Verrocchi v Direct Chemist Outlet Pty Ltd (No 2)

[2016] FCAFC 162

FEDERAL COURT OF AUSTRALIA

Verrocchi v Direct Chemist Outlet Pty Ltd (No 2) [2016] FCAFC 162

Appeal from:

Verrocchi v Direct Chemist Outlet Pty Ltd [2015] FCA 234; (2015) 112 IPR 200

File number:

VID 211 of 2015

Judges:

NICHOLAS, MURPHY AND BEACH JJ

Date of judgment:

29 November 2016

Catchwords:

COSTS – application for indemnity costs – offer of compromise made under r 25.01 of the Federal Court Rules 2011 (Cth) – “walk away” offers – whether offer was a genuine offer of compromise – whether rejection of offer was unreasonable

Legislation:

Federal Court Rules 2011 (Cth) rr 25.01, 25.14(1), 25.14(2)

Cases cited:

Austin Nichols & Co Inc v Lodestar Anstalt (No 2) (2012) 202 FCR 506

Barnes v Forty Two International Pty Limited (No 2) [2015] FCAFC 19

Date of hearing:

Determined on the papers

Registry:

Victoria

Division:

General Division

National Practice Area:

Commercial and Corporations

Sub-area:

Regulator and Consumer Protection

Category:

Catchwords

Number of paragraphs:

16

Counsel for the Appellants:

Mr C D Golvan QC with Mr T D Cordiner

Solicitor for the Appellants:

Rotstein Commercial Lawyers

Counsel for the Respondents:

Mr G S Clarke QC with Mr I P Horak

Solicitor for the Respondents:

Harwood Andrews

ORDERS

VID 211 of 2015

BETWEEN:

MARIO VERROCCHI

First Appellant

JACK GANCE

Second Appellant

AND:

DIRECT CHEMIST OUTLET PTY LTD (ACN 123 831 210)

First Respondent

IAN TAUMAN

Second Respondent

JUDGES:	NICHOLAS, MURPHY AND BEACH JJ
DATE OF ORDER:	29 NOVEMBER 2016

THE COURT ORDERS THAT:

1.The respondents’ application for indemnity costs be dismissed.

2.The parties bear their own costs of and incidental to such an application.

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

REASONS FOR JUDGMENT

THE COURT:

1. The Court in its judgment in this matter (Verrocchi v Direct Chemist Outlet Pty Ltd [2016] FCAFC 104) ordered that the appeal be dismissed with the appellants to pay the respondents’ costs of and incidental to the appeal on a party/party basis.

2. The respondents now seek an order that the appellants pay the costs of the appeal from 12 June 2015 on an indemnity basis. The respondents’ claim for indemnity costs is made under rr 25.14(1) or 25.14(2) of the Federal Court Rules 2011 (Cth) (the Rules) which provide:

   (1)If an offer is made by a respondent and not accepted by an applicant, and the applicant obtains a judgment that is less favourable than the terms of the offer:

   (a)the applicant is not entitled to any costs after 11.00 am on the second business day after the offer was served; and

   (b)the respondent is entitled to an order that the applicant pay the respondent's costs after that time on an indemnity basis.

   (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.

3. The respondents served on the appellants a notice of an offer of compromise on 11 June 2015 made under r 25.01(1) of the Rules (the Offer). The Offer provided that the appeal be discontinued and that the parties bear their own costs of the appeal. The respondents assert that pursuant to r 25.14(1) they are entitled to indemnity costs from 12 June 2015 on the basis that the appellants have obtained a judgment that is less favourable than the Offer. The Offer provided that the parties would bear their own costs, but as a consequence of the Court’s judgment, the appellants were ordered to pay the costs of the appeal on a party/party basis. Further, given that the appeal was dismissed, the respondents have also claimed indemnity costs from 12 June 2015 pursuant to r 25.14(2) on the basis that the appellants unreasonably rejected the Offer.

4. Contrastingly, the appellants have contended that the respondents are not entitled to indemnity costs as the Offer was not a genuine offer of compromise for the purposes of rr 25.14(1) and 25.14(2). Further, the appellants contend that even if the Offer was a genuine offer of compromise, the appellants’ failure to accept the Offer was not unreasonable for the purposes of r 25.14(2).

   Whether the Offer was a genuine offer of compromise

5. The respondents submit that the Offer was a genuine compromise because it offered that the parties bear their own costs of the appeal.  They contend that whilst the Offer could be described as a “walk away” offer, it could be seen as a genuine compromise (Austin Nichols & Co Inc v Lodestar Anstalt (No 2) (2012) 202 FCR 506 at [24] per Jacobson, Yates and Katzmann JJ).

6. In our view, the Offer was not a genuine offer of compromise in the sense that there was no real and genuine element of compromise.

7. First, the Offer proposed the abandonment of the appeal, but with no compromise of substance in relation to matters being agitated in the appeal.

8. Second, a “walk away” offer with each party bearing their own costs may be a genuine offer of compromise where there is a substantial element of compromise in forgoing a potential entitlement to recover substantial costs that had been incurred by the offeror to the date of the relevant offer (Barnes v Forty Two International Pty Limited (No 2) [2015] FCAFC 19 at [18] per Siopis, Flick and Beach JJ). But in the present case, the respondents do not appear to have expended any substantial legal costs by the time the Offer was made. It was made before the respondents took any steps in relation to the appeal save for the filing of an address for service. This case is dissimilar to Barnes where the various offers of compromise were made close to trial, when significant costs had already been incurred by the offeror.  Further, this case is distinguishable from Lodestar Anstalt where the Court inferred that the costs incurred by the offeror had been substantial by the time the offer was made (at [24]).

   Whether the failure to accept the Offer was unreasonable

9. The respondents submit that it was unreasonable for the appellants to have rejected the Offer.  We reject this submission.

10. First, the respondents submit that the appeal was, in essence, an attempt to re-run the case below.  It is said that the appellants apparently did not have a point of principle to advance and sought to challenge the trial judge’s conclusions without showing any error of law or fact.  But we agree with the appellants that it was not necessary for them to identify an error of law in the primary judge’s reasoning as a justification for rejecting the Offer.  Further, the appellants submit that as the Offer was a “walk away” offer, in essence the Court must find that the appeal was untenable or vexatious in order to determine that it was unreasonable for the appellants to have rejected the Offer.  That is correct.  We agree with the appellants that it could not be so described.

11. Second and relatedly, we agree with the appellants that it was not unreasonable for them to seek to have the trial judgment tested on appeal, given that it was based on an impressionistic evaluation of the facts which were open to reconsideration.

12. Third, the respondents submit that the Offer was made after receipt of the notice of appeal on 21 April 2015, and that as the “factual and legal matrix … was set”, the appellants should have known that the appeal was likely to fail.  We disagree.

13. Fourth, the respondents submit that the Offer was open for a period of 14 days, and was made several months before the appeal was set for hearing.  It is said that this gave the appellants a reasonable opportunity to reassess their prospects of success on appeal.  But we agree with the appellants that nothing in the Offer indicated why they should re-assess the prospects of their appeal differently and nothing else had changed since the filing of the notice of appeal.

14. Fifth, as we have already said, the Offer contained no genuine element of compromise.

15. In summary, the refusal of the Offer was not unreasonable for the purposes of r 25.14(2). Moreover, if it is necessary to say so, even if r 25.14(1) had been triggered, we would have exercised our power not to award indemnity costs for all of the above reasons even though r 25.14(1) (unlike r 25.14(2)) does not address the reasonableness question in terms.

    Conclusion

16. We refuse the application for indemnity costs.  As to the costs of this application, they should lie where they fall.

I certify that the preceding sixteen (16) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justices Nicholas, Murphy and Beach.

Associate:

Dated:        29 November 2016