FEDERAL COURT OF AUSTRALIA Australian Competition and Consumer Commission v Seal-A-Fridge Pty Ltd (No 2) [2010] FCA 681 Citation: Australian Competition and Consumer Commission v Seal-A-Fridge Pty Ltd (No 2) [2010] FCA 681 Parties: AUSTRALIAN COMPETITION AND CONSUMER COMMISSION v SEAL-A-FRIDGE PTY LTD ACN 080 116 258 and NIGEL JOHN ROONEY File number: QUD 184 of 2008 Judge: LOGAN J Date of judgment: 30 June 2010 Catchwords: PRACTICE AND PROCEDURE – Costs – Whether apportionment appropriate – Part of applicant's claim discontinued at commencement of trial – Applicant fails to succeed in respect of all of remaining claim – Whether any costs disentitling conduct on the part of the Applicant Held: Apportionment in applicant's favour appropriate Legislation: Federal Court of Australia Act 1976 (Cth) s 43 Financial Management and Accountability Act 1997 (Cth) ss 44, 47 Judiciary Act 1903 (Cth) ss 64, 55ZF Trade Practices Act 1974 (Cth) ss 51AC, 51AD, 87B Federal Court Rules O 22 r 2(1)(d) Legal Services Directions 2005 (Cth) Cases cited: Australian Competition & Consumer Commission v Danoz Direct Pty Ltd (ACN 003 546 709) [2003] FCA 1580 considered Australian Competition and Consumer Commission v Harris Scarfe Australia Pty Ltd (No 2) [2009] FCA 433 considered Australian Competition and Consumer Commission v Seal-A-Fridge Pty Ltd [2010] FCA 525 cited Australian Trade Commission v Disktravel [2000] FCA 62 considered Cachia v Hanes (1994) 179 CLR 403 applied Cretazzo v Lombardi (1975) 13 SASR 4 considered Hobbs v Marlowe [1978] AC 16 considered Hughes v Western Australian Cricket Association (Inc) & Ors (1986) ATPR 40-748 applied Melbourne Steamship Co Ltd v Moorehead (1912) 15 CLR 333 cited Oshlack v Richmond River Council (1998) 193 CLR 72 considered Rickus v Motor Trades Association of Australia Superannuation Fund Pty Limited (2010) 265 ALR 112 followed Dal Point GE, Law of Costs (2nd, LexisNexis Butterworths, 2009) Date of hearing: 4 June 2010 Date of last submissions filed on behalf of the Applicant: 1 June 2010 Date of last submissions filed on behalf of the Respondents: 3 June 2010 Place: Brisbane Division: GENERAL DIVISION Category: Catchwords Number of paragraphs: 49 Counsel for the Applicant: Mr T Sullivan SC Solicitor for the Applicant: Corrs Chambers Westgarth Counsel for the Respondents: Mr J Sweeney Solicitor for the Respondents: Bywaters Timms IN THE FEDERAL COURT OF AUSTRALIA QUEENSLAND DISTRICT REGISTRY GENERAL DIVISION QUD 184 of 2008 BETWEEN: AUSTRALIAN COMPETITION AND CONSUMER COMMISSION Applicant AND: SEAL-A-FRIDGE PTY LTD ACN 080 116 258 First Respondent NIGEL JOHN ROONEY Second Respondent JUDGE: LOGAN J DATE OF ORDER: 30 JUNE 2010 WHERE MADE: BRISBANE THE COURT ORDERS THAT: 1. The respondents pay 60% of the applicant's costs, including reserved costs, to be taxed. Note:Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules. The text of entered orders can be located using Federal Law Search on the Court's website. IN THE FEDERAL COURT OF AUSTRALIA QUEENSLAND DISTRICT REGISTRY GENERAL DIVISION QUD 184 of 2008 BETWEEN: AUSTRALIAN COMPETITION AND CONSUMER COMMISSION Applicant AND: SEAL-A-FRIDGE PTY LTD ACN 080 116 258 First Respondent NIGEL JOHN ROONEY Second Respondent JUDGE: LOGAN J DATE: 30 JUNE 2010 PLACE: BRISBANE REASONS FOR JUDGMENT 1 These reasons for judgment are a sequel to the reasons for judgment which I published on 28 May 2010 in respect of the alleged contraventions of s 51AC and s 51AD of the Trade Practices Act 1974 (Cth) (Trade Practices Act) by Seal-A-Fridge to which contraventions Mr Rooney was alleged to be a party in terms of s 75B of that Act: Australian Competition and Consumer Commission v Seal-A-Fridge Pty Ltd [2010] FCA 525 (the principal judgment). They should be read in conjunction with the principal judgment. 2 At the time when I published the principal judgment I gave directions in respect of the bringing in of proposed short minutes to give effect to the principal judgment including proposed orders in respect of costs. 3 On 4 June 2010 I pronounced orders in the form of those which appear in the schedule to these reasons. Those orders disposed of the whole of the proceeding save in respect of costs. I also heard at that time submissions in respect of costs. It is to the subject of costs that these reasons are directed. 4 As I noted in the principal judgment (at [3]), the case against Seal-A-Fridge Pty Ltd (Seal-A-Fridge) and Mr Rooney as originally brought by the Australian Competition and Consumer Commission (ACCC) was broader than that which, by permitted amendment at the commencement of the trial, ultimately came to be heard and determined. The effect of the amendment was to discontinue so much of the proceeding as had related to another franchisee known as "JG Family Enterprises", the "Benjamin claims". In the result the case of the ACCC as thus narrowed did not fully succeed. So much of it as related to the allegation of unconscionable conduct by Seal-A-Fridge, to which Mr Rooney was said to be a party, in respect of the conditioning of agreement to the assignment of a franchise on terms that included a different manner of calculating the service fee from that which by specification or implication formed part of the existing franchise agreement failed. 5 The end to which the submission as to costs of the ACCC was directed was that, in the circumstances, it should receive a proportion of its costs. The appropriate proportion was submitted to be between three quarters and two thirds of its costs. In contrast, taking into account not only the extent of discontinuance and forensic success but also the terms of certain hitherto without prejudice offers made prior to trial, the submission made on behalf of Seal-A-Fridge and Mr Rooney was that there should be no order as to costs. How these submissions were respectively amplified will be apparent from the balance of these reasons for judgment. 6 Order 22 r 2(1)(d) of the Federal Court Rules was applicable to the discontinuance by the ACCC of so much of its claim as related to "JG Family Enterprises". That rule permits the discontinuance at any time of the whole or part of a claim with the leave of the Court. Unlike with respect to other bases of discontinuance, the rules do not make any specific provision as to how costs ought ordinarily to be awarded in the event that leave to discontinue is granted pursuant to O 22 r 2(1)(d). That is understandable. Order 22 r 2(1)(d) is deliberately cast in general terms. The occasion for the exercise of the power it confers to grant leave to discontinue may arise "at any time" and in any circumstances. How costs will be awarded in the event of discontinuance will necessarily depend on the particular circumstances in which leave to discontinue is granted. 7 In this case, discontinuance occurred at the commencement of the trial. There were at that time contingencies which existed as to how the balance of the claim might come finally to be determined such that it was convenient not then and there to deal with the question of the costs of the discontinuance. That said, it would be an error of principle to treat the subject of costs in respect of the discontinuance, considered as a discrete issue, as governed by the ultimate outcome of the trial: Rickus v Motor Trades Association of Australia Superannuation Fund Pty Limited (2010) 265 ALR 112 at [119] – [120]. On that subject, it is the circumstances at play at the time of the permitted discontinuance which are relevant. It would also be inappropriate for the purpose of determining costs in respect of the discontinuance of part of the ACCC's claim to engage in some sort of hypothetical trial of that part of the claim. 8 At the time when the ACCC was permitted to discontinue part of its claim Seal-A-Fridge and Mr Rooney had but recently ceased to have the benefit of legal representation. For most of the period up to the commencement of the trial they had been legally represented. Legal costs associated with the conduct of the defence, including the analysis of evidentiary materials, to the extent later rendered irrelevant by the discontinuance would form part of the costs thrown away by the grant of leave. 9 Such preparation costs, if any, as Mr Rooney either in his own right or on behalf of Seal-A-Fridge may have incurred and which became unnecessary by reason of the part discontinuance would not be recoverable by him as a litigant in person: Cachia v Hanes (1994) 179 CLR 403. At most he would have been entitled to out of out of pocket expenses such as photocopying thrown away. No such out of pocket expenses were put forward for consideration. 10 In these circumstances, if considering the subject of the costs of the discontinuance alone, I should have been disposed to order that the ACCC pay the respondents' taxed costs thrown away by the part discontinuance of its claim but on the footing that such costs were, after the withdrawal of their solicitors, to be limited to such out of pocket expenses, if any, as the respondents may have incurred. 11 The ACCC accepted that, all other things being equal, it faced a liability in respect of costs thrown away by the discontinuance. It was not submitted otherwise on behalf of Seal-A-Fridge and Mr Rooney. 12 It would, of course, be possible to order that the ACCC pay the costs thrown away and then to order that the taxed amount thereof be set off against the taxed amount of such costs as may be awarded in favour of the ACCC. That possibility was acknowledged in the respective submissions of each party but it was not a course which was urged. 13 In relation to the remaining part of the ACCC's claim, the part which was heard and determined on the merits, the general rule is that costs follow the event. Yet, as noted, the ACCC did not succeed in respect of one key alleged contravention of s 51AC, that relating to the proposed assignment by Mr and Mrs Malishev of their franchise interest. Had a claim been brought in respect of that issue alone my impression, having regard to the evidence relevant to that issue which was led in this case, is that the hearing of that evidence and related submissions would not have occupied more than one day's hearing time. When heard in conjunction with other issues on which the ACCC did succeed the issue on which it failed elongated the trial by, at most, one day. 14 Each side commended the following passage from Dal Point GE, Law of Costs (2nd, LexisNexis Butterworths, 2009) at [8.4], p 210 as an accurate summary of approaches open where, as here, an ultimately successful party has not succeeded on all issues: Where a court rules that the party ultimately successful has not been successful in all the issues, and considers that this should be reflected in the costs order, it may approach the costs order in one of three ways: it may make an order according to success or failure on the particular issues; it may make a percentage order (such that the successful litigant is entitled to a percentage of his or her costs); or it may, where the proceedings involve claim and counterclaim that both succeed (or both fail), make an order that the claimant receive the costs of the action except those costs relating to the counterclaim. The first two are the most common form of costs orders in this respect in the modern law; the latter has fallen into disuse as it generates undue complexity. [Footnote reference omitted] 15 I agree that this is a helpful general summary but, as the learned author carefully and correctly observes when introducing the chapter (ch 8, at [8.1], p 207) in which this passage appears, "the discretion in question is unfettered, and must be exercised judicially according to what justice demands in a given case". That is certainly the case in respect of the power to award costs conferred by s 43 of the Federal Court of Australia Act 1976 (Cth). It would therefore be wrong to treat what is said in this passage as exhaustive or prescriptive. In the circumstances of this case though the passage does indeed summarise the choices open, absent consideration of the impact of the evidence of hitherto without prejudice offers contained in correspondence between the parties. 16 Of the choices presented, the ACCC submitted that a percentage based approach was the most suitable in the circumstances. Though the respondents contended that a consideration of all the circumstances, which included the hitherto without prejudice correspondence, should lead to the conclusion that there should be no order as to costs, I did not understand them to submit that, should I not accept this submission, a percentage based approach would be inappropriate. 17 It is convenient now to consider evidence with respect to the hitherto without prejudice correspondence and other negotiations. Neither side objected to the introduction of this evidence at this stage pf the proceeding for consideration in relation to costs. 18 Most of the correspondence concerned was exhibited to an affidavit of Ms Bywaters who, until shortly prior to trial and again now has had the carriage of the proceedings on behalf of the respondents. To put that correspondence in context it was necessary also for the ACCC to tender in evidence some further, without prejudice correspondence not hitherto available to Ms Bywaters. 19 Reference should now be made to certain concessions made by, and to other dealings between, the parties with a view to the compromise of these proceedings. These did not, and do not, constitute evidence of any formal admission of liability. 20 It transpires that a significant part of Ms Bywaters' practice as a solicitor involves acting for franchisors. In that regard and quite apart from this case she has had numerous dealings with the ACCC and is well familiar with the practices of its enforcement committee. In contrast with her experience with other cases the ACCC did not in this instance seek from Seal-A-Fridge and Mr Rooney in advance of instituting proceedings enforceable undertakings pursuant to s 87B of the Trade Practices Act. 21 The present proceedings were instituted in July 2008. The course of correspondence as between the respondents' solicitors and the ACCC or, as the case may be, its solicitors discloses that, on and from October 2008 and even though the ACCC did not seek enforceable undertakings prior to the institution of proceedings, Ms Bywaters was proactive in seeking the resolution of the proceedings by agreement. It also appears that the ACCC readily agreed to participate in meetings directed to that end. Such meetings were initially held between Ms Bywaters on behalf of Seal-A-Fridge and Mr Rooney and the ACCC's Queensland Regional Director, Mr Ducret and others on 28 October 2008 and 4 November 2008. A point which proved initially contentious was a disposition on the part of the ACCC's enforcement committee that no settlement was possible without declaratory relief (ACCC letter of 6 November 2008 to Ms Bywaters' firm). 22 By February 2009 and following a further meeting between the respondents' solicitors and the ACCC and further correspondence matters had reached a stage where, subject to the approval of the Court, Seal-A-Fridge was proposing to agree to the granting of declaratory relief in respect of a contravention of s 51AC of the Trade Practices Act in relation to the 2004 fee increase as it concerned Mr and Mrs Malishev and Camabe and various breaches of s 51AD of the Trade Practices Act including one relating to JG Enterprises. For his part, Mr Rooney proposed to agree to a declaration that he was a party to such contraventions. Each signified a preparedness to agree to related injunctive and ancillary relief. These proposals were made in conjunction with an offer to pay the sum of $5,000 in respect of the costs of the ACCC. 23 The orders proposed on behalf of the respondents at this stage expressly included a concession that Seal-A-Fridge had contravened s 51AC in relation to the 2004 fee increase. There was no separate concession in respect of a contravention of s 51AC in 2001 but that reflected the way in which the ACCC was then putting forward its case. As pleaded, events in respect of the 2001 fee increase were put as part of a continuum of circumstances by reference to which it was alleged that Seal-A-Fridge had engaged in unconscionable conduct in April 2004. As it happened and responding to the very particular emphasis given to the events attending the 2001 fee increase in the written and oral closing submissions of the ACCC at the trial, it seemed to me, for reasons set out in the principal judgment, that, though the events in respect of the 2001 fee increase were relevant to the 2004 fee increase, the 2001 fee increase in its own right was procured by conduct capable of discrete characterisation as unconscionable conduct in contravention of s 51AC. In the context of the present costs controversy, the way in which I came separately to characterise the 2001 fee increase should not in any way count against either Seal-A-Fridge or Mr Rooney. Rather, their evident disposition in the course of pre-trial, without prejudice negotiations to concede the s 51AC case as pleaded should be regarded as necessarily carrying with it a preparedness, for the purposes of those negotiations, not only to concede the relevance of the 2001 fee increase but to accept that it formed part of a course of conduct that was unconscionable. 24 No agreement as to either the form of relief or costs was reached between the parties in February 2009. 25 In April 2009 the matter was listed for trial. 26 The imminence of trial seems to have engendered renewed interest on the part of Seal-A-Fridge and Mr Rooney in a consensual resolution of the proceedings. To that end, their solicitors made contact with the ACCC's solicitors and canvassed whether a form of order which had been proposed by the ACCC at the conclusion of discussions in February 2009 would be favourably recommended to its enforcement committee. The ACCC's solicitors responded promptly. They indicated that the form of orders in respect of substantive relief then put forward by the ACCC would still be recommended to the enforcement committee but that, as to costs, the costs of the ACCC had increased substantially since February 2009. For this reason it was stated that the costs of $5,000 hitherto proposed were no longer adequate. Inquiry was made of the respondents' solicitors as to the amount they were now prepared to pay in respect of the ACCC's costs. Reference was made by the solicitors for the ACCC to a need on the part of the Chairman of the ACCC, in accordance with Pt 7 of the Financial Management and Accountability Act 1997 (Cth) (Financial Management and Accountability Act), to be satisfied that he has a proper basis to agree to any proposed offer for costs. To that end various details with respect to the financial position of the respondents were sought. 27 By the end of September 2009 the respondents, by their solicitors, had signified a willingness to agree to all of the relief proposed by the ACCC when negotiations concluded in February and were re-opened in August 2009, save in respect of costs. That willingness extended to conceded violations of s 51AD in respect of the unreasonable withholding of consent in respect of the transfer of the Seal-A-Fridge Brisbane North Franchise (that of JG Enterprises) as well as the Seal-A-Fridge South East Melbourne Franchise (that of Mr and Mrs Malishev). The other alleged s 51AD contraventions, centred on disclosure document related breaches of the Franchise Code were also conceded. These included an alleged contravention relating to JG Enterprises. Further, the respondents remained, as before, disposed to concede the s 51AC case. All of that willingness was though subject to the reservation that the ACCC accept the offer put as to costs by the respondents. 28 As to costs, the final position reached was that Seal-A-Fridge and Mr Rooney proposed that there be no order as to costs whereas the ACCC proposed that costs be left to the discretion of the Court. This remaining difference proved intractable. Shortly after this intractability became apparent the respondents' solicitors withdrew. Thereafter, on the first day of the trial, Mr Rooney appeared for himself and, by leave, on behalf of Seal-A-Fridge. Also then and as already noted, the ACCC by leave amended its claim so as to delete all relief in respect of alleged conduct concerning JG Enterprises. Seal-A-Fridge and Mr Rooney then contested fully on the merits the claim as so amended. 29 The respondents' submission as to costs took as its starting point an observation made by Dowsett J in Australian Competition & Consumer Commission v Danoz Direct Pty Ltd (ACN 003 546 709) [2003] FCA 1580 [2003] FCA 1580 at [6] – [9] (Danoz) that the ACCC, like any other party, has an obligation to seek sensible resolution of disputes. That observation was approved by Mansfield J in Australian Competition and Consumer Commission v Harris Scarfe Australia Pty Ltd (No 2) [2009] FCA 433 at [10] (Harris Scarfe). In so doing (ibid), Mansfield J prefixed that approval as follows: The public interest is in the sensible and just compromise of disputes where that is appropriate. That is so whether the parties in dispute are private citizens or governmental instrumentalities. There may be circumstances where compromise is not appropriate, having regard to the nature of the allegations made. For instance, in the face of an allegation of serious fraud or dishonesty, a party may properly seek the vindication which a favourable court determination will recognise. Much depends on the particular circumstances. There may be circumstances, in the case of a public regulator such as the ACCC, where the particular issues are of such importance that it is proper to seek a judicial determination of them. Such cases will necessarily not be common. 30 It is important also to recall that, in making the observation referred to in Danoz, Dowsett J, at [9], expressly acknowledged the special position of the ACCC, arising from its statutory responsibility for the enforcement of the Trade Practices Act, in a case of this kind. Read with that acknowledgement and with the additional observations made by Mansfield J in Harris Scarfe, the observation in Danoz to which the respondents referred highlights nothing more than a particular feature of the behaviour that the Court and the wider community, including respondents, are entitled to expect in the conduct of litigation by an agency of the Commonwealth such as the ACCC. 31 It is a mistake completely, as opposed to "as nearly as possible", to assimilate the position of the Commonwealth and its non-commercial emanations with that of a private litigant. That reflects sentiments evident in s 64 of the Judiciary Act 1903 (Cth) (Judiciary Act): Rights of parties In any suit to which the Commonwealth or a State is a party, the rights of parties shall as nearly as possible be the same, and judgment may be given and costs awarded on either side, as in a suit between subject and subject. Much can lie behind the qualification "as nearly as possible" in the circumstances of particular cases. 32 There are cases, perhaps the present is one, which the Commonwealth or an emanation such as the ACCC will institute which a private litigant, even though he or she may have like standing and cause, may not. Want of financial resources and an absence of responsibility for the administration of legislation and for the upholding for the general good of norms of behaviour specified therein supply two obvious reasons why this is so. That public interest considerations intrude in relation to its institution does not necessarily, as the respondents submitted, make a proceeding a test case. It may just be one which is responsive to particular complaints made to the ACCC but which is also considered to exemplify, for the benefit and deterrence of others, how already settled principles of trade practices law apply in a particular context. From the correspondence exchanged between the parties and the way in which the ACCC conducted its case at trial that is exactly my impression of this case. 33 Once a proceeding is instituted and subject always to any specific Commonwealth statutory provision to the contrary, s 64 of the Judiciary Act ensures that the Commonwealth and its emanations are, as nearly as possible, subject to the same rights and obligations as any other litigant. In civil litigation to which the Commonwealth or an emanation is a party that carries with it an obligation to seek and to be receptive to reasonable compromise. What was said by Dowsett J in Danoz is a reminder of that. Equally, as Mansfield J reminded in the examples given in Harris Scarfe, and they are nothing more than examples, considerations of particular and peculiar relevance to government will necessarily have to be taken into account in deciding what is a reasonable compromise. 34 By Pt VIIIC of the Judiciary Act Parliament has made express provision for the Attorney-General to give directions for the guidance of Commonwealth departments and agencies and those acting for them with respect to the conduct of government legal business. Presently, directions given by the Attorney pursuant to s 55ZF within Pt VIIIC of the Judiciary Act are to be found in Schedule 1 to the Legal Services Directions 2005 (Cth). These canvas no new subject. The sentiments given voice in the directions are of very long standing. As long ago as 1912, in Melbourne Steamship Co Ltd v Moorehead (1912) 15 CLR 333 at 342 (Melbourne Steamship Case), Griffith CJ referred to them as "the old-fashioned traditional, and almost instinctive standard of fair play to be observed by the Crown in dealing with subjects, which I learned a very long time ago to regard as elementary". Even absent express parliamentary provision for the same, the Attorney, as First Law Officer responsible for the Commonwealth's legal business, could and, in my experience in practice, did, via the Commonwealth Crown Solicitor and later the Australian Government Solicitor, give general directions on the subject of what has come to be called the obligation to act as a model litigant. Appendix B to the Legal Services Directions is but a confirmatory, contemporary repository of longstanding features of that obligation. It is not necessary to detail what is there stated. It suffices to note that nothing which was said by Dowsett J in Danoz or Mansfield J in Harris Scarfe is inconsistent either with the model litigant obligation either as detailed in the Legal Services Directions or as described by Griffith CJ in the Melbourne Steamship Case. 35 Whatever might have been an earlier disposition on the part of the ACCC, the position which came finally to be reached in settlement negotiations was not that no settlement was possible in the absence of the agreed promotion of the granting of declaratory relief irrespective of to whatever injunctive relief to which the respondents were disposed to consent. It was absence of agreement as to costs which proved to be a stumbling block. 36 In the course of submissions for the respondents it was put that the reference, in relation to costs, to Pt 7 of the Financial Management and Accountability Act in correspondence to them on behalf of the ACCC was misconceived. It was submitted that, prior to the making and taxing of an order as to costs in favour of the ACCC neither respondent could be indebted to it in respect of costs. If one were to have regard just to the responsibility which a chief executive such as the Chairman of the ACCC has under s 47 within Pt 7 of the Financial Management and Accountability Act in relation to the recovery and writing off of debts there would be merit in this submission. However, also found within Pt 7 of that Act is s 44 by which, materially, "a chief executive must manage the affairs of the Agency in a waythat promotes proper use of the Commonwealth resources forwhich the chief executive is responsible". Even absent any debt to the ACCC arising from a costs order in its favour, the Chairman had a value judgement to make as to whether, in all the circumstances, acceptance of the offer made by the respondents in an endeavour to compromise the proceedings would constitute a proper use of Commonwealth resources. Further, in making that value judgement, the Chairman was bound to take into account the model litigant obligations to which I have referred. 37 In circumstances where, in the final result, nothing came to be offered by the respondents in respect of costs, nothing in the model litigant obligation or s 44 of the Financial Management and Accountability Act obliged the Chairman to accept that offer. 38 Neither is there anything in a model litigant obligation which dictated that the ACCC had to seek from Seal-A-Fridge and from Mr Rooney in advance of instituting proceedings enforceable undertakings pursuant to s 87B of the Trade Practices Act. The attempted seeking of an enforceable undertaking was not a condition precedent to the institution of the present proceeding. In this regard, too, the ACCC had a value judgement to make as to what, in all the circumstances, was the appropriate course to take. The making of such value judgements is for those to whom the administration of the Trade Practices Act is consigned, not for the Courts. In making that value judgement the ACCC was entitled to take into account the history of its dealings with Seal-A-Fridge and Mr Rooney and whether, in light of that, it was better to proceed directly to litigation. In turn, Seal-A-Fridge and Mr Rooney were entitled, if they chose, to attend at the first directions hearing, to offer undertakings in respect of all of the relief claimed and to contend that the ACCC should not receive an order for costs in its favour because it had peremptorily resorted to litigation. That is not the course which they chose to follow. 39 It was submitted that, in the face of the respondents' offer, the further prosecution of the proceeding by the ACCC was misconduct on its part which warranted a departure from the usual order that costs follow the event. Reference was made in this regard in the respondents' submissions to observations made by McHugh J in Oshlack v Richmond River Council (1998) 193 CLR 72 at [69] – [70]: [69] The traditional exceptions to the usual order as to costs focus on the conduct of the successful party which disentitles it to the beneficial exercise of the discretion. In Anglo-Cyprian Trade Agencies Ltd v Paphos Wine Industries Ltd, Devlin J formulated the relevant principle as follows: "No doubt, the ordinary rule is that, where a plaintiff has been successful, he ought not to be deprived of his costs, or, at any rate, made to pay the costs of the other side, unless he has been guilty of some sort of misconduct." "Misconduct" in this context means misconduct relating to the litigation, or the circumstances leading up to the litigation. Thus, the court may properly depart from the usual order as to costs when the successful party by its lax conduct effectively invites the litigation; unnecessarily protracts the proceeding; succeeds on a point not argued before a lower court; prosecutes the matter solely for the purpose of increasing the costs recoverable; or obtains relief which the unsuccessful party had already offered in settlement of the dispute. [70] Apart from anomalous examples in the equity jurisdiction, there are very few, if any, exceptions to the usual order as to costs outside the area of disentitling conduct. The Court may award costs in favour of a defendant where the plaintiff has obtained only nominal damages. However, this practice can be justified on the basis that, in reality, the successful party lost the litigation and the unsuccessful party won. Though these observations form part of a dissenting judgment, that does not, as the respondents correctly submitted, affect the correctness of his Honour's observations. 40 In relation to the consideration as to costs of whether the action had been prosecuted solely for the purpose of increasing costs, McHugh J cited as authority Hobbs v Marlowe [1978] AC 16. In that case it could be seen that an insured plaintiff's solicitors had increased his damages claim beyond the amount of the out of pocket expenses and insurance refund gap solely for the purpose of engaging a scale of costs more advantageous than that which would otherwise have been applicable. The plaintiff succeeded in securing judgment for the higher amount but the trial judge exercised his discretion so as to award costs on the scale applicable to the total of the excess and the out of pocket expenses. The exercise of the discretion in this way came to be upheld in the House of Lords. 41 This is not a case where the ACCC unnecessarily protracted proceedings or prosecuted them, after the last offer made by the respondents, solely for the purpose of increasing costs. These were civil proceedings. The ACCC was entitled to proceed on the footing that, in the usual course of events, the costs discretion would be exercised such that costs would follow the event. That notwithstanding, it was also entitled to have regard to the advantages of certainty of outcome presented by the final offer made by the respondents and to forgo some or all of such costs order as it might reasonably expect to receive in the event that, after forensic contest at trial, it nonetheless came to succeed in respect of all of the principal relief claimed. It would certainly have been within the limits of the discretions conferred by s 44(1) of the Financial Management and Accountability Act for the ACCC to have foregone something of its costs to that date so as to avoid the risks of litigation. However, neither that provision nor the model litigant obligation obliged the ACCC to accept the respondents' final offer. The decision to reject the offer made on behalf of the respondents was a value judgement reasonably open to the ACCC in the ordinary course of public administration. 42 Further, it needs to be remembered that, in the final result, the respondents did not choose just to concede the relief claimed and to make submissions that, having regard to correspondence without prejudice save as to costs, the ACCC ought not to receive some or all of its costs. The stance which the respondents adopted at trial was to put the ACCC to proof on the whole of its remaining claim for relief. To secure that relief that the ACCC had to prosecute its case. As it happened, it did not succeed in all of its remaining claims but, in respect of those in which it did succeed, I see no disentitling conduct. In relation to some much of its claim in which it succeeded the ACCC is, in my opinion, entitled to an order for costs in its favour. 43 It was put on behalf of the respondents that the Ms Bywaters' estimate was that about 33% of the legal costs incurred by the respondents related to those parts of the relief claimed which were discontinued. No evidentiary foundation for that degree of precision was put forward on behalf of the respondents. To embark on a detailed inquiry on that question would serve further to increase costs. Impressionistically, such legal costs as were incurred to the point of discontinuance costs could hardly have been trifling. 44 In Australian Trade Commission v Disktravel [2000] FCA 62 at [3] the Full Court cited with approval the following summary offered by Toohey J when a member of this Court in Hughes v Western Australian Cricket Association (Inc) & Ors (1986) ATPR 40-748, p 48,134 at p 48,136 as to Australian and English cases with respect to apportionment of costs: 1. Ordinarily, costs follow the event and a successful litigant receives costs in the absence of special circumstances justifying some other order. 2. Where a litigant has succeeded only upon a portion of the claim, the circumstances may make it reasonable that the litigant bear the expense of litigating that portion upon which it has failed. 3. A successful party who has failed on certain issues may not only be deprived of the costs of those issues but may be ordered as well to pay the other party's costs. Issue in that sense does not mean a precise issue in the technical pleading sense but any disputed question of fact or law. In that same case (ibid) the Full Court also drew attention to what their Honours described as "a caveat against too ready a resort to apportionment according to issue based outcomes" to be found in the following passage from the judgment of Jacobs J in Cretazzo v Lombardi (1975) 13 SASR 4 at 16: The ultimate ends of justice may not be served if a party is dissuaded by the risk of costs from canvassing all issues, however doubtful, which might be material to the decision of the case. There are, of course, many factors affecting the exercise of the discretion as to costs in each case, including in particular, the severability of the issues, and no two cases are alike. I wish merely to lend no encouragement to any suggestion that a party against whom the judgment goes ought nevertheless to anticipate a favourable exercise of the judicial discretion as to costs in respect of issues upon which he may have succeeded, based merely upon his success in those particular issues. 45 This is, in my opinion, a case in which apportionment is indeed warranted. Even allowing for that, variants of types of orders are imaginable. I could, for example, grant the ACCC a proportion of its costs having regard to such of its claim after discontinuance as it succeeded in securing after trial, order the ACCC pay the respondents' costs thrown away by the discontinuance and then direct that the one be set off against the other. That, too, though would make for a complicated taxation. It would be better in this case in my opinion just to make an evaluative apportionment based on impression and keeping steadily in mind that the respondents must not be overcompensated in that exercise by making any allowance in their favour as to trial costs in respect of that part of the ACCC's claim which was discontinued. In this regard, even the lower end of the range put forward by the ACCC (66% to 75%) as to the proportion of its costs which it should receive seems a little high to me. As a matter of impression, to allow the ACCC 60% of its taxed costs of and incidental to the proceeding would recognise that it did not succeed in respect of a discrete claim which went forward and had also imposed a significant costs burden on the respondents, up to the time of discontinuance, in respect of that part of the claim for relief which was not prosecuted. Though the outcome is precise, I emphasise that its derivation is impressionistic, based on a lengthy association with the case through its interlocutory and trial stages. It is not mathematically derived. 46 Also put forward on behalf of the respondents was that, to make any costs order against either respondent would, given their financial resources, drive them to insolvency with consequential adverse effects for the Seal-A-Fridge network of franchisees. I did not have any detailed evidence as to the financial position of either respondent. I did have evidence that their solicitors had been disposed to enter into an arrangement whereby the respondents had been permitted to pay the balance of their costs as between solicitor and client by instalments. Again though, if that arrangement were the result of paucity of financial resources having been evidenced to their solicitors, the respondents chose not to evidence the same to the ACCC or to me. 47 In any event, I do not consider that the asserted impecuniosity is a basis for not giving the ACCC the benefit of an order for costs to which it is otherwise entitled. An order for costs is one thing; a decision by the recipient of a costs order as to whether it is worthwhile seeking to recover on the same once taxed and by what means is another. Such decisions are ones for the ACCC. Further, whatever may be the outcome for Seal-A-Fridge and Mr Rooney if the ACCC chooses to press for payment of its taxed costs, it does not follow that the franchise network will collapse. In this regard, there was, with respect, something of a "Louis Quatorze" (Louis XIV), "L'État, c'est moi" ("I am the State") quality about the respondents' submission. 48 In the event of insolvency as a sequel to an unmet demand for payment of costs and if assets possessed by Seal-A-Fridge relating to the franchise network are valuable then a liquidator may well choose to continue to operate the company for a time so that its business can be sold as a going concern to a third party. One way therefore of dismissing as irrelevant to a proper exercise of the costs discretion this aspect of the respondents' submission is to recall another monarchial adage, "The King is dead. Long live the King." It does not do further to speculate on such future contingencies about the fate of Seal-A-Fridge or Mr Rooney as a sequel to an otherwise appropriate costs order. 49 For these reasons, the order which I make is that the respondents pay 60% of the applicant's costs, including reserved costs, to be taxed. I certify that the preceding forty-nine (49) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Logan. Associate: Dated: 30 June 2010 schedule IN THE FEDERAL COURT OF AUSTRALIA QUEENSLAND DISTRICT REGISTRY GENERAL DIVISION No: (P)QUD184/2008 AUSTRALIAN COMPETITION & CONSUMER COMMISSION Applicant SEAL-A-FRIDGE ACN 080 116 258 First Respondent NIGEL JOHN ROONEY Second Respondent ORDER JUDGE: Justice Logan DATE OF ORDER: 4 June 2010 WHERE MADE: Brisbane THE COURT DECLARES THAT: Declarations against the first respondent: 1. The First Respondent, in trade or commerce, in connection with the supply of goods and services to each of Peter and Irene Malishev (the Malishevs) and Camabe Pty Ltd (Camabe) engaged in conduct that was unconscionable in contravention of section 51AC(1) of the Trade Practices Act 1974 (Cth) in that the First Respondent in January 2001 and April 2004 imposed increases in the weekly fees payable for access to the national telephone number contrary to the terms of Franchise Agreements entered into between the first respondent and each of the Malishevs and Camabe in circumstances where: (a) there was no contractual authority for the fee increases which were imposed; (b) each Franchise Agreement as originally entered into, by implication, only permitted increases to a weekly fee payable under that agreement in accordance with the Consumer Price Index at an annual reference date; (c) the first respondent was in a position of strength in its dealings with the Malishevs and Camabe, in that it controlled access to the national telephone number in circumstances where the continued access to that number was essential to each franchisee's business; (d) in respect of the 2001 fee increase: (i) the first respondent abused its position of strength over the Malishevs and Camabe for the purpose of gaining additional profit; (ii) it was a unilateral profit gouge; (iii) it was supported by a falsehood that the increase of the weekly fee was because Telstra's charges to the first respondent had recently increased; (iv) the promotion of the falsehood evidenced an absence of good faith on the part of the first respondent; (v) the Malishevs and Camabe had been disconnected from the national telephone number for failure to pay the full amount of the 2001 fee increase; (e) in respect of the 2004 fee increase: (i) the first respondent abused its position of strength over the Malishevs and Camabe for the purpose of gaining additional profit; (ii) this 2004 increase did not feature the cutting off of access to the Malishevs and Camabe, but it did not have to where the ability which the first respondent had to cut off the Malishevs' and Camabe's access to the national telephone number in the event the first respondent's demands for an increase in the weekly fee (however unauthorised and extortionate) were not accepted, had already been demonstrated; (iii) the Malishevs and Camabe had been disconnected from the national telephone number for failure to pay the full amount of the 2001 fee increase; (iv) it was a unilateral profit gouge; (f) the first respondent required a deed of variation to be agreed by each of the Malishevs and Camabe respectively, increasing the relevant fee payable under the respective Franchise Agreement, in the circumstances set out in paragraphs 1(a) to 1(e). 2. The first respondent contravened section 51AD of the Trade Practices Act 1974 (Cth) in that contrary to the requirements of Annexure 1, items 6.2 and 20.2 – 20.3 of the Trade Practices (Industry Codes – Franchising) Regulations 1998 (Cth) in force on and after 1 October 2001 (the Code) the Disclosure Document given to Debra and Ross Layton (the Laytons) dated 30 December 2004: (a) did not contain contact details of existing franchisees (by way of provision of a business address or business telephone number) or indicate when the existing franchisees started operating a Seal-A-Fridge franchise; and (b) did not include: (i) financial reports for the past two financial years prepared under ss.295 - 297 of the Corporations Act 2001 (Cth); or (ii) a copy of an independent audit provided by a registered company auditor (within 12 months after the end of the financial year to which the statement relates) in support of the statement required under Annexure 1, item 20.1 of the Code. 3. The first respondent contravened section 51AD of the Trade Practices Act 1974 (Cth) in that contrary to the prescribed requirements of the Trade Practices (Industry Codes – Franchising) Regulations 1998 (Cth) the first respondent failed to provide a current disclosure document within 14 days after a written request by: (a) the Laytons dated 18 October 2006; (b) the Malishevs dated 23 October 2006; and (c) Camabe dated 15 January 2007. Declarations against the second respondent: 4. Within the meaning of Section 75B of the Trade Practices Act 1974 (Cth), the second respondent was a person involved in the contraventions of the first respondent described in paragraphs 1, 2 and 3 above, in that he was a party to each such contravention. THE COURT ORDERS THAT: Injunctions 5. The First Respondent by itself, its employees or agents or otherwise howsoever be restrained from increasing the ongoing fees payable by a franchisee, including for the use of the national telephone number, unless: (a) there is contractual basis for the price increase provided for by the franchise agreement; and (b) the first respondent has given 14 days written notice to the franchisee of: (i) the amount of the proposed fee increase; (ii) the reason for the proposed fee increase; (iii) the contractual entitlement of the first respondent to increase the fee; and (iv) when the proposed fee increase is to take effect. 6. The first respondent by itself, its employees or agents or otherwise howsoever be restrained from disconnecting a franchisee from the national telephone number unless the first respondent: (a) has given the franchisee notice in writing that the first respondent considers the franchisee to be in breach of the franchise agreement; (b) has told the franchisee what the first respondent requires be done to remedy the breach; and (c) allows the franchisee a reasonable time (which need not be more than 30 days) to remedy the breach. 7. The second respondent be restrained from being party to the first respondent or any other corporation, whether by itself, its servants, agents or otherwise: (a) increasing the ongoing fees payable by a Seal-A-Fridge franchisee including for the use of a single telephone number for the franchise; or (b) disconnecting a Seal-A-Fridge franchisee from a single telephone number for the franchise, unless (c) in respect of sub-paragraph 7(a): (i) there is contractual basis for the price provided for by the franchise agreement; and (ii) the first respondent or the other corporation has given 14 days written notice to the franchisee of: (A) the amount of the proposed fee increase; (B) the reason for the proposed fee increase; (C) the contractual entitlement to increase the fee; and (D) when the proposed fee increase is to take effect. (d) in respect of sub-paragraph 7(b) the first respondent or the other corporation: (i) has given the franchisee notice in writing that the first respondent or the other corporation considers the franchisee to be in breach of the franchise agreement; (ii) has told the franchisee what the first respondent or the other corporation requires be done to remedy the breach; and (iii) allows the franchisee a reasonable time (which need not be more than 30 days) to remedy the breach. Publication order 8. The first respondent, within 14 days of the orders, write to each of its franchisees in the form of the letter attached to these orders and marked "A" enclosing a copy of the Court's order and providing a reference to the website where a copy of the Court's reasons which were delivered 28 May 2010 may be found. 9. The first respondent, by the second respondent, within 30 days of the orders, file and serve on the applicant an affidavit: (a) giving a list of the names and addresses of the franchisees to whom the letter in paragraph 8 was sent; and (b) exhibiting a copy of the letter. Complaint Handling System 10. The first respondent: (a) within 10 days of this order, shall appoint the second respondent as the company officer with responsibility for the implementation and maintenance of a Complaint Handling System (CHS) relating to the first respondent's compliance with its obligations under the Trade Practices (Industry Codes - Franchising) Regulations 1998 (the Code) or its agreements with Franchisees; (b) shall require the Second Respondent to maintain or cause to be maintained a complete and accurate documentary record of all complaints received from Franchisees or prospective Franchisees relating to the first respondent's compliance with the Code or its agreements with franchisees (the CHS Record), which is to include as a minimum: (i) the identity of the complainant, their contact details and the date of their complaint; (ii) where the complaint is in writing, a copy of written complaint; (iii) where the complaint is made in person or by telephone, a full description of the complaint; (iv) details of the steps taken by the first respondent to resolve the complaint, including the dates upon which the steps were taken; (v) where the steps taken by the first respondent involve any written communication, a copy of that written communication; (vi) where the steps taken by the first respondent involve any verbal communication, a written note of the details of that communication; (vii) where the first respondent has taken no steps to resolve the complaint, a written statement to that effect; (c) shall ensure that the documentary records of the CHS are available to the Australian Competition and Consumer Commission to be reviewed and copied from time to time. Such records are to be made available to the Australian Competition and Consumer Commission for review and copying within 14 days of a written request for those records; (d) maintain the CHS for a period of 3 years from the date of this order. Compliance Training 11. For the purpose of ensuring that the second respondent does not again engage in the conduct declared by the Court in this proceeding to be in contravention of sections 51AD and 51AC of the Trade Practices Act 1974 (Cth), or any similar or related conduct: (a) the second respondent within three months of the date of this order, attend, at his own expense, a compliance seminar conducted by an independent person with appropriate knowledge of the Trade Practices Act 1974 (Cth), which includes a presentation relating to: (i) the Trade Practices (Industry Codes – Franchising) Regulations 1998 (Cth) then in force and section 51AD of the Trade Practices Act 1974 (Cth); and (ii) section 51AC of the Trade Practices Act 1974 (Cth); and (b) notify the applicant in writing within one week of attending the seminar of the title of the seminar, the name of the person(s) who conducted the seminar and the date(s) of his attendance. Other orders 12. A copy of the reasons for judgment, with the seal of the Court thereon, be retained in the Court file for the purposes of section 83 of the Trade Practices Act 1974 (Cth). Date that entry is stamped: Deputy District Registrar ATTACHMENT "A" [TO BE PLACED ON SEAL-A-FRIDGE LETTERHEAD] Dear Franchisee Unconscionable conduct and breaches of the Franchising Code of Conduct by Seal-A-Fridge Pty Ltd Following civil proceedings instituted by the Australian Competition and Consumer Commission (the ACCC), the Federal Court of Australia has found that Seal-A-Fridge Pty Ltd (SAF) and I, Nigel Rooney, have engaged in unconscionable conduct towards certain franchisees and contravened the Franchising Code of Conduct in breach of the Trade Practices Act 1974. Unconscionable conduct is a complex legal term which can be explained as taking advantage of another business in a way that shows no regard for conscience and is irreconcilable with what is right or reasonable, taking into account all of the circumstances. SAF has been directed to send this letter to each of our franchisees and a copy of the Court's order. Attached is a copy of the Court's order. The Court's order is summarised below. The unconscionable conduct was that in January 2001 and April 2004, SAF unilaterally imposed a fee increase which was contrary to the terms of the agreements with a number of franchisees. These increases of $25 per week for use of the SAF national telephone number were imposed in circumstances where: · there was no contractual authority for that level of fee increase; · the fee increase was a unilateral profit gouge from SAF franchisees; · the 2004 increase was imposed in circumstances where SAF had imposed a similar fee increase in 2001, resulting in some franchisees being disconnected from the national telephone number for failure to pay the full amount demanded; · SAF was in a position of strength in respect of its franchisees, as it controlled access to the national telephone number and knew that continued access to that number is essential to the franchised business; · SAF abused that position of strength which it held over its franchisees for the purpose of gaining additional profit; · the 2001 increase was supported by falsehood. SAF also contravened the Franchising Code of Conduct by: · failing to include the necessary information in the disclosure documents provided to a number of franchisees purchasing SAF franchises, including failing to include the required financial reports and contact details of existing franchisees; and · failing to provide a current disclosure document when requested by a franchisee. The Court has issued injunctions against SAF and me, preventing similar conduct from occurring again in the future. The Court has also restrained SAF and me from increasing ongoing franchise fees unless the increase is expressly provided for by the franchise agreement and the franchisee is given certain relevant information and notice about the increase. SAF has been ordered to set up a complaints handling system and to report to the ACCC on how it has prevented and resolved complaints about the SAF franchise system. Further, I have been ordered to undergo training on the Trade Practices Act. I have enclosed for your further information the order of the Court and a copy of the reasons of the Court may be found at the following internet address http://www.austlii.edu.au/au/cases/cth/FCA/2010/525.html. You can obtain further information about the Franchising Code of Conduct and the Act generally from the ACCC website at www.accc.gov.au. Yours faithfully Nigel Rooney Seal-A-Fridge Pty Ltd