Case: Australian Competition &amp; Consumer Commission v Leahy Petroleum Pty Ltd [2007] FCA 794
Outcome: cited
These reasons for judgment concern issues of costs. On 29 May 2007, I made orders dismissing the application in this proceeding, reserving questions of costs and giving directions about the filing of written submissions and the hearing of argument in relation to issues of costs. At that time, I also published reasons for judgment, very substantial in length, dealing with the principal issues in the proceeding. See Australian Competition &amp; Consumer Commission v Leahy Petroleum Pty Ltd [2007] FCA 794. It is convenient to refer to that judgment in these reasons for judgment as Leahy Petroleum . 2 The proceeding in which that judgment was given involved allegations by the applicant, the Australian Competition and Consumer Commission ("the ACCC"), of contraventions of s 45(2) of the Trade Practices Act 1974 (Cth) ("the Trade Practices Act ") by a number of corporations engaged in retail selling of petrol in and around the City of Geelong. The corporations were alleged to have entered into, and to have given effect to, a series of arrangements or understandings that contravened s 45A of the Trade Practices Act , because they contained provisions for the fixing, controlling or maintaining of prices of petrol. In addition, a number of natural persons were alleged to have been involved in the contraventions. The corporate respondents are identified in Leahy Petroleum at [57]. Their respective relationships with the natural person respondents are set out in Leahy Petroleum at [64]. For ease of reference, in these reasons for judgment, I propose to refer to the corporate respondents by their abbreviated names, in the same way as I referred to them in Leahy Petroleum . Similarly, I propose to refer to the natural person respondents by their names. The orders I make will reflect the way that the ACCC and the various respondents are described in the title to the proceeding. 3 The power of the Court to award costs is conferred specifically by s 43(1) of the Federal Court of Australia Act 1976 (Cth) ("the Federal Court Act "). The effect of s 43(2) of the Federal Court Act is that, in a case such as the present, the award of costs is in the discretion of the Court. Courts have developed rules or principles to guide the exercise of the discretion in particular cases. Foremost among these is the rule or principle that costs should follow the event, ie. a party successful in litigation should be entitled to recover costs from an unsuccessful party. Similarly, there is a rule or principle that, when costs are awarded, they are normally awarded on a party-party basis. Costs calculated on a party-party basis do not provide anything like full compensation to the successful party for the expenditure incurred in prosecuting or defending the case successfully. Courts have therefore developed rules or principles to guide the exercise of the discretion in exceptional cases, so that costs calculated on a more compensatory basis, right up to a full indemnity, can be awarded if the circumstances justify such an order. Rules and principles are very helpful in determining whether an order for the payment of costs should be made at all, or what the basis of the calculation of costs ordered should be. They are not binding, however, and it must be recognised always that the Court exercises discretionary powers in relation to awarding costs, including the extent to which they should compensate the successful party for actual expenditure. 4 The ACCC and several of the respondents have submitted consent orders in relation to costs. There is no reason not to make those orders. In relation to other respondents, the ACCC accepts in general that it should be required to pay the costs of the successful respondents who contested the proceeding, in the application of the rule or principle that costs follow the event. There are some respondents who entered into agreements with the ACCC during the course of the proceeding, prior to its trial, which agreements obliged those respondents to make full admissions as to contraventions of s 45(2) of the Trade Practices Act , to consent to orders being made against them, including orders for pecuniary penalties, declarations and injunctions, in some cases to give evidence on behalf of the ACCC at the trial, and to submit to orders that they pay costs to the ACCC. For reasons that I gave in Leahy Petroleum , at [962], I declined to make findings in accordance with the admissions made pursuant to those agreements. The ACCC has recognised that, in view of this, and of its lack of success despite the evidence given by some respondents pursuant to those agreements, it ought not to attempt to enforce the agreements so far as they obliged the parties to them to submit to orders for costs in favour of the ACCC. Some of those respondents have contended that they should be entitled to orders for costs against the ACCC, on the basis that such costs should follow the event. The ACCC has contended that there ought to be no order as to costs as between it and the successful respondents who were parties to such agreements. It is therefore necessary to resolve that issue. 5 In addition, some of the respondents who contested the proceeding have asked the Court to order that the ACCC pay their costs on an indemnity basis, or on some other basis that would compensate them more fully than party-party costs, for their expenditure on legal costs, either in respect of the entire proceeding, or in respect of part of it. Various arguments have been advanced in support of these applications, and various times during the trial have been advanced as appropriate points from which indemnity costs should be ordered in favour of different respondents, if they are not to receive indemnity costs in respect of the entire proceeding. It is also necessary to resolve these issues. 6 On 21 June 2007, the ACCC and Liberty filed a consent order to the effect that there be no order as to costs as between them. Similarly, on 21 June 2007, the ACCC and Alan Shuvaly filed a consent order to the effect that there should be no order as to costs as between those parties. 10 Ian Carmichael, Michael Warner and Eino Heikkila each entered into an agreement with the ACCC as to the outcome of the proceeding. I have referred to these agreements in Leahy Petroleum at [133]-[136]. Mr Carmichael and Mr Warner each agreed to consent to orders in the terms of, or in similar terms to, those sought against them in the application in its original form. These included an order that the respondents pay the ACCC's costs of and incidental to the proceeding. Mr Heikkila's agreement was in a different form. In it, the ACCC agreed to accept costs of $5,000 from Mr Heikkila in respect of the proceeding. It should also be noted that Alan Shuvaly entered into an agreement with the ACCC similar to that entered into by Mr Carmichael and Mr Warner, but Mr Shuvaly has sought an order by consent involving no order as to costs as between himself and the ACCC. 11 Much of the argument about whether the ACCC should be ordered to pay the costs of Mr Carmichael, Mr Warner and Mr Heikkila, or whether there should be no order as to costs between the ACCC and each of those respondents, was concerned with issues of contract law. Attempting to approach the issue in this way is unproductive. There can be little doubt that there was implicit in each agreement to pay the ACCC's costs a term that each of the respondents so agreeing would pay his own costs of the proceeding. This is not to say a great deal, however. The parties to each of the agreements acted on the assumption that the case would have a particular outcome. The agreement by each of the relevant respondents to pay his own costs of the proceeding rested on that assumption. Once that assumption is falsified, it is impossible to say that the parties would have been of a unified view as to what should happen in relation to the costs of those respondents. More than likely, they would have disagreed, as they now do. In those circumstances, it is impossible to find that each of the agreements contained an implied term that either party to it would pay the other's costs, or that costs would lie where they fell. 12 Nor does the application of other principles of contract law assist in the resolution of the question whether orders for costs should be made in favour of the respondents who entered into costs agreements. The power of the Court to award, or to refrain from awarding, costs is not dependent upon what the parties concerned have agreed. It is therefore pointless to seek to determine whether the agreements have failed for want of a subject-matter, and whether they could or should be set aside, as was suggested by counsel for Mr Heikkila. The same applies to suggestions that the Court should now attempt to determine whether the relevant respondents entered into agreements under duress (given that they lacked the resources necessary to defend the proceeding properly) or in consequence of a misrepresentation by the ACCC (to the effect that it had the evidence necessary to prove the case against them). 20 With the benefit of hindsight, there is much in the applicant's preparation and conduct of the case about which it is possible to be critical. Plainly, the ACCC's investigators, and its legal representatives, were too carried away by the supposed correlation in the data the ACCC had collected between telephone calls and petrol price increases. Insufficient attention was given to the question whether such a correlation really existed, particularly in the light of the occasions recorded in the data summary, known as Annexure B, on which there were telephone calls without price increases, and on which there were price increases without telephone calls. I refer particularly to the analysis in Leahy Petroleum at [844]-[869], an analysis of the kind that should have been done prior to the commencement of the case, or at the very least prior to the trial, and should not have been left to the Court. It is most unfortunate that the leader of the ACCC's investigating team remained unaware of the ACCC's own report, entitled Reducing Fuel Price Variability (to which I have referred in Leahy Petroleum at [91]-[99] and [118]) until she was being cross-examined during the trial. If the investigators had taken into account the fact that the sawtooth pattern of movements in the retail price of petrol was common in Australia, and the various possible reasons advanced by the ACCC for that pattern, two things might have followed. They might not have made the assumption, which the principal investigator was reluctant to abandon in the witness box, that the only likely cause for such a pattern was collusion between petrol retailers. The investigators might also have been prepared to consider the possibility of a relationship between prices in the Geelong petrol market and those in the Melbourne petrol market. They might have taken a less Geelong-centric view than they appear to have taken. See generally Leahy Petroleum at [90]-[118]. 21 It must be remembered that the ACCC prepared and pleaded its case without the knowledge, or even the expectation, that it would have available to it the evidence of Ian Carmichael, Michael Warner, Alan Shuvaly and Eino Heikkila. These four respondents only agreed to give evidence after the proceeding had been instituted. In its preparation for the trial, the ACCC gave far too little attention to the inconsistencies between the evidence that those witnesses were to give, and did in fact give, and the data in Annexure B. It only emerged in the course of the oral evidence that those witnesses had not been given an opportunity to examine the data before they went into the witness box, thereby exposing them to cross-examination as to the inconsistencies. When I drew attention to this, pointing out that it was bound to lead to additional cross-examination, counsel for the ACCC resorted to putting a handful of selected occasions to some of the subsequent witnesses, and inviting them to speculate as to how the data on those occasions might fit with their general recollections. This was a wholly inadequate attempt to deal with the relationship between the circumstantial evidence and the oral evidence. It appears to me to stem from a belief that the supposed correlation between telephone calls and petrol price increases was strong enough to make the case for the ACCC, irrespective of what the other evidence might have been. 22 Two other inadequacies of the ACCC's case appear to have resulted from the same belief. One was the failure to lead evidence of the evolutionary origins of the alleged arrangements or understandings, particularly in circumstances in which there did not appear to have been sufficient time during which, or any pattern of events from which, the arrangements or understandings might possibly have evolved. See Leahy Petroleum at [150]-[177]. The ACCC's investigators and representatives appear to have taken the view that the data in Annexure B would justify the Court in making findings that effect was given to arrangements or understandings, and would thereby justify findings that those arrangements or understandings existed, irrespective of the effect of the oral evidence. The other inadequacy was the failure of the ACCC's legal representatives to make any serious attempt to grapple with an essential element of an arrangement or understanding, labelled for convenience as "commitment". This inadequacy is dealt with in Leahy Petroleum at [940]-[949]. The ACCC's case on this aspect required acceptance of the proposition that changes in the prices of petrol resulted from the implementation of arrangements or understandings, and that therefore such arrangements or understandings, including the requisite element of commitment, must exist. 23 It is clear that closer attention to the content of the available evidence, and to its relationship with the elements that the ACCC was required to prove, in order to establish contraventions of s 45(2) of the Trade Practices Act , might well have led to the conclusion that the prospect of a successful outcome for the ACCC was not great enough to warrant the expenditure of money involved in the proceeding. Further, the need for such close analysis became greater as the trial advanced, with the inconsistencies between the circumstantial evidence and the oral evidence, and the absence of evidence about significant elements, becoming progressively more apparent. To make these criticisms is not to conclude the question whether costs should be awarded other than on a party-party basis, however. The criticisms do not necessarily establish the proposition that it was unreasonable for the ACCC to commence the proceeding in the first place, or to pursue it to its end. 24 The ACCC is a statutory body, established by s 6A of the Trade Practices Act . It has a number of functions conferred on it, including functions of a regulatory nature. By s 77(1) of the Trade Practices Act , the ACCC may institute a proceeding in this Court for the recovery on behalf of the Commonwealth of a pecuniary penalty. The provisions for contravention of which pecuniary penalties may be imposed are listed in s 76. They include s 45. The ACCC is the only possible applicant for a pecuniary penalty. By other provisions of the Trade Practices Act , the ACCC may apply for other kinds of orders under the provisions of that Act, although its capacity to do so is not always exclusive of the capacity of other persons to apply for particular orders. For instance, under s 80(1) , the ACCC or any other person may apply for an injunction in respect of a contravention of a number of provisions, including s 45. It is apparent that the ACCC has cast upon it significant responsibilities on behalf of the public, to ensure as far as practicable that there is compliance with the provisions of the Trade Practices Act . When the ACCC has commenced and pursued a proceeding in respect of alleged contraventions of a provision of the Trade Practices Act , and there is no suggestion that it has acted with any ulterior motive, the Court should not be quick to award costs against it on anything other than the usual party-party basis when the ACCC has suffered a loss in the proceeding. Excessive readiness to force the ACCC to compensate the winning party to a greater extent than the normal party-party costs incurred might operate as a deterrent to the ACCC against bringing proceedings in the exercise of its public functions. 28 It is true that, at various points in the trial, I made comments that reflected the tentative views I had that the case was not proceeding in the way the ACCC had opened it, and that I could see difficulties in the evidence, particularly in the inconsistencies between the oral evidence and the circumstantial evidence in Annexure B. These comments cannot be taken as indicating that the ACCC was bound to lose. Indeed, the length of the reasons for judgment in Leahy Petroleum (967 paragraphs), and the detailed analysis of the evidence they contain, are inconsistent with the proposition that it was obvious that the ACCC would lose. 29 For these reasons, it cannot be said that the case is generally one appropriate for indemnity costs, or for the award of costs on any basis other than the usual party-party basis. There is an exception to this proposition that needs further attention. 30 In relation to the alleged arrangement or understanding known as Arrangement No 8, the ACCC set itself a more difficult task in proving the existence of an arrangement or understanding, and that effect was given to it, than was the case with any other alleged arrangement or understanding in the proceeding. Arrangement No 8 was the only tripartite arrangement or understanding alleged. Each of the three parties it was alleged to involve, Apco, Liberty and Andrianopoulos, was a discount retailer of petrol. Each of Liberty and Andrianopoulos had only one petrol outlet in the Geelong retail petrol market area. Apco had a number of such outlets. Each of the three had a significant number of other petrol outlets in other parts of Victoria. Annexure B contained information about a very large number of telephone calls passing between Alan Shuvaly of Liberty and Christos Andrianopoulos of Andrianopoulos, as well as a substantial number of calls between Peter Anderson of Apco and either Mr Shuvaly or Mr Andrianopoulos. It would have required an extremely Geelong-centric view to assume that all of these calls related to retail prices of petrol in the Geelong petrol market. This is especially so as the number of occasions on which the ACCC was prepared to allege that effect was given to Arrangement No 8 was quite small, when compared with the number of occasions on which it alleged that effect was given to some of the other alleged arrangements or understandings. Further, the occasions on which it was alleged that effect was given to Arrangement No 8 diminished in number significantly during the course of the trial. From the outset, Arrangement No 8 was far from the strongest aspect of the ACCC's case. In order to bolster it, the ACCC called Mr Shuvaly to give evidence, pursuant to the agreement to which I have referred between the ACCC and Mr Shuvaly, in [11] of these reasons for judgment and [135] of Leahy Petroleum . Mr Shuvaly gave evidence on the 12th, 13th and 14th days of the trial, Wednesday, 31 August, Thursday, 1 September and Friday, 2 September 2005. The evidence is summarised in Leahy Petroleum in [231]-[245]. It did not go well for the ACCC. In fact, as is described in [238]-[241], counsel for the ACCC sought, and were granted, leave to cross-examine Mr Shuvaly about a prior inconsistent statement. The cross-examination was largely ineffective. 31 After another witness had followed Mr Shuvaly into the witness box on 2 September 2005, shortly before adjourning the proceeding at the end of the day, I raised with counsel for the ACCC the difficulty of establishing the existence of Arrangement No 8, and particularly the necessary element of commitment, by reference to Mr Shuvaly's evidence. I invited counsel for the ACCC, in conjunction with senior people from the ACCC, to give serious consideration to the way in which the case was put, because I was concerned about the expenditure of money involved. 32 The trial resumed on the following Wednesday, 7 September 2005. Counsel for the ACCC therefore had sufficient time to consider the transcript of Mr Shuvaly's evidence, in the light of the relatively slight circumstantial evidence in relation to Arrangement No 8. In my view, they ought at that time to have realised that Mr Shuvaly's evidence would not assist them to prove the existence of Arrangement No 8 and that, in a number of significant respects, the evidence was inconsistent with the existence of an arrangement or understanding of the kind alleged as Arrangement No 8. In the light of the relatively scant circumstantial evidence on which the ACCC felt able to rely in suggesting that effect was given to Arrangement No 8, by the 15th day of the trial, 7 September 2005, the ACCC ought to have realised that Arrangement No 8 was not going to be proved.