Facton Ltd & Ors v Chung Lim Sports Cap Pty Ltd & Ors (No.2) - [2010] FMCA 735

FEDERAL MAGISTRATES COURT OF AUSTRALIA

FACTON LTD & ORS v CHUNG LIM SPORTS CAP PTY LTD & ORS (No.2)

[2010] FMCA 735

Bridge Shipping Pty Ltd v Grand Shipping SA (1991) 173 CLR 231
CCH Federal Court Service at page 60967
MGICA (1992) Ltd v Kenny & Good Pty Ltd (No.2) (1996) 140 ALR 707

First Applicant:

FACTON LTD (FORMERLY KNOWN AS G-STAR RAW DENIM KFT)

Second Applicant:

G-STAR AUSTRALIA PTY LTD
(A.C.N. 084 011 852)

Third Applicant:

G-STAR INTERNATIONAL B.V

First Respondent:

CHUNG LIM SPORTS CAP PTY LTD (A.C.N. 096 765 123)

Second Respondent:

JAE HYO KIM

Third Respondent:

JUNG SUK SEO

Fourth Respondent:

DAVID SEO (HYEUNG JU SEO)

File Number:

MLG 877 of 2009

Judgment of:

Burchardt FM

Hearing date:

10 September 2010

Date of Last Submission:

31 August 2010

Delivered at:

Melbourne

Delivered on:

10 September 2010

REPRESENTATION

Counsel for the Applicants:

No Appearance

Solicitors for the Applicant:

Middletons

Counsel for the Fourth Respondent:

No Appearance

Solicitors for the Fourth Respondent:

Kim and Associates

THE COURT DECLARES THAT, FOR THE REASONS SET OUT IN THE REASONS FOR JUDGMENT:

The Fourth Respondent has infringed the G-Star Trade Marks (as defined in paragraph 5 of the Amended Statement of Claim) in breach of section 120 of the Trade Marks Act 1990 (Cth).
The Fourth Respondent has infringed or authorised the infringement of the Copyright Works (as defined in paragraph 6 of the Amended Statement of Claim).
The Fourth Respondent has contravened sections 42 and 44 of the Fair Trading Act 1987 (NSW) (FTA).
The Fourth Respondent has contravened sections 52 and 53 of the Trade Practices Act 1975 (Cth) (TPA).
The Fourth Respondent has engaged in conduct which constitutes the tort of passing off.

AND THE COURT ORDERS THAT:

The Fourth Respondent pay the Applicants $500 as compensatory damages.
The Fourth Respondent pay the Applicants $15,000 for damages to reputation.
The Fourth Respondent pay the Applicants $15,000 additional damages pursuant to section 115 of the Copyright Act 1966.
The Fourth Respondent pay the Applicants costs until 5 May 2010, to be taxed pursuant to the Federal Magistrates Court Rules 2001 in default of agreement.
The Applicants pay the Fourth Respondent’s costs from 6 May 2010 to be taxed pursuant to the Federal Magistrates Court Rules 2001 in default of agreement.
Each party bear their own costs of the hearings (including preparation therefor)
on:
19 August 2009;
4 November 2009;
23 December 2009;
19 March 2010;
1 April 2010; and
13 April 2010.
Each party bear their own costs of their submissions in relation to costs and matters related to the decision on 10 September 2010.

FEDERAL MAGISTRATES
COURT OF AUSTRALIA
AT MELBOURNE

MLG 877 of 2009

FACTON LTD (FORMERLY KNOWN AS G-STAR RAW DENIM KFT

First Applicant

G-STAR AUSTRALIA PTY LTD (A.C.N. 084 011 852)

Second Applicant

G-STAR INTERNATIONAL B.V

Third Applicant

And

CHUNG LIM SPORTS CAP PTY LTD (A.C.N. 096 765 123)

First Respondent

JAE HYO KIM

Second Respondent

JUNG SUK SEO

Third Respondent

DAVID SEO (HYEUNG JU SEO)

Fourth Respondent

REASONS FOR JUDGMENT

(Revised from transcript)

In this matter I will deliver my reasons for judgment orally now. They will obviously be transcribed and, subject to any minor editing as to mistakes or grammar and the like, they will then be forwarded to the parties. On 16 August 2010 I delivered judgment in this matter and draft orders. Paragraph 91 of the reasons for judgment reads:
“I have prepared draft orders to give effect to my conclusions. In view of my remarks at paragraph 76 above, I will hear further from counsel. I will further hear any submissions as to interest and costs.”
Paragraph 76 referred to the issue as to whether or not it was appropriate to provide injunctive relief, given that the respondent had already undertaken not to infringe again. By consent, the parties forwarded written submissions arising from those aspects of my judgment.
The first issue raised was that the orders should refer to the fourth respondent only. The fourth respondent is correct to so submit, as the other respondents played no part in the proceedings. The Court's orders have been re-engrossed to reflect that circumstance.
The second matter raised was who pays reserved costs.
The third matter raised was the effect and consequences of the fourth respondent's offer of compromise.
The fourth matter raised was whether injunctions should be ordered.
The fifth was whether declarations should be made, and that goes both as to the form of declarations and as to whether it is appropriate to make them.
The sixth matter was the question of interest.
The seventh matter was whether any costs order should be on the Federal Magistrates Court scale, or pursuant to the Federal Court Rules.
Turning to the first matter of dispute, namely who pays reserved costs, there are more of these reserved costs than the parties' written submissions indicate. In order to understand the position, it is necessary to refer to the history of the proceeding. On 14 July 2009, the original application was filed. The first applicant was in fact the wrong party, it was not the owner of the trademarks with which the case was ultimately concerned, which turned out to be Facton Ltd. Nor was it the owner of the copyright, which turned out to be a Dutch firm, G Star International BV.
On 23 July 2009, service was effected upon the fourth respondent. On 19 August 2009, the matter came before Phipps FM, his Honour ordering that the fourth respondent file a defence by 9 September 2009 and resolving costs. On 4 November 2009, Phipps FM heard the matter again and ordered that there be filed a notice of motion for default judgment. Costs were again reserved and the hearing of the foreshadowed application for default judgment was listed for 23 December 2009. On 23 December 2009, the fourth respondent appeared by his solicitor, Gary Seo. This was the first involvement by the fourth respondent in the proceeding. The matter was adjourned and the fourth respondent was ordered to pay the costs of the adjournment within 14 days as taxed or agreed. There is no indication that those costs have in fact been paid.
On 20 January 2010, Mr Seo withdrew as solicitor for the fourth respondent and on 29 January 2010 at a further hearing, the fourth respondent was ordered to file a defence and to pay costs of $2000, which have in fact been paid. On 11 February 2010, the defence was filed. It consisted of bare denials and non-admissions. I note that the ownership of trademarks and copyright was not admitted. On 3 March 2010 the applicant by its solicitors wrote to my associate and sought a hearing of a foreshadowed summary judgment application. That led to the matter being mentioned on 19 March 2010, and on 16 March 2010 the fourth respondent asked the applicant what orders were in fact being sought at the foreshadowed listing.
On 17 March 2010 the applicants confirmed by their solicitors that they would seek summary judgment, but when the matter came on on 19 March 2010, the Court did not have time to hear the parties at any length. Costs were reserved. It should be noted, however, that the applicants only told the fourth respondent they would not proceed with their summary judgment application just before the hearing. On 26 March 2010 the applicants served an amended statement of claim listing two further companies as applicants and in effect sorting out the ownership of the trademarks and copyright with which the case was concerned.
On 31 March 2010 there was a telephone mention; the Court vacated the foreshadowed hearing on 1 April and refixed the trial on 13 April 2010. This arose out of difficulties with a witness for the applicants. On 7 April 2010 the fourth respondent informed the applicants that he would not consent to the amended statement of claim and application. On 13 April 2010 I permitted those amendments, but there were problems with the fact that the application extended to issues to do with trademarks, in which the Court did not prima facie have jurisdiction. The matter had to be referred instanter to the Federal Court and back again to enable the Court to proceed.
Prima facie, the applicants have a good case in respect of reserved costs on 19 August 2009, 4 November 2009 and 23 December 2009, if they have not yet been paid. Prima facie, the fourth respondent has a good case in respect to the reserved costs on 19 March 2010 because the applicants said they would proceed with them summary judgment application as late as 17 March 2010. The fact that the Court was not in a position to actually hear the summary judgment application was not relevant to the fact that the respondent had to prepare for the hearing as if it would proceed. The fourth respondent also has a good case for the costs of the adjournment on 1 April 2010 because this was occasioned by problems with the applicants' witness, although I note that was a telephone mention only.
So far as costs of 13 April 2010 are concerned, it seems to me that the responsibility for those lies roughly equally. The fourth respondent should not have opposed the foreshadowed amendments. Despite the respondent’s solicitor's lengthy letter, it was clear that these amendments were going to be permitted. It was a classic case for the application of Bridge Shipping Pty Ltd v Grand Shipping SA (1991) 173 CLR 231. The fourth respondent however was also correct to point out in such correspondence that the application was made very late in circumstances where it should have been made earlier.
Taking all these matters together as to reserved interlocutory costs, it seems to me that, taken as a whole, the parties are roughly equally responsible for the various difficulties that have obtained, and they cancel each other out. The applicants are entitled to three sets of costs, all of which necessitated appearing at Court. The fourth respondent is entitled to one telephone mention. The fourth respondent is also entitled to costs of 19 March 2010. The applicants' conduct in affirming their intention to proceed on 17 March 2010 and then resiling from that just before Court on the 19^th might well give rise to solicitor/client costs in a normal order. As I say, balancing all these considerations I think it is appropriate that both sides bear their own costs in relation to all reserved costs.
The next matter to consider is the effect of the fourth respondent's offer of compromise. The offer of compromise was made on 21 April 2010. It purported to be made pursuant to order 23(10) of the Federal Court Rules, and I accept that that is an appropriate rule to apply given that there is no express Federal Magistrates Court rule dealing with the matter. Technically, the offer does not comply with order 23. By way of example, it does not comply with sub-rule 3(2)(b) because it is not prepared in accordance with order 41.
However the criticisms made by the applicants at paragraph 24 of their written submissions are in my view unworthy. In any event, the offer still has to be taken into account. I would quote, from the CCH Federal Court Service at page 60967, under the heading General Commentary - this as to rule 23(11)(6):
“Rule 11 reflects the principles laid down in the Calderbank line of cases and it also puts in place a specific procedure for litigants to follow in order to attract the possible costs benefits flowing from O 23 after the making of settlement offers. Where a letter of compromise cannot be regarded as an offer of compromise for the purposes of O 23, as for example because it does not follow the prescribed form as proscribed by r 3(2) or because (r 8 applying) the offer has been disclosed to the court contrary to r 8, the letter may yet be taken into account in the exercise of the Court's discretion on costs on the principles discussed in Messiter v Hutchinson (1987) 10 NSWLR 525 – (authorise cited but omitted). In the latter case, Heerey J rejected the submission that O 23 was a code excluding any reliance on Calderbank letters. His Honour said that the Calderbank letter was such a useful and flexible weapon for litigants who want to achieve reasonable settlement that in the absence of express provision to that effect he was not prepared to draw the inference that the rule makers intended to exclude it.”
The following points emerge, in my view, in considering the offer made by the fourth respondent. First, even if the offer of compromise was not decisively exceeded, it does not automatically lead to indemnity costs, and I refer to order 23, rule 11(6)(b). The rule refers to circumstances “unless the Court otherwise orders”. I note also the remarks of Lindgren J in MGICA (1992) Ltd v Kenny & Good Pty Ltd (No.2) (1996) 140 ALR 707 at page 711, line 7, where his Honour said:
“Order 23 establishes a regime which, if utilised, gives rise to a presumptive entitlement to indemnity costs.”
At line 37, his Honour continued:
“Clearly the circumstances must take a case out of the “ordinary” or “usual” category if an order for indemnity costs is to be made since, as noted earlier, the rules evince an intention that in that category of case, an order for costs signifies and order for costs on a “party and party” basis. Perhaps the various “tests” which have been suggested are classifiable as “abuse of process”, “ulterior or extraneous purpose” and “unreasonableness tests”.”
Here, the fourth respondent's letter was not technically an offer of compromise but it was clearly closely akin to it. Next, if one looks at the offer itself, made on 20 April 2010, it was an offer made to the individual applicants. But it is clear in the circumstances of this case that it should be assessed globally. That is how the applicants themselves ran their case. The offer involved a number of components. The first was $37,300 inclusive of interest, in other words, $33,000 without interest. Secondly, to pay all costs except reserved costs. And third, that reserved costs were to be determined by the Court. In fact, the applicants relevantly achieved a total of $30,500. But the offer of compromise was not certain; it left reserved costs at large. The fourth respondent's correspondence had already, at least in part, asserted an entitlement to reserved costs. See exhibit ABW5.
So in deciding to accept, the applicants had to evaluate their chances of success in a further proceeding, the outcome of which was uncertain. Further, the offer of compromise contemplated costs of argument about reserved costs following the event. It is not stated in terms but it is clear that that was the position the fourth respondent was putting. In the ultimate, I think the outcome is this: first, it is clear that the applicants should have taken the offer, the offer was $37,300 and they achieved a result of $30,500, leaving aside for the moment the question of interest; second, however, the offer was not sufficiently certain of outcome, in my view, to ground indemnity costs.
I note, additionally, that the conduct of both parties has in part been undesirable. I have already referred to much of it but I will repeat some of the points. First, the fourth respondent failed properly to participate in the proceeding for a considerable time. Secondly, the applicants wrote to my associate on 3 March 2010 in terms that were inappropriate. Third, the tenor of the fourth respondent's solicitor's correspondence was in my view generally overstated and unduly aggressive. Fourth, the applicants' behaviour about the notice of motion to which I have referred was totally inappropriate. Fifth, the fourth respondent said he would require all the applicants' witnesses for cross-examination but ultimately did not require Mr de Bil and Mr La Fontaine to attend.
In all the circumstances, I think the applicants should have costs on a party/party basis until the offer of compromise, in other words, 5 May 2010, noting that the offer of compromise says it was made on 21 April 2010 and open for fourteen days thereafter. After 5 May, the fourth respondent should have costs on a party/party basis. Each side is to bear their own costs of the proceedings on 19 August 2009, 4 November 2009, 23 December 2009, 19 March 2010, 1 April 2010, 13 April 2010, and of their written submissions that have given rise to today's proceeding.
The next issue is the question of injunctions. I accept the fourth respondent's submissions. There is no useful work for injunctions to do. Such materials of the applicants or such counterfeit materials purporting to be those of the applicants as the fourth respondent may have had have already been returned. The other injunctions sought by the applicants in effect seek to require the fourth respondent to obey the law. That is not the proper purpose of injunctive relief.
The next issue is the question of declarations. I have already said at paragraph 75 of my reasons for judgment that I think declaratory relief is proper. I still think so. I will amend the draft declarations to reflect the fact that they refer to the fourth respondent only.
The next issue is the question of interest. The awarding of interest is discretionary.
There is no point in ordering interest on the $500 of general damages that the Court ordered for the applicants. It would cost more to calculate than it is worth. Otherwise, I accept the fourth respondent's written submissions. Clearly, the other damages were assessed as a point that crystallised the loss at the date of assessment. It is not appropriate, therefore, to award interest upon those sums.
Finally, there is the question as to whether the costs orders should reflect the Federal Magistrates Court scales or those of the Federal Court. The applicants issued in the Federal Magistrates Court because there is a penalty if they were to recover less than $100,000 in the Federal Court. They lose one third of their costs in that event, as is made plain by their written submissions. This Court was clearly the proper Court for this claim. Nothing in this case takes it out of the usual order of things. I accept that in other cases, other Federal Magistrates have ordered taxation pursuant to the Federal Court Rules, and each case must necessarily turn on its own facts.
Prima facie, the Federal Magistrates Court scale applies as it is a Federal Magistrates Court case. I think it is appropriate that the parties tax their costs on the Federal Magistrates Court scale. There are no features of the case of such complexity as to make Federal Court rule application appropriate. My associate will forward orders giving effect to these conclusions as soon as practicable.

I certify that the preceding thirty-one (31) paragraphs are a true copy of the reasons for judgment of Burchardt FM

Date: 10 September 2010