The Cultural Intelligence Project Pty Ltd v The Entourage Education Group Pty Ltd (No 2)
[2021] FCCA 1317
•25 May 2021
FEDERAL CIRCUIT COURT OF AUSTRALIA
The Cultural Intelligence Project Pty Ltd v The Entourage Education Group Pty Ltd (No 2) [2021] FCCA 1317
File number(s): MLG 301 of 2021 Judgment of: JUDGE BAIRD Date of judgment: 25 May 2021 Catchwords: INTELLECTUAL PROPERTY –SECURITY FOR COSTS – PRACTICE & PROCEDURE – Costs – application for security for costs – whether there is reason to believe the applicant will be unable to pay the costs of the respondent if the respondent is successful in its defence – consideration whether security be awarded under Federal Court Rules, or at Schedule 1 scale– application dismissed. Legislation: Corporations Act 2001 (Cth) s. 1335
Federal Circuit Court of Australia Act 1976 (Cth) s. 80
Federal Circuit Court Rules 2001 (Cth) rr 1.03, 21.01
Federal Court of Australia Act1976 (Cth) s 56, Sch 1
Trade Marks Act 1995 (Cth) ss 58, 62, 62A, 88, 92, 124
Cases cited: Active Skin Pty Limited v Yey Pty Limited [2021] FCCA 329
Baygol Pty Limited v Huntsman Chemical Co Australia Pty Limited trading as Armax [2004] FCA 1248
Concrete Mining Structures Pty Ltd v Cellcrete Australia Pty Ltd (No 2) [2016] FCA 360
Coolangatta Property v Dyason [2011] NSWSC 929
Flujo Holdings Pty Ltd v Merisant Company & Ors [2019] FCA 594
Flujo Sanguineo Holdings Pty Limited & Another v Universal Food Products Pty Limited [2020] FCCA 251
Jazabas Pty Ltd and Ors v Haddad and Ors [2010] NSWSC 594
LivingspringPty Ltd v Kliger Partners [2008] VSCA 93
Pilkin v Sony Australia Limited [2018] FCA 1018
The Cultural Intelligence Project Pty Limited v The Entourage Education Group Pty Limited [2021] FCCA 504
Number of paragraphs: 48 Date of last submission/s: 25 May 2021 Date of hearing: 25 May 2021 Place: Sydney Counsel for the Applicant: Mr L Merrick Solicitor for the Applicant: K&L Gates Counsel for the Respondent: Mr A Fox Solicitor for the Respondent: Holding Redlich ORDERS
MLG 301 of 2021 BETWEEN: THE CULTURAL INTELLIGENCE PROJECT PTY LTD
Applicant
AND: THE ENTOURAGE EDUCATION GROUP PTY LTD
Respondent
ORDER MADE BY:
JUDGE BAIRD
DATE OF ORDER:
25 MAY 2021
THE COURT:
1.DISMISSES paragraphs 1 to 5 of the Respondent’s Application in a Case dated 29 April 2021.
2.RESERVES the cost of the Application to be determined, if necessary, after consultation with counsel.
3.DIRECTS by 1 June 2021, counsel confer and notify by email to the Chambers of Judge Baird of any non-availability in the period 1 October 2021 to 30 April 2022 (with an estimate of 2 days).
4.STANDS OVER the proceeding for case management conference to a date after 8 June 2021, to be fixed administratively after consultation with counsel, such case management conference to be conducted in person or by MS Teams, or as the Court might otherwise advise administratively.
REASONS FOR JUDGMENT
(ex tempore, revised from transcript)
JUDGE BAIRD
Background
Before me is an application by the respondent and cross-claimant, the Entourage Education Group Pty Limited, for orders for the giving of security by the applicant, the Cultural Intelligence Project Pty Limited (CIP), for Entourage’s costs from the commencement of this proceeding up to and including service of its evidence in response to the applicant’s application in the proceeding (the Claim).
By application dated 29 April 2021, Entourage seeks security in the sum of $100,000, or such other amount as the Court sees fit, within 14 days, or alternatively, within 28 days by way of an unconditional bank guarantee payment into court, or in such other manner as the Court sees fit. Paragraph 3 of the application seeks an order that the Claim be stayed until security is provided in accordance with paragraphs 1 and 2 of the application.
Paragraph 3 of the application suggests, on the face of the application, the intent of security is that if it is not forthcoming, CIP’s claim for infringement of its registered Trade Mark, number 1838910 for the word mark ‘MAKE IT HAPPEN’ in respect of certain specified services in classes 35 and 41 of the Register of Trade Marks, be stayed, but that Entourage’s cross-claim dated 22 April 2021 for cancellation of the Trade Mark under s 88 of the Trade Marks Act 1995 (Cth) (TM Act), and cancellation for non-use under s 92(4)(a) of the TM Act would be free to be pursued.
Whilst Mr Merrick, counsel for CIP, drew my attention to paragraph 3 of the cross-claim, and posited that the application sought, in the absence of security that CIP’s claim would be stayed whilst Entourage’s cross-claim would be free to be pursued, before me, Mr Fox, counsel for Entourage, proffered in reply an assurance that if the claim was stayed, Entourage would consent to the cross-claim being stayed:
“Now, so that it is clear, my instructions are – and I’ve obtained them specifically in response to this point – that if the applicant’s claim were stayed, the cross-claim would also be stayed”.
The amount of $100,000 sought by Entourage up until the conclusion of its evidence in response to the applicant’s application in the proceeding, raises the question, however, whether that amount sought is intended to encompass the full extent of what evidence might be prepared, filed, and served in support of the cross-claim.
Paragraph 5 of the cross-claim in particular appears to be predicated on a claim that Entourage is the first owner of the Trade Mark under section 92(4)(a) of the TM Act, within the meaning of s 58 of the TM Act.
Whilst it is apparent on the face of the cross-claim that no order is sought for transfer of the registration of the Trade Mark, it is apparent on a review of the cross-claim that Entourage relies on its first use (at least as claimed), and that it also asserts, amongst other matters, bad faith under s 62A of the TM Act, and in relation to non-use, that CIP had no intention in good faith to use the Trade Mark at the date of filing and has not used the Trade Mark in Australia, or has not used the Trade Mark in good faith in Australia, at any time in the period before one month ending on the day in which the non-use application was filed (see s 92(4)(a) of the TM Act).
As will be apparent below, whilst I accept counsel’s assurance that the cross-claim is defensive, it is also apparent on the face of the cross-claim that Entourage there goes further merely than defending its use of the Trade Mark in response to CIP’s claim, at least in respect of asserting its first use, and that the application for the Trade Mark was made in bad faith.
The application for security for costs has been brought promptly following an interlocutory application the subject of my previous decision in this matter, The Cultural Intelligence Project Pty Limited v The Entourage Education Group Pty Limited [2021] FCCA 504 (CPI #1), which was delivered on 26 February 2021 in the circumstances set out in that judgment.
Entourage’s application is supported by an affidavit of its solicitor, Mr Gregory John Wrobel sworn 29 April 2021, and an affidavit of the chief executive officer of Entourage, Mr Timothy Morris, affirmed 11 May 2021. The submission on behalf of CIP in opposition to the applicant is supported by an affidavit of CIP’s solicitor, Mr Christopher John Round, affirmed 13 May 2021.
Entourage brings its application pursuant to s 80 of the Federal Circuit Court of Australia Act 1976 (Cth) (FCCA Act), rule 21.01 of the Federal Circuit Court Rules 2001 (Cth), and s 1335 of the Corporations Act 2001 (Cth). The latter section provides that it must be established by credible testimony that there is reason to believe that the corporation will be unable to pay the costs of the defendant (here, Entourage).
Mr Fox of counsel appeared on behalf of Entourage, and Mr Merrick of counsel appeared by MS Teams on behalf of CIP. In both Mr Merrick’s submissions and, orally, in Mr Fox’s submissions, positions were put. Apart from the sum of $100,000, CIP’s position is, if security were to be ordered, which it opposes, such security should be ordered by reference to the scale in Schedule 1 of the Rules, which provides for a scale amount by reference to specified events. Mr Round nominated the appropriate amount as $15,203.
In oral submissions, Mr Fox referred to a counter-offer for security to be provided, in the sum of $35,000, which counter-offer had been made, as I apprehended it, within the last day or two.
For the reasons that follow, and as I have foreshadowed to practitioners before commencing my reasons, I have formed the view that Entourage’s application fails.
General Principles
I first turn, to the applicable principles. I have referred to s 80 of the FCCA Act, rule 21.01 of the Rules, and s 1335 of the Corporations Act. Section 80(2) of the FCCA Act provides that the Court may order an applicant in a proceeding to give security for the payment of costs that may be awarded against the applicant. The security shall be in such amount, and given at such time, and in such manner and form, as the Court directs: s 80(3) of the FCCA Act. The Court may reduce or increase the amount of security ordered to be given, and may vary the time at which, or manner or form in which, the security is to be given: s 80(4) of the FCCA Act.
If security is not given in accordance with the Court’s orders, the Court may dismiss or stay the proceeding: s 80(5) of the FCCA Act.
Rule 21.01 of the Rules reflects the terms of s 80 of the FCCA Act. Section 80 is in substantially similar terms to s 56 of the Federal Court of Australia Act1976 (Cth) (FCA Act).
Section 1335 of the Corporations Act provides:
Costs
(1)Where a corporation is plaintiff in any action or other legal proceeding, the court having jurisdiction in the matter may, if it appears by credible testimony that there is reason to believe that the corporation will be unable to pay the costs of the defendant if successful in his, her or its defence, require sufficient security to be given for those costs and stay all proceedings until the security is given.
(1A)Subsection (1) does not apply to a corporation that is an Aboriginal and Torres Strait Islander corporation.
Note: Similar provision is made in relation to Aboriginal and Torres Strait Islander corporations under section 581-20 of the Corporations (Aboriginal and Torres Strait Islander) Act 2006.
(2)The costs of any proceeding before a court under this Act are to be borne by such party to the proceeding as the court, in its discretion, directs.
The Court exercises a broad discretion under these legislative provisions in determining whether it is appropriate to order security, limited only by the fact that its discretion must be exercised judicially.
I have referred to a number of authorities regarding this exercise of discretion, in Flujo Sanguineo Holdings Pty Limited & Another v Universal Food Products Pty Limited [2020] FCCA 251 (delivered 11 February 2020) at [19]-[21] as follows (emphasis in original, citations omitted):
[19]The Court exercises a broad discretion under these legislative provisions in determining whether it is appropriate to order security, limited only by the fact that its discretions must be exercised judicially. As summarised by O’Bryan J in Flujo Holdings Pty Ltd v Merisant Company & Ors:
[7]The discretion conferred by s 56 to award security for costs is broad and unfettered, the only limitation being that the discretion must be exercised judicially… It is a discretion to be exercised according to the merits of each case and without any particular predisposition…The Court’s discretion is to be exercised having regard to whether the interests of justice would be best served by making or refusing the order…
[20]In LivingspringPty Ltd v Kliger Partners, a decision on which Mr Castelan placed emphasis, the Victorian Supreme Court of Appeal, by reference to s.1335 of the Corporations Act explained the application of the statutory test:
(a)first, the threshold condition to be satisfied is whether there is reason to believe that the corporation will be unable to pay the costs of the [respondent] if unsuccessful: at [11];
(b)the threshold question must be satisfied before the discretionary power to order security is enlivened;
(c) “the phrase ‘reason to believe’…requires a rational basis for the belief – and no more…The section calls for a practical, commonsense approach to the examination of the corporation’s financial affairs”: at [15];
(d) it may be said, with justification, that this is a low threshold: at [16];
(e)the power being enlivened, the court must consider whether it should be exercised. Foremost among the discretionary considerations will be any contention on behalf of the [plaintiff-applicant in the substantive proceeding] that an order for security will work an injustice: at [18];
(f)whether the power should be exercised will depend on all of the circumstances: at [19];
(g)the burden rests on the [respondent – moving party on the application for security for costs] from first to last to persuade the court that the order for security should be made;
[21]In Concrete Mining Structures Pty Ltd v Cellcrete Australia Pty Ltd (No 2), a decision on which Ms Gatford relied, Edelman J, then of the Federal Court of Australia, at [12] also explained that the substantive onus of proof rests throughout upon the party seeking security. His Honour observed, however, once the threshold issue is satisfied, there is an evidentiary burden on the party resisting the order for security for costs … [in the present case, CIP] to establish a reason why security should not be granted. That requires only that the entity resisting providing security raise (with some basis to do so) the matters that it wishes to be taken into account in determining whether the order for security for costs should be made. His Honour summarised some of the relevant factors commonly to be considered, to which I have had regard to the extent that they have relevance to the present case.
In Concrete Mining at [13] of his judgment, His Honour stated (citations omitted):
[13]Some of the common factors to be considered by the Court in the grant of security for costs were recently summarised by Collier J in Hii v Federal Commissioner of Taxation (No 3). Those factors, and others which are often referred to, include:
(1)the likelihood of the applicant being unable to pay the respondent’s costs;
(2)the characteristics of the applicant including whether it is a corporation or a natural person, the wealth of the applicant, whether the applicant is a foreign resident and, if so, the assets held by the applicant in Australia;
(3)whether any impecuniosity of the applicant was caused by the respondent’s conduct which is the subject of the claim, to the extent to which that can be assessed;
(4)whether the application for security is oppressive;
(5)whether the award of security would deny an impecunious applicant a right to litigate;
(6)whether there are persons standing behind the applicant who are likely to benefit from the litigation;
(7)whether the persons standing behind the applicant have offered any security or personal undertaking to be liable for the costs, and if so, the form of that security or undertaking;
(8)whether the proceedings are in substance defensive in the sense of directly resisting proceedings already brought or seeking to halt the respondent’s self-help procedures so that the applicant is, in substance, forced to litigate;
(9)whether the application for security had been brought promptly;
(10)whether the applicant has any rights which it can exercise against assets of the respondent to satisfy an order for costs in its favour;
(11)the strength and bona fides of the applicant’s case, although this will invariably only be determined in a provisional manner and in many cases will only be a broad brush impression of little weight; and
(12)any factors relating to the public interest.
Consideration
In the present case, in a helpful outline of written submissions, Mr Fox has identified the basis for Entourage’s application as the following:
(a)No evidence has been filed by CIP in response to Entourage’s application, as to its current financial circumstances, or its capacity to meet any order for costs, if made at the conclusion of the proceeding. He submits that, prima facie, there is good reason to believe the applicant is unable to meet any costs order;
(b)CIP is a proprietary company with a $2 share capital. Searches have been conducted which establish it is not the registered proprietor of any real property in Australia. Its sole director, Ms Cara Peek, gave an affidavit, affirmed in the interlocutory application in CPI#1, which, at a confidential annexure, indicates the financial position of CIP as at 31 December 2020. That confidential annexure indicates that CIP is a modest business, and was making a net profit as at December. Entourage submits, however, that CIP will be unable to pay the costs of Entourage, if Entourage is successful in its defence, and it appears its cross-claim. Entourage submits the discretion of the Court is, therefore, enlivened to make an order for security for costs;
(c)While accepting that the substantive onus of proof rests on Entourage, it submits that it has provided credible testimony that CIP is impecunious, and that the failure by CIP to adduce evidence in relation to its financial capacity to meet an adverse costs order “strongly supports” a finding that security should be ordered by reference, inter alia, to the case of Jazabas Pty Ltd and Ors v Haddad and Ors [2010] NSWSC 594 at [47]; and
(d)Entourage submits that the prospects of success of CIP’s claim, Entourage’s defence, including any cross-claim, is a “minor issue”. Or it may be if the defence has reasonable prospects of success. The merits of the underlying defence are regarded as a neutral factor.
Mr Fox submits, and I accept, that the Court will not enter into a close evaluation of the relative strengths of the parties’ cases, referring to Brereton J in Coolangatta Property v Dyason [2011] NSWSC 929, especially at [12].
Entourage (and Mr Fox in both his written and oral submissions) asserts that the cross-claim is defensive, submitting, importantly, that those grounds include, as I have already said, that Entourage considers itself to be the owner of the Trade Mark (s 58 of the TM Act), and that the Trade Mark was applied for in bad faith (s 62 of the TM Act).
Mr Morris’ affidavit is relied upon at this stage to provide a measure of substantiation in relation to that claim. I note that Mr Morris attests to Entourage’s adoption of the Trade Mark the phrase ‘Make It Happen’ as early as 2012, and Mr Fox submits that Mr Morris provides examples of its continuous use as a trade mark in relation to Entourage’s educational classes and events since that time. I do not, however, in this application make any evaluation of the strengths, weaknesses, or otherwise of the cross‑claim and that assertion, save to note that the defence does not rely on any defence of prior continuous use which might in the ordinary course have been available under s 124 of the TM Act, if, indeed, the claimed prior use had continued to the commencement of the Claim, noting some of the limitations of that section.
I have had regard to the basis on which the defence is put and the basis on which the cross‑claim is propounded. Whilst I do not undertake any close evaluation of the parties’ respective cases, and I accept Mr Fox’s assurances as to his instructions, at least as put at the Bar table. A plain reading of the defence and the cross-claim have caused me to conclude that there is some merit in Mr Merrick’s concern that until Mr Fox’s undertaking was given at the conclusion of the hearing this afternoon, the cross-claim would proceed even if the application was stayed. As Mr Merrick submitted to the Court, there is, in a practical sense, some substance to the view that if successful the claim and the cross-claim, will, in large sense, cancel each other out.
Mr Fox, carefully drew my attention to a number of decisions of the Federal Court in relation to cross‑claims for revocation of patents, and the proposition that might fairly be identified as having originated in the decision of Tamberlin J in Baygol Pty Limited v Huntsman Chemical Co Australia Pty Limited trading as Armax [2004] FCA 1248 at [23]:
[23]It is generally accepted that where a cross-claim is in substance a defence to an action, the defendant will not be regarded as the moving party for the purposes of a security for costs application, and will therefore be entitled to security from the plaintiff in relation to both the defence and cross-claim. There is no clear authority that a defendant to patent litigation is entitled to security in respect of both the claim and the cross-claim.
I observe that in Baygol at [27] and following, his Honour discussed that in that case the cross‑claim was in nature, substance, and effect, a defence to the infringement action. I read his Honour’s discussion bearing that in mind and the discretionary nature of the application for security for costs. As Rares J said in Pilkin v Sony Australia Limited [2018] FCA 1018 at [34] after referring to Baygol:
[34]In the end, the question of whether to award security for costs against a person resident out of the jurisdiction and the amount of such security essentially involves the court engaging in an instinctive synthesis of the various relevant factors in the exercise of its discretion…
I have had regard to the factors discussed in the cases of Flujo Holdings, Livingspring, and Concrete Mining in particular.
I have also had regard to the submissions by CIP that in the circumstances of this case, an award for security for costs is inappropriate given three matters:
(a)Whilst the cross-claim is defensive, it also asserts that Entourage is the owner of the Trade Mark in dispute;
(b)CIP’s prospects of success; and
(c)The likelihood that an order requiring security in the amount sought be Entourage would stifle the litigation.
In relation to those matters, I consider, as Mr Merrick has submitted, and as I have referred to above, that there is a degree to which the claim and cross-claim will cancel each other out.
As to the prospects of success it is unnecessary to say anything, beyond observing what I said in CIP #1 were my findings in the particular circumstances, and given the evidence before me at that time, as Mr Merrick has properly conceded in this hearing, Entourage has an arguable defence and it is proper for Entourage to litigate that defence.
As to the last proposition, the likelihood that an order requiring security in the amount sought by Entourage would stifle the litigation, Entourage has submitted that there is no evidence proffered by CIP of that likelihood, and Mr Fox criticises Mr Merrick’s written submission that an award for security for costs in the amount sought by Entourage is likely to prevent CIP from litigating because of the likelihood of a stay of the claim, and that the likely stifling of the litigation weighs heavily against the grant of security for costs.
I observe that Bowen CJ in J and M O’Brien Enterprises Pty Limited v Shell Co of Australia (No 2) [1983] FCA 92 (1983) 70 FLR 261 at page 264 considered that likelihood, and I too have considered that likelihood in this matter. In the present case, I understand Mr Merrick’s submission as relying on the expressions as used by the then Chief Justice and do not consider it tells against CIP that it has not put on evidence of its impecuniosity.
I turn now to Mr Wrobel’s calculation of the amount for security and his discount figures in reaching approximately $100,000. Mr Wrobel, properly, has given some detail of the legal team and their charge out rates, and the steps he considered would have to be taken in the proceeding to prepare evidence to the conclusion of Entourage’s evidence in answer to CIP’s claim. That calculation involves a blended dollar and hourly figure reached by reference to partner, solicitor, and graduate/paralegal rates, and also to the hourly and daily rate of senior and junior counsel. Mr Wrobel reaches an estimate of total fees of $192,750 and recoverable costs in a total of $149,417.62. It is not necessary to delve into the detail of Mr Wrobel’s description and calculation, save to observe that the description of the work that Mr Wrobel considers will need to be done does not include work for preparation for trial excepting in relation it appears to preparing a court book, and may include some contingencies for interlocutory applications, and multiple directions hearings. In short, it cannot be said to be a complete account of the costs that may be incurred. It is a matter for a party properly advised as to how it resources its conduct of litigation.
Whilst CIP has not provided evidence specific to this application of its impecuniosity, I am informed and it is apparent from both Mr Fox’s reliance on Ms Peek’s confidential annexure and Mr Merrick’s reference to that annexure, that CIP is a modest business, and it is entirely appropriate that it has sought to bring proceedings in this Court, bearing in mind the objects and purposes of this Court as expressly stated in the Rules (see particularly Rule 1.03 (1), (2) and (4)).
In both this Court, and in the Federal Court, it is a purpose of the Rules to aid the just, efficient and economical conduct and resolution of litigation. Whilst Mr Round, in his affidavit and in letters attached to Mr Merrick’s submission, has submitted that it is more appropriate that security be ordered by reference to the Schedule of this Court’s Rules and that is by reference to events, Entourage has not so quantified the amounts it seeks by way of security.
True it is that in Active Skin Pty Limited v Yey Pty Limited [2021] FCCA 329 I had cause to consider whether a competing security amount should be ordered pursuant to either the Federal Court Rules or the Rules of this Court. In that matter, however the Court was concerned with a matter where the complexity was apparent because of the stage at which the matter had reached, and the issue was whether I should fetter the future making of costs orders by reference to taxation. It is in that context that I there said that the decision whether or not as a matter of judicial discretion to order security, is not akin to an order for costs.
Further, whilst there is no rule or principle in this Court that security for costs must be ordered on the Schedule 1 scale, it would be unfortunate if litigants were to operate on an assumption that matters in this Court, or in this Intellectual Property List would, in the ordinary course, and without any consideration of the particular circumstances of any matter before the Court, find that the Schedule 1 scale costs would be inappropriate. Rather, it is important to observe that the question of security, and the quantum of security, is a matter that takes into account the particular circumstances of the matter before the Court, and having regard to the factors in the decisions I have already referred to.
Thus, in Active Skin, I rejected the applicant, Active Skin’s submission that:
[47]…an overarching taxation order must be made as a precondition to awarding the quantum of security sought by Yey.
In this matter I am mindful of the object of the Rules. I am mindful that both parties bring claims that I do not consider to be without merit, and I am mindful that CIP, whilst a modest business, and one which, on Mr Merrick’s submission, may have a likelihood of its claim being thwarted, or would be stifled were an order in the terms and of the amount as sought by Entourage be made.
In these circumstances, in the exercise of my discretion, I decline to order security.
Whilst I have formed the view, having regard to the interrelationship and weighing of factors as set out in Livingspring and in Concrete Mining, at [13], whether or not the application for security would fail at the threshold stage, if it did not so conclude, I would not exercise my discretion to order security for costs.
It follows that the application for security of costs is refused.
It follows that I will make orders in the following terms:
1.DISMISSES paragraphs 1 to 5 of the Respondent’s Application in a Case dated 29 April 2021.
2.RESERVES the cost of the Application to be determined, if necessary, after consultation with counsel.
3.DIRECTS by 1 June 2021, counsel confer and notify by email to the Chambers of Judge Baird of any non-availability in the period 1 October 2021 to 30 April 2022 (with an estimate of 2 days).
4.STANDS OVER the proceeding for case management conference to a date after 8 June 2021, to be fixed administratively after consultation with counsel, such case management conference to be conducted in person or by MS Teams, or as the Court might otherwise advise administratively.
I will so order.
On costs I should note that my preliminary view is that given the extremes of the positions on security propounded by each of the parties, it may be that either there be no order as to costs or costs be reserved. However, given that I have earlier indicated I will hear the parties on costs on another day or have if either party presses costs, I will consider it at that time.
I will make no costs order either way at present.
I certify that the preceding forty-eight (48) numbered paragraphs are a true copy of the Reasons for Judgment of Judge Baird. Associate:
Dated: 25 June 2021
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