnity basis thereafter.
Conceding that a number of their allegations had been unsuccessful, the applicants submitted that the issues arising from the actions in contract and pursuant to the TPA and FTA(SA) were intertwined, as was the evidence relevant to them, with there being no “bright line” between them. They submitted that justice did not demand that the costs payable by the first respondent should be reduced to take account of the fact that certain of their allegations were unsuccessful or to reflect the failure of their case against the second respondent.
They submitted that, in exercising its discretion, the Court should give particular weight to:
35.1the early offer to “resolve the position” by the applicant’s letter of 17 May 2010 before any legal costs were incurred at all;
35.2the “presumptive effect” of the Rules Offer made in June 2011, and to the terms of FCR 25.14, which provide that it takes effect if the “applicant obtains a judgment that is more favourable”. The wording supports a view that the indemnity costs award should flow by reference to the ultimate “judgment” obtained, without being unduly distracted by the common and ordinary aspect of litigation that the applicants did not succeed on all issues;
35.3the fact that the applicants were entirely successful on the breach of contract cause of action, which was the focus of their letter of 17 May 2010;
35.4the fact that the applicants were entirely successful in defeating the cross claim;
35.5the fact that with respect to the Franchising Code claim, the applicants succeeded in establishing non-disclosure (Reasons [240]), but did not obtain ultimate relief, because the applicant Mr Dorrian was honest enough to put his evidence no higher than that he would not have gone ahead “without a satisfactory explanation” (Reasons [246-247]). Another litigant may have claimed – and could hardly have been contradicted – that he would definitely not have gone ahead upon learning that which was not disclosed;
35.6the fact that disclosure of documents by the respondents which related to and enabled the non-disclosure claim was only made months overdue on the doorstep of the court. This deprived the applicants of the chance to properly investigate the reasons for non-renewal of the 14 franchises. The applicants made their choice not to seek an adjournment and are bound by it. A consequence was that the applicants did not have time to organize proof of the reasons for the non-renewal of the franchises. As above they are bound by the consequences of not seeking an adjournment to which they were clearly entitled, but the respondents’ failure to make timely discovery is a relevant factor to weigh in the scales to counter any claim the respondents may make that the applicants failed on the Franchising Code claim.
The applicants submitted that to the extent that the Court considered it just that there be some recognition of the applicants’ less than complete success on all causes of action against the respondents and in order to avoid the potential difficulties posed on a taxation by “cross-orders”, the Court might make a single order in favour of the applicants with an appropriate discount.
Respondents’ submissions
The respondents submitted that no special costs order should be made in respect of the email of 17 May 2010. They submitted that their failure to accept the offer was not unreasonable, particularly in circumstances where the offer had not been made in the context of litigation or foreshadowed litigation. They submitted that their failure to accept an offer to settle an unlitigated dispute should not entitle the applicants to indemnity costs. It was submitted in relation to the substance of the offer that it did not assert a right to terminate the franchise agreement or raise any of the other causes of action later relied upon by the applicants, it was not expressed to be a Calderbank offer and did not put the first respondent on notice that if it was not accepted reliance might be placed on it in an argument on costs.
In contrast, the respondents accepted that the offer of compromise was valid, that it had been well exceeded and that the Federal Court Rules applied to it. Nevertheless, they submitted that the applicants should not get all their costs.
The respondents submitted that the applicants pursued five distinct causes of action but were successful in only one of them. The respondents submitted that they had succeeded in the major part of the case whereas the applicants had succeeded on a subsidiary claim which had only been a minor part of the case. It was submitted that seventy-five per cent to eighty per cent of the case concerned claims in which the applicants had been unsuccessful or which they had abandoned and that if it had been limited to a claim of breach of contract, it could have been concluded in a day.
The respondents also submitted that it was not correct to say that the various issues and related evidence were intertwined. They argued that the causes of action on which the applicants failed had concerned events prior to the execution of the franchise agreement whereas the matters on which they had succeeded related to events after that point. They submitted that there was a clear demarcation between the two.
The respondents submitted that the second respondent had been exonerated and should receive an order for costs.
The respondents submitted that the Court should make the following orders:
1.that the first respondent pay twenty-five per cent of the applicants’ costs taxed on a party and party basis to 7 June 2011 and on an indemnity basis thereafter.
2.that the applicants pay the second respondent’s costs on a party and party basis.
Consideration
The offer made in the email of 17 May 2010 was expressed to be without prejudice but any privilege which attached to it ceased when it was admitted into evidence without objection on the first day of the trial. As such, it can be treated in the same way as an unaccepted Calderbank letter would be treated in circumstances where the party making the offer has bettered it. The principles relevant to the making in such circumstances of a costs order other than on a party and party basis were set out by Gordon J in Facton Ltd v Seo (2011) 91 IPR 135 at 146-147 [55] and may be relevantly summarised as:
a)the Court has a wide discretion in the award of costs which must be exercised judicially and in accordance with well established principles;
b)the usual course is to order costs on a party and party basis;
c)indemnity costs can properly be awarded where the circumstances of the case warrant the Court departing from the usual course of ordering costs on a party and party basis. Those circumstances have been variously described as “some special or unusual feature” and include “an imprudent refusal of an offer to compromise”;
d)the rules dealing with offers of compromise provide a structure which encourages parties to make and consider fair and reasonable offers to settle proceedings but they are not a code. Parties are also able to rely upon the common law principles in relation to Calderbank letters which can be considered by the Court in deciding whether to make an order displacing the usual costs order even if the rules concerning offers of compromise have not been followed;
e)refusal of an offer which satisfies the requirements of a Calderbank letter does not itself warrant an order for indemnity costs. The onus is on the offeror to show that the conduct of the offeree was unreasonable. The reasonableness of the conduct is viewed in light of the circumstances which existed at the time the offer was rejected;
f)even if the central requirements of a Calderbank letter (that it be clear, precise and certain) are not met, that does not mean that the offer cannot be considered by the Court in the exercise of its general costs discretion; and
g)in determining whether an offer should have been rejected, a court looks at the reasonableness of the conduct of the offeree, when viewed in the light of the circumstances which existed when the offer was rejected. It has also been described as whether the rejection of the offer was “imprudent” or “unreasonable” or “imprudent, reckless or unreasonable”.
The offer of 17 May 2010 was sufficiently clear, precise and certain that it could have been accepted to form a binding agreement bringing the parties’ relationship to an end and adjusting their respective positions in the process. It offered the first respondent the benefit of the work already performed by the applicants in the franchise, returned the franchise so it could be sold again and left the first respondent with $50,000 of the $300,000 which the applicants had paid it.
However, it was made more than three months before the commencement of these proceedings and did not foreshadow litigation or suggest that an agreement reached in accordance with its terms would avoid litigation. To paraphrase the respondents’ submissions, the applicants were proposing a commercial settlement to a commercial problem. Importantly, the problem was not presented as a dispute or disagreement, merely a desire on the part of the applicants to exit the franchise because they had been unsuccessful in it, albeit that they sheeted home some of the responsibility for that failure to the respondents.
Whether the respondents were unreasonable in not accepting the offer made in the email of 17 May 2010 must be considered in the context of these proceedings. The offer was not expressed to relate to these proceedings, whether as proceedings on foot or as proceedings in prospect. Consequently, the decision which the respondents made in relation to it should not be considered to have been a decision related to the proceedings or to have costs consequences in the proceedings. It was a commercial decision in a purely commercial context, unrelated at the time to any actual or prospective litigation.
In such circumstances, the failure of the respondents to accept the offer made in the email of 17 May 2010 was not act which was unreasonable in the context of these proceedings or which provides a basis to depart from the usual order as to costs.
However, the offer of compromise presents a different situation. Although this Court does not have its own rules specifically providing for offers of compromise, its rules do incorporate relevant rules of the Federal Court: r.1.05 and pt.2 of sch.3 to the Federal Magistrates Court Rules 2001. The offer which the applicants made in the offer of compromise was bettered by a considerable margin with the consequence that they have a presumptive right to indemnity costs order in accordance with those rules. No reason to depart from the presumption that indemnity costs should be awarded from a date determined in accordance with the relevant rules, namely r.25.14(3) of the Federal Court Rules and r.6.12(d) of this Court’s Rules, is apparent and that entitlement was rightly conceded by the respondents. I therefore find that the applicants should have their costs from 11.00am on 8 June 2011 on the indemnity basis with costs incurred before that moment to be paid on the party and party basis.
Nevertheless, as the respondents’ submissions made clear, they do not concede that the applicants should be awarded all their costs, regardless of the basis on which they might be taxed. The considerations which apply in such a situation were considered by Einstein J in Mobile Innovations Limited v Vodaphone Pacific Limited [2003] NSWSC 423 at [4] and may be summarised as follows:
a)the starting point is that a successful applicant is entitled to his costs. It is for the respondent to establish a basis for departing from that rule;
b)a successful party who has failed on certain issues may not only be deprived of their costs on those issues but may also be ordered to pay the other party’s costs of them: Hughes v Western Australia Cricket Association Inc (1986) ATPR 40–748 at 48,136;
c)such a course is to be taken in unusual cases and with a degree of hesitancy. In that regard:
i)justice may not be served if a party is dissuaded by the risk of costs from canvassing all issues which might be material to the decision of the case;
ii)the discretion to apportion costs is one to be exercised only in the most exceptional circumstances although where a considerable part of the trial is taken up in determining issues upon which a party fails, it is a proper exercise of the discretion to reduce the costs allowed to that party;
iii)where the proceedings involve multiple issues the application of the rule that costs follow the event may involve hardship where a party succeeds on some issues and yet fails on others, particularly where a defendant succeeds on issues that occupied the bulk of the time taken by the proceedings; and
iv)unless a particular issue or group of issues is clearly dominant or separable from the balance of the proceedings it will ordinarily be appropriate to award the costs of the proceedings to the successful party without attempting to differentiate between the issues on which it was successful and those on which it failed
d)where the principle is applied it is generally not appropriate to order that costs be paid in respect of particular issues; and
e)rather, it is generally appropriate simply to apportion costs on the basis of impression and evaluation.
In this case, much attention was paid to the claims on which the applicants were not successful but an appreciable proportion of that time also involved evidence and argument relevant to the issues on which the applicants were successful. Further, the failure of the respondents to provide proper discovery until shortly before the commencement of the hearing should not be overlooked. The applicants correctly identified a breach of the Code but fell at the damages hurdle because, should the facts have supported a decision to take a course different from the one they took on the franchise, they were denied sufficient time to find that evidence. Alternatively, should the facts not have supported a different decision on the franchise, if the documents had been provided for inspection more timeously, the issue might never have been raised.
In the circumstances I conclude that the first respondent should pay seventy per cent of the applicants’ costs of their proceedings against the first respondent. It should also pay the applicants’ costs of the cross claim. However, rather than complicate the taxation, I consider it appropriate to synthesise these entitlements. There will be an order that the first respondent pay seventy-five per cent of the applicants’ costs of the proceedings against the first respondent and of the cross claim.
Finally, the second respondent is entitled to an order for the costs of that part of the proceedings which concerned him personally. The applicants submitted that rather than make a separate costs order in favour of the second respondent, the Court should reduce the costs payable by the first respondent by an appropriate amount. While that course has an ostensible, appealing simplicity, if fails to take account of the second respondent’s individual rights. Consequently the course suggested by the applicants will not be followed. The second respondent should have his costs.
Finally, the parties assumed that their costs would be determined by taxation rather than by lump sum order. Given the nature of the case that assumption was appropriate and there will be orders that costs be taxed.
I certify that the preceding twenty-seven (27) paragraphs are a true copy of the reasons for judgment of Cameron FM
Date: 13 March 2013
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