Henley Arch Pty Ltd v del Monaco (No. 2)
[2020] FCCA 1911
•15 July 2020
FEDERAL CIRCUIT COURT OF AUSTRALIA
| HENLEY ARCH PTY LTD v DEL MONACO (No.2) | [2020] FCCA 1911 |
| Catchwords: COPYRIGHT – Costs – 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 applicant. |
| 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: Beach Petroleum ML v Johnson (No 2) [1995] FCA 350; (1995) 57 FCR 119 Hislop v Paltar Petroleum (No 4) [2017] FCA 1632 Keen v Telstra Corp Ltd (No 2) [2006] FCA 930 LFDB v SM (No 2) [2017] FCAFC 207 |
| Applicant: | HENLEY ARCH PTY LTD |
| Respondent: | DORIANO MICHAEL DEL MONACO |
| File Number: | MLG 3588 of 2018 |
| Judgment of: | Judge Baird |
| Hearing date: | Determined on the papers |
| Date of Last Submission: | 5 December 2019 |
| Delivered at: | Sydney |
| Delivered on: | 15 July 2020 |
REPRESENTATION
| Counsel for the Applicant: | Mr T Cordiner QC and Mr M Fleming |
| Solicitors for the Applicant: | Ashurst Australia |
| The Respondent appeared for himself |
THE COURT ORDERS THAT:
The respondent pay the applicant’s cost of the proceeding, including this costs application, on a party and party basis up to and including 29 July 2019, and on and from 30 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 $166,202.
The amount in paragraph (1) be payable by 15 October 2020.
| FEDERAL CIRCUIT COURT OF AUSTRALIA AT SYDNEY |
MLG 3588 of 2018
| HENLEY ARCH PTY LTD |
Applicant
And
| DORIANO MICHAEL DEL MONACO |
Respondent
REASONS FOR JUDGMENT
Introduction
On 13 November 2019 I delivered Reasons for judgment in Henley Arch Pty Ltd v Del Monaco [2019] FCCA 3848 in which the Applicant, Henley Arch Pty Ltd, was successful in its suit against Mr Doriano Del Monaco pursuant to s.115 of the Copyright Act 1968 (Cth) for copyright infringement of a house plan known as the Colorado 37, (the Colorado Design as defined in the orders then made). I made orders restraining Mr Del Monaco from infringing copyright, and requiring destruction of infringing materials, and ordered payment of both compensatory and additional damages, and interest. The parties agreed that the question of costs be determined on the papers.
These reasons address Henley Arch’s application for its 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.
The parties have each filed written submissions. Further to the Court’s timetabling orders, Henley Arch has also filed an affidavit sworn 20 November 2019 by Ms Kellech Smith in support of its application for costs. Ms Smith is a partner at Ashurst Australia, and is Henley Arch’s solicitor principally responsible for the proceeding. She deposes to the conduct of the proceeding by the parties including a chronology of the course of communications, and non‑communication, between the parties, and Henley Arch’s requests for meetings. She includes in her affidavit a costs summary as at 8 November 2019 prepared under 4.10 of the Federal Court Costs Practice Note (GPN‑COSTS).
Mr Del Monaco has not filed any responsive affidavit in relation to costs. He has, however, attached to his written submission copies of text and email messages passing between him and Henley Arch’s solicitors.
As a separate matter, and further to the Court’s orders made 13 November 2019, Mr Del Monaco has filed an affidavit sworn by him confirming that, in compliance with the orders, he has destroyed all infringing materials, requested in writing that the builder engaged by him and their draftsperson take all reasonable steps to do so as well, and evidencing their compliance.
There is no doubt that Mr Del Monaco, as the losing party, should be ordered to pay costs. The question before me is on what “scale” and basis, whether there should be any differentiation as to the basis at and from a particular time (namely, rejection of an offer to compromise), and whether costs should be determined as a lump sum, or pursuant to taxation.
Principles and relevant legislative provisions
The relevant principles are well‑known. Under s.79(3) of the Federal Circuit Court of Australia Act 1999 (Cth), costs are in the discretion of the Court. 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 obtain an order for costs in its favour. Costs may be awarded on a party and party basis or on an indemnity basis.
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, the 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. I also note r.40.02(b) of the FCRules, which provides that a party entitled to costs may apply to the Court for an order that costs be awarded in a lump sum, instead of, or in addition to, any taxed costs.
The fundamental purpose of a costs order is to compensate a successful party rather than punish an unsuccessful party. The Federal Court’s costs practice note (GPN‑COSTS) restates that principle, and states that that Court will consider, however, 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 rules 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.
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), 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. Davies J explained the principle for an award of indemnity costs in TSG Franchise Management Pty Ltd v Cigarette & Gift Warehouse (Franchising) Pty Ltd (No. 3) [2016] FCA 828 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 …
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]. In Paciocco v Australia and New Zealand Banking Group (No 2) [2017] FCAFC 146; (2017) 253 FCR 403, the Full Court said 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] (‘Sigalla’). The Court is able to adopt its 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 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]. The power is available “whenever the circumstances warrant its 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, its review. However, as Katzmann J said in Hudson v Sigalla (No 2) [2017] FCA 339, at [55]–[56], there is a need for claims made for fees charged by lawyers to disclose “discretion and conservative moderation”, having regard to the obligation imposed by s.37N of the Federal Court of Australia Act 1976 (Cth), and in this Court, of the objects in r.1.03 of the Rules.
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 (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 its 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
Henley Arch submits that costs should be awarded it in a lump sum and by reference to the Federal Court scale, because it says that the Federal Circuit Court scale will not adequately compensate it for its costs in the proceeding. It also seeks indemnity costs relying on Mr Del Monaco’s failure to accept an offer of compromise served on 26 July 2019 (First Offer) under Part 25 of the FCRules, or alternatively, a subsequent offer made by email sent 21 October 2019 (Second Offer), relying upon the principles in Calderbank v Calderbank [1975] 3 All ER 333.
As I explain below, I am persuaded that the First Offer was properly made in accordance with the FCRules, and being unreasonably not accepted, therefore it is not necessary to consider the availability of an award of indemnity costs further to the subsequent failure to accept the Second Offer.
Henley Arch says its costs have been greatly increased because of Mr Del Monaco’s conduct. It says that conduct resulting in its increased costs has included:
(a)failure to make appropriate concessions;
(b)maintenance of a false position regarding the provenance of the Colorado Photograph (being an unauthorised photograph reproducing the Colorado Design, from which the infringing house plan was developed: see further, Reasons); and
(c)refusal or failure to properly engage with the Court’s processes.
As I have said, Ms Smith in her affidavit details a chronology of the parties’ communications and comments on Henley Arch’s position and Mr Del Monaco’s conduct.
Mr Del Monaco submits in answer that “the costs should be fixed to scale costs to be taxed and if not to be taxed in any event”. He asks the Court to consider his circumstances and that the award of costs against him should be reasonable. As to the circumstances he sets out in his submission, in short, he rejects some of Ms Smith’s assertions deposed to in her affidavit, stresses that at all time he was willing to settle, reiterates that he procured the build of one house, his family home, and demonstrates that the mistrust of the opposing party and non‑communication was mutual, asserting that Henley Arch’s solicitors did not get back to him on several occasions. He describes his financial difficulties. He makes statements about his mental health.
Chronology of events and communications
The background to the proceeding is sufficiently set out in the Reasons, including at [29]–[39]. The following chronology of events and communications between the parties, including their respective legal representatives, suffices.
It is relevant to record that at all times the infringement complained of was the design and construction of a single residential dwelling in Packenham, Melbourne completed in mid‑2017 (the plans for which are referred to in the Reasons as the Elite Packenham Property Design). The Packenham property was sold in the first half of 2018. At the hearing I accepted Mr Del Monaco’s evidence that this was the sole house he arranged to be built, and that it was built to be his family home.
It is further relevant to record that at various times in the course of the initial dispute and the subsequent proceeding, Mr Del Monaco has represented himself, or Monaco Lawyers (by his brother Stefano Del Monaco), has acted for him.
On 11 October 2017, Henley Arch sent a first letter of demand to Mr Del Monaco and his wife, alleging copyright infringement of its Colorado Design by the making of a plan or plans for, and the construction of a house at, Packenham. In that first letter, Henley Arch advised that it was aware that Mr Del Monaco had instructed Elite Building Services to build the house based on a design he had provided, informed the Del Monacos that Henley Arch was entitled to damages and costs, including an award of additional costs, and that in a recent case it had sought payment of over $568,000 in legal costs alone (see Reasons at [30]-[31]).
Mr Del Monaco promptly denied the allegations, and informed Henley Arch to direct communications to his brother, a lawyer, of Monaco Lawyers. The following day, 12 October 2017, Henley Arch sent a letter to Monaco Lawyers, enclosing the brochure for the Colorado Design. Henley Arch sent a more detailed letter of demand on 1 November 2017, in which it advised that it had obtained a copy of the plans for the Pakenham house from the local council, and enclosing copies of the Colorado brochure and the infringing plans (which I apprehend to be the Elite Packenham Property Design). Henley Arch sought written admissions, undertakings, delivery up and reserved its position with respect to damages and costs.
On 15 November 2017 Henley Arch sent a further letter to Monaco Lawyers (then representing Mr Del Monaco), requesting payment of $67,700 in damages, stated to represent Henley’s average profit on a house constructed according to the Colorado Design. In this letter, Henley Arch stated “to be successful in a copyright action, we simply need to show that your clients authorised the infringing house and plans, which they did”, and sought details of any person that Mr Del Monaco alleged had prepared the infringing plans, and his defence of innocence.
From the chronology set out in Ms Smith’s affidavit, it appears that Henley Arch’s external lawyers, Ashurst, became involved in the dispute by 6 March 2018, when they sent a letter of demand to Monaco Lawyers, seeking undertakings and payment of $67,700. Monaco Lawyers’ letter in response contained an offer to pay Henley Arch $5,000, and stated that Mr Del Monaco was not selling or profiting from the design but merely building a family home. Ashurst invited Monaco Lawyers and Mr Del Monaco to meet them, but did not receive a response.
Further correspondence ensued, mostly from Ashurst. By letter from Ashurst to Monaco Lawyers dated 3 July 2018 Ashurst enclosed draft pleadings.
The chronology before me at the hearing revealed that in the period from 11 October 2017 until November 2018 Henley Arch or its lawyers communicated in writing with Mr Del Monaco, or his lawyers, at least 21 times (see Reasons at [36]). Ms Smith’s affidavit sets out a chronology of a number of these emails and letters, as I have said, mostly emanating from Ashurst. A number of Mr Del Monaco’s responses (when he responded) are described by her as rude and obstructive.
The proceeding was commenced in this Court on 26 November 2018, and served on 7 December 2018. Monaco Lawyers advised that they were again acting from Mr Del Monaco. Case management orders were made by consent on 18 December 2018, including referral to mediation after close of pleadings. Mediation in April 2019 was unsuccessful.
In his defence dated 8 March 2019, Mr Del Monaco denied infringement (see Reasons [38]). In the course of correspondence since 2017, and also in his defence, Mr Del Monaco asserted that a friend – in the defence identified as a Mr Troy Burnett - had provided the Colorado Photograph to him. Despite repeated requests, Mr Del Monaco did not provide details of that person.
On 21 May 2019 Mr Del Monaco made a further offer to settle the proceeding for $30,000, which Henley Arch rejected. On 3 June 2019, Monaco Lawyers informed Ashurst that they would be ceasing to act for Mr Del Monaco. From June 2019, Mr Del Monaco represented himself.
During June 2019, the parties exchanged offers to settle, but did not reach agreement. Henley Arch served most of its evidence in chief in July 2019, and a further affidavit on 7 August 2019. Mr Del Monaco did not file or serve evidence in support of his case ahead of the hearing.
On 26 July 2019 Henley Arch, by its legal representatives, by email served the First Offer on Mr Del Monaco, together with a cover letter.
On 21 October 2019, Henley Arch, by its legal representatives, sent the Second Offer by email to Mr Del Monaco.
I heard the proceeding over 3 days commencing 11 November 2019.
Parties’ submissions regarding the chronology
Henley Arch’s submissions
From Ms Smith’s affidavit it is apparent that over time Mr Del Monaco vacillated between being represented by Monaco Lawyers, and acting for himself. Henley Arch submits that this vacillation and non‑communication caused difficulties for it and its lawyers, and increased costs. For example, in Ms Smith’s communication of 11 July 2018 she said “as you have appointed a solicitor to act for you, the firm of Monaco Lawyers (copied), I am unable to correspond with you directly. If Monaco Lawyers no longer act for you, I will require notification of that before I can deal with you”. Mr Del Monaco responded on the same day stating “No need for them to confirm they are not acting for me. I've already told you to deal with me.”
Henley Arch also argues that its costs were increased by Mr Del Monaco’s unmeritorious contentions in defence. Henley Arch submits that although it was not in dispute that Mr Del Monaco had sent the Colorado Photograph to Elite Building Services for the purpose of building a house based on that design, it was appropriate that it send at least 7 letters to Mr Del Monaco seeking details of the person Mr Del Monaco claimed had provided the Colorado Photograph to him. Given that from at least October 2017 it was not in dispute that Mr Del Monaco had provided that image to the draftsperson, it is not clear to me why Henley Arch persisted with its requests over at least 7 letters. It is apparent, however, that the claims and correspondence contributed to antagonism between the parties.
On the second day of the hearing, Mr Del Monaco conceded that either he, or his wife, took the Colorado Photograph. Henley Arch argues that as Mr Del Monaco was legally represented at various stages of the proceeding, he should have been aware that he had no substantive defence to the claims put forward by Henley Arch, and this is a matter that should not have proceeded to hearing. As Mr Del Monaco had legal representation at some stages of the proceeding, this should have been communicated to him.
Henley Arch relies on Mr Del Monaco’s conduct in failing to file and serve evidence in answer. It submits that despite this failure, Mr Del Monaco sought to rely on evidence submitted from the Bar table during the hearing, principally as to his financial circumstances, and on the second day of hearing, tendered materials which were required to be dealt with at the hearing. I accept that this increased the burden on the Court, and Court time, however, it is apparent that there should have been a corresponding saving in the costs expended in pre‑trial preparation. The material tendered by Mr Del Monaco included responding to Henley Arch’s proposition that Mr Del Monaco was a professional property developer and commercial competitor. That contention was not made out.
In her affidavit Ms Smith sets out a conversation between a lawyer assisting her and Mr Del Monaco alleged to have taken place at the conclusion of the hearing before me. Mr Del Monaco denies the conversation. The costs summary reveals Henley Arch had the assistance of 9 lawyers and 2 barristers in the preparation and conduct of the matter. There is no objective material before me to substantiate the claims alleged made in the conversation. It is not clear to me why the Court has been burdened with a hearsay recitation of an apparently tit‑for‑tat and off-the-cuff exchange. It does neither party any credit.
Mr Del Monaco’s submissions
As I have noted above, Mr Del Monaco submits that he has attempted to negotiate settlement of the matter throughout the proceeding. He claims he was willing to match Henley Arch’s final offer, however, required a period of time to organise the payment of funds, which Henley Arch’s solicitors did not afford him.
Mr Del Monaco takes issue, as he did at hearing, with Henley Arch’s characterisation of him as a property developer. That contention was addressed in the Reasons. It is not necessary to reprise those matters.
Mr Del Monaco further submits that the reason he sold the Elite Pakenham Property in 2018 was because his wife felt unsafe at the house and issues with a former business partner. Again, the sale is a matter that has been addressed in the quantum of damages awarded. It is not relevant to my determination on costs.
Mr Del Monaco reiterates that after Del Monaco Lawyers ceased to act for him, he had contacted Henley Arch’s lawyers seeking to resolve the matter, however he states that no one from Ashurst got back to him in relation to his attempt at negotiating settlement. The evidence before me reveals that there were breakdowns in communications that were ongoing before this time.
Consideration
Whilst it is apparent that Henley Arch, and its lawyers, expended considerable time and effort in sending communications to Mr Del Monaco, and following him up when he was non-responsive, the overwhelming impression conveyed by the material that has been relied upon by both parties on costs, and earlier at the hearing, is that individuals being, or representing, the parties “got under each other’s skin”, with a certain resultant loss of perspective by both parties and exacerbation of mutual antagonism. I am not persuaded that every communication emanating from Henley Arch’s lawyers was necessary or reasonable.
Settlement proposals
Henley Arch made two settlement offers in the proceeding. The First Offer, an offer of compromise, was dated 26 July 2019, and the Second Offer was dated 21 October 2019. Neither offer was accepted by Mr Del Monaco.
The First Offer
The First Offer was made under r.25.01 of the FCRules, requiring Mr Del Monaco to pay $103,790 (inclusive of costs), and to undertake to cease and forever refrain from infringing Henley Arch’s copyright. The cover letter to the First Offer expressed the breakdown of the offer as “This offer comprises 50% of our client’s legal costs incurred to date, and $35,000 in damages arising from your infringement of our client’s copyright.”
The First Offer was marked “WITHOUT PREJUDICE SAVE AS TO COSTS” and expressed in the following terms:
The Applicant offers to compromise this proceeding on the following terms:
1.You will pay the Applicant A$103,790 inclusive of costs.
2.You will undertake to the Applicant that you will cease and forever refrain from infringing Henley’s copyright.
This offer of compromise is open to be accepted for 14 days after service of this offer of compromise.
This offer is made without Prejudice
Date: 26 July 2019
The consequences of failing to accept this offer are set out in r.25.14(3) of the FCRules (see above).
I found Mr Del Monaco infringed Henley Arch’s copyright in the house plan Colorado 37 (the Colorado Design). I made orders restraining him from infringing copyright. I ordered Mr Del Monaco pay a total of $86,800 in damages and interest to Henley Arch, comprising of $42,000 in compensatory damages (pursuant to s.115(2) of the Act), $40,000 in additional damages (pursuant to s.115(4) of the Act), and $4,800 in pre-judgment interest.
Ms Smith estimated that if Henley Arch’s costs were assessed by reference to this Court’s scale, Henley Arch’s costs on a party and party basis would have been in the order of $43,325. Therefore, Henley Arch submits that the total amount to which it would be entitled on judgment (inclusive of costs) would be at least $130,125.
My orders were more favourable to Henley Arch than the terms set out in the First Offer. Henley Arch submits it follows it is entitled to its costs prior to 11am on 29 July 2019 on a party and party basis, and after 11am on 29 July 2019 on an indemnity basis.
As I have said, the First Offer was made on 26 July 2019 (which I note was a Sunday). In accordance with r.25.14(3), FCRules, the First Offer stated that Mr Del Monaco had 14 days after service of the offer to accept it. He thus had a fortnight to consider his position. This time limit was reiterated in the cover letter to the First Offer, and Mr Del Monaco was also informed (in the last paragraph) that if he did not accept the First Offer, and Henley Arch obtained a judgment greater than the offer, Mr Del Monaco may be liable to pay a greater proportion of Henley Arch’s costs after the date of the offer, than otherwise.
I am satisfied that the First Offer adequately sets out the terms offered and did so in accordance with the FCRules.
The First Offer was sent approximately a week after Henley Arch had served most of its evidence in chief. Mr Del Monaco had been aware of Henley Arch’s copyright claims since late 2017, had been provided with Henley Arch’s brochure depicting the Colorado Design, and knew that Henley Arch was aware he had provided the Colorado Photograph to Elite Building Services. He had had the benefit of his former lawyer’s representation for the previous (at least) 5 months. He did not have a genuine defence to the allegations of infringement. In these circumstances, I consider that Mr Del Monaco was well informed of the case brought against him, was able to appreciate his prospects of defending it, and the consequences should he reject the offer.
I find it was unreasonable for Mr Del Monaco not to have accepted the First Offer. In the circumstances I am satisfied that it is appropriate to award Henley Arch costs as provided under r.25.14(3)(b), prior to 11am on 29 July 2019 on a party and party basis, and after 11am on 29 July 2019 on an indemnity basis, subject to the further considerations I set out in the balance of these reasons.
The Second Offer
The Second Offer was made on 21 October 2019. It required Mr Del Monaco to pay to Henley Arch $115,000 (inclusive of costs), and was made prior to Henley Arch incurring the costs of preparing for and attending the hearing. Henley Arch submits that it was unreasonable for Mr Del Monaco not to accept the Second Offer as he had not filed any evidence in support of his position and had no substantive defence.
As I have found that Henley Arch is entitled to rely on the First Offer, and to its costs as I have said, it is not necessary for me to further consider the Second Offer.
The applicable costs’ regime
Henley Arch submits that as this matter was sufficiently “complex”, the event based scale provided in the Rules would not adequately compensate it for its successful litigation. Thus the Federal Court costs regime should apply.
The Rules provide that the prescribed scale applies unless it is otherwise ordered. Whilst it is not the case that copyright matters are automatically deemed to be too “complex” to be adequately compensated under the Rules (see Washington, at [58] – [60]), I consider that this matter raised particular factual and legal issues involving copyright authorisation, reproduction, and quantum of such a character that 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 Henley Arch to engage experienced intellectual property counsel. In any event, I note that Queens’s counsel did not appear on all 3 days of hearing. I make the general observation that in the exercise of the Court’s intellectual property jurisdiction, the engagement of such expertise can result in a more efficient conduct of matters, and concomitant savings of costs and time.
The hearing occurred over 3 days. Whilst this is not an exceptional length of time for a hearing in this Court, Mr Del Monaco increased the Court time taken by his last minute tender of material, and a certain disorganisation. I accept that this was likely to have increased the effort required of Henley Arch’s legal team during the hearing, although there may have been some lesser time taken in preparation by the lack of evidence served before hearing.
All prior case management conferences in the proceeding were able to be dealt with by consent orders, thus not requiring attendances in Court.
Given all the circumstances, I accept Henley Arch’s 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
Henley Arch submits that a lump sum costs order is appropriate for the following reasons:
(a)the complexity of issues in the proceeding, including proof of damages on a lost profits basis and additional damages;
(b)the need to consider and disprove unsubstantiated factual defences raised by Mr Del Monaco;
(c)the fact that Mr Del Monaco unnecessarily put factual matters in issue and failed to make proper concessions; and
(d)the fact that Henley Arch has already incurred significant costs in the proceeding.
I note that lump sum orders are not limited to so called complex matters, and that the complexity of legal issues does not necessarily result in either taxation or a lump sum order being more appropriate. As to the second matter, I note that as Mr Del Monaco did not file evidence in support of his defence, Henley Arch was not put to disproof of matters not evidenced.
Henley Arch further submits that the making of a lump sum costs order would save the parties time, delay, and expense by avoiding formal taxation. Whilst Henley Arch disputes that Mr Del Monaco has limited financial capacity to pay any costs order, it submits that the lump sum costs order benefits Mr Del Monaco by avoiding the further expense of formal taxation.
Mr Del Monaco submitted that costs should proceed to be taxed, however he did not proffer any reason why a lump sum order was not appropriate or would not avoid the time and expense of a taxation. Instead, his submissions focused on explaining his efforts to resolve the dispute, as well as further explanation as to his financial position and mental state throughout the proceeding. These matters rise no higher than submissions. They have been addressed in the Reasons.
Consideration as to lump sum costs order
The parties have already expended significant time and expense in relation to the proceeding. It is apparent that there has been considerable mutual antagonism in the participants’ interactions from time to time. I accept that the parties should be spared the additional expense, and involvement in the conduct of a formal taxation. I further accept Henley Arch’s submission that the avoidance of the expense of a taxation benefits Mr Del Monaco as well as Henley Arch. A lump sum costs order provides finality to the litigation, which I consider is 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.
Henley Arch’s costs summary
In the costs summary Ms Smith sets out Henley Arch’s 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 r.25.14(3) to the First Offer), and indemnity costs. Ms Smith deposes that Henley Arch seeks a lump sum costs order in the amount of $184,669, and explains how she arrives at that amount.
Ms Smith has deposed that Henley Arch is entitled to claim an input tax credit and therefore any GST component of the costs or disbursements claimed is excluded.
Total actual legal costs and disbursements
Ms Smith estimates that the total actual legal costs and disbursements that will be incurred by Henley Arch in relation to the proceeding from 6 June 2018, when the statement of claim was prepared, to the finalisation of the hearing on 13 November 2019, the costs submission, and her affidavit, will be $251,643 (excluding GST). This sum comprises costs incurred and invoiced to 28 October 2019 of $154,043, costs incurred but not then invoiced, and costs to be incurred, of $97,600.
The breakdown of those costs is as follows:
Professional fees
$181,261.00
Counsel’s fees (Queens counsel and Junior counsel)
$55,950.00
Other disbursements
$14,432.00
Total:
$251,643.00
Party and party costs
Ms Smith deposes on the basis of her 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 55% to 70% of actual costs incurred. In the present case, this results in a range between $138,403 and $176,150. If the Court was minded to award costs on a party and party basis with respect to the total costs incurred over the whole period, Henley Arch submits it should be awarded the average of this range, and seeks $157,276.
Indemnity costs
In support of Henley Arch’s application for indemnity costs as a consequence of non-acceptance of the First Offer and the application of r.25.14(3) of the FCRules, Ms Smith deposes to the following apportionment of party and party and indemnity costs with respect to the total actual costs amount of $251, 643. Ms Smith considers an appropriate percentage recovery on an in indemnity costs basis is 85% of actual costs.
First period (party and party) – from 6 June 2018 up to and including 29 July 2019
Total actual costs
$129,214.18
Comprising: Professional fees $122,262.17 Queen’s counsel fees $3,735.00 Other $3,217.00 Party and party costs are in the range $71,067 to $90,450 (55% to 70% of total actual costs),
Henley Arch seeks the average of the range$80,758.00
Second period (indemnity costs) – from 30 July 2019
Total actual costs
$122,429.00
Indemnity costs, applying an 85% recovery on actual costs
$103,911.00
Event based scale in the Federal Circuit Court
Whilst Henley Arch submits that its costs should not be awarded in accordance with the events based scale costs provided under the Rules, as I have already noted (for the purposes of r.25.14(3) FCRules), by way of the event based scale under the Rules, Ms Smith calculates Henley Arch’s party and party costs would be a total of $43,325.
Other information included in the costs summary
Ms Smith has provided other information as part of the costs summary in accordance with the practice note GPN‑COSTS. This information includes the lawyers who worked on the proceeding, their hourly rates and hours worked, disbursements and percentages of each to the whole.
Ms Smith and one lawyer were principally engaged in undertaking work in the matter (over 260 hours in total), however variously 9 lawyers worked in the matter. When the work type is analysed, approximately 16.7% of the total hours are attributed to correspondence with the other party and mediation, whilst 17.8% is attributed to court hearing attendances. From this breakdown it is apparent that whilst it may have felt that an inordinate amount of attention was expended in corresponding with Mr Del Monaco, that is not reflected in the work type analysis.
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 29 July 2019, and thereafter, on an indemnity basis. 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. In addition, I consider that the considerations discussed by Judge Nicholls in this Court in Washington, and the observations I have made in the course of these reasons should also be reflected in the costs ordered. I am also mindful, however, that Henley Arch is entitled to the presumption of indemnity costs arising from Mr Del Monaco’s non‑acceptance of the First 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 62.5% of actual costs up to and including 29 July 2019 (that is accepting Ms Smith’s average), and indemnity costs of 85% of actual costs from 30 July 2019 (see above tables at [82]), and applying a further reduction of 10% on the total of those two sums.
Conclusion
The amount to be awarded is therefore $166,202 (excluding GST). Given the current lockdown in Victoria, I consider that it is reasonable to allow a period of 3 months for Mr Del Monaco to pay this amount. I will so order.
I certify that the preceding eighty-nine (89) paragraphs are a true copy of the reasons for judgment of Judge Baird
Associate:
Date: 15 July 2020
7
17
5