Protec Pty Ltd v Reconit & Sons Pty Ltd

[1997] FCA 265

CATCHWORDS

COSTS - application acceded to with no admission as to liability - no adjudication on merits - whether application should recover costs - both parties acted reasonably - no order as to costs.

Federal Court of Australia Act 1976 s 43

Gladstone Park Shopping Centre Pty Ltd v Wills (1984)
59 ALR 109
Re Sanchez; Ex parte Smits (1994) 49 FCR 326
Australian Securities Commission v Aust-Home Investments Ltd
(1993) 44 FCR 194
Allen v Melville (1890) 12 ALT 5
Hood v Cullen (1885) 6 NSWLR 22
Garwolin Nominees Pty Ltd v Statewide Building Society
(1984) VR 469
Siegert v Lawrence (1885) 11 VLR 47
Re Minister for Immigration and Ethnic Affairs; Ex parte
     Lai Qin (28 February 1997, unreported)

No SG 16 of 1997

PROTEC PTY LTD v RECONIT & SONS PTY LTD (ACN 076 741 538)
and PETER ERNEST AYRES

Mansfield J
Adelaide
17 April 1997

IN THE FEDERAL COURT OF AUSTRALIA )
  )
SOUTH AUSTRALIA DISTRICT REGISTRY )    No SG 16 of 1997
  )
GENERAL DIVISION                 )

BETWEEN:

PROTEC PTY LTD
  (ACN 007 857 392)

Applicant

- and -

RECONIT & SONS PTY LTD
  (ACN 076 741 538)

First Respondent

- and -

PETER ERNEST AYRES

Second Respondent

MINUTES OF ORDER

CORAM:    Mansfield J
PLACE:    Adelaide
DATE:     17 April 1997

THE COURT ORDERS THAT:

1. There be no order as to costs.

Note:     Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.

IN THE FEDERAL COURT OF AUSTRALIA )
  )
SOUTH AUSTRALIA DISTRICT REGISTRY )    No SG 16 of 1997
  )
GENERAL DIVISION                 )

BETWEEN:

PROTEC PTY LTD
  (ACN 007 857 392)

Applicant

- and -

RECONIT & SONS PTY LTD
  (ACN 076 741 538)

First Respondent

- and -

PETER ERNEST AYRES

Second Respondent

REASONS FOR DECISION

CORAM:    Mansfield J
PLACE:    Adelaide
DATE:     17 April 1997

The parties have resolved their differences in this matter, but I have, in effect, been asked to rule upon whether the respondents should pay the costs of the proceedings before the Court.

The application was to restrain the respondents from using the name "Protec", or from passing off the business of the first respondent as the business of the applicant.  The applicant is a manufacturer of paint and paint related products and a

reseller of other paint related accessories including and with a particular emphasis on automotive paint products and markets its products in most States throughout Australia and to some extent internationally.  The material filed indicates that its products enjoy a significant reputation, and that it markets heavily with a focus on the automotive trade.  The first respondent was registered only on 11 December 1996 and offers 'full under car maintenance' including the provision of automotive exhausts.  It has only recently commenced business, apparently in mid January 1997, trading under the name "Protec Exhausts". It registered that name, after enquiries as to its availability, through searches at the Australian Securities Commission, through the Commission of Business Affairs under the Business Names Act 1996 (SA). The second respondent was then aware of other businesses with the name Protec, but did not believe they were competing in the same markets. Its place of business is in the northern suburbs of Adelaide, where the applicant also has at least one substantial distributor.

There is at least some evidence of a perception in the market place in that geographic area that the first respondent, trading as Protec Exhausts, may be in some way associated with the applicant.  Shortly after the first respondent commenced business, certain queries were directed to the applicant's distributor in that area about acquiring its product from Protec Exhausts, and that distributor has complained to the applicant of the first respondent's business name.
I am not in a position, without having heard evidence, to assess fully the nature and extent of the applicant's reputation, the product market in which it operates, and whether there is a degree of interaction between the product market of the applicant and that of the first respondent.  It is the applicant's complaint that the use of the name Protec Exhausts by the first respondent carries with it the suggestion that it is in some way, associated with the business of the applicant, and that it is in some way passing off its business as the business of the applicant.  The first respondent does not sell either the applicant's nor any other paint supplier's products.

The applicant, through its solicitors, by letter of 29 January 1997, complained to the first respondent.  It requested the first respondent to cease using the trading name "Protec", and indicated that a failure to comply with that request would result in proceedings seeking injunctive relief, damages and costs.  The second respondent, who is a director of, and effectively the principal of the first respondent, contacted the manager of the applicant to discuss the matter.  I have only one side of that conversation in the material before me, from which it is suggested that the manager of the first respondent was somewhat abrupt in his response and as a result the second respondent, on behalf of the first respondent, decided to take no action in relation to the request.  A member of the firm of solicitors of the applicant spoke to the second respondent, and although there is no suggestion that the call was discourteous, it was obviously a brief one in which those solicitors were told by the second respondent that the first respondent proposed to take no action with respect to the request, unless the applicant paid the second respondent the expenses of changing its name and for the changes to its stationery.  In that situation, the applicant effectively had little option but to come to Court to assert its claimed rights.

That it did.

This application was instituted on 24 February 1997.  When the matter first came before me on 26 February 1997 the second respondent appeared in person, and as a director of the first respondent on its behalf.  No orders were made at that time, but it appeared from what was put to me that the parties were then discussing whether the first respondent should change its business name in any event.  When the matter next came before me on 4 March 1994, the respondents were represented by counsel, who indicated that the first respondent was prepared to relinquish the name Protec Exhausts without any concession or admission as to liability, but simply to avoid expensive litigation.  An interlocutory undertaking was then given by the respondents in terms satisfactory to the applicants, and no order was then made.  The matter finally came before me on 13 March 1997.  On that occasion the respondents, by their counsel, undertook to the Court the following:

1. that the respondents themselves, their servants and agents will not carry on any automotive business or in any way trade in any automotive business under or by use of a name which is identical with or deceptively similar to the name "Protec", and

1. that the respondents had taken steps to remove the name Protec Exhausts from the Registry of Business Names held by the Commission of Business Affairs under the Business Names Act 1996 (SA).

It was made plain that that undertaking was given, and that action taken, without any admission as to liability.  It was asserted that the respondents had in no sense acted unlawfully, as the applicant's business reputation through the name Protec did not relate to automotive products as opposed to paint products, that there was and could be no evidence of members of the public being misled or deceived in any relevant way that the first respondent's business was in any way associated with the applicant's business, and that there was in any event no damage nor any likelihood of damage on the part of the applicant by the first respondent trading under the name Protec Exhausts.  It was common ground that the respondents' decision was simply taken because, to the first respondent, the name Protec Exhausts had no particular significance and for economic reasons it was not worth fighting for.

Upon that action and that undertaking, the applicant asked that proceedings otherwise generally be dismissed, but subject to the question of costs.

It is in that context that the parties, having resolved the matters in issue for laudably sensible and pragmatic reasons, but not with any resolution of the legal issues, understandably nevertheless did not resolve who should pay for the costs of the proceedings.  I am asked to make a ruling on that topic.  The applicant asserts that it had to come to Court to get its alleged wrong righted, and that it gave the respondents the opportunity to right that wrong before instituting proceedings, as well as that it had a strong claim on the merits.  The respondents dispute that there is any wrong to right, nor could there be, and therefore there should be no order as to costs.  It is also submitted that, in the circumstances, the conduct of the parties prior to the institution of proceedings is not a basis upon which costs could or should be ordered, and in any event the conduct of the manager of the applicant when the second respondent sought to discuss the matter with him was so provocative as to leave the second respondent with little alternative but to dig in his heels.  As a matter of fact, I do not accept that final point.  It seems to me that the respondents could have taken the action which commercial expediency has dictated to them that they should take in any event, albeit with a denial of liability, prior to the institution of proceedings and then no proceedings would have been instituted.  At that point the applicant did not seek any costs.

The real question is whether, the parties having resolved the matters in dispute without any admission of liability, the Court should make any order for costs at all.

Section 43 of the Federal Court of Australia Act 1976 gives the Court power to award costs in proceedings before it, and the Court's power is discretionary. Generally, costs follow the "event", meaning that the successful party on adjudication by the Court will generally be awarded costs:  Gladstone Park Shopping Centre Pty Ltd v Wills (1984) 59 ALR 109 at 114-115, although the discretion to award or not to award costs is unfettered provided the discretion is exercised judicially: Re Sanchez; Ex parte Smits (1994) 49 FCR 326.

Of course, where there has been no adjudication on the merits of the case, especially in circumstances where the applicant has achieved the commercial result it wanted to achieve in circumstances where the respondent denies liability but acquiesces in the orders sought simply for the practical and sensible reason that - in a commercial sense - it is indifferent to the applicant's claim, the exercise of the discretion as to costs is in an entirely different setting.  There is here no adjudication on the merits.  I agree with Hill J in Australian Securities Commission v Aust-Home Investments Ltd (1993) 44 FCR 194 that in those circumstances, it will rarely be appropriate for the Court to endeavour to determine for itself the case on the merits in order to determine how the costs of the proceedings should be borne. I do not attempt such an adjudication. As the brief summary of submissions set out above indicates, there are apparently good arguments available to both sides the full strength of which would not become apparent until the evidence had been fully explored.

In that case, the application for the appointment of a receiver into the company made under s1323 of the Corporations Law was not ultimately pursued, although early in the course of the proceedings an ex parte order for the appointment of an interim receiver had been made on the application of the Australian Securities Commission; the appointment was simply no longer necessary. The application was therefore dismissed. The decision concerned the costs of two of the respondents to the proceedings, who had been directors of the company concerned. After reviewing several authorities, Hill J concluded (at 201) that they supported the following propositions, which I agree and which I gratefully adopt:

"(1)Where neither party desires to proceed with litigation the Court should be ready to facilitate the conclusion of the proceedings by making a cost order:  Stratford and the SEQEB case.

(2)It will rarely, if ever, be appropriate, where there has been no trial on the merits, for a Court determining how the costs of the proceeding should be borne to endeavour to determine for itself the case on the merits or, as it might be put, to determine the outcome of a hypothetical trial:  Stratford.  This will particularly be the case where a trial on the merits would involve complex factual matters where credit could be an issue.

(3)In determining the question of costs it would be appropriate, however, for the Court to determine whether the applicant acted reasonably in commencing the proceedings and whether the respondent acted reasonably in defending them (SEQEB).

(4)In a particular case it might be appropriate for the Court in its discretion to consider the conduct of a respondent prior to the commencement of the proceedings where such conduct may have precipitated the litigation:  cf Sunday Times Newspaper Co Ltd v McIntosh (1933) 33 SR (NSW) 371.

(5)Where the proceedings terminate after interlocutory relief has been granted, the Court may take into account the fact that interlocutory relief has been granted:  cf Re Asiatic Electric Co Pty Ltd [1973] 1 NSWLR 603 at 606, a case which, however, depended upon the specific wording of the statute under consideration."

The facts of each case and circumstance will inevitably be different, but I note the conclusion of Hill J on the facts of that case that (at 203):

"Having regard to my view that it was reasonable both for the Commission to commence the proceedings and for the respondents to defend them, that there has been no determination on the merits, that there is nothing in the evidence which ultimately displays behaviour of (the respondents) which should prejudice the exercise of discretion for costs ... and that the parties acquiesced in the matter ultimately not being litigated for a considerable time, I am of the view that the appropriate order is that each side bear its own costs.  In my view the costs should fall as they fall and accordingly I would make no order as to the costs of the proceedings."

I note an early illustration of a claim being dismissed, the defendant having offered to pay a specified sum to the plaintiff for damages but with a denial of liability and that
offer having been accepted and the money so paid.  Once the damages claim was so resolved, Hodges J ordered the plaintiff to pay the defendant's costs, despite the plaintiff having succeeded to a significant extent:  Allen v Melville (1890) 12 ALT 5.

Another early case in which a similar issue arose was Hood v Cullen (1885) 6 NSWLR 22. In that case the occupier under an agreement for lease sued both the owner, and the purchaser from the owner, for specific performance by the granting of a duly executed lease. The purchaser had acquired the land believing the occupancy of the occupier was terminable on six months' notice, but the agreement was for a fixed term. Informal discussions between the occupier and the purchaser prior to the proceedings were both heated and fruitless, but the purchaser did not resist the claim when the proceedings were commenced. On appeal, the Full Court reversed an order that the purchaser pay one half of the occupier's costs and substituted an order that he pay no costs. His initial attitude was found to have been reasonable, given the tenor of some of the discussions, or as Innes J described it "mere expressions of his hastily uttered, are not sufficient to put him in the position of one adversely resisting the plaintiff's claim."  (at 29)

On the other hand, the discontinuance or dismissal of a claim by consent where the proceedings to enforce a right were necessary, and the respondent has acknowledged the claimed right so that there is no need for an adjudication on the claim, has been held to entitle the plaintiff or applicant to costs:  Garwolin Nominees Pty Ltd v Statewide Building Society (1984) VR 469, Siegert v Lawrence (1885) 11 VLR 47.

That review of some authorities identifying considerations relevant generally accords with the observations of McHugh J in Re Minister for Immigration and Ethnic Affairs; Ex parte Lai Qin (28 February 1997, unreported) which, of course, I follow.

In the present circumstances I accept that the applicant brought these proceedings reasonably.  Its attempts to get the commercial outcome which it sought (and ultimately obtained) before proceedings were unsuccessful.  It had little option but to bring the claim.  However, the result has been reached without any adjudication as to its rights.  The respondent has acted sensibly in providing the undertaking sought, and abandoning the business name, in circumstances where that name was not really of significance to it.  It has not in any way acknowledged the applicant's legal right to the relief which it has obtained by consent.  It took that position at the very commencement of the proceedings.  It is in the public interest that a litigant should not be discouraged from sensible compromise or sensible concession by the consequence of costs being visited upon it.  The respondents' only real option, once proceedings were instituted, was to defend them at considerable expense to both the parties and the community without much commercial point in doing so.  The respondents' failure to take that step before the action was commenced, especially when they were given the opportunity to do, has caused me some concern.  That forced the applicant to bring proceedings.  But, on the other hand, they were doing no more than they claimed, and still claim, to be entitled to do; that initial response should not, therefore, be of much relevance in the exercise of my discretion on costs.  It is not behaviour which I categorise in any way as meriting censure, or upon which I think that they should be treated as unsuccessful litigants who have adversely resisted the applicant's claim.

Accordingly, in my view, there should in the circumstances be no order as to the costs of the proceedings, the burden of costs of each party should be borne by that party.

I certify that this and the preceding        pages are a true copy of the Reasons for Decision of the Honourable Justice Mansfield.

Associate:

Dated:

Counsel for the Applicant        :    Mr G D Coppola
Solicitors for the Applicant     :    Kelly & Co

Counsel for the Respondents      :    Mr C B Belperio
Solicitors for the Respondents    :    Roberts Belperio
  & Clark

Hearing Date  :    13 March 1997