A2B Australia Limited & Anor v Oz Power Group Pty Ltd & Anor
[2020] FCCA 2623
•18 September 2020
FEDERAL CIRCUIT COURT OF AUSTRALIA
| A2B AUSTRALIA LIMITED & ANOR v OZ POWER GROUP PTY LTD & ANOR | [2020] FCCA 2623 |
| Catchwords: INTELLECTUAL PROPERTY – COSTS – Trade mark infringement – whether costs should be awarded on an indemnity basis – whether costs should be awarded in a lump sum – whether costs under the Federal Court scale are appropriate – whether justifying circumstances to make an indemnity costs order – notice of offer to compromise – whether unreasonably refused by unsuccessful respondent. |
| Legislation: Federal Circuit Court of Australia Act 1999 (Cth), sub-s.79(3) Federal Circuit Court Rules 2001 (Cth), sch.1, rr.1.03, 1.05, 21.02 Federal Court of Australia Act 1976 (Cth), s.37N Federal Court Rules 2011 (Cth), rr.21.01, 25.01 - 06, 25.10 – 12, 25.14, 40.02(b) |
| Cases cited: Geneva Laboratories Limited v Prestige Premium Deals Pty Ltd (No 5) [2017] FCA 63; (2017) 122 IPR 279 Hislop v Paltar Petroleum (No 4) [2017] FCA 1632 |
| First Applicant: | A2B AUSTRALIA LIMITED |
| Second Applicant: | TAXIPROP PTY LTD |
| First Respondent: | OZ POWER GROUP PTY LTD |
| Second Respondent: | MOHAMAD KHALED |
| File Number: | SYG 3629 of 2018 |
| Judgment of: | Judge Baird |
| Hearing date: | Determined on the papers |
| Date of Last Submission: | 11 March 2020 |
| Delivered at: | Sydney |
| Delivered on: | 18 September 2020 |
REPRESENTATION
| Counsel for the Applicants: | Ms R White |
| Solicitors for the Applicants: | K&L Gates |
| The First Respondent appeared by the Second Respondent, with leave The Second Respondent appeared for himself |
THE COURT ORDERS THAT:
All previous costs orders be vacated.
The respondents pay the applicants’ costs including disbursements of the proceeding, including this costs application, on a party and party basis up to and including 11:00am 2 July 2019, and from 11:00am 2 July 2019 on an indemnity basis, fixed as a lump sum pursuant to r.21 of the Federal Circuit Court Rules 2001 (Cth), in the total amount of $130,766.00
The amount in paragraph (2) be payable by 31 October 2020.
| FEDERAL CIRCUIT COURT OF AUSTRALIA AT SYDNEY |
SYG3629 of 2018
| A2B AUSTRALIA LIMITED |
First Applicant
| TAXIPROP PTY LTD |
Second Applicant
And
| OZ POWER GROUP PTY LTD |
First Respondent
| MOHAMAD KHALED |
Second Respondent
REASONS FOR JUDGMENT
Introduction
This judgment deals with the costs of the principal proceeding between the parties, which I heard on 13, 14, 18 and 19 February 2020, in which the Applicants, A2B Australia Limited and Taxiprop Pty Ltd, were successful in their claims of trade mark infringement, and breach of settlement agreement against the Respondents, Oz Power Group Pty Ltd, and its director and sole shareholder, Mr Mohamad Khaled.
On 18 February 2020, I pronounced certain declarations of trade mark infringement, and in respect of the conduct of Oz Power, also breach of settlement agreement. I made final orders restraining the Respondents from infringing Australian registered trade mark no. 615059 for the word mark “MAXI TAXI”, requiring delivery up or destruction of infringing materials, and transfer the ownership of five domain names which included the term “maxitaxi”. On 19 February 2020 I ordered payment of both compensatory and additional damages. The parties agreed that the question of costs be determined on the papers.
These reasons address the Applicants’ application for their costs pursuant to r.21.02 of the Federal Circuit Court Rules 2001 (Cth) on a lump sum basis further to r 40.02(b) of the Federal Court Rules 2011 (Cth) (FCRules), including a component of costs on an indemnity basis.
In accordance with the Court’s timetabling orders, the parties have each filed written submissions and affidavits in support of their respective positions on costs. Mr Chris Round, solicitor on the record for the Applicants, includes in his affidavit affirmed 24 February 2020 a costs summary from 12 July 2018, the date his firm opened the file in relation to the dispute resulting in the proceeding, until 20 February 2020.
Mr Round attests to his analysis of the Applicants’ costs incurred, the sources of the information analysed, the rates of junior counsel, and in a confidential annexure, his and junior solicitor’s hourly and daily rates, and sets out the amounts of total costs and disbursements, with breakdowns of amounts up to and from certain dates (referable to certain offers of compromise), and including costs and disbursements incurred and recorded in the Applicants’ solicitors accounting system and received from third parties, including counsel, but not as at 20 February 2020 charged to the Applicants.
The costs summary captures in broad terms and in totals, the work done, partner’s and solicitor’s hourly rates (as I have said, in a confidential annexure), and amounts charged and chargeable to the Applicants, and disbursements, whilst not containing all of the detail envisaged under 4.10 of the Federal Court Costs Practice Note (GPN‑COSTS). It identifies that the solicitors’ professional fees charged or recorded but not yet charged to the Applicants are stated excluding goods and services tax (GST). There is no indication in the costs summary, however, whether this is so in relation to disbursements, which are stated as totals inclusive of GST. The grand total of the Applicants’ solicitors’ costs and disbursements from 12 July 2018 to 20 February 2020 is $170,299.32, comprising solicitors’ fees (ex GST) of $143,894.10, and disbursements – including counsel - (incl. GST) of $26,405.22. I return the costs summary, and certain offers of compromise, later in these reasons.
Mr Khaled, representing Oz Power, the First Respondent, and as the Second Respondent, does not dispute that the Respondents are liable to pay certain costs, however he submits that they should be liable only for party and party costs, and only up to 4 February 2020, the date of certain communications made by the Respondents’ then solicitors on instructions.
Principles and relevant legislative provisions
The relevant principles are well‑established. Under s.79(3) of the Federal Circuit Court of Australia Act 1999 (Cth), except as provided by the Rules or any other Act, costs are at the discretion of the Court or the Judge. The discretion is broad, but is to be exercised judicially, and in the context of the relevant court rules: see Oshlack v Richmond River Council [1998] HCA 11; (1998) 193 CLR 72, at [65].
The general rule is that costs follow the event, and so a successful party will generally, but not invariably, obtain an order for costs in their favour. Costs may be awarded on a party and party basis or on an indemnity basis, the later including when offers of compromise are made.
Pursuant to r.21.02 of the Rules, in making an order for costs in a proceeding, the Court may set the amount of the costs, or the method of calculation, or refer the costs for taxation under Part 40 of the FCRules.
Pursuant to r.1.05(2), if in a particular case the Rules are insufficient or inappropriate, this Court may apply, relevantly, the FCRules, in whole or in part and modified or dispensed with, as necessary. Without limiting sub-r.(2), r.1.05(3)(b) of the Rules then provides (relevantly) that rr.25.01 to 25.06, 25.10 to 25.12 and 25.14 of the FCRules apply to this proceeding as an optional means for quantifying costs entitlements when an offer of compromise is made. Pursuant to r.40.02 of the FCRules, a party entitled to costs may apply to the Court for an order that costs … (b) be awarded in a lump sum, instead of, or in addition to, any taxed costs, or (c) be determined otherwise than by taxation.
The fundamental purpose of a costs order is to compensate a successful party rather than punish an unsuccessful party. GPN-COSTS restates that principle, and states that that Court, however, will consider the appropriateness of the making of a special costs order in circumstances which may warrant it, including where parties raise unmeritorious arguments before the Court or otherwise conduct themselves inappropriately in the litigation.
This Court’s ability to order costs under the Federal Court scale is well known and accepted. Whether it is reasonable in the circumstances to do so, however, is a matter to be resolved having regard to the principles I have adverted to above, and the individual circumstances, including achieving a just outcome given the facts and law at issue in the proceeding. The matter is not to be resolved with some formulaic approach: see generally, Washington v Qantas Airways Limited [2014] FCCA 1413; (2014) 107 IPR 144.
Offer of compromise
Part 25 of the FCRules sets out the procedure by which a party may make an offer of compromise, prescribes the contents of the offer, and the consequences where such an offer is not accepted. The relevant rules are as follows:
25.01 Offer to compromise
(1)A party (the offeror) may make an offer to compromise by serving a notice, in accordance with Form 45, on another party (the offeree).
(2)The notice must not be filed in the Court. …
25.03 Offer to compromise—content
(1)The notice must state whether:
(a) the offer is inclusive of costs; or
(b) costs are in addition to the offer.
(2)If the offer is of a sum of money, the notice may separately specify the amount that represents:
(a) the offer in respect to the claim; and
(b) interest (if any). …
25.14 Costs where offer not accepted
…
(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.
It is apparent from the above that the circumstances provided by r.25.14 create a rebuttable presumption in favour of indemnity costs. It is for the rejecting party to displace that presumption.
In the present case, at different times both parties exchanged offers to compromise in the form set out under the FCRules.
Indemnity costs
As defined in the Dictionary to the FCRules, costs on an indemnity basis means costs as a complete indemnity against the costs incurred by the party in the proceeding, provided that they do not include any amount shown by the party liable to pay them to have been incurred unreasonably in the interests of the party incurring them. Costs on an indemnity basis are to be distinguished from costs as between party and party, which costs are defined in the Dictionary as only those costs that have been fairly and reasonably incurred by the party in the conduct of the litigation.
Leaving aside the circumstances of r.25.14(3) (see above at [14], and below, at [19]), it is well-settled that costs should not be ordered on an indemnity basis unless there is some special or unusual feature of the case that justifies departure from the ordinary practice. The Applicants referred to Re Wilcox; ex parte Venture Industries Pty Ltd (No 2) (1996) 72 FCR 151 per Black CJ at [152]. See also, TSG Franchise Management Pty Ltd v Cigarette & Gift Warehouse (Franchising) Pty Ltd (No. 3) [2016] FCA 828, in which Davies J explained the principle for an award of indemnity costs at [7], referring to the Full Court of the Federal Court of Australia decision in Hamod v New South Wales [2002] FCA 424; (2002) 188 ALR 659, at 665 (per Gray J, Carr and Goldberg JJ agreeing):
Indemnity costs are not designed to punish a party for persisting with a case that turns out to fail. They are not awarded as a means of deterring litigants from putting forward arguments that might be attended by uncertainty. Rather, they serve the purpose of compensating a party fully for costs incurred, as a normal costs order could not be expected to do, when the Court takes the view that it was unreasonable for the party against whom the order is made to have subjected the innocent party to the expenditure of costs.
The cases illustrate the appropriateness of awarding costs on an indemnity basis where there has been particular misconduct that caused a loss of time to the Court and to other parties, where proceedings were commenced or continued in wilful disregard of known facts or clearly established law, where allegations were made which ought never to have been made, or where the proceeding was unduly prolonged by groundless contentions …
A well-established circumstance justifying an award of indemnity costs is an imprudent refusal of an offer to compromise. A key question is whether the offeree’s refusal of the offer was “unreasonable” when viewed in light of the circumstances existing at the time the offer was rejected: CGU Insurance Ltd v Corrections Corporation of Australia Staff Superannuation Ltd [2008] FCAFC 173 at [75] per Moore, Finn and Jessup JJ.
Relevant circumstances to be taken into account in determining whether rejection of an offer was “unreasonable” may include: the stage of the proceeding when the offer is made, the time allowed to consider the offer, the extent of compromise offered, the offeree’s prospects of success assessed at the date of the offer, the clarity with which the terms of the offer are expressed, and whether the offer foreshadowed an application for an indemnity costs in the event of rejection: See Hazeldene’ Chicken Farm Pty Ltd v Victorian WorkCover Authority (No 2) (2005) 13 VR 435 at [25]; Beling v Sixty International S.A. (No 2) [2015] FCA 355 at [25].
Lump sum costs order
GPN‑COSTS states at item 4.1 that the Federal Court’s preference, wherever it is practicable and appropriate to do so, is for the making of a lump sum costs order. Where a party seeks a lump sum costs order, item 4.10 of GPN‑COSTS provides, inter alia, the costs applicant should file an affidavit in support of the lump sum claim – the costs summary – which must be clear, concise and direct, the intention of the procedure being “to streamline and expedite the determination or resolution of the quantum of costs question”. The costs applicant is not required to exhibit the source material verifying the amounts claimed, but must make it available at any costs hearing.
The purpose of the lump sum costs rule has been described as to avoid the expense, delay and aggravation involved in protracted litigation arising out of taxation: see LFDB v SM (No 2) [2017] FCAFC 207 at [14].
The Federal Court has oft stated that the exercise of fixing a lump sum is “one of estimation or assessment and not of arithmetic calculation or precision”, the approach must be “logical, fair and reasonable”, however the rule contemplates the “application of a much broader brush than that applied on taxation”: see e.g. Seven Network Limited v News Limited [2007] FCA 2059, Sackville J at [25]; Nine Films and Television Pty Ltd v Ninox Television Ltd [2006] FCA 1046, Tamberlin J at [8]; Ginos Engineers Pty Ltd v Autodesk Australia Pty Ltd [2008] FCA 1051; (2008) 249 ALR 371, per Finn J at [22] – [24] (in relation to this Court); and more recently, Geneva Laboratories Limited v Prestige Premium Deals Pty Ltd (No 5) [2017] FCA 63, at [86]; and Hislop v Paltar Petroleum (No 4) [2017] FCA 1632 at [7].
In Paciocco v Australia and New Zealand Banking Group (No 2) [2017] FCAFC 146; (2017) 253 FCR 403, the Full Court explained at [17]‑[20]:
[17]The Costs Practice Note provides for the Court to make use of sophisticated costs orders and procedures, and to take such steps as it considers necessary to ensure that it has the requisite level of detail to make a costs determination that is fair, logical and reasonable and to avoid orders that lead to potentially expensive and lengthy taxation hearings: Costs Practice Note at [3.3].
[18]We emphasise that in making a lump sum award of costs, the Court in undertaking the task of assessing costs is not precluded from undertaking a close inquiry of costs relating to a particular issue or category of costs, should the Court consider it appropriate to do so: see e.g. Hudson v Sigalla (No 2) at [30]. The Court is able to adopt their own procedures in inquiring into costs, is able to be flexible in how it conducts that inquiry, including by the obtaining of suitable assistance whether by referee’s report or other reporting, and is able to acquire the level of detail needed to make a determination that is fair, logical and reasonable.
[19]Whilst the Costs Practice Note now suggests that most cases should have a lump sum costs order approach applied unless there is some characteristic that would make it unsuitable, a lump sum costs order is not mandated in all instances. In all cases it is a matter for the Court to exercise the discretion given to the Court by the Federal Court Act and the Rules as appropriate: see Sigalla at [18]-[19].
[20]There is no particular characteristic that a case must possess for it to be suitable for the making of a lump sum costs order. Particular circumstances that may make a lump sum order especially appropriate include where in a large and complex commercial matter it would save the time, trouble, expense and aggravation of a taxation; where a taxation would require the parties to consume additional time and incur additional expenditure prolonging already protracted litigation; and generally to avoid an ongoing, counter-productive dispute as to costs, in the interests of achieving finality.
The power is available “whenever the circumstances warrant their exercise”: see Sony Entertainment (Australia) Limited v Smith [2005] FCA 228; (2005) 215 ALR 788 at 812 (Jacobson J).
A lump sum order avoids the time and expense to both parties of a contested taxation. Self‑evidently, it avoids the expense of preparation of a detailed bill of costs, and also, their review.
In Seafolly Pty Ltd v Maddern (No 6) [2015] FCA 1369, Tracey J considered authorities applying a discount in awarding a lump sum costs order (which revealed discounts ranging from 15% to 60% on actual costs). At [35], observing that in the end the methodology adopted by other cases is of assistance, but cannot be determinative, his Honour stated that the Court is required to have regard to the exigencies of the particular case and to apply the principles (that I have referred to above) with a view to reaching a logical, fair and reasonable figure. His Honour observed at [38] that:
The authorities establish that a discount should be applied to actual costs incurred by the party seeking a gross sum order. The discount is intended to take account, not only of the inevitable reduction in the amount awarded as a result of a taxation on a party/party basis, but also to recognise that no such taxation has occurred and that any estimate of their outcome is just that and that a further allowance may be necessary in order to ensure fairness to the party against whom the order is made. Both underestimation and overestimation are, to the extent possible, to be avoided.
The parties’ competing positions
The Applicants submit their costs should be awarded to them in a lump sum, and by reference to the Federal Court scale, because they say the Federal Circuit Court scale will not adequately compensate them for their costs in the proceeding. They also seek indemnity costs on and from 2 July 2019 because of the Respondents’ failure to accept an offer of compromise served on Friday afternoon, 28 June 2019, and dated that day (Applicants’ Offer) under Part 25 of the FCRules, relying upon the FCRules and the principles in Calderbank v Calderbank [1975] 3 All ER 333.
The Respondents, by their solicitors, made a “without prejudice” offer to compromise the proceeding on 9 January 2020. That offer was rejected by the Applicants on 22 January 2020. The Respondents solicitors then restated a summary of their offer and confirmed their understanding that the Applicants had rejected it.
The Applicants’ made a second offer of compromise on 23 January 2020, three weeks before final hearing (Applicants’ Second Offer).
The Applicants’ Offer
The Applicants’ Offer was made following the close of pleadings, and a Court facilitated mediation held on 28 May 2019, which was unsuccessful. The Applicants’ Offer was not accepted. The Respondents subsequently and unsuccessfully brought an Application in a Case seeking leave to press a cross-claim.
The Applicants’ Offer was made under r.25.01 of the FCRules, inviting the Respondents to consent to declarations of infringement of the trade mark by the use of signs “MAXI TAXI”, “MAXI TAXI ONLINE” and “MY MAXI TAXI” (Respondents’ Signs), contraventions of the Australian Consumer Law, and passing off, and to orders restraining their conduct, in sum, in using, and marketing and selling their services by reference to the Respondents’ Signs, passing off, and purchasing Google Adwords for “maxi taxi” in Australia, requiring the Respondents to pay $61,500 (inclusive of costs). The Applicants’ Offer was stated to remain open for acceptance for 14 days, and in the cover letter that date was specified as being until 12 July 2019.
The cover letter to the Applicants’ Offer was marked “without prejudice save as to costs”. In the letter the Applicants (by their solicitors) informed the Respondents that they believed that they had very high prospects of establishing their claims at final hearing that the Respondents’ conduct infringed the trade mark, and breached a 2016 settlement agreement, that they had engaged in misleading and deceptive conduct, and committed the tort of passing off. The Applicants referred to a previously served mediation paper (a further copy of which was stated to be enclosed), and said that if successful they would seek damages of at least $170,000, calculated based on the profit summary discovered by the Respondents. They also observed that the Respondents’ conduct was of the kind likely to attract an award of additional damages pursuant to s.126(2) of the Trade Marks Act 1995 (Cth) (TM Act).
The Respondents were also informed by the letter that if they did not accept the Applicants’ Offer, and the Applicants obtained a judgment greater than the offer, the Applicants would “rely on the offer to compromise and the cover letter in support of an application that the respondent pay the applicants costs incurred moving forward on an indemnity basis, in accordance or [sic] the Federal Court Rules or the principles set forth in Calderbank v Calderbank … and as subsequently applied by Australian courts or both.”
As I have summarised, the enclosed Applicants’ Offer set out declarations and injunctive relief, and said:
The Applicant offers to compromise all claims and cross‑claims in this proceeding.
The offer is:
1.The Respondents consent to the Court making orders as follows:
(a)the Court declares that:
the Respondents have infringed Australian trade mark no. 615059 in breach of section 120 of the Trade Marks Act 1995 (Cth) by their use as a trade mark of the signs:
(A) MAXI TAXI;
(B) MAXI TAXI ONLINE; and
(C) MY MAXI TAXI.
(Respondents' Signs)
(ii)the Respondents have contravened sections 18 and 29 of the Australian Consumer Law (as contained in schedule 2 of the Competition and Consumer Act 2010 (Cth) (ACL) by their use in Australia of the Respondents' Signs; and
(iii)the Respondents by using the Respondents' Signs have committed the tort of passing off.
(b)the Court orders that the Respondents whether by themselves, their directors, servants, employees, agents or otherwise howsoever, be restrained, in trade or commerce from:
(i)marketing, advertising, promoting, supplying, offering for sale and selling taxi services by reference to the Respondents' Signs:
(ii)authorising, causing, procuring or inducing any person to do any act which would be an infringement of the injunctions referred to in paragraphs (b)(i) above;
(iii)representing that the Respondents' services are advertised, promoted, offered for sale or sold with the sponsorship or approval of the Applicants (and, in the case of the First Applicant, its predecessors in title);
(iv)purchasing Google AdWords for "maxi taxi" in Australia; and
(v)passing off:
(A) the Respondents' services as having a sponsorship, approval or connection, affiliation or association in the course of trade with the Applicants (or either of them); and
(B) their businesses as having the sponsorship, approval or connection, affiliation or association in the course of trade with the Applicants (or either of them).
(c)The Respondents pay the Applicants the sum of $61,500 inclusive of costs and damages.
2.This offer of compromise is open to be accepted for 14 days after service of this offer of compromise.
3.This offer is made without prejudice except as to costs.
Date: 28 June 2019
The consequences of failing to accept this offer are set out in r.25.14(3) of the FCRules (see above).
At final hearing I concluded, on incontrovertible evidence of the marketing and other uses of the trade mark (and similar marks) in relation to the Respondents’ taxi van transport services on domain names and websites and in social media, that the Respondents infringed the trade mark, including by using the Respondents’ Signs. As I have said at [2] above, I made orders restraining the Respondents from infringing the trade mark. I pronounced declarations which, whilst expressed in terms of infringement of trade mark, encompassed conduct that also constituted contravention of the Australian Consumer Law, and passing off (both of which causes of action I had invited the Applicants’ counsel during the course of the hearing not to press as duplication. I ordered the Respondents to pay a total of $75,000 in damages to the Applicants, comprising $5,000 in compensatory damages (pursuant to s.126(1)(b) of the TM Act), and $70,000 in additional damages (pursuant to s.126(2) of the TM Act).
My declarations, restraining orders and orders for delivery up, destruction and transfer were, in substance, more favourable to the Applicants than the corresponding declaratory and injunctive terms set out in the Applicants’ Offer. Further, the amount of damages I ordered was greater than the total of the inclusive amount of costs and damages contained in their Offer. The Applicants submit it follows they are entitled to their costs prior to 11am on 2 July 2019 on a party and party basis, and after 11am on 2 July 2019 on an indemnity basis.
As I have observed above, and in accordance with r.25.14(3), FCRules, the Applicants’ Offer stated that the Respondents had 14 days after service of the offer to accept it. This time limit was reiterated in the cover letter (as I have said, the Applicants’ Offer was made on 28 June 2019). The Respondents were also informed by the letter of the prospect that if they did not accept the Applicants’ Offer, and the Applicants obtained a judgment greater than the offer, the Applicants would seek an order for their costs “incurred moving forward on an indemnity basis”. The offer was stated to be inclusive of costs.
I am satisfied that the Applicants’ Offer clearly and adequately set out the terms offered and did so in accordance with the FCRules.
The Applicants’ Offer was sent over three months after the pleadings had closed, and approximately a month after the parties had mediated. On 11 June 2019, by consent I made timetabling orders for the filing and service of evidence, preparation for final hearing and setting the matter down for final hearing for two days on a date to be advised. On 28 June 2019, further to draft consent orders submitted to Chambers, I made orders varying the timetable, and fixing the hearing dates. The Respondents were then, and previously since at least 11 February 2019 (and up to just before the final hearing), represented by lawyers stated to be experienced in intellectual property matters.
The Applicants Genuine Steps statement dated 20 December 2018 stated that the parties had engaged in correspondence regarding the claims in the matter, including via their solicitors including in the period 3 August 2017 to 10 August 2018. I apprehend from this statement, and from my review of the pleadings and filed affidavit of service, that the Respondents were aware of the Applicants’ trade mark claims since at least the receipt of letters of demand dated 30 July 2018 and 10 August 2018, and the claims as pleaded since service of initiating process personally on Mr Khaled in 30 January 2019. The Respondents had had the benefit of their former lawyers’ representation for the previous (at least) five months, including at mediation.
In these circumstances, I consider that the Respondents were well informed of the case brought against them, and that Mr Khaled, as the sole director of the First Respondent, and being the Second Respondent, was able to appreciate the Respondents’ prospects of defending it, and the consequences should the Respondents reject the offer.
I find it was unreasonable for the Respondents not to have accepted the Applicants’ Offer. I am satisfied that the Applicants obtained final relief that was more favourable than the Applicants’ Offer. In the circumstances I am satisfied that it is appropriate to award Applicants their costs as provided under r.25.14(3)(b), prior to 11am on 2 July 2019 on a party and party basis, and after 11am on 2 July 2019 on an indemnity basis, subject to the further considerations I set out in the balance of these reasons.
The subsequent offers
I have said above (at [29]) on 9 January 2020 the Respondents made a “without prejudice” offer to compromise the proceeding. Whilst the Respondents offered to consent to declarations and injunctive relief in terms substantially as contained in the Applicants’ Offer made over six months earlier, the Respondents proposed each party pay their own costs, and did not offer any amount by way of pecuniary relief.
I have referred above to the Applicants’ Second Offer made on 23 January 2020, three weeks before final hearing. Among other matters, it required the Respondents to pay to Applicants $130,000 (inclusive of costs), and was made prior to the Applicants incurring the costs of trial preparation and attending the final hearing. The Applicants submit that it was unreasonable for the Respondents not to accept the Applicants’ Second Offer.
In his affidavit affirmed 6 March 2020 in support of the Respondents’ position on costs, Mr Khaled attests to certain counter proposals made without prejudice in the period 4 February 2020 to 6 February 2020 (in several iterations varying the terms of the Applicants’ Second Offer). In his affidavit in reply affirmed 11 March 2020, Mr Round attested to further communications between the parties as late as 10 February 2020. It is apparent from that evidence that the Respondents did not accept the Applicants’ Second Offer, and that their counter proposals did not better overall the declarations and final orders the Court made on 18 and 19 February 2020.
As I have found that the Applicants are entitled to rely on the Applicants’ Offer, and that the orders and declarations made in their favour were better than their Offer, it is not necessary for me to further consider the Respondents’ offer or the Applicants’ Second Offer or any subsequent inter partes communications.
The applicable costs’ regime
The Applicants submit that in the circumstances the Respondents should not be immune to an adverse costs order because they elected to remove their lawyers prior to the commencement of the hearing (see further below). I accept that submission.
The Applicants further submit that as this matter was sufficiently “complex”, the event based scale provided in the Rules would not adequately compensate them for their successful litigation. Thus the Federal Court costs regime provided under the FCRules should apply.
Mr Khaled makes a submission that the amount sought by way of indemnity costs is out of proportion to the cost set out in Schedule 1 of the Rules, that is, the events based costs regime provided in this Court. He also submits that the Respondents are going through hard financial times due to the loss of websites and business in general and currently (as at March 2020) generating no income and that “the only way of possibly making any payment is in instalment starting from 4-5 months as the respondent (sic) is currently trying to establish other leads for business.”
The Rules in this Court provide that the prescribed scale applies unless it is otherwise ordered. It is not the case that trade mark infringement matters are automatically deemed to be too “complex” to be adequately compensated under the Rules (see Washington, at [58]‑[60]). This matter however raised particular factual and legal issues involving a multiplicity of domain names and websites, with varying uses and continuing uses of the registered trade mark, and trade marks substantially identical with or deceptively similar to the trade mark, as well as contractual issues arising from a breach of settlement agreement involving some, but not all the parties. I consider that by reason of those issues it is appropriate that costs be awarded by reference to the Federal Court costs regime rather than the events based scale costs under the Rules.
For the same reasons, I accept that it was appropriate for the Applicants to engage experienced intellectual property counsel. I note that the Applicants’ use of counsel was conservative. As I have stated on other occasions, the engagement of such expertise can result in a more efficient conduct of matters, and concomitant savings of costs and time. I consider that it did so in the present case.
The Respondents terminated their legal representation within the week before the hearing, and did not engage new representation. At my direction, the Respondents’ former solicitors appeared at the commencement of the hearing to inform the Court personally of their cessation of retainer. I heard and refused an informal application by Mr Khaled for an adjournment. I permitted the Respondents to present additional evidence and submissions, notwithstanding the orders for evidence and submissions having expired. Further, I am cognizant that counsel properly, and with utmost courtesy and patience, ably assisted by her instructors, made every attempt to ensure that the Respondents understood the Court process and had an opportunity to engage new lawyers, whilst not derogating from performance of their obligations to present the Applicants’ case.
The hearing occurred over three plus days. Whilst this is not an exceptional length of time for a hearing in this Court, Court time was increased by Mr Khaled’s last minute termination of the Respondents’ legal representation, and considerable disorganisation on the part of the Respondents’ case, including evidence of what domain names and websites continued to be actively used. I accept that this was likely to have increased the effort and time expended by the Applicants’ legal team during the hearing.
Given all the circumstances, I accept the Applicants’ submission that the event-based scale of costs prescribed by the Rules for proceedings in this Court is not apt for this matter. The work involved in this case cannot be valued fairly by reference to the events which the scale prescribes, or by reference to the values which the Rules place on those events.
Entitlement to lump sum costs
The Applicants further submit that a lump sum costs order is appropriate for reasons that have been canvassed in my discussion of the applicable principles above. They submit, and it is self-evident, that such an order will avoid either party incurring the further costs and delay associated with the assessment process.
I note that lump sum orders are not limited to so called complex matters, and that the complexity of legal and factual issues does not necessarily result in either taxation or a lump sum order being more or less appropriate. As I have already observed, the making of a lump sum costs order will save the parties time, delay, and expense by avoiding formal taxation.
Mr Khaled did not proffer any reason why a lump sum order was not appropriate or would not avoid the time and expense of a taxation. His submissions focused on the Respondents’ offer and variations of the Applicants’ Second Offer, whilst omitting to address that the Respondents did not accept the Applicants’ Offer. These submissions are misconceived, given the terms of the FCRules, and my findings above concerning the Applicants’ Offer.
Consideration as to lump sum costs order
The parties have already expended significant time and expense in relation to the proceeding. I accept that the parties should be spared the additional expense, and involvement in the conduct of a formal taxation. I further accept the Applicants’ submission that the avoidance of the expense of a taxation benefits the Respondents as well as the Applicants. A lump sum costs order provides finality to the litigation, a benefit to both parties.
In these circumstances I consider that it is logical, fair and reasonable, and in both parties’ interests, to make a lump sum costs order.
Applicants’ costs summary
In the costs summary Mr Round sets out the Applicants’ actual legal costs and disbursements incurred and estimated, provides estimates of party and party costs (both for the whole of the proceeding, and for the period prior to the operation of r.25.14(3) further to the Applicants’ Offer), and indemnity costs from 11am on 2 July 2010. The Applicants seek a lump sum costs order in the total amount of $145,028.79 (comprising $118,623.57 legal costs (ex GST), and $26,405.22 disbursements (incl GST)). Mr Round explains how he arrives at that amount, and the discounts he applies.
Legal costs and disbursements
Mr Round summarises the Applicants’ total costs (incurred and charged, and incurred but yet to be charged) for the whole period from 12 July 2018 to 20 February 2020, noting that in the period to the date of filing the proceeding (20 December 2018), professional fees excluding GST amounted to $8,195, and there were no disbursements:
Professional fees (ex GST) Disbursements (incl. GST) Total (ex GST on fees) $143,894.10 $26,405.22 $170,299.32
Of these totals, the Applicants’ costs and disbursements up to 11am on 2 July 2019, are:
Professional fees (ex GST) Disbursements (incl. GST) Total (ex GST on fees) $43,527 $2,036.65 $45,563.65 and the Applicants’ costs and disbursements from 11am on 2 July 2019 until 20 February 2020, are:
Professional fees (ex GST) Disbursements (incl. GST) Total (ex GST on fees) $100,367.80 $24,368.57 $124,736.37
Party and party costs (to 11:00am on 2 July 2019)
Mr Round deposes on the basis of his experience with the assessment of recoverable party and party legal costs on a lump sum and bill of costs (taxable form basis) in the Federal Court, that the assessment of party and party costs typically results in recovery of 70-80% of the professional fees incurred by a party, and generally 90-100% of disbursements when taxed on a party-party basis in the Federal Court, depending on whether Counsel’s fees fall within the Federal Court’s “National Guide to Counsel Fees”, and observing that generally Counsel’s fees will only be allowed at a rate that falls within the scale set out in that Guide. He attests that Ms White’s fees fall within the scale rates.
For the purpose of estimating the Applicants’ taxable costs in the proceeding on a party-party basis up to the time applicable under FCR r.25.14(3)(a), Mr Round calculated professional fees applying a 35% discount, that is, estimating an award at 65% of professional fees in fact incurred, and 100% of disbursements. Mr Round estimates the recoverable likely taxed party-party costs, and disbursements up to 11am 2 July 2019 to be:
Professional fees (ex GST) Disbursements (incl. GST) Total (ex GST on fees) $28,292.55 $2,036.65 $30,329.20
Indemnity costs (from 11am on 2 July 2019 to 20 February 2020)
In support of the Applicants’ application for indemnity costs as a consequence of non-acceptance of the Applicants’ Offer and the application of r.25.14(3)(b) of the FCRules, Mr Round deposes that he has applied what he believes to be a conservative factor of 90% of professional fees (i.e. a discount of 10%), in case there is any doubt that these costs were reasonably incurred, and 100% of disbursements:
Professional fees (ex GST) Disbursements (incl. GST) Total (ex GST on fees) $90,331.02 $24,368.57 $114,699.59
Consideration
I have accepted that costs should be awarded by reference to the Federal Court costs regime, rather than the events based scale under the Rules. I have also determined that costs should be awarded on a party and party basis up to and including 11am 2 July 2019, and thereafter, on an indemnity basis arising from the Respondents’ failure to accept the Applicants’ Offer. Lastly, I have concluded that costs should be awarded as a lump sum.
As a lump sum costs order avoids taxation, and a critical scrutiny of the necessity for and reasonableness of each item of the costs incurred by the successful party, it is appropriate that there be an element of discount in the amount arrived at after having regard to the consequences of taxation. I am also mindful, however, that the Applicants are entitled to the presumption of indemnity costs arising from the Respondents’ non‑acceptance of the Applicants’ Offer, and that I have found that non‑acceptance was unreasonable.
In these particular circumstances, I consider that a fair and reasonable broad brush approach is to award costs in a lump sum comprising party and party costs of 65% of actual professional fees up to and including 11:00am on 2 July 2019 (that is accepting Mr Round’s average), and indemnity costs of 90% of actual professional fees, from 11:00am 2 July 2019 (see above tables at [64], [66], and [67]).
I note, however, that the Applicants have not provided any detail as to the composition of the disbursement amounts, except that they include counsel’s fees, nor stated whether the Applicants are entitled to input credits. The Applicants have sought, both in relation to their party‑party costs, and full indemnity costs, 100% of their disbursements including GST.
In these circumstances I will award 100% of the amount of disbursements for the whole period, but excluding GST. I exclude GST because there was no GST disclosure in Mr Round’s cost summary as required by items 6.7 and 6.8 of GPN‑COSTS.
The amounts resulting from [70] – [72] are accordingly:
Recoverable costs per basis and period Professional Fees Disbursements (100% but excl. GST) On a party-party basis to 11:00am 2 July 2019
65% being
$28,292.55
$1,851.50
On an indemnity basis from 11:00am 2 July 2019 to 20 February 2020
90% being
$90,331.02
$22,153.25
Sub-total whole period $118,623.57 $24,004.75
Given the benefit of a lump sum order, as explained by Tracey J in Seafolly, I consider that it is appropriate to also apply an overall reduction of 10% on the total of the professional fees.
The resultant calculations are accordingly:
Recoverable costs per basis and period Professional Fees Disbursements Sub-total per table at [73] $118,623.57 $24,004.75 Lump sum total $106,761.21 $24,004.75
Conclusion
The total amount to be awarded is therefore $130,766.00 (rounded up).
I note in the course of the proceeding I made two costs orders against the Respondents dated 25 September 2019, and 13 November 2019 respectively. Neither party has addressed these orders in their affidavits or submissions in relation to costs. It is therefore appropriate that I vacate those orders, provided that they have not been previously taxed or agreed, and paid.
Given the current restrictions as a result of the COVID‑19 pandemic, I consider that it is reasonable to allow until 30 October 2020 for the Respondents to pay this amount. I will so order.
I certify that the preceding seventy-eight (78) paragraphs are a true copy of the reasons for judgment of Judge Baird
Associate:
Date: 18 September 2020
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