FEDERAL COURT OF AUSTRALIA Singtel Optus Pty Limited v Unwired Australia Pty Limited [2004] FCA 1646 COSTS – alleged misleading and deceptive conduct – proceedings settled on first day of hearing on a final basis – inter partes undertakings – correspondence between the parties from period before proceedings commenced and up to day before final hearing – whether unreasonable for applicant to have commenced or continued with proceedings – whether unreasonable for respondent to defend proceedings – respondent put applicant to unnecessary proof of factual issue in proceedings fixed for urgent final hearing Trade Practices Act 1974 (Cth) Anderson the Secretary of the Department of Veteran Affairs [2004] FCA 1594 cited Aussie Red Equipment Pty Ltd v Antsent Pty Ltd [2001] FCA 1641 referred to Australian Securities Commission v Aust-Home Investments Limited (1993) 44 FCR 194 cited SINGTEL OPTUS PTY LIMITED ACN 052 833 208 v UNWIRED AUSTRALIA PTY LIMITED ACN 094 107 589 NSD 1578 of 2004 MOORE J 16 DECEMBER 2004 SYDNEY IN THE FEDERAL COURT OF AUSTRALIA NEW SOUTH WALES DISTRICT REGISTRY NSD 1578 OF 2004 BETWEEN: SINGTEL OPTUS PTY LIMITED ACN 052 833 208 APPLICANT AND: UNWIRED AUSTRALIA PTY LIMITED ACN 094 107 589 RESPONDENT JUDGE: MOORE J DATE OF ORDER: 16 DECEMBER 2004 WHERE MADE: SYDNEY THE COURT ORDERS THAT: 1. The respondent pay the applicant its costs in relation to the preparation and filing of the affidavits of: (i) Carl Ruppin affirmed 17 November 2004 (ii) Andrew Brooks affirmed 19 November 2004 (iii) Mary-Anne Hancock affirmed 19 November 2004 (iv) Tracey Fawcett affirmed 19 November 2004 2. Otherwise there be no order as to costs. Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules. IN THE FEDERAL COURT OF AUSTRALIA NEW SOUTH WALES DISTRICT REGISTRY NSD 1578 OF 2004 BETWEEN: SINGTEL OPTUS PTY LIMITED ACN 052 833 208 APPLICANT AND: UNWIRED AUSTRALIA PTY LIMITED ACN 094 107 589 RESPONDENT JUDGE: MOORE J DATE: 16 DECEMBER 2004 PLACE: SYDNEY REASONS FOR JUDGMENT 1 This judgment concerns the costs in proceedings commenced by Singtel Optus Pty Limited ("Singtel Optus") against Unwired Australia Pty Limited ("Unwired") alleging Unwired engaged in misleading and deceptive conduct having regard to the way it advertised and promoted the price and coverage of its broadband internet services. The matter was listed for hearing on a final basis on 25 and 26 November 2004. On the first day of the hearing, the matter settled (save as to costs) on the basis that the parties invited the Court to note an undertaking between the parties concerning the substantive issues raised in the application. Singtel Optus was given leave to discontinue the proceedings. A copy of the undertaking is annexed to this judgment. 2 In order to deal with the costs issue, it is necessary to briefly refer to events leading to the commencement of the proceedings and the course they have taken. The application was filed on 1 November 2004. However the parties had corresponded since 27 August 2004, about the way Unwired was advertising and promoting its broadband internet services. On 27 August 2004 Singtel Optus wrote to Unwired complaining about its print and television advertisements. In that letter, Singtel Optus alleged Unwired was engaging in conduct in contravention of the Trade Practices Act 1974 (Cth). The essence of the complaint was that the advertisements did not reveal all costs associated with subscribing to and using Unwired's broadband internet services and the advertisements were misleading in relation to the coverage of the service. Singtel Optus sought undertakings. Unwired responded by indicating it did not agree it was contravening the legislation. Further correspondence followed during September and October 2004 with Singtel Optus (or its solicitors) continuing to allege contravening conduct and seeking undertakings. Unwired continued to deny any contravening conduct. 3 After the application was filed, the matter came before Madgwick J as duty judge for urgent interlocutory relief. Counsel for Unwired indicated its advertising was changing and Madgwick J appeared to suggest the matter should be settled. On 5 November 2004, Unwired's solicitors sent what was described as a Calderbank letter to Singtel Optus' solicitors. The letter offered an undertaking inter partes in relation to "newly created" advertisements after 8 November 2004 and on the basis that the undertaking would be confidential and the proceedings would be dismissed. There was further correspondence between the parties that day (and a second settlement offer was made by Unwired) and during the period prior to 25 November 2004, the day the matter was listed for hearing. Offers and counteroffers of settlement where put and rejected. The final hearing date was fixed on 9 November 2004 during the hearing of an application for interlocutory relief. That application for interlocutory relief was not pursued because the matter could be listed on an early final basis. 4 There are many cases concerning the principles to be applied when cases are settled but costs not agreed. For convenience only, I refer to the summary of those principles I undertook in Aussie Red Equipment Pty Ltd v Antsent Pty Ltd [2001] FCA 1641. At [11] and following, I noted that: Section 43 of the Federal Court of Australia Act 1976 (Cth) confers on the Court a broad discretionary power to order that a party pay the costs of another party, though the power must be exercised judicially. In matters such as this one, where the substantive issues raised by the proceedings have been resolved without a hearing on the merits, it will rarely be appropriate for a Court to determine the merits of the dispute solely for the purpose of deciding any outstanding issue of costs, (see: Australian Securities Commission v Aust-Home Investments Limited (1993) 44 FCR 194). In that matter, after a review of the relevant authorities, Hill J identified five propositions emerging from the case law. Only the first four propositions are presently relevant, they are as follows: "(1) Where neither party desires to proceed with litigation the court should be ready to facilitate the conclusion of the proceedings by making a cost order: Stratford and the SEQEB case. (2) It will rarely, if ever, be appropriate, where there has been no trial on the merits, for a court determining how the costs of the proceedings should be borne to endeavour to determine for itself the case on the merits or, as it might be put, to determine the outcome of a hypothetical trial: Stratford. This will particularly be the case where a trial on the merits would involve complex factual matters where credit could be an issue. (3) In determining the question of costs it would be appropriate, however, for the Court to determine whether the applicant acted reasonably in commencing the proceedings and whether the respondent acted reasonably in defending them (SEQEB). (4) In a particular case it might be appropriate for the Court in its discretion to consider the conduct of a respondent prior to the commencement of the proceedings where such conduct may have precipitated the litigation: cf Sunday Times Newspaper Co Ltd v McIntosh (1933) 33 SR (NSW) 371. … These propositions, as Cooper J commented in Australian Securities Commission v Berona Investments Pty Ltd (1995) 18 ACSR 772 at 774, represent a guide rather than an exhaustive list of the matters which may be taken into consideration in the exercise of the discretion to order costs under s 43. More recently, in Re the Minister for Immigration and Ethnic Affairs of the Commonwealth of Australia; Ex parte Lai Qin (1997) 186 CLR 622, McHugh J made the following comments about the discretion to order costs in matters resolved without a hearing on the merits: "In most jurisdictions today, the power to order costs is a discretionary power. Ordinarily, the power is exercised after a hearing on the merits and as a general rule the successful party is entitled to his or her costs. Success in the action or on particular issues is the fact that usually controls the exercise of the discretion. A successful party is prima facie entitled to a costs order. When there has been no hearing on the merits, however, a court is necessarily deprived of the factor that usually determines whether or how it will make a costs order. In an appropriate case, a court will make an order for costs even when there has been no hearing on the merits and the moving party no longer wishes to proceed with the action. The court cannot try a hypothetical action between the parties. To do so would burden the parties with the costs of a litigated action which by settlement or extra-curial action they had avoided. In some cases, however, the court may be able to conclude that one of the parties has acted so unreasonably that the other party should obtain the costs of the action. … Moreover, in some cases a judge may feel confident that, although both parties have acted reasonably, one party was almost certain to have succeeded if the matter had been fully tried. This is perhaps the best explanation of the unreported decision of Pincus J in The South East Queensland Electricity Board v Australian Telecommunications Commission where his Honour ordered the respondent to pay 80 per cent of the applicant's taxed costs even though his Honour found that both parties had acted reasonably in respect of the litigation. But such cases are likely to be rare. If it appears that both parties have acted reasonably in commencing and defending the proceedings and the conduct of the parties continued to be reasonable until the litigation was settled or its further prosecution became futile, the proper exercise of the cost discretion will usually mean that the court will make no order as to the cost of the proceedings. This approach has been adopted in a large number of cases." A survey of cases where these broad principles have been applied reveals that, although the particular facts and circumstances of each case are of paramount importance, frequently the determining factor is the reasonableness of the parties' conduct, (see for example Gribbles Pathology Pty Ltd v Health Insurance Commission (1997) 80 FCR 284, Reddy v Hughes (1996) 37 IPR 413 and Emerald Properties Pty Ltd v Chan Unreported, Heerey J, 15 December 1993). Another important consideration will often be the circumstances under which the substantive issues in the proceedings were resolved. In ONE.TEL Ltd v Deputy Commissioner of Taxation [2000] FCA 270, Burchett J made the following observations: "In my opinion, it is important to draw a distinction between cases in which one party, after litigating for some time, effectively surrenders to the other, and cases where some supervening event or settlement so removes or modifies the subject of the dispute that, although it could not be said that one side has simply won, no issue remains between the parties except that of costs. In the former type of case, there will commonly be lacking any basis for an exercise of the Court's discretion otherwise than by an award of costs to the successful party. It is the latter type of case which more often creates problems, since there may be difficulty in discerning a clear reason why one party, rather than the other, should bear the costs." 5 In this matter both Singtel Optus and Unwired assert the other party should pay its costs. Counsel for Singtel Optus submitted it was entitled to its costs on the basis it was unreasonable for Unwired to resist the application. Counsel for Unwired submitted it was entitled to its costs on the basis it was unreasonable for Singtel Optus to institute and prosecute the application. 6 Having regard to my first impressions of the advertisements and promotional material of Unwired about which complaint was made together with the dogged response of Unwired before the proceedings were commenced, Singtel Optus plainly acted reasonably in commencing them. The offers of settlement of Unwired of 5 November 2004 went at least a material way towards satisfying the complaints of Singtel Optus. However it appears to me that in the absence of agreement, Singtel Optus acted reasonably in prosecuting the proceedings and Unwired acted reasonably in continuing to defend them. The final settlement did not reflect offers each party was putting to the other before 25 November 2004. 7 Counsel for Unwired submitted that Singtel Optus acted unreasonably having regard to the offer of 5 November 2004 and the ultimate terms of the undertaking which settled the matter. Counsel for Unwired submitted that while the offer and the undertaking were not in identical terms (and the former did not deal with a $6 delivery charge) the undertaking was not, as a matter of substance, significantly better than what was offered on 5 November 2004. Several points can be made. The first is that the authorities to which I was referred by counsel for Unwired referred to the unreasonable commencement of proceedings: see proposition (3) of Hill J in Australian Securities Commission v Aust-Home Investments Limited (1993) 44 FCR 194, and not their prosecution. However, even accepting that the unreasonable prosecution of proceedings may be a relevant consideration (given the unconfined nature of the discretionary power), what I am really being invited to assess is the reasonableness or otherwise of Singtel Optus refusing an offer of settlement. That invitation comes perilously close to an invitation to enter the merits of the litigation. 8 It is true a comparison can be made between the offers of 5 November 2004 and the terms of settlement ultimately agreed. However, this raises the issue of how should I evaluate the significance of the points of difference. For example, Unwired's offer was that any agreement involving an undertaking be confidential whereas Singtel Optus did not then want any undertaking to be confidential and the final undertaking settling the matter was not. Each position may have been, as at 5 November 2004, significant to the parties for different, and possibly conflicting, commercial reasons. However, this may be a matter of limited relevance given that the legal underpinning of the litigation was the enforcement a legislative norm of conduct and not the vindication of a right or interest for the commercial benefit of Singtel Optus. A further example concerns the limitation advanced by Unwired that the undertaking would operate, in material respects, in relation to "new advertising material" and then only for a period of six months. Was this, having regard to the complaints being made by Singtel Optus, a reasonable limitation or an unreasonable one? It is not a limitation appearing in the final undertaking settling the matter. 9 There may be cases where it is clear that an offer of settlement (of a non pecuniary kind) should have been accepted but was not. It may follow that the refusal to accept it bears upon how the costs should lie. But this is not a case, in my opinion, where it is clear the offer should have been accepted. Accordingly I reject the submission of counsel for Unwired that Singtel Optus acted unreasonably in prosecuting the proceedings after 5 November 2004. I also do not accept the submission made by counsel for Unwired to the effect that the changes made to its advertising campaign reflected a natural evolution in marketing strategy. The evidence did not support that inference and, were it necessary, an inference that the changes were responsive to the threat of litigation and litigation might, in my opinion, comfortably be drawn (though counsel for Singtel Optus did not, as I understood the submissions, invite the drawing of such an inference). 10 This is one of those cases in which settlement was reached where each party should bear their own costs. Another recent example is Anderson the Secretary of the Department of Veteran Affairs [2004] FCA 1594. This is the tentative conclusion I expressed at the hearing on the 25 November 2004, though I then added that I was inclined to order Unwired to pay the costs of Singtel Optus associated with the preparation and filing of four affidavits intended to prove the publication of the advertisements and promotional material by Unwired. I expressed the tentative view about the affidavits because I was then under the impression that Unwired had put Singtel Optus to unnecessary proof of a factual issue in proceedings fixed for urgent final hearing. I then thought the focus of the parties should, in such circumstances, be on what was truly in issue and not on false issues. The underlying rationale for those thoughts was that the costs of adversarial litigation can be enormous and legal advisers have a role to play in containing them. 11 Both parties have filed written submissions since 25 November 2004 concerning any costs order concerning the affidavits. Both parties have also indicated they do ask for written reasons about any conclusion I may finally reach. I have read those written submissions. In my opinion, Unwired should pay the costs associated with the preparation and filing of the four affidavits. I certify that the preceding eleven (11) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Moore. Associate: Dated: 16 December 2004 Counsel for the Applicant: T F Bathurst QC with K Richardson Solicitor for the Applicant: Minter Ellison Counsel for the Respondent: J B Simpkins SC with M J Cohen Solicitor for the Respondent: Watson Magioni Date of Hearing: 25 November 2004 Date of Judgment: 16 December 2004 Annexure 1 SINGTEL OPTUS P/L V. UNWIRED AUSTRALIA P/L (No NSD1578/2004) INTER PARTES UNDERTAKING Without any admission as to liability, the Respondent undertakes to the Applicant that its Marketing Campaign (as described in paragraph 8 of the Affidavit of Jacqueline Linda Seears sworn 17 November 2004 and filed herein - the "Seears Affidavit"),and any further campaign using any Billboard print letter, television and radio advertisement the same as or similar to the Marketing Campaign, has or will incorporate the changes described in paragraph 10 of the Seears Affidavit by the dates referred to in paragraphs 11 and 12 of such affidavit (subject to subparagraph (c)) and the Respondent further undertakes to the Applicant that:­ (a) the wording referred to on paragraph 10 (2) of the Seears Affidavit (relating to Billboards) will be easily recognizable and in any event no smaller than the identification of the Respondent's website address and either adjacent to or immediately above such identification; (b) any statement made in the Marketing Campaign about portability or the use of the service away from a mains power source will, when combined with a statement about price, include a reference to the cost of any battery for the modem; (c) the use by the Respondent of the form of the television advertisements referred to in paragraph 8 (1) of the Seears affidavit will cease in accordance with the Respondent's current Marketing Campaign and not be re-used by the Respondent on or after 6 December 2004.