FEDERAL COURT OF AUSTRALIA Seven Network Limited v News Limited [2007] FCA 1489 COSTS – Application for costs on an indemnity basis – applicants reject a joint offer of compromise pursuant to FCR, O 23 – applicants fail entirely – whether rejection of offer imprudent or unreasonable Broadcasting Services Act 1992 (Cth) Federal Court of Australia Act 1976 (Cth) s 43 Trade Practices Act 1974 (Cth) ss 45, 46 Federal Court Rules O 23 rr 3, 5, 8, 11; O 15A r 6; O 52 r 15(1)(a)(iii); O 62 rr 4, 12, 19 Uniform Civil Procedure Rules 2005 r 42.15A Uniform Civil Procedure Rules (Amendment No 11) 2006, No 716 (NSW) Black v Lipovac (1998) 217 ALR 386 Coshott v Learoyd [1999] FCA 276 Dukemaster Pty Ltd v Bluehive Pty Ltd [2003] FCAFC 1 Equity 8 Pty Ltd v Shaw Stockbroking Ltd [2007] NSWSC 503 Flemington Properties Pty Ltd v Raine & Horne Commercial Pty Ltd [1998] FCA 53 Fountain Selected Meats (Sales) Pty Ltd v International Produce Merchants Pty Ltd (1988) 81 ALR 397 Gretton v Commonwealth [2007] NSWSC 149 Hughes v Western Australian Cricket Association (Inc) [1986] ATPR 40-748 Jones v Bradley (No 2) [2003] NSWCA 258 Multicon Engineering Pty Ltd v Federal Airports Corporation (1996) 138 ALR 425 Port Kembla Coal Terminal Ltd v Braverus Maritime Inc (No 2) (2004) 212 ALR 281 Re J-Corp Pty Ltd and Australian Building Labourers Federated Union of Workers – Western Australian Branch (unreported, 19 February 1993, French J) Re Wilcox; Ex parte Venture Industries Pty Ltd (1996) 141 ALR 727 Seven Network Ltd v News Ltd [2007] FCA 1062 Yates Property Corporation Pty Ltd v Boland (No 2) (1997) 147 ALR 685 SEVEN NETWORK LIMITED v NEWS LIMITED NSD 1223 OF 2002 SACKVILLE J 26 September 2007 SYDNEY IN THE FEDERAL COURT OF AUSTRALIA NEW SOUTH WALES DISTRICT REGISTRY NSD 1223 OF 2002 BETWEEN: SEVEN NETWORK LIMITED FIRST APPLICANT C7 PTY LIMITED SECOND APPLICANT AND: NEWS LIMITED FIRST RESPONDENT SKY CABLE PTY LIMITED SECOND RESPONDENT TELSTRA MEDIA PTY LIMITED THIRD RESPONDENT FOXTEL MANAGEMENT PTY LIMITED FOURTH RESPONDENT TELSTRA CORPORATION LIMITED FIFTH RESPONDENT TELSTRA MULTIMEDIA PTY LIMITED SIXTH RESPONDENT PUBLISHING AND BROADCASTING LIMITED SEVENTH RESPONDENT NINE NETWORK AUSTRALIA PTY LIMITED EIGHTH RESPONDENT PREMIER MEDIA GROUP PTY LIMITED NINTH RESPONDENT AUSTRALIAN RUGBY FOOTBALL LEAGUE LIMITED TWELFTH RESPONDENT NATIONAL RUGBY LEAGUE INVESTMENTS PTY LIMITED THIRTEENTH RESPONDENT NATIONAL RUGBY LEAGUE LIMITED FOURTEENTH RESPONDENT FOXTEL CABLE TELEVISION PTY LIMITED FIFTEENTH RESPONDENT OPTUS VISION PTY LIMITED SIXTEENTH RESPONDENT AUSTAR UNITED COMMUNICATIONS LIMITED SEVENTEENTH RESPONDENT AUSTAR ENTERTAINMENT PTY LIMITED EIGHTEENTH RESPONDENT IAN HUNTLY PHILIP NINETEENTH RESPONDENT NEWS PAY TV PTY LIMITED TWENTIETH RESPONDENT PBL PAY TV PTY LIMITED TWENTY-FIRST RESPONDENT SINGTEL OPTUS PTY LIMITED TWENTY-SECOND RESPONDENT OPTUS VISION PTY LTD FIRST CROSS-CLAIMANT SINGTEL OPTUS PTY LIMITED SECOND CROSS-CLAIMANT SEVEN NETWORK LIMITED FIRST CROSS-RESPONDENT C7 PTY LIMITED SECOND-CROSS-RESPONDENT JUDGE: SACKVILLE J DATE OF ORDER: 26 SEPTEMBER 2007 WHERE MADE: SYDNEY THE COURT ORDERS THAT: 1. The application of the Costs Respondents (the PBL, Telstra and Optus parties) for an order that the applicants pay the costs of the proceedings incurred after 16 August 2005 on an indemnity basis, be dismissed. 2. The applicants file and serve any lay and expert evidence in answer to the expert reports and lay evidence served by the Costs Respondents in relation to the foreshadowed applications by the Costs Respondents for a gross sum order for costs ('the gross sum applications'), including evidence addressing questions of quantum and evidence addressing whether a gross sum order ought to be made, on or before 8 October 2007. 3. The experts retained by the parties on the gross sum applications attend a preliminary meeting with a Registrar of the Court (experienced in taxation) to determine the extent of any common ground on issues the subject of the experts' reports, on or before 15 October 2007. 4. The matter be listed for directions on 16 October 2007. 5. The matter be tentatively listed for further hearing on 19 October 2007. 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 1223 OF 2002 BETWEEN: SEVEN NETWORK LIMITED FIRST APPLICANT C7 PTY LIMITED SECOND APPLICANT AND: NEWS LIMITED FIRST RESPONDENT SKY CABLE PTY LIMITED SECOND RESPONDENT TELSTRA MEDIA PTY LIMITED THIRD RESPONDENT FOXTEL MANAGEMENT PTY LIMITED FOURTH RESPONDENT TELSTRA CORPORATION LIMITED FIFTH RESPONDENT TELSTRA MULTIMEDIA PTY LIMITED SIXTH RESPONDENT PUBLISHING AND BROADCASTING LIMITED SEVENTH RESPONDENT NINE NETWORK AUSTRALIA PTY LIMITED EIGHTH RESPONDENT PREMIER MEDIA GROUP PTY LIMITED NINTH RESPONDENT AUSTRALIAN RUGBY FOOTBALL LEAGUE LIMITED TWELFTH RESPONDENT NATIONAL RUGBY LEAGUE INVESTMENTS PTY LIMITED THIRTEENTH RESPONDENT NATIONAL RUGBY LEAGUE LIMITED FOURTEENTH RESPONDENT FOXTEL CABLE TELEVISION PTY LIMITED FIFTEENTH RESPONDENT OPTUS VISION PTY LIMITED SIXTEENTH RESPONDENT AUSTAR UNITED COMMUNICATIONS LIMITED SEVENTEENTH RESPONDENT AUSTAR ENTERTAINMENT PTY LIMITED EIGHTEENTH RESPONDENT IAN HUNTLY PHILIP NINETEENTH RESPONDENT NEWS PAY TV PTY LIMITED TWENTIETH RESPONDENT PBL PAY TV PTY LIMITED TWENTY-FIRST RESPONDENT SINGTEL OPTUS PTY LIMITED TWENTY-SECOND RESPONDENT OPTUS VISION PTY LTD FIRST CROSS-CLAIMANT SINGTEL OPTUS PTY LIMITED SECOND CROSS-CLAIMANT SEVEN NETWORK LIMITED FIRST CROSS-RESPONDENT C7 PTY LIMITED SECOND CROSS-RESPONDENT JUDGE: SACKVILLE J DATE: 26 September 2007 PLACE: SYDNEY REASONS FOR JUDGMENT INTRODUCTION 1 On 27 July 2007, I delivered judgment in these proceedings after a trial lasting 120 hearing days: Seven Network Ltd v News Ltd [2007] FCA 1062 ('Principal Judgment'). The present judgment deals primarily with the question of indemnity costs, but also records certain final orders that I have made in the proceedings. It should be read in conjunction with the Principal Judgment. 2 I use the same abbreviations in this judgment as in the Principal Judgment (see Annexure B to the Principal Judgment). It should be noted that the expression 'respondents' refers to all 22 respondents joined in the proceedings, while the term 'Respondents' refers to the respondents other than Ten and the AFL (against whom Seven discontinued the proceedings during the trial). I use the expression 'Costs Respondents' to refer to the PBL, Telstra and Optus parties, since they are the only respondents who have not resolved their claims for costs orders against Seven. Remaining Questions 3 The Principal Judgment gives my reasons for dismissing the claims made by Seven against the Respondents (the News, Foxtel, Fox Sports, PBL, Telstra and Optus parties, together with Mr Philip, ARL, NRL and Austar). I stated in the Principal Judgment ([177]) that, in due course, I would make orders dismissing Seven's claims for relief. 4 There was only one Cross-Claim filed in the proceedings, in which Optus sought various forms of relief against Seven. In Chapter 20 of the Principal Judgment, I found in favour of Optus in respect of some (but not all) of its claims for relief. I directed Optus to bring in short minutes of order disposing of the Cross-Claim. 5 The directions made on 27 July 2007 provided a timetable for the filing of evidence and written submissions concerning the orders to be made in respect of the very substantial costs of the proceedings. 6 I also gave the parties an opportunity to make brief submissions as to whether I should address any issues relating to relief, including the assessment of damages. No such issues arise on the conclusions I have reached, but they could arise if an appeal is successful. As I explained in the Principal Judgment ([56], [178]), the only reason for providing this opportunity was to facilitate the appellate process. In particular, the opportunity was provided to the parties in order to minimise the inconvenience that might otherwise flow from a successful appeal. 7 In the event, none of the parties has asked me to make any findings relating to the relief to which Seven might be entitled should it succeed on appeal. Accordingly, I do not propose to make any such findings, although it is necessary to say something about Seven's claims for damages in the context of the Costs Respondents' application for indemnity costs. Costs Incurred by the Parties 8 Until the Respondents filed written submissions as to costs and the evidence supporting their submissions, I could only estimate the total costs incurred by the parties to this litigation. In the Principal Judgment I said this ([17]): 'The evidence does not quantify the costs incurred thus far by the parties to the proceedings. However, in his oral submissions, Mr Meagher SC (for the PBL parties) suggested that Seven has spent in the order of $100 million on this litigation up to date. This estimate accords more or less with my own. If the other parties together have incurred similar expense, which I think is likely, the litigation has cost the parties collectively a staggering sum, amounting to nearly $200 million'. 9 The evidence still does not establish the total amount of costs incurred by Seven in conducting the litigation. One of the Respondents invited Seven, in the context of the current dispute as to indemnity costs, to put on evidence quantifying the total costs it incurred in the proceedings. Seven declined the invitation. I make no criticism of Seven for taking this course, but the absence of evidence means that the amount of costs Seven has incurred in conducting the litigation must remain an estimate. However, I have not seen any material that casts doubt on the accuracy of Mr Meagher's estimate of $100 million, which I adopted in the Principal Judgment. On the contrary, such evidence as there is suggests that the estimate was broadly accurate. For example, Seven's financial statements for the year ended 30 June 2005 (that is, the last complete financial year before the commencement of the trial) report that Seven incurred costs of $27 million during that year in connection with the proceedings. 10 The Respondents' written submissions on costs, with one exception, record what each says is the total amount of costs it incurred in the litigation. I cannot be sure whether the amounts recorded in the submissions are accurate. I do not know, for example, whether Seven would have wished to challenge the figure recorded by News in its written submissions (Seven and News having compromised News' costs claim). Be that as it may, the figures in the written submissions are said to be supported by billing records, accounts and the like. 11 The total costs incurred by the Respondents, as recorded in their respective written submissions, are as follows: $ News Parties 40,424,654 Telstra Parties 20,714,476(1) PBL Parties 21,500,000(2) Optus Parties 9,243,819 ARL 2,678,480_ 94,561,429(3) Notes (1) This figure is derived from an exhibit to an affidavit filed by Telstra and is more precise than the rounded figure of $20.5 million given in Telstra's written submissions. (2) This is a rounded figure given in PBL's written submissions. (3) The amounts recorded in the written submissions include solicitors' professional costs, counsel's fees, expert witness' fees, disbursements and the like. 12 The total of $94.5 million derived from the Respondents' written submissions does not cover all the costs incurred by the respondents in or in connection with the proceedings. In particular, that sum does not include the following costs: · NRL's costs, which are not quantified in its written submissions; · the costs incurred by the AFL and Ten, neither of whom filed written submissions on costs (presumably because they had already reached agreement with Seven); · certain costs incurred by Respondents, but which they apparently cannot now recover against Seven by reason of previous orders of the Court; and · costs incurred by the Respondents after delivery of the Principal Judgment. 13 The estimate in the Principal Judgment that the respondents had incurred costs of about $100 million in the proceedings therefore appears to be well-founded. An estimate of the total costs relating to the proceedings should also take into account costs incurred by certain Respondents in the preliminary discovery proceedings brought by Seven pursuant to Federal Court Rules ('FCR'), O 15A r 6 (see Principal Judgment, at [7]). While the preliminary discovery proceedings preceded the current proceedings and technically constituted a separate matter, they were inextricably interwoven with this litigation. THE COSTS RESPONDENTS' CLAIMS 14 The Costs Respondents each filed written submissions and evidence on the question of costs. The substance of their contentions, with exceptions that are presently immaterial, is that Seven should be ordered to pay the costs of each Costs Respondent: (i) incurred up to and including 16 August 2005, on a party and party basis; and (ii) incurred after 16 August 2005, on an indemnity basis. 15 The significance of 16 August 2005 is that on that date all 22 respondents (including the AFL and Ten, with whom Seven subsequently settled its claims) made a joint offer of compromise to Seven. The offer, which was expressed to be pursuant to FCR, O 23 r 3, was to compromise Seven's claims on the following basis: '1 The [respondents] will pay the total amount of $10,000,000 to the Applicants. 2 The [respondents] will pay the Applicants' costs of the proceedings as taxed or as agreed. This offer will remain open for a period of 14 days beginning on the day after it is made. This offer may only be accepted by one Applicant if it is also accepted by the other Applicant. This offer may only be accepted as against all of the [respondents]'. 16 The offer of compromise was made after the parties to the proceedings (other than Austar, which did not play an active role in the litigation) had participated in a mediation before the Hon T R Morling QC on 27 June 2005. At the time the offer of compromise was made, the trial was scheduled to commence, and did in fact commence, on 12 September 2005, about four weeks later. 17 By a letter dated 24 August 2005, Seven rejected the joint offer of compromise as being 'completely inadequate'. The letter continued as follows: 'We also note that the Offer of Compromise takes no account of the non damages claims for relief sought by our clients in their application. In those circumstances its utility in the event that such orders were granted is questionable. We assume your clients are aware of the potential limitations this presents to any costs protection they were seeking to obtain from the Offer of Compromise'. 18 Seven's letter of 24 August 2005 also rejected an offer of compromise that had been made by Optus to settle the Cross-Claim on the basis that the Cross-Claim be dismissed, with no order as to costs. As Seven's letter noted, Optus' offer of compromise was conditional in any event upon Seven accepting the joint offer of compromise. 19 Each of the Costs Respondents also seeks an order pursuant to FCR, O 62 r 4(2)(c) that, instead of taxed costs, it should be entitled to a gross sum specified by the Court in respect of costs. The justification for the award of a gross sum in lieu of taxed costs is said to be that if the matter proceeds to taxation in the usual way, the process will take a very long time – perhaps years – and is likely to expose the parties to additional very substantial costs. The Costs Respondents contend that, in order to minimise delay and save unnecessary expense, the Court itself should specify the sum to be paid by Seven by way of costs. 20 If the Costs Respondents do not succeed in obtaining an order that a portion of their costs should be paid on an indemnity basis, Seven does not dispute that an order should be made for the payment of costs on the usual party and party basis. There is, however, no agreement as yet as to the quantum of any costs award, assuming that the Court is prepared to order payment of a gross sum in lieu of taxed costs. 21 Each of the Costs Respondents sets out in its written submissions the gross sum it claims by way of costs. The claims are put in the alternative: first, the gross sum claimed if costs of the proceedings are awarded on a party and party basis until 16 August 2005 and thereafter on an indemnity basis; and, secondly, the gross sum claimed if costs of the proceedings are awarded simply on a party and party basis. The gross sums sought by the Costs Respondents are as follows: PBL Parties (i) Indemnity Basis : $17,710,835.78 to $18,037,694.48 (ii) Party and Party Basis : $16,405,018.36 Telstra Parties (i) Indemnity Basis : $17,175,161.22 (ii) Party and Party Basis : $15,908,677.48 Optus Parties (i) Indemnity Basis : $7,177,489.15 to $7,317,388.77 (ii) Party and Party Basis : $6,923,723.50 CONSENT ORDERS 22 The directions made in the Principal Judgment given on 27 July 2007 provided for the hearing on costs and other unresolved issues to take place on 17 September 2007. I set a relatively early hearing date on the assumption that the respondents would file and serve their submissions and evidence in accordance with the timetable incorporated in the directions. In fact, most respondents did not comply with the timetable and filed their submissions and evidence later than the directions contemplated. 23 Despite the delay, Seven was able to resolve the remaining issues with a number of the respondents. I made orders either in chambers or in court giving effect to the agreements reached. The orders made in this way were as follows: Austar (Seventeenth and Eighteenth Respondents) On 17 September 2007, I made orders dismissing the proceedings against Austar, with no order as to costs. AFL (Eleventh Respondent) The Court was advised on 5 December 2005, the 43rd day of the trial, that the proceedings against the AFL had been settled. On the same day orders were made giving Seven leave to discontinue the proceedings against the AFL, but reserving any question of costs for later argument. On 14 September 2007, I made orders by consent that there be no order as to costs between Seven and the AFL in the proceedings. NRL (Fourteenth Respondent) On 17 September 2007, I ordered that there be judgment for the NRL on the claims made by Seven against it. I noted that Seven and the NRL had resolved all questions of costs between them, on the basis of a payment made by Seven to the NRL of a 'certain sum'. I also vacated any unsatisfied interlocutory costs orders as between Seven and the NRL and made no other order as to costs between them. Finally, I ordered that the proceedings between Seven and the NRL otherwise be dismissed. ARL (Twelfth Respondent) On 17 September 2007, I made orders disposing of the proceedings between Seven and the ARL on the same basis as the orders made between Seven and the NRL. News Parties (First, Second, Fourth, Ninth, Thirteenth, Fifteenth, Nineteenth and Twentieth Respondents) I made orders on 14 September 2007 that the proceedings between Seven and the News parties be dismissed and that Seven pay the News Parties' costs of the proceedings in an agreed amount of $23.5 million. Any interlocutory costs orders between Seven and the News parties were vacated. Thus, although News made written submissions on costs, which have been adopted by the Costs Respondents, News has not participated in the oral argument on costs. COURSE OF THE COSTS HEARING 24 As I have noted, the only respondents who have not resolved their costs claims against Seven are the Costs Respondents (the PBL, Telstra and Optus Parties). Because of the Costs Respondents' failure to comply with the timetable laid down in the Principal Judgment, Seven was understandably not in a position at the hearing of 17 September 2007 to address all issues concerning costs. In particular, Seven had had insufficient time to determine whether it wished to challenge the gross sums claimed by the Costs Respondents (which, as has been seen, each of the Costs Respondents quantified on both an indemnity and party and party basis). 25 Seven was, however, prepared to contest at the hearing the Costs Respondents' contention that Seven should be ordered to pay costs incurred after 16 August 2005 on an indemnity basis. To that end, Seven filed written submissions arguing that any costs order against it should be on a party and party basis only. 26 Mr Sheahan SC, who appeared with Mr Halley for Seven, indicated that Seven supported in principle the Court making an order pursuant to FCR, O 62 r 4(2)(c) that, instead of taxed costs, each of the Costs Respondents be entitled to a gross sum specified in the order. However, Mr Sheahan reserved Seven's final position until it had an opportunity to determine whether the evidence relied on by the Costs Respondents was sufficient to enable Seven to assess the reasonableness of any particular gross sum claimed by way of costs. 27 The following matters were dealt with at the hearing: · orders were made in relation to non-contentious issues, including the orders to which I have already referred; · orders were made resolving the Cross-Claim and formally dismissing the proceedings brought by Seven against the Costs Respondents; · an order was made, pursuant to FCR, O 52 r 15(1)(a)(iii), fixing the time for the filing of a notice of appeal by Seven as 22 October 2007; · I heard argument as to whether Seven should be ordered to pay the costs incurred by the Costs Respondents after 16 August 2005 on an indemnity basis; and · I made directions to enable the Court to deal with the quantification of costs, once the claim for indemnity costs has been resolved. LEGISLATION AND RULES RELATING TO COSTS The Court's Discretion 28 Section 43 of the Federal Court of Australia Act 1976 (Cth) ('Federal Court Act') provides as follows: '(1) … the Court or a Judge has jurisdiction to award costs in all proceedings before the Court … … (2) Except as provided by any other Act, the award of costs is in the discretion of the Court or Judge'. 29 It is trite law that the discretion conferred on the Court by s 43(2) of the Federal Court Act is to be exercised judicially. Ordinarily, costs follow the event and, in the absence of special circumstances, a successful litigant receives its costs: Hughes v Western Australian Cricket Association (Inc) [1986] ATPR 40-748, at 48,136, per Toohey J. In the absence of agreement or a particular costs order, costs will be taxed on a party and party basis in conformity with the FCR (see FCR, O 62 rr 4(1), 12, 19). Offer of Compromise 30 FCR, O 23 r 3 provides that a party can make an offer of compromise to another party by serving a notice of the offer on the other party. The notice, in order to constitute an offer of compromise under the FCR, must be in the prescribed form: O 23 r 3(2). An offer may impose a time limit for acceptance, but the limit so imposed must not be less than 14 days from the date the offer is made: O 23 r 5(3). No statement of the fact that an offer has been made is to be contained in any pleading or affidavit, but this rule does not apply where the notice provides that the offer is not made without prejudice: O 23 r 8. If an offer has not been accepted, no communication with respect to the offer is to be made to the Court until after all questions of liability and the relief to be granted have been determined: O 23 r 8(2). 31 The consequences of an applicant not accepting an offer of compromise made by a respondent pursuant to O 23 are specified in O 23 r 11(5), introduced into the FCR in 2004: 'If: (a) an offer is made by a respondent and not accepted by the applicant; and (b) the applicant obtains judgment on the claim to which the offer relates not more favourable than the terms of the offer; then, unless the Court otherwise orders: (c) the applicant is entitled to an order that the respondent pay the applicant's costs in respect of the claim incurred up to 11 am on the day after the day when the offer was made, taxed on a party and party basis; and (d) the respondent is entitled to an order that the applicant pay the respondent's costs in respect of the claim incurred after that time, taxed on an indemnity basis'. (Emphasis added.) 32 It will be seen that the terms of O 23 r 11(5) do not apply to the situation where an applicant who rejects a respondent's offer of compromise is wholly unsuccessful in the proceedings. It is common ground that in this situation a respondent cannot rely on the express language of O 23 r 11(5) to obtain an order for costs on an indemnity basis: Coshott v Learoyd [1999] FCA 276, at [37], per Wilcox J; Dukemaster Pty Ltd v Bluehive Pty Ltd [2003] FCAFC 1 ('Dukemaster'), at [6], per Sundberg and Emmett JJ. However, as was pointed out in Dukemaster, at [6], the making of an offer by a respondent, which is rejected by the ultimately unsuccessful applicant, is a matter to be taken into account in determining whether the Court should make the usual party and party costs order or some order more generous to the respondent. 33 It should be noted that until recently, the rules governing offers of compromise by defendants in proceedings in the Supreme Court of New South Wales were in substantially the same form as FCR, O 23 r 11(5). In Multicon Engineering Pty Ltd v Federal Airports Corporation (1996) 138 ALR 425, Rolfe J expressed the view (at 451) that: 'the proper approach to take to an offer of compromise, whether made under the Rules or pursuant to a Calderbank letter [Calderbank v Calderbank [1975] 3 All ER 333], is that there should be a prima facie presumption in the event of the offer not being accepted and in the event of the recipient of the offer not receiving a result more favourable than the offer, that the party rejecting the offer should pay the costs of the other party on an indemnity basis from the date of the making of the offer. I proceed on the basis that the unreasonableness was the failure by the offeree to accept the offer, which unreasonableness is demonstrated, prima facie, by the ultimate result. This approach is consistent with the decisions to which I have referred, the policy evidenced by the Act and the Rules and the widely accepted philosophy that settlements should be encouraged. … It seems to me anomalous that there is no provision whereby a defendant, which is totally successful, is placed in the same position as a plaintiff, which is totally successful. In my view the Rules should be reviewed'. 34 Both the Federal Court and the Supreme Court of New South Wales have declined to follow the approach taken by Rolfe J: Black v Lipovac (1998) 217 ALR 386, at [217]-[218], per Miles, Heerey and Madgwick JJ; Jones v Bradley (No 2) [2003] NSWCA 258, at [8]-[9], per Meagher, Beazley and Santow JJA; Gretton v Commonwealth [2007] NSWSC 149, at [14]-[15], per Studdert J. These cases have refused to accept the proposition that, where an applicant or plaintiff rejects an offer of settlement and subsequently wholly fails in the proceedings, the respondent or defendant should prima facie be entitled to an order for indemnity costs from the date of rejection of the offer. 35 Nonetheless, Rolfe J's suggestion that the Rules of Court be reviewed has been adopted by the Supreme Court of New South Wales. Rule 42.15A of the Uniform Civil Procedure Rules 2005 ('UCPR'), which came into force on 8 December 2006, provides as follows: '(1) This rule applies if the offer concerned is made by the defendant, but not accepted by the plaintiff, and the defendant obtains an order or judgment on the claim concerned as favourable to the defendant, or more favourable to the defendant, than the terms of the offer. (2) Unless the court orders otherwise: (a) the defendant is entitled to an order against the plaintiff for the defendant's costs in respect of the claim, to be assessed on the ordinary basis, up to the time from which the defendant becomes entitled to costs under paragraph (b), and (b) the defendant is entitled to an order against the plaintiff for the defendant's costs in respect of the claim, assessed on an indemnity basis: (i) if the offer was made before the first day of the trial, as from the beginning of the day following the day on which the offer was made, and (ii) if the offer was made on or after the first day of the trial, as from 11 am on the day following the day on which the offer was made'. (See Uniform Civil Procedure Rules (Amendment No 11) 2006, No 716 (NSW).) 36 The FCR have not been amended to include an equivalent to UCPR, r 42.15A, although I understand that such an amendment may be in contemplation. Gross Sum Order 37 FCR, O 62 r 4(1) provides that, subject to the terms of O 62 itself, where a Court orders costs to be paid to any person, that person shall be entitled to taxed costs. Rule 4(2) relevantly provides as follows: 'Where the Court orders that costs be paid to any person the Court may further order that as to the whole or any part of the costs specified in the order, instead of taxed costs, the person shall be entitled to: … (c) a gross sum specified in the order; …' INDEMNITY COSTS Submissions Costs Respondents 38 The Costs Respondents accept that the terms of FCR, O 23 r 11(5) do not apply to the rejection by Seven of the joint offer of compromise made on 16 August 2005, since Seven has been wholly unsuccessful in the proceedings. They point out, however, that O 23 r 11(5) would have applied had Seven succeeded in the proceedings but obtained an award of damages less than $10 million (that being the sum, in addition to taxed costs, offered by the respondents in the joint offer of compromise made in August 2005). In those circumstances, so the Costs Respondents argue, they would have had the benefit of a prima facie entitlement to an order for indemnity costs from the date of the offer of compromise. Moreover, on the authorities, the Court would have departed from the prima facie position, generally speaking, only in exceptional cases: Port Kembla Coal Terminal Ltd v Braverus Maritime Inc (No 2) (2004) 212 ALR 281, at [17]-[18], per Hely J. The Costs Respondents argue that it would be anomalous for them to be deprived of indemnity costs in the present case simply because they enjoyed greater success in the proceedings than the terms of O 23 r 11(5) contemplate. 39 Nonetheless, the Costs Respondents accept that I am bound by the decision of the Full Federal Court in Dukemaster,although they formally submit that the case was incorrectly decided. Accordingly, they accept that in order to obtain an order for costs on an indemnity basis, they must show that Seven's rejection of the joint offer of compromise was imprudent or unreasonable, as Dukemaster requires. They argue, however, that the fact that the respondents made an offer of compromise in accordance with FCR, O 23, and that Seven, having rejected the offer, failed completely in the proceedings, is a factor to be given significant weight in determining whether the rejection was imprudent or unreasonable. 40 Mr Meagher SC, who appeared with Mr Payne for PBL, had the major carriage of the oral argument on behalf of the Costs Respondents. He submitted that Seven should have appreciated by August 2005 that its case faced 'enormous problems'. In particular, he contended that the matters which proved fatal to Seven's case should have been apparent to Seven when it rejected the respondents' joint offer of compromise. He illustrated this contention by a number of factual matters that he said were known or should have been known to Seven at the time. 41 The Costs Respondents emphasise that the joint offer of compromise, although amounting to a small fraction of Seven's original claims for damages (which Seven's counsel said in opening its case amounted to over $1.1 billion), was a serious one in the context of this case. Had Seven accepted the offer, it would have received not only $10 million, but the costs incurred by it until the date of the offer, assessed on a party and party basis. Given the likelihood that Seven's costs by this time had exceeded $40 million, the respondents' offer to pay costs was worth tens of millions of dollars. The Costs Respondents point out that if Seven had accepted the offer of compromise, it also would have been relieved of the risks associated with highly speculative litigation, including the risk of being ordered to pay the respondents' costs. 42 The Costs Respondents further emphasise that the offer of compromise was made at a time when Seven was well-placed to make a realistic assessment of its prospects of success. Discovery had been substantially completed and virtually all evidence filed, including experts' reports. The offer was made shortly after a formal mediation conducted by an experienced mediator, at which the respondents had presented position papers that (so it could be inferred) pointed out the formidable difficulties in Seven's path. Clearly, Seven had the resources and legal assistance available to enable it to make an informed evaluation of its prospects in the litigation. Any such evaluation would have indicated that its prospects of success were poor. 43 The Costs Respondents submit that, in those circumstances, Seven's rejection of the joint offer of compromise was imprudent and unreasonable. Seven chose instead (in the language of Telstra's written submissions) to embark on: 'a bold and adventurous piece of litigation, conducted on a vast and impressive scale, … one of the aims of which was to reshape the landscape of pay television in Australia using the [Trade Practices Act 1974 (Cth)] through its claims for damages and structural relief'. Seven 44 Seven submits that the proper test to apply on the question of indemnity costs is whether its refusal to accept the joint offer of compromise was imprudent or 'plainly'unreasonable, although Mr Sheahan acknowledged in his submissions that the addition of the word 'plainly' might not matter much. Seven contends, however, that the question of unreasonableness must be tested without resort to hindsight, but rather by looking at the circumstances prevailing at the time the offer was made. The question is not to be determined simply by reference to the ultimate result. If that were the case, so Seven argues, every applicant who rejected an offer of compromise and ultimately failed in the proceedings, would be required to pay costs on an indemnity basis. Seven also relies on authorities suggesting that rejection of an offer of compromise can be regarded as unreasonable only if the offer was accompanied by an explanation which puts to the offeree with 'sufficient particularity' the reasons why the offeree must fail in the proceedings: Dukemaster, at [6]. 45 Seven points out that the offer was made jointly by all respondents. Accordingly, so Seven contends, it is not to the point that some of its claims might have been seen as untenable at the time. The question of unreasonableness must take account of the fact that acceptance of the joint offer would have terminated Seven's claims against all respondents. 46 Seven further submits that the offer was not truly a substantial compromise on the part of the respondents. Seven argues that its case was complex and depended on issues of statutory construction and market definition, as well as difficult questions relating to substantial lessening of competition, the existence of an anti-competitive purpose and the value of Seven's lost commercial opportunities. The resolution of the case required consideration of a vast amount of lay and documentary evidence, together with an assessment of conflicting evidence from highly qualified economists and other experts. Moreover, Seven ultimately succeeded on several issues that were much in contest, such as the existence of the pleaded retail pay television market ([2077]) and of the so-called 'Master Agreement' ([2264]). Further, contemporaneous documentation lent support to Seven's case, such as the 'killing C7' comments attributed to Foxtel's CEO ([2529]-[2530]), and these, at the very least, called for an explanation from the respondents. The evidence also established that News and Foxtel had a motive to bring about C7's demise. The purpose case against the Consortium Respondents under s 46 of the TP Act depended on whether the evidence of Mr Philip and Mr Macourt was worthy of credit ([2495]), a matter that could not be assessed until they had entered the witness box. 47 Seven submits that: 'Given the complex competition issues raised by the exclusion of C7 from the Foxtel Service, the tied consortium bid for the AFL pay rights, the acceptance of the Fox Sports NRL offer over the arguably higher C7 offer, the subsequent failure of C7 to obtain either the AFL or NRL subscription driving pay rights, the closure of C7 in the wake of the loss of the AFL pay rights and the terms of the Foxtel/Optus CSA that reduced Optus to a Foxtel reseller, the Respondents' offer could reasonably be treated by the Applicants as not representing "a sensible and informed assessment of the prospects and risks of the litigation"'. 48 Seven relies on four matters in particular to show that its rejection of the joint offer of compromise was not unreasonable: · the offer of compromise was made at a time when the trial was imminent and Seven had already incurred very substantial costs, a proportion of which would not have been recouped if the offer had been accepted; · the offer represented only two per cent of the damages claimed, even ignoring evidence which was said to support a much larger damages claim of up to $1.1 billion; · the offer did not reflect the potential implications of the injunctive and other relief sought by Seven; and · the respondents faced the risk of being ordered to pay damages of up to $480 million (a figure which, when grossed up for interest and tax, was supported by the report prepared by Professor McFadden). 49 In these circumstances, so Seven contends, the Court should not make an order for the payment of any of the Costs Respondents' costs on an indemnity basis. REASONING Authorities 50 In recent years, applications by a successful party for an award of costs on an indemnity basis have become more frequent. One reason is that, as Cooper and Merkel JJ pointed out in Re Wilcox; Ex parte Venture Industries Pty Ltd (1996) 141 ALR 727, at 732, the issue has acquired greater significance as the gap between the two bases for the assessment of costs has grown. As their Honours pointed out: 'The gap has highlighted the conflict between two seemingly irreconcilable objectives. The first is protecting access to justice by only exposing an unsuccessful litigant in the usual course to an order for scale costs on a party and party basis. The second is relieving a successful litigant from the burden of costs which that litigant should not have been required to bear'. 51 Since the Costs Respondents accept that I am bound by the decision of the Full Federal Court in Dukemaster, it is appropriate to commence my consideration of their application for an award of indemnity costs with that case. In Dukemaster, the applicants sought damages for misleading and deceptive conduct and breach of contract against Dukemaster. Dukemaster made an offer of compromise pursuant to FCR, O 23, offering to pay the applicants a total of $22,972, inclusive of costs. The applicants rejected the offer. The applicants succeeded at trial in obtaining judgment for amounts totalling $347,781. However, an appeal by Dukemaster was allowed and the orders made by the trial Judge were set aside. 52 Sundberg and Emmett JJ noted that Dukemaster's offer did not fall within FCR, O 23 r 11(5), because the applicants had ultimately been wholly unsuccessful in the proceedings. (Conti J dissented on the appeal and thus did not need to address the question of indemnity costs.) Their Honours reasoned as follows (at [7]-[8]): 'The mere making of an offer of compromise and its non‑acceptance, followed by a result more favourable to the offeror, does not automatically lead to an order for payment of costs on an indemnity basis: John S Hayes & Associates Pty Ltd v Kimberley‑Clark Australia Pty Ltd (1994) 52 FCR 201 at 204‑206; MGICA (1992) Pty Ltd v Kenny & Good Pty Ltd (No 2) (1996) 70 FCR 236 at 239. The applicant for a more generous award must show that the rejection of the offer was imprudent or plainly unreasonable: NMFM Property Pty Ltd v Citibank Ltd (No 2)("NMFM") (2001) 109 FCR 77 at 98; Australian Competition & Consumer Commission v Australian Safeway Stores Pty Ltd (No 3) [2002] FCA 1294 at [28]; Sydney Markets Ltd v Sydney Flower Market Pty Ltd[2002] FCA 283 at [16]‑[17] and [23]. Whatever the position may be with an offer made under Order 23, a Calderbank offer, or any offer of compromise outside the regime in Order 23, is unlikely to serve its purpose of attracting an indemnity award of costs if the rejecting applicant fails to recover more than what is offered, unless the offer is a reasonable one and contains a statement of the reasons the offeror maintains that the application will fail. In NMFM at [87]‑[88,] Lindgren J said: "No doubt where a party puts with sufficient particularity to the opposing party the reasons why the latter must fail, yet the latter does not recognise the inevitable, this will be a factor pointing to an award of indemnity costs. … The requirements of 'sufficient particularity' and 'inevitability of failure' are important. In their absence, it would be open to parties to put their respective cases to the opposing party urging it to recognise the merit of what is put in the hope that if it ultimately finds favour with the Court, an award of indemnity costs will follow. If this were correct, one might ask rhetorically, 'Why write a letter as distinct from simply relying on the pleadings?"'. (Emphasis in original.) 53 Sundberg and Emmett JJ concluded that the applicants' rejection of the offer of compromise was not imprudent or plainly unreasonable, bearing in mind that the applicants had succeeded at trial in obtaining a substantial sum by way of damages. The offer was for a 'derisory' sum that would not even have covered the applicants' costs to that stage of the litigation (at [9]). Moreover, the letter of offer had not attempted to explain why the applicants should have accepted so derisory a sum. For these reasons, their Honours refused to order the applicants to pay Dukemaster's costs on an indemnity basis. 54 None of the authorities referred to in Dukemaster concerned rejection of an offer of compromise made by a respondent to an applicant in compliance with FCR, O 23. Each involved a so-called Calderbank offer (that is, an offer made specifically with a view to being used in court on a costs application by the offeror, should the offer not be accepted by the offeree). In effect, the reasoning in Dukemaster applies the authorities governing a Calderbank offer to an offer of compromise made by a respondent under FCR, O 23, in the particular situation where the applicant rejects the offer but subsequently fails completely in the proceedings. 55 The judgment in Dukemaster appears to assume rather than demonstrate that it is appropriate to apply the Calderbank principles to the particular situation that arose in Dukemaster itself – that is, where a respondent makes an offer pursuant to O 23, and the applicant fails entirely. It is perhaps arguable that a different approach should be taken where a respondent avails itself of a procedure specifically contemplated by O 23, but ultimately proves to be more successful in the proceedings than the terms of O 23 r 11(5) contemplate. 56 It is true, as Mr Sheahan pointed out, that an applicant who rejects an offer of compromise and ultimately obtains only a small sum by way of damages – perhaps even a nominal sum – will ordinarily be awarded costs incurred until the date of rejection of the respondent's offer, assessed on a party and party basis. It is also true that O 23 r 11(5) was apparently inserted into the FCR in 2004 in order to give a respondent the same opportunity to secure an award of indemnity costs as had previously only been available to an applicant. Prior to that time, where an applicant made an offer of compromise pursuant to FCR, O 23 and thereafter obtained a more favourable judgment than the terms of the offer, he or she was prima facie entitled to an order for costs on an indemnity basis as from the date the offer was made: O 23 r 11(4). 57 Even so, the result produced by Dukemaster seems anomalous. A respondent whose offer of compromise is rejected is prima facie entitled to an order for indemnity costs from the date of the rejection of the offer, provided the applicant obtains a judgment that is less favourable than the terms of the offer. Yet, according to Dukemaster, if the applicant fails completely, the respondent must show that the applicant's rejection of the offer of compromise was imprudent or unreasonable. 58 The simplest solution would be for the Federal Court to adopt a rule equivalent to UCPR, r 42.15A (extracted at [35] above). Such a rule would promote the important policy of encouraging the negotiated resolution of disputes. This is because a rule in this form would expose an applicant to the risk of a costs penalty, over and above an award of costs on a party and party basis, should the applicant press on with litigation in the face of an offer of compromise that, if accepted, would have yielded a more favourable result than that ultimately achieved. In my view, the benefits of a rule in the form of r 42.15A substantially outweigh any disincentive that such a regime might create for an applicant wishing to pursue arguable claims. The benefits apply particularly to mega-litigation which, as I have explained in the Principal Judgment ([1], [17]), exposes not only the parties, but also the Court and the wider community, to very substantial costs should the proceedings not be resolved by agreement. 59 It follows that there is a disconformity between the approach that, in my view, should be taken in a case such as this and the approach that Dukemaster requires me to take. For present purposes, Dukemaster holds that the applicant's rejection of an offer of compromise made by a respondent pursuant to O 23, where the applicant wholly fails in the proceedings, will not ordinarily lead to an award of indemnity costs against the unsuccessful applicant unless the rejection of the offer was 'imprudent or unreasonable'. It is that holding I must apply to the circumstances of this case. 60 It will be seen that I have omitted the word 'plainly' from the formulation of the holding in Dukemaster. I have done so because of the judgment of the Full Federal Court in Black v Lipovac. In that case, the defendant rejected Calderbank offers made by the plaintiff (the trial being conducted in the Supreme Court of the Australian Capital Territory). The Court referred (at [217]) to the line of authority in the Federal Court supporting the proposition that the mere refusal of a Calderbank offer does not of itself warrant an order for indemnity costs. Their Honours interpreted the authorities as requiring 'the offeror … to show the conduct of the offeree was unreasonable'. 61 Their Honours noted the decision of Rolfe J in Multicon ([33], above) and continued as follows (at [217]-[218]): 'His Honour [Rolfe J] considered that the non-acceptance of an offer more favourable to the offeree than the judgment ultimately awarded prima facie demonstrated unreasonable conduct and the offeree bore the onus of showing why indemnity costs should not be ordered. In reality there is not a substantial difference between the two views; both accept that the reasonableness of the conduct of the offeree, viewed in the light of the circumstances which existed when the offer was rejected, is relevant to the exercise of the discretion to award indemnifying costs. To the extent there is a difference, we would prefer the by now well established line of authority in decisions of single judges of this court. However, we would not, with respect, necessarily endorse the view of Sheppard J in Sanko [Steamship Co Ltd v Sumitomo Australia Ltd [1996] FCA 22] that the conduct of the offeree has to be "plainly unreasonable". To adopt an especially high standard of unreasonableness would operate as a fetter on the discretion to award indemnity costs and diminish the effectiveness of the Calderbank offer as an incentive to settlement. There is in our view force in the comments of Byrne J in the Supreme Court of Victoria in Mutual Community Ltd v Lorden Holdings Pty Ltd (unreported, SC (Vic), Byrne J, No 10561/90, 28 April 1993, BC9303878) at 12-13: "The policy of the court is to encourage litigating parties to undertake genuine settlement negotiations and, for that purpose, to face up to serious offers of settlement … The response of a litigant in receipt of an offer of settlement will always be affected by the prospect that the sum which the court might order including party and party costs may be less advantageous than the terms of the offer. Experience, however, shows that this prospect alone is not always sufficient to compel a litigant to face up to the offer. The further prospect of a super-added costs penalty if a reasonable offer be not accepted is a salutary inducement to an offeree to undertake this often painful task"'. 62 It is not apparent that the insertion of 'plainly' before 'unreasonable' adds anything of substance to the statement of principle adopted in Dukemaster. However, if it does, I would prefer to apply the formulation in Black v Lipovac, rather than that in Dukemaster. The comments in Black v Lipovac represent the considered views of a Full Court on this issue. The joint judgment in Dukemaster did not refer to Black v Lipovac and gave no reason for rejecting the analysis in that case. In my view, the policy reasons given in Black v Lipovac for avoiding the word 'plainly' are persuasive (although the suggestion that there is no substantial difference between the views of Rolfe J in Multicon and the Federal Court authorities appears, with respect, to be somewhat less persuasive). 63 Two other points should be noted, both of which are referred to by Hely J in Port Kembla Coal Terminal v Braverus. First, in assessing whether an applicant acted unreasonably in rejecting an offer of compromise, its prospects of success on liability cannot be considered in isolation from its prospects of success in relation to the quantum of damages it claims: at [45]. Secondly, the party seeking a special costs order, such as an order for costs on an indemnity basis, must discharge any burden of proof: at [38]. A Difficult Task 64 The key question I must address, therefore, is whether the Costs Respondents have shown that Seven acted imprudently or unreasonably in rejecting the joint offer of compromise made on 16 August 2005. In some cases the presence or absence of imprudence or unreasonableness on the part of an applicant who rejects an offer of compromise will not be difficult to assess. An example is Dukemaster itself, where the respondents' offer of compromise was for an amount equivalent only to approximately six per cent of the damages the applicants were actually awarded at trial (although they lost the benefit of that judgment on appeal). The Full Court had no hesitation in refusing to order costs to be paid on an indemnity basis. 65 In other cases, of which this is one, the task of the Court is much more formidable. It must be remembered that the Court is required to consider whether the rejection of the offer of compromise was unreasonable by considering, among any other relevant circumstances, the strengths and weaknesses of the applicants' case, looking at the claim prospectively at the time the offer was made: Gretton v Commonwealth [2007] NSWSC 149, at [24], per Studdert J; Equity 8 Pty Ltd v Shaw Stockbroking Ltd [2007] NSWSC 503, at [33], per Barrett J. 66 The fact that the applicant ultimately failed in the proceedings, is a matter to be taken into account. Indeed, Wilcox J in Coshott v Learoyd, at [48], said that non-acceptance of an offer made pursuant to FCR, O 23 should be regarded as: 'providing to the offeror a good start in the task of persuading the Court to award more than party-party costs'. Nonetheless, the fact that the unsuccessful applicant rejected an offer of compromise made by a respondent pursuant to O 23 is far from determinative on the question of indemnity costs, as the cases illustrate: see, for example, Flemington Properties Pty Ltd v Raine & Horne Commercial Pty Ltd [1998] FCA 53; Port Kembla Coal Terminal v Braverus. 67 The present case was very complex. Seven relied on many causes of action and advanced many alternative contentions. In a case of this kind, it can be especially difficult for the trial Judge to assess whether the rejection of an offer of compromise, in the circumstances prevailing at the time the offer was made, was 'imprudent' or 'unreasonable'. The Judge, in effect, has to assess the applicant's prospects of success at a particular time in the past and weigh the merits of the offer rejected by the applicant (an offer which, in retrospect, the applicant would have been better off accepting). The assessment has to be undertaken without the Judge necessarily having a clear idea as to which of the facts ultimately found were known or should have been known to the applicant at the time it rejected the offer of compromise. 68 The difficulties are compounded if the Court has not had occasion to consider the relief to which the applicant would have been entitled had it succeeded in establishing liability. As I have noted, both the reasonableness of an offer and the unreasonableness or otherwise of its rejection must depend in part on the applicant's prospects, not only of succeeding on liability, but of obtaining the relief it seeks. In particular, where the applicant claims many millions of dollars in damages – indeed, in this case, many hundreds of millions of dollars – the reasonableness of an offer to compromise for a given sum must depend not only on the applicant's prospects on liability, but also its chances of recovering damages in an amount substantially in excess of the sum incorporated in the offer of compromise. Evaluation 69 The Costs Respondents do not contend that Seven's case was hopeless from the outset, nor that Seven should have appreciated in August 2005 that it was hopeless. As Mr Meagher observed in his submissions, a separate line of authority deals with the award of indemnity costs in such cases: Fountain Selected Meats (Sales) Pty Ltd v International Produce Merchants Pty Ltd (1988) 81 ALR 397, at 401, per Woodward J; Re J-Corp Pty Ltd and Australian Building Labourers Federated Union of Workers – Western Australian Branch (unreported, 19 February 1993, French J); Yates Property Corporation Pty Ltd v Boland (No 2) (1997) 147 ALR 685, at 693, per Branson J. Mr Meagher submitted that it is enough in the circumstances of the present case for the Costs Respondents to show that Seven faced (in the words of Wilcox J in Coshott v Learoyd, at [50]) 'enormous problems' in this litigation and that Seven must have appreciated the difficulties it confronted when it rejected the joint offer of compromise in August 2005. Once that proposition is accepted, so Mr Meagher argued, the unreasonableness of Seven's rejection of the substantial offer of settlement becomes apparent. 70 The Costs Respondents, so it seems to me, have advanced a number of cogent reasons in support of their contention that Seven either appreciated or should have appreciated in August 2005 that important aspects of its case faced serious difficulties. These include the following: · The Principal Judgment finds that Seven 'leaked' to the press the very information which provided the foundation for its cause of action based upon alleged breaches of confidentiality ([2965], [2973]-[2974]). The fact that the information had been leaked to the media in late 2000 would, of course, have been known to Seven in August 2005. · Similarly, Seven must have known in August 2005 that it did not intend to utilise access to the Telstra Cable for the purpose of enabling C7 to provide retail pay television services to subscribers ([2802]). This finding was critical to the rejection of Seven's case under s 45(2) of the TP Act that, by denying C7 access to the Telstra Cable, Foxtel and Telstra gave effect to a provision in the BCA that was likely to have the effect of substantially lessening competition in the retail pay television market ([2805]-[2806]). · Seven's claim that Foxtel was prepared to pay a predatory price in 2000 for the AFL pay television rights was undercut, at least to a considerable extent, by Mr Stokes' concession in evidence that he regarded the price paid by Foxtel (of $30 million per annum) as a good one for the purchaser ([2253]). The predatory pricing claim formed a significant element in Seven's purpose case under s 46 of the TP Act. Moreover, Seven placed the alleged anti-competitive purpose of News, Foxtel and PBL at the forefront of its submissions on market definition ([1801]). · Seven's experts agreed that their evidence as to the existence of the AFL and NRL pay rights markets depended upon a particular understanding of the operation of the anti-siphoning regime created by the Broadcasting Services Act 1992 (Cth). Specifically, both of Seven's experts assumed that the anti-siphoning regime operated in a manner that eliminated, or at least severely limited, the opportunity for pay television operators to acquire exclusive rights to AFL or NRL matches of relatively high quality ([1824], [1827]). Seven would have been aware, well before August 2005, that pay television operators did not necessarily receive the worst matches under the anti-syphoning regime ([1834], [1852]). · The joint bid by Seven and Ten for the AFL broadcasting rights in 2005 was not helpful to Seven's case, insofar as that case rested on the existence of the wholesale sports channel market ([1995] ff). The nature of the joint bid for the AFL broadcasting rights would, of course, have been known to Seven by August 2005. · Mr Stokes gave evidence in the proceedings that supported the Respondents' contention that there was no separate functional wholesale sport channel market ([1981] ff). On one view, Seven should have been aware of Mr Stokes' views on this topic well before the hearing commenced. · One major difficulty facing Seven's case that the Master Agreement Provision had the effect of substantially lessening competition in the retail pay television market (a market which the Preliminary Judgment finds existed at the relevant times ([2264])) was the parlous state of Optus' retail pay television business in late 2000 or early 2001 ([2289] ff). Much of the evidence that led to findings that Optus would not have continued operating as an independent retail pay television provider was available to Seven by August 2005 (although not the witness statement of Mr Lee, whose evidence relating to these matters I accepted ([2854])). 71 The matters to which I have referred thus far relate to Seven's prospects of establishing liability. Seven claimed a wide variety of remedies. As is evident from the fact that Seven did not press some of its more extravagant claims, I do not think that Seven could reasonably have expected in August 2005 that it had a realistic chance of obtaining the full panoply of remedies claimed by it. 72 At the trial, Seven's claims for damages were ultimately put by reference to three 'mutually exclusive scenarios' ([99]). Seven did not proceed with its claim, foreshadowed in opening addresses, of up to $1.1 billion in damages (including interest) ([18]). The most substantial claim pressed by Seven ('Scenario 1') sought damages equivalent to the net present value of the business opportunity Seven lost by reason of having been deprived of the AFL pay television rights for the 2002 to 2006 seasons. 73 In its Closing Submissions at the trial, Seven put the value of this lost opportunity at between $194.8 million and $212.3 million ([100]). These amounts were to be adjusted for interest and the consequences of income tax (the latter requiring the application of a multiplier of 1.429 ([101])). This assessment of the value of the lost opportunity rested very heavily on the evidence of Professor McFadden. Since I have not been asked to address the quantum of damages, to date I have not had to make findings about the cogency or otherwise of Professor McFadden's analysis. The cogency of his evidence, however, bears on Seven's chances of obtaining a substantial damages award in the proceedings, had it succeeded on liability. 74 The analyses in the written and oral Closing Submissions suggest to me that Professor McFadden's assessment of Seven's damages would be most unlikely to be adopted as a measure of any losses sustained by Seven, at least not without substantial modifications. Professor McFadden's assessment depends on a large number of assumptions, the bulk of which were vigorously challenged by the Respondents. My impression is that Seven would find it difficult to sustain certain of the important assumptions underlying Professor McFadden's approach. These include assumptions that Seven would have acquired the 2002 to 2006 AFL pay television rights for $22 million per annum; that subscriber numbers could have been expected to grow at the rates incorporated in Professor McFadden's calculations; that 'competitive arbitrage' was an appropriate means of estimating C7's likely revenue from retail pay television operators; and that C7's return in the long run would have greatly exceeded the weighted average cost of capital. 75 My strong impression is that the maximum award of damages Seven could have expected, assuming it succeeded on questions of liability, would not have been anything like the figures mooted in Professor McFadden's report. I think it likely that, at best, Seven's damages on Scenario 1 would be assessed in some tens of millions of dollars, rather than in the order of $200 million (to which, on Seven's case, interest and an allowance for income tax would be added). I repeat that this is my impression of the maximum Seven could expect to obtain. The Court would need to address many arguments raised by the Respondents, in addition to those considered in the Principal Judgment, before reaching this point, even if Seven were to succeed in establishing liability. 76 The difficulties with Professor McFadden's analysis became apparent during the course of argument, but would not necessarily have been apparent to Seven or its advisers in August 2005. It is fair to say, however, that Seven or its advisers would have had material available that should have alerted them to the real prospect that Professor McFadden's analysis would prove to be vulnerable on some issues. 77 A further matter in the Costs Respondents' favour is that the joint offer of compromise was made shortly before the trial, at a time when Seven had the benefit of very nearly all the statements or reports (other than statements or reports in reply) on which the respondents intended to rely. Furthermore, I am prepared to infer that the position papers exchanged at the mediation which preceded the joint offer of compromise would have drawn Seven's attention to what the respondents asserted at the time were the significant weaknesses in its case. 78 While the matters relied on by the Costs Respondents have considerable force, it is necessary, as Mr Sheahan argued, to take into account a number of factors in Seven's favour on the indemnity costs issue. In my view, these include the following: · Seven succeeded in establishing one of the four markets on which it relied, namely the retail pay television market ([2077]). It did so over the strenuous opposition of the Respondents. This finding opened a pathway to a favourable outcome for Seven's case under s 45(2) of the TP Act, insofar as it was based on anti-competitive effects of the Master Agreement Provision. · I made other findings in the Principal Judgment that were favourable to Seven's case. These included a finding that the Master Agreement existed and that the Master Agreement Provision was likely to have the effect that Foxtel would acquire the AFL pay television rights for 2002 to 2006 ([2281]). · Seven's effects case under s 45(2) of the TP Act included its contention that the Foxtel-Optus CSA had the effect or likely effect of substantially lessening competition in the retail pay television market. This contention failed, largely because of findings that Optus would not have continued as a serious competitor in the retail pay television market, regardless of the alleged anti-competitive conduct (see, for example, [2309]-[2310]). While there was material available to Seven in August 2005 that suggested that such findings would be made, the material was by no means unequivocal. Moreover, Mr Lee's statement had not been filed at that time (it was dated 16 September 2005). Accordingly, if the position is viewed as at August 2005, Seven was reasonably entitled to consider that the Respondents might not have obtained the findings they sought in relation to Optus' role in the retail pay television market. · Seven's case on the other three markets propounded by it was supported by detailed reports prepared by two well-credentialled experts. While Seven must have known that the experts would be strongly challenged and must also have appreciated that certain assumptions made by them might be difficult to sustain, this is by no means unusual in a case involving complex market definition issues. Seven could reasonably have taken the view in August 2005 that it had an arguable case in relation to the existence of the AFL and NRL pay rights markets and of the wholesale sports channel market. Moreover, both of Seven's competition experts were made aware of the proposal by Seven and Ten in 2005 to acquire the AFL broadcasting rights for 2007 to 2011. Both indicated that the information did not alter the opinions they had expressed. · The discovery process elicited documents that, on their face, provided support for some of Seven's key contentions. These included the internal Telstra communications referring to Mr Blomfield's 'killing C7' statements ([2529]-[2530]); the congratulatory email sent by Mr Mansfield, the Chairman of Telstra, on 20 December 2000 ([1112]); and documents perhaps suggesting that written statements of Mr Macourt and Mr Philip were not necessarily to be accepted at face value. 79 In addition, as Mr Sheahan pointed out, the sum of $10 million incorporated in the joint offer of compromise in effect was grossed up for interest and tax. Even if Seven's damages should realistically have been regarded as limited to a maximum figure in the tens of millions of dollars, rather than hundreds of millions, the offer of compromise valued Seven's claim at a very low figure indeed. It is true that Seven, had it accepted the offer, would have received a very substantial sum by way of costs. But the sum of $10 million would have been unlikely to make up the deficiency between the costs actually incurred by Seven up to August 2005 and the amount it would have recovered from the respondents, given that the offer provided for costs to be assessed on a party and party basis. 80 It must also be remembered that the offer of compromise was made on behalf of all respondents. If Seven accepted the offer, it would have foregone the opportunity to pursue any of its causes of action. The offer did not invite Seven to distinguish between its speculative, if not hopeless, causes of action and its arguable contentions. 81 On balance, although the question is not easy to resolve, I do not think that the Costs Respondents have established that Seven's rejection of the offer in August 2005 was imprudent or unreasonable. It may well have been both imprudent and unreasonable for Seven to press so many contentions at the trial, having regard to what it knew or should have known before the trial got under way. It also might well have been imprudent and unreasonable for Seven not to have refined its case, both to make it more manageable (and therefore less costly to everyone involved) and much more focussed. As I indicated in the Principal Judgment, the massive costs incurred in the conduct of this litigation have been greatly disproportionate to what is truly at stake. But these are not the matters upon which the Costs Respondents rely in order to support their claim for costs to be awarded on an indemnity basis. They rely only upon the rejection of the joint offer of compromise in August 2005. 82 The joint offer of $10 million, inclusive of adjustments for interest and income tax, plainly reflected the respondents' collective view that Seven's prospects in the litigation were bleak. The result, at least to this stage of the litigation, has vindicated the respondents' view. But looking at the offer prospectively as at August 2005, I think the sum of $10 million offered can be regarded as very modest, although I would not characterise it as 'derisory'. 83 The description of the offer as very modest is apt, in my opinion, not merely when the offer is compared with Seven's more optimistic claims for relief but also (so far as I can judge) when compared with quantum of damages that Seven could have realistically hoped to achieve, if it had succeeded in establishing liability. It is true that the offer of compromise included payment of Seven's costs on a party and party basis and that, by August 2005, Seven had incurred very substantial costs. Nonetheless, if Seven had accepted the respondents' offer of compromise in August 2005 it would have gained nothing from the litigation. 84 While there were aspects of Seven's case that were untenable and should have been recognised as such in August 2005, in my view the core of Seven's case based on alleged contraventions of ss 45(2) and 46 of the TP Act could reasonably have been seen at the time as having some prospects of success. If Seven had succeeded in establishing the liability of some or all of the Consortium Respondents, it might have obtained an award of damages considerably greater than the sum of $10 million proposed in the joint offer of compromise. As I have explained, I do not think that there was ever any realistic chance of Seven obtaining the full range of remedies sought by it. Although I think it very likely that the maximum award of damages that Seven could have realistically hoped to achieve would be measured in the tens of millions of dollars, as at August 2005 an award of damages substantially greater than $10 million was not a fanciful prospect. CONCLUSION 85 For these reasons, I do not think that the Costs Respondents have discharged the burden of showing that Seven's rejection of the joint offer of compromise in August 2005 was imprudent or unreasonable in the circumstances prevailing at the time. Given that the Costs Respondents accept that I am bound by Dukemaster and that the critical question is whether Seven acted imprudently or unreasonably in rejecting the joint offer of compromise, their application for the costs incurred after 16 August 2005 to be awarded on an indemnity basis cannot succeed. It follows that Seven will only be required to pay the costs of the Costs Respondents on the usual party and party basis. 86 The costs application will now proceed in accordance with the directions I have made. In light of this ruling, it is to be hoped that Seven and the Costs Respondents can reach agreement on the quantum of costs to be paid by Seven. I certify that the preceding 86 numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Sackville. Associate: Dated: 26 September 2007 Counsel for the First and Second Applicants/First and Second Cross-Respondents (Seven Parties): Mr J C Sheahan SC and Mr J A Halley Solicitors for the First and Second Applicants/First and Second Cross-Respondents (Seven Parties): Freehills Counsel for the Third, Fifth and Sixth Respondents (Telstra Parties): Mr T D Castle and Mr I R Pike Solicitors for the Third, Fifth and Sixth Respondents (Telstra Parties): Mallesons Stephen Jaques Counsel for the Seventh, Eighth and Twenty-First Respondents (PBL Parties): Mr A J Meagher SC and Mr A J Payne Solicitors for the Seventh, Eighth and Twenty-First Respondents (PBL Parties): Gilbert + Tobin Lawyers Counsel for the Twelfth Respondent (ARL): Mr S W Climpson Solicitors for the Twelfth Respondent (ARL): Sparke Helmore Lawyers Counsel for the Fourteenth Respondent (NRL Ltd): Mr T O'Reilly Solicitors for the Fourteenth Respondent (NRL Ltd): Kennedys Counsel for the Sixteenth and Twenty-Second Respondents/First and Second Cross-Claimants (Optus Parties): Mr M J Leeming SC Solicitors for the Sixteenth and Twenty-Second Respondents/First and Second Cross-Claimants (Optus Parties): Chang Pistilli & Simmons Corporate Lawyers Date of Hearing: 17 September 2007 Date of Judgment: 26 September 2007