Portland Marketing (International) Pty Ltd v Wulff and Ors (No.3)

[2018] FCCA 3103

FEDERAL CIRCUIT COURT OF AUSTRALIA

PORTLAND MARKETING (INTERNATIONAL) PTY LTD v WULFF & ORS (No.3) [2018] FCCA 3103

Catchwords:
PRACTICE AND PROCEDURE – COSTS – Costs of trial – appropriateness of using Federal Circuit Court scale to determine the costs of a long and complex matter – whether taxation on Federal Court scale more suitable.

COSTS – Calderbank offer of settlement at early stage of proceeding more favourable than result achieved by offeree applicant – whether unreasonably refused.

COSTS – Notice of offer to compromise – whether unreasonably refused by unsuccessful applicant.

Legislation: 

Federal Circuit Court Rules 2001, pt.2 of sch.3
Federal Court Rules 2011, rr.25.01, 25.03, 25.04, 25.05, 25.06, 25.10, 25.11, 25.12, 25.14

Cases cited:
Calderbank v Calderbank [1976] Fam 93
Facton Ltd v Seo (2011) 91 IPR 135
Dr Martens Australia Pty Ltd v Figgins Holdings Pty Ltd (No.2) [2000] FCA 602
Elite Protective Personnel Pty Ltd v Salmon [2007] NSWCA 322
Sze Tu v Lowe (No.2) [2015] NSWCA 91

Applicant: PORTLAND MARKETING (INTERNATIONAL) PTY LTD (ACN 104 765 639)

First Respondent: HENRIK WULFF TRADING AS RAZORPIT AUSTRALIA

Second Respondent: UNITY AGENCIES PTY LTD (ACN 010 894 943)

Third Respondent: FIRTAL BRANDS APS

File Number: SYG 3055 of 2014

Judgment of: Judge Cameron

Hearing date: Decided on the papers

Date of Last Submission: 15 October 2018

Delivered at: Sydney

Delivered on: 12 November 2018

REPRESENTATION

Counsel for the Applicant: Mr G. Stapleton

Solicitors for the Applicant: Hunter Flood Lawyers

Counsel for the Respondents: Mr M.D Evans

Solicitors for the Respondents: McKays

ORDERS

1. The applicant pay the respondents’ costs of the proceeding on the party and party basis taxed in accordance with the Federal Court scale.

2. The Court certifies that it was appropriate to brief counsel.

3. In the event that the first respondent’s costs are not paid in full, the parties have liberty to apply in connection with the order for security for costs made on 16 March 2015.

FEDERAL CIRCUIT COURT
OF AUSTRALIA
AT SYDNEY

SYG 3055 of 2014

PORTLAND MARKETING (INTERNATIONAL) PTY LTD (ACN 104 765 639)

Applicant

And

HENRIK WULFF TRADING AS RAZORPIT AUSTRALIA

First Respondent

UNITY AGENCIES PTY LTD (ACN 010 894 943)

Second Respondent

FIRTAL BRANDS APS

Third Respondent

REASONS FOR JUDGMENT

Introduction

1. On 11 September 2018 judgment in this matter was pronounced.  The application was dismissed and the respondents have sought costs. The parties agreed that the question of costs was to be determined without an oral hearing.

2. The parties have filed written submissions and the respondents have also filed affidavits affirmed by solicitors acting for them, one by a Mr McKewin and the other by a Ms Forward-Smith.

Respondents’ submissions

1. On the basis that costs should follow the event absent special circumstances requiring a different outcome, which were said not to exist, the respondents argued that they were entitled to their costs of the proceeding including the expenses incurred in bringing to Sydney their witnesses, who had been required for cross-examination, and entitled to certification by the Court that it was appropriate to brief counsel.

2. The respondents also sought an order that costs be taxed according to the Federal Court scale rather than according to the event-based scale prescribed in the Federal Circuit Court Rules 2001 (“Rules”). They submitted that such an order was appropriate given the magnitude of the case, in that:

   a)three causes of action were pleaded against each of the respondents;

   b)the pleadings were lengthy and substantial;

   c)multiple issues of fact and law were involved;

   d)numerous documents had to be read and addressed;

   e)the matter was neither routine nor relatively simple;

   f)the matter was heard over eleven days; and

   g)the reasons for judgment were some one hundred and seventeen pages in length.

3. On 16 March 2015, Mr de Vries, the principal of the applicant (“Portland”) was ordered to provide security for the costs of the first respondent (“Mr Wulff”) in the amount of $40,000.  In the present costs application the respondents sought an order that, of whatever costs might be payable to them, Mr de Vries pay up to $40,000 personally.  I infer from the respondents’ submissions in chief that the proposal being made was that if the total costs payable to those parties exceeded $40,000 then Mr de Vries should pay them $40,000 but if the costs were less then he should pay that lesser amount.

Respondents’ evidence

1. Annexed to Mr McKewin’s affidavit were copies of offers of settlement which the respondents had made to Portland, namely:

   a)a Calderbank letter (see Calderbank v Calderbank [1976] Fam 93) dated 22 October 2015 offering to pay Portland $10,608.29, calculated as $25,000 net of unpaid invoices totalling $13,396.34 and $995.37 interest on those debts; and

   b)a Notice of offer to compromise dated 22 February 2016 offering to pay Portland $45,322.24, calculated as $60,000 net of unpaid invoices totalling $13,396.34 and $1,281.42 interest on those debts, less the respondents’ party and party costs.

2. Also annexed to Mr McKewin’s affidavit was a Notice of offer to compromise dated 18 December 2015, which stated that it was in fact a Calderbank offer, by which Portland offered to settle the proceeding for $210,000 plus costs.

3. Plainly, none of those offers was accepted.  Relevantly for present purposes, the respondents’ Calderbank letter lapsed on 28 October 2015 and their Notice of offer to compromise lapsed on 8 March 2016.  The respondents submitted that if the Court considered that Portland’s failure to accept either of its offers was unreasonable, then it should be ordered to pay their costs on an indemnity basis from, in very general terms, the time of the relevant offer.  They further submitted that the Court could infer from the terms of Portland’s offer of 18 December 2015, and the demeanour of Mr de Vries as a witness, that Portland would not have settled for anything less than a substantial payment to it and so it could be inferred that its failure to accept their offers was unreasonable.

Portland’s submissions

1. Portland did not put any argument that taxation according to the Federal Court scale would be inappropriate in this case.  It did, however, argue that Mr de Vries should not be called upon to make any payment towards Mr Wulff’s costs.

2. Portland in any event submitted that Mr Wulff was entitled to no costs on the basis that Mr Wulff had failed to prove that he had been the principal with whom Portland had dealt, the consequence of which was said to be that the question of the distribution agreement came to not be an issue between those two parties.  Portland argued that Mr Wulff had “lost on the issue that was central to his Defence” and that this should disentitle him to costs.  An alternative argument was that Mr Wulff should be awarded only half of his costs because his standing in the distribution arrangement had been a “dominant and separable part of the litigation [which] took up a large part of the oral and documentary evidence and submissions” and he had been unsuccessful in proving his allegations on that issue.

3. Portland argued that its implicit rejection of the offers which the respondents had made to it, by letting them lapse, had been reasonable, particularly as it had successfully opposed an application by the second respondent (“Unity”) for security for costs and had obtained an order for discovery which led to the amendments to the claim and the joinder of the third respondent (“Firtal Brands”).  It was strengthened in its resolve by Mr de Vries’s conviction that he had been unfairly treated.

4. Portland submitted that it had had a “rational basis for proceeding to trial based on the evidence led and discovered from the Second Respondent about it and the other two respondents”.  It argued that it had been entitled to pursue its case with “the vigour and determination that it did” and that in the circumstances it did not act unreasonably in rejecting the offers of settlement.

Respondents’ submissions in reply

1. In their submissions in reply, the respondents reformulated their claim against Mr de Vries, saying:

   At this point in time, where costs have not been assessed, all that can be made is a declaration that Mr De Vries has given the guarantee (as is acknowledged) and is liable under it for the first respondent’s costs as ultimately assessed up to a limit of $40,000 with liberty to apply if the costs are not paid, as against Mr De Vries.

2. As concerns Portland’s submissions concerning Mr Wulff, the respondents argued that:

   a)Portland had pleaded three causes of action against Mr  Wulff and all were unsuccessful;

   b)Mr Wulff had been a party to the proceeding before Firtal Brands was joined and had at that time been the only party against whom a distribution agreement had been alleged;

   c)the finding that there was no distribution agreement between Portland and Mr Wulff was a finding in the latter’s favour not the former’s; and

   d)there was no justification to reduce Mr Wulff’s costs on the question whether he had been the principal with whom Portland had dealt as that issue took up comparatively little time at the trial and was not central to the respondents’ success in the proceeding.

3. Ms Forward-Smith’s affidavit concerned the time it would take to prepare a bill of costs according to this Court’s scale. 

Discussion

Entitlement to costs and scale to be applied

1. Subject to the question of what costs Mr Wulff should receive, and to which I will return, there was no dispute between the parties that costs should follow the event.  Significantly, Portland did not argue that costs should not be taxed according to the Federal Court scale.  I also note that Portland did not suggest a reduction be applied to the scale to be applied.

2. In my view, Portland’s quiescence on the application of the Federal Court scale was appropriate. This was a large and difficult matter which, not taking into account interlocutory hearings, ran for over two hearing weeks in total. The event-based scale of costs prescribed by the Rules for proceedings in this Court is not apt for matters such as this one where the work involved in the case cannot be valued fairly by reference to the events which the scale prescribes or by reference to the values which the Rules place on those events.

3. The Rules provide that the prescribed scale applies unless it is otherwise ordered. For the reasons I have given, I do intend to order otherwise.

Counsel

1. Given the size and complexity of the matter, I certify that it was appropriate of the respondents to brief counsel.

Settlement offers

Calderbank letter of 22 October 2015

1. In deciding an appeal from this Court in Facton Ltd v Seo (2011) 91 IPR 135, Gordon J summarised the principles relevant to be applied when the Court is called upon to decide whether an order for indemnity costs should be made as a consequence of one party’s failure to accept an offer made in a Calderbank letter. Her Honour expressed those principles in the following terms:

   1.…  The court has a wide discretion in the award of costs.  It is, of course, a discretion which must be exercised judicially and in accordance with well established principles …;

   2.the usual course is to order costs on a party and party basis … ;

   3.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” …;

   4.… A Calderbank letter can be considered by the court in deciding whether to make an order displacing the usual costs order … ;

   5.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;

   6.if, however, the central requirements of a Calderbank letter (that it is clear, precise and certain …) are not met, it does not mean that the offer cannot be considered by the court in the exercise of its general costs discretion. Courts will be prepared to pay some regard to an offer of compromise which purports to be in accordance with the Rules but which for some reason is technically deficient if the terms of the offer are such as to leave the offeree in no reasonable doubt as to the nature and extent of what is being offered … The offer must be certain … It must be capable of acceptance which, if accepted, would have brought the dispute between the parties to an end … ; and

   7.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” … (at  146-147 [55]) (references omitted)

2. The Calderbank letter of 22 October 2015 was marked “Without Prejudice Save As To Costs” and expressed in the following terms:

   The respondents offer to settle these proceedings on the following basis:

   1.The respondents pay to the applicant the amount of $10,608.29 (“the Settlement Sum”) which is calculated as follows:

Lump Sum Amount	$25,000.00
less       Total of Unpaid Invoices	$13,396.34
less       Interest on Unpaid Invoices   (452 days @ 6%)	$995.37
$10,608.29

2.The respondents pay the Settlement Sum within seven (7) days of acceptance of this offer in writing into the trust account of Hunter Flood Lawyers (“the Payment”).

3.All existing and/or potential claims as between the applicant on the one hand and the respondents on the other hand are released upon the making of the Payment.

4.The parties will take all steps necessary for consent orders to be made for the dismissal of the applicant’s claim.

This offer will remain open for acceptance until 4pm on 28 October 2015.

1. Although the offer did not refer to costs, I infer from its terms that the amount offered included them.  Making an offer costs-inclusive runs the risk that it will not be considered a Calderbank offer because it may not be expressed clearly enough for the offeree to be able to place on it an accurate value net of costs:  Dr Martens Australia Pty Ltd v Figgins Holdings Pty Ltd (No.2) [2000] FCA 602 at [22]-[24]; Elite Protective Personnel Pty Ltd v Salmon [2007] NSWCA 322. However, Portland did not suggest that that offer lacked clarity, including as to its potential costs consequences, or was incapable of acceptance. I find therefore that the offer of 22 October 2015 was a Calderbank offer.

2. Turning to whether Portland’s failure to accept the offer was unreasonable, it is to be noted that it was made nearly a year after the proceeding had been commenced and after the, by that point three, respondents had filed a defence to Portland’s further amended application and further amended statement of claim.  In that period of nearly a year there had been three contested interlocutory applications as well as directions hearings, service of subpoenas, objections to subpoenas, amendments to pleadings and international service.  In those circumstances, the offer was not much more than an invitation to walk away from the proceeding while, I infer, bearing a proportion of the costs incurred in prosecuting the case to that point.  Further, when the offer was made the respondents had not yet filed their affidavits and so Portland could not perform a full assessment of whether it should settle or press on with the case.

3. In all those circumstances, I do not think it unreasonable of Portland to have found the offer unattractive, particularly as it was pitched so low, and to let it lapse.  No special costs order will follow from Portland’s failure to accept the offer of 22 October 2015.

Notice of offer to compromise of 22 February 2016

1. The offer to compromise of 22 February 2016 was in the following terms:

   1.The respondents pay to the applicant the amount of $45,322.24 (“the Settlement Sum”) which is calculated as follows:

Lump Sum Amount	$60,000.00
less       Total of Unpaid Invoices	$13,396.34
less       Interest on Unpaid Invoices   (567 days @ 6%)	$1,281.42
$45,322.24

2.The applicant pay the respondents costs of the proceedings as assessed on the standard basis.

3.The respondents pay the Settlement Sum within seven (7) days of acceptance of this offer in writing into the trust account of Hunter Flood Lawyers (“the Payment”).

4.All existing and/or potential claims as between the applicant on the one hand and the respondents on the other hand are released upon the making of the Payment.

5.The parties will take all steps necessary for consent orders to be made for the dismissal of the applicant’s claim.

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

7.This offer is made without prejudice save as to costs.

1. At all material times, pt.2 of sch.3 to the Rules applied rr.25.01 to 25.06, 25.10 to 25.12 and 25.14 of the Federal Court Rules 2011 to this matter and other general federal law matters pending in the Court as an optional means for quantifying costs entitlements.  At the time the Notice of offer to compromise was served, and presently, those rules relevantly provided:

   25.01 Offer to compromise

   (1)A party (the offeror) may make an offer to compromise by serving a notice, in accordance with Form 45, on another party (the offeree).

   (2)The notice must not be filed in the Court.

   …

   25.03 Offer to compromise—content

   (1)     The notice must state whether:

   (a)     the offer is inclusive of costs; or

   (b)     costs are in addition to the offer.

   (2)If the offer is of a sum of money, the notice may separately specify the amount that represents:

   (a)     the offer in respect to the claim; and

   (b)     interest (if any).

   …

   25.14 Costs where offer not accepted

   …

   (2)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.

   …

2. Notwithstanding the unusual costs agreement proposed, it was not suggested that the offer did not conform to the requirements of the relevant rules as to form and content.  Consequently, the question is again whether it was unreasonable of Portland to not accept the respondents’ offer.

3. As the reasons for judgment published on 11 September 2018 make clear, Portland’s case was not a strong one.  This should have been capable of being recognised at the time the Notice of offer of compromise was served.  However, the unusual nature of the offer, requiring Portland to pay the respondents’ costs rather than offering to pay Portland’s costs, meant that the offer’s monetary value was quite unclear.  It is significant that it has not been suggested that Portland had any particular insight into what the respondents’ costs might have amounted to, particularly as they were expressed to be sought “on the standard basis” which in the circumstances was an opaque description. 

1. A party receiving such an offer cannot know what is being offered and it is hardly unreasonable to refuse an offer whose monetary value is unclear.  In the circumstances, it was not unreasonable of Portland to not accept the offer.

Mr Wulff’s costs

1. I accept Portland’s submission that discrete areas of costs can be severed from the general costs of a proceeding and subject to individual determination.  However, I do not believe that such an approach is appropriate in the case of Mr Wulff’s costs.  I note in this regard the following passages from the reasons for decision of the New South Wales Court of Appeal in Sze Tu v Lowe (No.2) [2015] NSWCA 91 at [40]-[42]:

   In a proper case, the party that is successful overall may be deprived of part of its costs, or ordered to pay the costs of a discrete issue.  The circumstances in which this may occur are not limited to cases where it was unreasonable for the successful party to raise the issue on which it failed:  Rosniak v Government Insurance Office (1997) 41 NSWLR 608 at 615D. The relevant principles were reviewed by this Court in Elite Protective Service Pty Ltd v Salmon (No 2) [2007] NSWCA 373, and summarised in Bostik Australia Pty Ltd v Liddiard (No 2) [2009] NSWCA 304 at [38] (Beazley, Ipp and Basten JJA), as follows:

   •    Where there are multiple issues in a case the Court generally does not attempt to differentiate between the issues on which a party was successful and those on which it failed.  Unless a particular issue or group of issues is clearly dominant or separable it will ordinarily be appropriate to award the costs of the proceedings to the successful party without attempting to differentiate between those particular issues on which it was successful and those on which it failed:  Waters v P C Henderson (Aust) Pty Ltd (Court of Appeal, 6 July 1996, unreported).

   •    In relation to trials it has been said that it may be appropriate to deprive a successful party of costs or a portion of the costs if the matters upon which that party was unsuccessful took up a significant part of the trial, either by way of evidence or argument:  Sabah Yazgi v Permanent Custodians Limited (No 2) [2007] NSWCA 306 at [24]. A similar approach is adopted on appeal.

   •    If the appellant loses on a separate issue argued on the appeal which has increased the time taken in hearing the appeal, then a special order for costs may be appropriate which deprives the appellant of the costs of that issue:  Sydney City Council v Geftlick & Ors (No 2) [2006] NSWCA 374 at [27].

   •    Whether an order contrary to the general rule that costs follow the event should be made depends on the circumstances of the case viewed against the wide discretionary powers of the court, which powers should be liberally construed:  State of New South Wales v Stanley [2007] NSWCA 330 at [18] per Hislop J (with whom Beazley and Tobias JJA agreed).

   •    A separable issue can relate to “any disputed question of fact or law” before a court on which a party fails, notwithstanding that they are otherwise successful in terms of the ultimate outcome of the matter:  James v Surf Road Nominees Pty Ltd (No 2) [2005] NSWCA 296 at [34].

   •    Where there is a mixed outcome in proceedings, the question of apportionment is very much a matter of discretion and mathematical precision is illusory.  The exercise of the discretion depends upon matters of impression and evaluation:  James v Surf Road Nominees Pty Ltd (No 2), citing Dodds Family Investments Pty Ltd v Lane Industries Pty Ltd [1993] FCA 259; (1993) 26 IPR 261 at 272.

   In approaching the question of apportionment where there are multiple issues, it has also been recognised that there is a basis for distinguishing between the position of successful defendants and successful plaintiffs.  In Griffith at [19] Hodgson JA explained the distinction as follows:

   In the former case, the defendant has been caused to incur costs in defending a claim which the decision in the case has wholly rejected, and has thus determined should not have brought about the incurring of any costs at all.  In those circumstances, it may be considered appropriate that the defendant have costs associated with reasonable defences, even if they ultimately proved to be unsuccessful and severable.  In the latter case, the plaintiff has chosen to bring the whole proceedings and thereby to incur costs and cause costs to be incurred which otherwise would not have been incurred; and in those circumstances, it may be seen more readily as appropriate that the plaintiff be liable for the costs of unsuccessful severable claims or issues, even if it was reasonable to include those claims or issues.

   A similar view was expressed in Griffith by Basten JA at [38]-[39]. After referring, with apparent approval, to the statement of Burchett J in Australian Conservation Foundation v Forestry Commission (1988) 81 ALR 166 at 169 that:

   ... A party against whom an unsustainable claim is prosecuted is not to be forced, at his peril in respect of costs, to abandon every defence he is not sure of maintaining, and oppose to his adversary only the barrier of one hopeful argument:  he is entitled to raise his earthworks at every reasonable point along the path of assault.  At the same time, if he multiplies issues unreasonably he may suffer in costs.  Ultimately, the question is one of discretion and judgment.

   Basten JA said (at [39]):

   Even were it otherwise, caution should be taken in allowing an unsuccessful plaintiff to resist payment of costs in respect of particular independent defences which are unsuccessful or need not be addressed.

2. Portland was the applicant and Mr Wulff was entitled to defend himself by reasonable arguments.  The fact that I found against him on whether he was principal or agent, and disbelieved him on that question, does not necessarily lead to a finding that he should be deprived of his costs on that issue.  It has to be kept in mind that the matter which was relevantly in dispute was whether Portland had had a contract in the form of a distribution agreement with Mr Wulff or Firtal Brands or either of them.  The fact that Mr Wulff and Firtal Brands disagreed with Portland as to which of them was the principal and which the agent in their dealings with it, and failed to make out their contentions on that question, should not distract from the fact that Portland alleged that it had had a distribution agreement with one or other of them and failed to prove that it had had such an agreement with either of them.  The issue of principal and agent was no more than a subsidiary feature of the defence mounted to the broader case prosecuted by Portland on the contract question.  It was neither dominant nor conveniently separable from the other issues in the case and so should be considered to be part of the case as a whole.  A special costs order in relation to it would not be appropriate.

Mr de Vries

1. The order that Mr de Vries provide security for costs was satisfied, Portland submitted and the respondents did not contest, by a guarantee entered into by him.  Portland has been unsuccessful in the proceeding and it may happen that such costs as Mr Wulff is entitled to are not paid in full.  Mr de Vries should make up the difference, up to a total amount of $40,000 pursuant to the guarantee.

2. It is not appropriate to craft an order in this regard at this stage.  However, the parties will have liberty to apply in this connection.

Conclusion

1. The applicant is to pay the respondents’ costs taxed in accordance with the Federal Court scale on the party and party basis.  I do not understand it to be necessary to make a separate order in connection with disbursements, in particular travel costs, other than to confirm that it was appropriate that counsel be briefed.

2. In the event that Mr Wulff’s costs are not paid in full, the parties have liberty to apply in connection with the order for security for costs made on 16 March 2015.

I certify that the preceding thirty-five (35) paragraphs are a true copy of the reasons for judgment of Judge Cameron

Associate: 

Date:  12 November 2018