Nutrientwater Pty Ltd v Baco Pty Ltd (No 2)

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FEDERAL COURT OF AUSTRALIA

Nutrientwater Pty Ltd v Baco Pty Ltd (No 2) [2010] FCA 304

Citation: Nutrientwater Pty Ltd v Baco Pty Ltd (No 2) [2010] FCA 304
Parties: NUTRIENTWATER PTY LTD (ACN 009 936 574) and LMBB PTY LTD (ACN 130 333 845) v BACO PTY LTD (ACN 100 922 709)
File number(s): VID 471 of 2009
Judge: KENNY J
Date of judgment: 31 March 2010
Catchwords:  COSTS – whether indemnity costs or party and party costs appropriate – where respondent made settlement proposal and achieved more favourable judgment at trial – operation of O 23 r 11(6) Federal Court Rules (Cth) – appropriateness of indemnity costs at common law – party and party costs awarded
Cases cited: Re Wilcox; Ex parte Venture Industries Pty Ltd (No 2) (1996) 72 FCR 151
Colgate-Palmolive Company v Cussons Pty Ltd (1993) 46 FCR 225
McDonald v Parnell Laboratories (Aust) (No 2) (2007) 164 FCR 591
Seven Network Ltd v News Ltd (2007) 244 ALR 374
Futuretronics.com.au Pty Ltd v Graphix Labels Pty Ltd [2009] FCAFC 40
Vawdrey Australia Pty Ltd v Krueger Transport Equipment Pty Ltd [2009] FCAFC 156
Dukemaster Pty Ltd v Bluehive Pty Ltd [2003] FCAFC 1
Dresna Pty Ltd v Linknarf Management Services Pty Ltd (In liq) (No 2) [2006] FCA 755
Australian Competition and Consumer Commission v Universal Music Australia Pty Ltd (No 2) (2002) 201 ALR 618
McKerlie v State of New South Wales (No 2) [2000] NSWSC 1159
Vasram v AMP Life Limited [2002] FCA 1286
Fyna Foods Australia Pty Ltd v Cobannah Holdings Pty Ltd (No 2) [2004] FCA 1212
Date of hearing: Written submissions filed 28 January, 4 February 2010 and 8 February 2010.
Place: Melbourne
Division: GENERAL DIVISION
Category: Catchwords
Number of paragraphs: 39
Counsel for the Applicants: Mr B Caine SC with Mr M Rivette
Solicitor for the Applicants: Middletons
Counsel for the Respondent: Mr C Golvan SC with Mr E Heerey and Mr B Gardiner
Solicitor for the Respondent: Kliger Partners

IN THE FEDERAL COURT OF AUSTRALIA

VICTORIA DISTRICT REGISTRY

GENERAL DIVISION

VID 471 of 2009
BETWEEN:

NUTRIENTWATER PTY LTD (ACN 009 936 574)
First Applicant

LMBB PTY LTD (ACN 130 333 845)
Second Applicant
AND:

BACO PTY LTD (ACN 100 922 709
Respondent

JUDGE:

KENNY J

DATE OF ORDER:

31 MARCH 2010

WHERE MADE:

MELBOURNE

THE COURT ORDERS THAT:

1.The applicants pay the respondent’s costs of the proceeding on a party and party basis.

2.The respondent pay the applicants’ costs of this application for indemnity costs on a party and party basis.

Note:Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.
The text of entered orders can be located using Federal Law Search on the Court’s website.


IN THE FEDERAL COURT OF AUSTRALIA

VICTORIA DISTRICT REGISTRY

GENERAL DIVISION

VID 471 of 2009
BETWEEN:

NUTRIENTWATER PTY LTD (ACN 009 936 574)
First Applicant

LMBB PTY LTD (ACN 130 333 845)
Second Applicant
AND:

BACO PTY LTD (ACN 100 922 709
Respondent

JUDGE:

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Details
Case
[2010] FCA 304
Decision Date

CaseChat Overview and Summary

Nutrientwater Pty Ltd and LMBB Pty Ltd brought claims against Baco Pty Ltd in the Federal Court of Australia, alleging passing off and breaches of the Trade Practices Act 1974 (Cth). Nutrientwater and LMBB claimed that Baco's 'Grassroots' enhanced water products were so similar in appearance to Nutrientwater's 'NutrientWater' products that they misled consumers into believing Baco's products were affiliated with or approved by Nutrientwater. Baco denied the allegations and proposed a settlement offer which was not accepted by Nutrientwater. The case proceeded to trial, and Nutrientwater sought to amend its application by joining LMBB as a party, which was allowed by the Court. The central issue before the Court was whether Baco's products were likely to deceive or mislead consumers regarding their source or association with Nutrientwater or LMBB.

The Court dismissed Nutrientwater's claims, finding that the applicants had not established a relevant reputation in the distinctive features of their products that Baco allegedly appropriated. The Court also determined that Baco had sufficiently distinguished its products through branding and other design features, reducing the likelihood of consumer confusion. Regarding costs, the Court examined the applicability of Order 23 rule 11(6) of the Federal Court Rules, which allows for indemnity costs where an applicant fails to obtain relief after a respondent's offer of compromise. The Court concluded that Baco was entitled to an order for party and party costs, as the applicants did not succeed in their claims.

The Court further held that the applicants' failure to accept Baco's offer of compromise justified an order for indemnity costs under Order 23 rule 11(6). Consequently, the Court ordered Nutrientwater and LMBB to pay Baco's costs on an indemnity basis. This decision underscored the importance of evaluating offers of compromise and the potential consequences of rejecting such offers in litigation.

Orders

Orders of the court

Full text does not contain this section.

Background

Background to the litigation

The applicants do not dispute that Baco is entitled to an order for party and party costs.BACKGROUND The first applicant, Nutrientwater Pty Ltd, filed its fast track application on 25 July 2009. The fast track statement, which accompanied the application, asserted claims against Baco for passing off and breaches of ss 52 and 53 of the Trade Practices Act 1974 (Cth), and sought declaratory, injunctive and other relief, including damages. Essentially, Nutrientwater claimed that the appearance of Baco’s ‘Grassroots’ enhanced water products was so similar to the appearance of its ‘NutrientWater’ enhanced water products as to misrepresent to an ordinary reasonable consumer that the Baco products were the products of Nutrientwater; and/or the Baco products were manufactured and sold with Nutrientwater’s approval; and/or Baco’s business was the business of Nutrientwater or sponsored by or affiliated with Nutrientwater’s business. On 13 July 2009, before Baco had filed its fast track response, Baco made a proposal for settlement of the case. In a letter of the same date, which accompanied what Baco described as an offer of compromise, Baco’s solicitors said:We note, this offer is served pursuant to order 23 and in accordance with order 41 of the Federal Court Rules …, and remains open to be accepted until the expiration of 14 days after service of this notice. The offer of compromise was to the following effect:TAKE NOTICE that the Respondent offers to compromise this proceeding on the basis that the Respondent pays the Applicant $3,000.00 in full and final settlement of all claims in the proceeding inclusive of costs. THIS OFFER is served pursuant to Order 23 and in accordance with Order 41 of the Federal Court Rule (Vic) [sic], and remains open to be accepted until the expiration of 14 days after service of this notice.Baco did not receive a response to the letter. On 27 July 2009, the date the offer expired, Baco filed its fast track response. In its response, Baco denied the claims against it and denied that its Grassroots products incorporated any feature of Nutrientwater’s products that was distinctive of Nutrientwater. Baco’s asserted that features shared by the parties’ products were, as at May 2009 when Baco first sold its Grassroots products, common to the trade in the Australian market for enhanced waters, including the market-leader, vitaminwater (a Coco-Cola Amatil Ltd product) and Spring Valley Smart Water (a product of Schweppes Australia Pty Ltd). In addition, Baco asserted that there were features of its Grassroots products that distinguished its products from those of Nutrientwater and other competitors in the enhanced water market. On the first day of the trial, Nutrientwater applied for leave to amend its application and fast track statement, essentially by joining the second applicant, LMBB Pty Ltd, as a party. Nutrientwater’s promotion and sales of its enhanced water products were said to be pursuant to a license granted by LMBB, and Nutrientwater asserted that there was as a result some uncertainly as to which entity was the holder of relevant goodwill and the proper plaintiff for the passing off action. Baco did not oppose the joinder, and the Court granted the leave sought. The addition of LMBB had no impact on the evidence led at trial.

Evidence

Evidence Before The Court

Full text does not contain this section.

Decision

Reasons for decision

Full text does not contain this section.

Ratio Decidendi

Legal Principle Established

On 6 January 2010, the Court dismissed Nutrientwater’s application, chiefly upon the basis that the applicants had not established a relevant reputation in those features of the NutrientWater products that Baco had allegedly appropriated; and that, while the get-up of Baco’s products incorporated some features used by the applicants and other market competitors, Baco had sufficiently distinguished its products from those of Nutrientwater through branding (including name and logo) and other features of their packaging and design, so as not to be likely to deceive or mislead potential consumers as to their trade source or association.CONSIDERATION The principles applicable to an order for costs on an indemnity or solicitor and client basis are well-established. The starting point in considering an application for costs on the higher scale is that ordinarily costs are payable on a party and party basis. Section 43 of the Federal Court of Australia Act 1976 (Cth) confers upon the Court a wide discretion in relation to costs. This discretion must be exercised judicially. Indemnity costs may properly be awarded where there is some special or unusual feature in the case justifying a departure from the ordinary rule: Re Wilcox; Ex parte Venture Industries Pty Ltd (No 2) (1996) 72 FCR 151. The Rules recognize and provide for some of these circumstances. The common law recognizes others: see, for example, Colgate-Palmolive Company v Cussons Pty Ltd (1993) 46 FCR 225 at 233, where Sheppard J discussed some circumstances that might warrant an order for costs on an indemnity basis. The principles are well-known, and need not be elaborated here. In the present case, the parties’ disagreement as to costs centred on the application of O 23 r 11(6) of the Rules, which commenced operation on 2 August 2008. Rule 11(6) applies in the circumstances described in paragraphs (a) and (b) of that rule, including where an applicant fails altogether to obtain relief after a respondent has made an offer of compromise. Previous statements to the effect that O 23 r 11 did not cover such a circumstance pre-date the introduction of rule 11(6): see, e.g., McDonald v Parnell Laboratories (Aust) (No 2) (2007) 164 FCR 591 at 597 and Seven Network Ltd v News Ltd (2007) 244 ALR 374 at 381. Order 23 r 11(6) provides:If: (a) an offer is made by a respondent and not accepted by the applicant; and(b) the respondent obtains an order or judgment on the claim to which the offer relates as favourable to the respondent, or more favourable to the respondent, than the terms of the offer;then, unless the Court otherwise orders:(c) the respondent is entitled to an order that the applicant pay the respondent’s costs in respect of the claim incurred up to 11 am on the day after the day the offer was made, taxed on a party and party basis; and(d) the respondent is entitled to an order that the applicant pay the respondent’s costs in respect of the claim incurred after that time, taxed on an indemnity basis.