By James Tobin, Partner and Phoebe Pitt, Senior Associate

A recent case of the Federal Court of Australia has considered the question of whether the applicants obtained a judgment against the respective respondents which was “more favourable” than the terms of the offer in the context of non-monetary relief. This serves as a timely reminder to litigants and their advisers to consider a relevant nexus between any offered conditions and the relief they seek in the proceeding to ensure the Court has the ability to undertake an evaluation of whether an offer is “more favourable” for the purposes of obtaining an indemnity costs order under the Federal Court Rules.

Primary relief granted

The judgment of Key Logic Pty Limited v Blue Groper Investments Pty Limited [2019] FCA 275 concerned a ruling on costs in the previous case of Key Logic Pty Limited v Blue Groper Investments Pty Limited [2019] FCA 63, handed down in February 2019.

Without repeating the judgment, the applicants were successful in establishing that the respondents had engaged in breaches of sections 18 and 29(1)(a) of the Australian Consumer Law and copyright laws, in respect of which they were entitled to extensive declarations and injunctions. The applicants sought prohibitory and mandatory injunctions and, whilst they were successful in obtaining extensive relief, they were not successful in securing all of the relief sought.

In the present case, the applicants sought orders that the respondents pay their costs of the proceeding on an indemnity basis, on the grounds that they submitted that they had obtained judgment on “more favourable terms” than three offers made to the respondents pursuant to Part 25 of the Federal Court Rules 2011 (Cth) (Rules).

The claimed entitlement to indemnity costs arose from an application of Rule 25.14(3), which provides that:

(3) If an offer is made by an applicant and not accepted by a respondent, and the applicant obtains a judgment that is more favourable than the terms of the offer, the applicant is entitled to an order that the respondent pay the applicant’s costs;

(a) before 11.00 am on the second business day after the offer was served—on a party and party basis; and

(b) after the time mentioned in paragraph (a)—on an indemnity basis.

The Honourable Justice Derrington, in considering the issue, acknowledged that:

“the difficulty here is the making of evaluative adjudication as to the respective benefits of the offers made and the judgment given. In cases where a monetary amount is the only or the principal relief sought and obtained, the evaluation between the benefits sought under an offer and the benefits gained by judgment is relatively easy. However, greater complications arise in cases where injunctive and declaratory relief is sought”.

In other words: we need to compare apples with apples.

Offers made

Importantly, upon judgment the applicants did not obtain orders which reflected the terms on which they offered to settle. Broadly, each of the three offers was as follows.

Offer 1:
The applicants put an offer to the first and second respondents (at that time, the only respondents in the action) to settle on the following conditions:

1. payment of a portion of legal costs;
2. issuance of corrective notices to relevant parties without admission of liability;
3. provision to the applicants of all originals or copies of documents concerning the applicants or their products; and
4. all reasonable assistance in complying with condition (3).

The Court found that condition (3) extended well beyond the documents and issues in dispute, and condition (4) would have imposed a significant burden on the relevant respondents, which relief was not ordered.

The Court referred to the lack of an “available evaluative framework which might be utilised” by way of comparison as to whether an offer was “more favourable”, and found that the operation of Rule 25.14(3) was not enlivened.

Offer 2:
The applicants offered to the first and second respondents that:

1. they pay the applicants $50,000;
2. they provide to the applicants a full list of each person to whom the infringing document was distributed, who has or may have received the document or to whom the respondents made infringing representations; and
3. the offer was put as being inclusive of costs.

The Court found that although the applicants were not awarded damages in the proceeding, the sum of $50,000 would be a relatively small proportion of their total legal costs, as at the date of Offer 2.

The applicants did not obtain relief in the form as sought at condition (2) upon judgment. Thus, the Court found that “it is not possible to evaluate the respective benefits of compliance with item 2 of the offer of compromise on the one hand and the performance of the injunctions granted on the other” and followed its ruling in respect of Offer 1.

Offer 3:
The applicants made a further offer to the third and fourth respondents which contained an almost-identical condition to item (2) in respect of Offer 2, as well as seeking to secure the following additional covenants from the third and fourth respondents:

1. retract each infringing representation in writing to each person in a specified list;
2. provide full disclosure to the applicants as to how they obtained the infringing photographs;
3. return to the applicants (or destroy, at the applicants’ option) any relevant material within their possession; and
4. irrevocably acknowledge the first applicants’ ownership of all relevant intellectual property rights, and undertake to permanently refrain from challenging the validity of any of those rights.

The Court again acknowledged the inherent difficulties in consideration of these and found that Rule 25.14(3) was not enlivened and no order for indemnity costs could be made under that Rule.

Applicants’ entitlement to costs outside of Rule 25.14(3)

Following a careful consideration of the applicants’ entitlement to costs outside the scope of Rule 25.14(3), the Court rules that “[o]verall, the applicants have been substantially successful in the action. A significant part of the proceeding was the vindication of their rights in relation to its copyright and the misleading or deceptive conduct of the respondents or some of them” and that the obtaining of relief was a “significant and important victory for the applicants”.

The Court noted that whilst section 43 of the Federal Court of Australia Act 1976 (Cth) gives the Court a wide discretion in awarding costs, that exercise is not without principles or practices and the ordinary rule is that costs follow the event.

Thus, whilst the applicants were unable to establish an entitlement to indemnity costs pursuant to Rule 25.14(3), they were nevertheless entitled to an order that the respondents pay their costs of the proceeding on the standard basis.

Key takeaways

This serves as a timely reminder that offers of compromise should bear some real semblance to the form(s) of relief sought in the proceeding. This is particularly so where they seek non-monetary relief.

Absent such a nexus, the Court may find that it does not have a basis upon which to evaluate the respective benefits of the offer in comparison to the ultimate outcome upon judgment. In those circumstances, an offering party which may otherwise subjectively consider itself to have been “more successful” upon judgment – and therefore entitled to indemnity costs pursuant to Rule 25.14(3) – faces the risk that the Court may find that the relevant Rule is not enlivened and they are limited to recovery of costs on the standard basis.

Relevantly, an offering party would also be well-advised to seek advice from their legal advisors as to their views on prospects of success of the various non-monetary heads of damage claimed in advance of crafting any offer.

As a related issue, it can be helpful – when making an offer which comprises a costs component – to set out your legal costs as at the date of the offer, as an objective yardstick against which the ultimate result can be compared. This is particularly of greater significance in the Supreme Court of Victoria, where rule 26.08(8) of the Supreme Court (General Civil Procedure) Rules 2015 (Vic) limits recovery other than in the event of a “genuine compromise”. Providing clarity as to total costs to date in the context of such an offer can be a strong tool in demonstrating the genuineness not only to the offeree at the time of the offer, but also if necessary to the Court for the consideration of costs at the appropriate time.