Metro Business Centre Pty Ltd v Centrefold Entertainment Pty Ltd (No 2)
[2017] FCA 1250
•8 August 2017
FEDERAL COURT OF AUSTRALIA
Metro Business Centre Pty Ltd v Centrefold Entertainment Pty Ltd (No 2)
[2017] FCA 1250
File number: NSD 1489 of 2016 Judge: RARES J Date of judgment: 8 August 2017 Legislation: Competition and Consumer Act 2010 (Cth) Sch 2, Australian Consumer Law s 18
Trade Marks Act 1995 (Cth) s 88
Federal Court Rules 2011 Pt 25, r 25.01
Cases cited: Dukemaster Pty Limited v Bluehive Pty Limited [2003] FCAFC 1
Insight SRC IP Holdings Pty Limited v Australian Council for Educational Research Limited (No 2) [2013] FCAFC 73
Metro Business Centre Pty Ltd v Centrefold Entertainment Pty Ltd [2017] FCA 1249
NMFM Property Pty Limited v Citibank Limited (No 2) (2001) 109 FCR 77
Date of hearing: 8 August 2017 Date of last submissions: 10 August 2017 Registry: New South Wales Division: General Division National Practice Area: Intellectual Property Sub-area: Trade Marks Category: No Catchwords Number of paragraphs: 26 Counsel for the Applicants and Cross-Respondents: Mr J O’Sullivan Solicitor for the Applicants and Cross-Respondents: Streeterlaw Counsel for the Respondents and Cross Claimant: Mr C Wood Solicitor for the Respondents and Cross-Claimant: Hopgood Ganim Lawyers ORDERS
NSD 1489 of 2016 BETWEEN: METRO BUSINESS CENTRE PTY LIMITED (ACN 096 429 882)
First Applicant
SEXY ENTERTAINMENT PTY LIMITED (ACN 163 680 108)
Second Applicant
AND: CENTREFOLD ENTERTAINMENT PTY LIMITED (ACN 151 972 986)
First Respondent
MATTHEW PRENDERGAST
Second Respondent
AND BETWEEN: CENTREFOLD ENTERTAINMENT PTY LIMITED (ACN 151 972 986
Cross-Claimant
AND: METRO BUSINESS CENTRE PTY LIMITED (ACN 069 492 882 (and others named in the Schedule)
First Cross-Respondent
JUDGE:
RARES J
DATE OF ORDER:
8 AUGUST 2017
THE COURT ORDERS THAT:
1.Pursuant to s 88(1)(a) of the Trade Marks Act 1995 (Cth), the Register of Trade Marks be rectified by cancelling the registration of the trade mark comprising the word CENTREFOLD with registration number 1695466 (“Mark”) in respect of all goods or services in respect of which it is registered and by removal of the entry of the Mark as being an entry wrongly made on and having wrongly remained on the Register of Trade Marks;
2.Save as set out in order 1 above, the amended originating application and amended statement of claim be otherwise dismissed;
3.The amended notice of cross-claim and amended statement of cross-claim be dismissed.
4.The first respondent and cross-claimant pay the applicants’ and cross-respondents’ costs of the proceeding and the cross-claim except to the extent that the applicants would not have incurred any such costs had the second respondent not been a party.
5.The applicants pay the costs occasioned by the joinder of the second respondent as a party to the extent that his participation increased the costs that would otherwise have been payable by the first respondent in connection with its conduct of the proceeding.
6.Streeterlaw, as solicitors for the applicants, be authorised to release forthwith to the applicants or their nominee the sum of $110,000 held in a controlled moneys account maintained by Streeterlaw in the name of CG Trading Pty Limited, the third applicant, as security for the responents’ costs in this proceeding.
THE COURT NOTES THAT:
7.It is an agreed fact between the parties that: “In the period September 2012 to May 2015, the First Respondent conducted activities in every state of Australia except Tasmania”;
8.The Applicants contend that the “activities” referred to in notation 7 above did not include the provision of adult themed services until February 2014 at the earliest (being the date the Second Respondent redirected traffic from the website to the website); and
9.It is an agreed fact between the parties that the First Respondents’ website at using the words “Centrefold Strippers” that appears at pages 420 to 459 of the Library of Documents was published by the Respondents during the period from 25 to 31 October 2016.
Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.
REASONS FOR JUDGMENT
(REVISED FROM THE TRANSCRIPT)RARES J:
On 16 June 2017, at the conclusion of the eight-day trial, I gave ex tempore reasons: Metro Business Centre Pty Ltd v Centrefold Entertainment Pty Ltd [2017] FCA 1249 (my principal reasons). The substantial outstanding questions relate to costs. I will refer below to the parties by the abbreviations I used in my principal reasons.
In the litigation, the substantial issue was the validity of Entertainment’s claim to be entitled to a common law and statutory trade mark consisting of the word “centrefold” and the claim by the Metro parties to be entitled to both the common law mark and an assignment or transfer of the statutory mark. I found that the word was not capable of distinguishing the services of, or offered by, Entertainment from those offered by others, including the Metro parties. The Metro parties claimed that Entertainment had contravened s 18 of the Australian Consumer Law (ACL) in Sch 2 of the Competition and Consumer Act 2010 (Cth) and was passing off its business as theirs, and that Mr Prendergast was a person involved in Entertainment’s contraventions of s 18 and a joint tortfeasor in respect of the passing off claim. I dismissed those claims, along with Entertainment’s essentially reciprocal claim under s 18.
All of those causes of action depended on the efficacy of the word or trade mark “centrefold” to distinguish one side’s services from the other. In substance, the Metro parties succeeded in the proceedings by confirming their right to continue to use the word “centrefold” and obtaining an order for cancellation of Entertainment’s registration of that word as a trade mark under s 88 of the Trade Marks Act 1995 (Cth).
Entertainment accepts that, as a consequence, costs of the claim and cross-claim in respect of its involvement would follow the event and, accordingly, it would liable to an order that it pay the Metro parties’ costs on a party/party basis.
The outstanding issues
The issues outstanding are whether:
·as Mr Prendergast contends, he was wholly successful and entitled to an unqualified order for his costs; and
·the Metro parties are entitled to an order that the Entertainment parties or Entertainment alone should pay its costs on an indemnity basis from 8 December 2016, being the date of their first without prejudice, except as to costs, offer to settle the proceedings, or from the date of one of their later offers.
The offers
The 5 December 2016 offer had two bases, the first was ultimately the outcome to which I came, and the alternate was that the Metro parties would pay Entertainment $30,000 for the transfer of registration of the trade mark to them. The Metro parties offer was open for acceptance until 2 January 2017.
Subsequently, the parties engaged in without prejudice offers. Relevantly, Mr Prendergast was not a party until he was joined as second respondent on 15 December 2016.
On 6 December 2016, Entertainment offered to submit to an injunction and transfer the registration of the trade mark in consideration of the payment of $110,000, inclusive of costs. That offer was open until 8 December 2016.
On 7 December 2016, the Metro parties rejected that offer and repeated their previous offer, leaving it, again, open until 2 January 2017. In the letter making this offer, they explained that after the case management hearing scheduled for 9 December 2016, it would be unlikely that they would be able to consider repeating their offers, in the event that they continued to be rejected. That was because, the letter stated, over the next few weeks, they would incur quite considerable costs in preparing their evidence for the purposes of the hearing. Once that occurred, they anticipated it would become extremely difficult to settle the proceedings.
On 15 December 2016, Entertainment filed a notice of offer to compromise under r 25.01 of the Federal Court Rules 2011. The offer was that the registration of the mark be cancelled, Entertainment have judgment on its cross-claim in the sum of $65,000 and the Metro parties pay its costs as agreed or taxed. That offer was open for a further 14 days.
On 22 December 2016, the Metro parties rejected the notice of offer to compromise and restated their offer to settle the proceedings contained in the letters of 5 and 7 December 2016, again, leaving that offer open until 2 January 2017. Needless to say, the reopened offer was not accepted.
On 24 May 2017, shortly before the hearing, the Entertainment parties offered to settle on the basis that the Metro parties pay $300,000 in damages and a further $300,000 in costs, in consideration of which Entertainment would assign the trade mark to the Metro parties and cease to use it in its business. That offer was open until 5pm the next day, 25 May 2016.
On 26 May 2017, the Metro parties made a final offer in the bidding war. That offer was open until 5pm that day. It provided that the Metro parties would compromise the proceedings on the basis that the parties mutually release each other, bear their own costs, Entertainment transfer the registration of the mark to the Metro parties, and the Entertainment parties take all steps necessary to transfer to them the right, title and interest in two domain names under which they operated and cease to use the word “centrefold”.
Mr Prendergast’s submissions
Mr Prendergast argued that he should never have been joined. He contended that he was not a necessary or proper party, and that because he had only been joined on 15 December 2016, he was not the subject of the Metro parties’ 5 or 7 December 2016 offers. He contended that he should be awarded costs against the Metro parties on the normal basis, and that it would be a question for the taxing officer, or agreement between the parties, as to the quantum of costs that he was entitled to recover.
Mr Prendergast’s position – consideration
Mr Prendergast was Entertainment’s sole director, controlling mind and principal witness. He caused Entertainment to apply for, and obtain, registration of the trade mark. He had expressed a vigorous disclaimer of Centrefold Strippers’ use of the word “centrefold” and any connection of it with his businesses, as I found at [51] of my principal reasons. However, his actions were essentially done in furtherance of Entertainment’s business. It later continued to conduct that business, albeit after 1 April 2016 under the new brand name “Sugar Street” (see [54] of my principal reasons).
In those circumstances, it is difficult to see what useful purpose his joinder could serve in the overall scheme of the litigation between the corporate parties except to the extent that Entertainment, at the time that the Metro parties might recover any judgment, might not be able to meet any damages or costs payable.
However, both respondents had joint representation and, in any event, Mr Prendergast would have played a central role in the litigation. In my opinion, that role would have been largely, if not completely, the same as the one he actually played, regardless of his joinder, except, perhaps, for the additional costs occasioned by the need for him to put on a defence, as part of a joint defence, and submissions as to his role, to the relatively trivial extent that it was distinguishable from that of Entertainment.
For these reasons, I am of opinion that the Metro parties should pay the costs occasioned by Mr Prendergast’s joinder as a party to the extent that the respondents’ joint costs were increased by that joinder. However, in the circumstances, it would be unrealistic, and not in the interests of justice, to award him a separate order for the whole of his costs of the proceedings and so treat him as having a substantive separate and individual role and costs burden in the litigation.
Indemnity costs – principles
The principles are well settled on which the Court will order a party to pay costs on an indemnity basis when the successful party has made an offer to settle the proceeding other than under rules of court, such as Pt 25 of the Federal Court Rules. The offer must be one that amounts to a real compromise and the losing party must have acted unreasonably, in the circumstances facing that party at the time of the offer: Insight SRC IP Holdings Pty Limited v Australian Council for Educational Research Limited (No 2) [2013] FCAFC 73 at [7]-[9] per North, Rares and Robertson JJ. The mere making of an offer and its non-acceptance, followed by a result more favourable to the offeror, does not lead automatically to an order for payment of costs on an indemnity basis: Dukemaster Pty Limited v Bluehive Pty Limited [2003] FCAFC 1 at [7]-[9] per Sundberg and Emmett JJ. As they said, ordinarily, such an offer ought to contain a statement of the reasons of the offeror as to why the offeree will fail in the litigation, citing what Lindgren J had said in NMFM Property Pty Limited v Citibank Limited (No 2) (2001) 109 FCR 77 at 98 [87]-[88].
Indemnity costs – consideration
Here, the 5 December 2016 offer that the Metro parties repeated on 7 December 2016, after Entertainment’s rejection on 6 December 2016, and again on 22 December 2016, following Mr Prendergast’s joinder, was open until 2 January 2017. That offer represented a real comprise and gave Entertainment, and later, it and Mr Prendergast, the option of receiving a substantial payment for the transfer of the registered trade mark or a walk away position. The question is whether Entertainment, or, after 15 December 2016, it and Mr Prendergast, was or were unreasonable to reject any or each of the 5, 7 and 22 December 2016 offers, or the 26 May 2017 offer.
While the letter of 7 December 2016 explained that the Metro parties would be likely to incur substantial costs, presumably in early January 2017 and following, in order to prepare their evidence, none of the offers articulated a basis upon which the Metro parties argued that the Entertainment parties necessarily would fail. No doubt the parties had joined issue in the pleadings and understood their respective positions, but, in my opinion, there was nothing unreasonable, in all of the circumstances, in Entertainment or the Entertainment parties continuing to proceed in the litigation despite the offers.
With the benefit of hindsight, it could be said that Entertainment and Mr Prendergast would have done well to have accepted one of the December 2016 offers and walked away. However, the use of without prejudice, except as to costs, offers in contradistinction to the facility offered by Pt 25 of the Rules, and its analogues in other courts, creates a well-known and real distinction between entitlements to costs. As the Entertainment parties pointed out, there was a substantive difference of $80,000 between the 5 and 6 December 2016 offers. Had the Metro parties made an offer under Pt 25 in terms of the offer contained in the 5 December 2016 offer, then or subsequently, they may have been presumptively entitled to an order that Entertainment or the Entertainment parties pay their costs on an indemnity basis. But, in seeking to proceed on the basis of an offer in without prejudice correspondence, the Metro parties had the burden, and in my opinion failed, to demonstrate that it was unreasonable for Entertainment and or Mr Prendergast to have refused any of those offers while both parties were seeking to compromise on what may be seen to be commercial bases.
I am of opinion that in these proceedings, the distinction which the cases have developed between offers outside the scheme of the Rules and those within Pt 25 ought be maintained. Parties to litigation who are represented by competent lawyers, as the parties to these proceedings were, are well aware of the opportunity to make offers under the Rules. Indeed, if nothing else, Entertainment’s offer of 15 December 2016 demonstrated that for both parties’ purposes.
In the circumstances, there is no basis to order Entertainment or, to the extent that it is relevant, Mr Prendergast to pay the Metro parties’ costs on an indemnity basis for failure to accept any of their offers, based on the 5 December 2016 offer.
The 26 May 2016 offer was no doubt made at a time when both parties were in a good position to assess their prospects but, in my opinion, again, there was nothing unreasonable in the Entertainment parties’ failure to accept that offer, notwithstanding that it was only open for less than a day.
For these reasons, I am not prepared to order that Entertainment pay the Metro parties’ costs on a basis other than the usual basis of party/party costs.
I certify that the preceding twenty-six (26) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Rares. Associate:
Dated: 23 October 2017
SCHEDULE OF PARTIES
NSD 1489 of 2016 Cross-Respondents
Second Cross-Respondent
SEXY ENTERTAINMENT PTY LIMITED (ACN 163 680 108)
Third Cross-Respondent
CG TRADING PTY LIMITED (ACN 605 438 444)
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