Workwear Industries Pty Ltd v Pacific Brands Workwear Group Pty Ltd (No 2)

[2013] FCA 1438

FEDERAL COURT OF AUSTRALIA

Workwear Industries Pty Ltd v Pacific Brands Workwear Group Pty Ltd (No 2) [2013] FCA 1438

Citation:	Workwear Industries Pty Ltd v Pacific Brands Workwear Group Pty Ltd (No 2) [2013] FCA 1438
Parties:	WORKWEAR INDUSTRIES PTY LTD (ACN 061 071 065) v PACIFIC BRANDS WORKWEAR GROUP PTY LTD (ACN 004 055 387)
File number(s):	WAD 363 of 2012
Judge(s):	SIOPIS J
Date of judgment:	23 December 2013
Catchwords:	COSTS – Calderbank offer – the respondent made an offer to the applicant to walk away from the proceeding on the basis that each party bear its own costs – whether the applicant unreasonably refused the respondent’s offer.
Cases cited:	Workwear Industries Pty Ltd v Pacific Brands Workwear Group Pty Ltd [2013] FCA 1042 Hornsby Building Information Centre Pty Ltd v Sydney Building Information Centre Ltd (1978) 140 CLR 216
Date of hearing:	Determined on the papers.
Date of last submissions:	13 November 2013
Place:	Perth
Division:	GENERAL DIVISION
Category:	Catchwords
Number of paragraphs:	38
Counsel for the Applicant:	Mr A Karp
Solicitor for the Applicant:	Karp Steedman Ross-Adjie Lawyers
Counsel for the Respondent:	Mr E Heerey
Solicitor for the Respondent:	Wrays Lawyers Pty Ltd

IN THE FEDERAL COURT OF AUSTRALIA
WESTERN AUSTRALIA DISTRICT REGISTRY
GENERAL DIVISION	WAD 363 of 2012

BETWEEN:	WORKWEAR INDUSTRIES PTY LTD (ACN 061 071 065) Applicant
AND:	PACIFIC BRANDS WORKWEAR GROUP PTY LTD (ACN 004 055 387) Respondent

JUDGE:	SIOPIS J
DATE OF ORDER:	23 DECEMBER 2013
WHERE MADE:	PERTH

THE COURT ORDERS THAT:

1.The applicant is to pay the respondent’s costs of the application filed on 5 December 2012.

Note:Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

IN THE FEDERAL COURT OF AUSTRALIA
WESTERN AUSTRALIA DISTRICT REGISTRY
GENERAL DIVISION	WAD 363 of 2012

BETWEEN:	WORKWEAR INDUSTRIES PTY LTD (ACN 061 071 065) Applicant
\AND:	PACIFIC BRANDS WORKWEAR GROUP PTY LTD (ACN 004 055 387) Respondent

JUDGE:	SIOPIS J
DATE:	23 DECEMBER 2013
PLACE:	PERTH

REASONS FOR JUDGMENT

1. On 15 October 2013, I made orders dismissing the applicant’s application and that the applicant pay the respondent’s costs, unless within seven days the respondent filed and served submissions in support of an alternative costs order (Workwear Industries Pty Ltd v Pacific Brands Workwear Group Pty Ltd [2013] FCA 1042).

2. On 22 October 2013, the respondent filed submissions in support of orders that the applicant pay the respondent’s costs of the proceeding up to 11 February 2013 on a party and party basis, and from 11 February 2013, on an indemnity basis.

3. The respondent also filed in support of those submissions an affidavit of Ms Catherine Toal, dated 22 October 2013.  The affidavit showed that the parties had engaged in correspondence prior to the commencement of the application, but that their attempt to avoid the commencement of proceedings had failed and, on 5 December 2012, the applicant filed its originating application, its fast track statement and a supporting affidavit of Mr Jeffrey Keiles, dated 5 December 2012.

4. There were two annexures to Ms Toal’s affidavit which were of particular significance to the submissions made by the respondent.

5. The first was somewhat unusual, being a memorandum of advice dated 12 August 2011, which the applicant had obtained from a Queen’s Counsel, experienced in intellectual property matters, in respect of a dispute then being waged between the applicant and the respondent about the use of the term “workwear” by the respondent in connection with its business.  On 6 February 2013, the applicant, having waived legal professional privilege in that advice, provided a copy of the memorandum of advice to the respondent’s solicitors.

6. The second annexure of significance was a “without prejudice save as to costs” letter dated 11 February 2013, in the Calderbank form, from the respondent’s solicitors to the applicant’s solicitors.  The letter contained an offer to settle the proceeding on the basis that each party walked away and bore its own costs.  The letter pointed out that the respondent already had a costs entitlement arising from orders made by the Court on 6 February 2013 consequent upon the applicant abandoning its passing-off claim.

7. The letter stated that the applicant would not be able to establish that the use of the word “workwear” was distinctive of its business.  The respondent also stated that the applicant’s evidence of confusion was not decisive of the question of whether the respondent’s use of its logo was misleading or deceptive.

8. The letter also stated that the respondent was confident of defending the applicant’s misleading or deceptive conduct claims.  The letter went on to allege that any confusion among customers which had occurred, or may occur, stemmed from the applicant’s adoption of descriptive and generic elements within its trading name and logo - in particular, the word “workwear”.  The letter referred to observations by Stephen J in the case of Hornsby Building Information Centre Pty Ltd v Sydney Building Information Centre Ltd (1978) 140 CLR 216 to the effect that a risk of confusion must be accepted where a party chooses to use a descriptive word in its trading name.

9. The letter stated that the offer was made in accordance with Calderbank principles and would remain open until 4:00 pm on 20 February 2013.

10. The respondent’s solicitors did not have to wait long for a response to their client’s offer.  The next day they received a letter from the applicant’s solicitors which contained only the word:  “Rejected”.

11. It is the applicant’s rejection of the offer contained in the respondent’s solicitors’ letter of 11 February 2013 which formed the basis of the respondent’s contention that the applicant pays the costs incurred from that date on an indemnity basis.

12. In addition, the respondent relied upon the advice given to the applicant by its own senior counsel in the August 2011 memorandum of advice.  The advice was pessimistic as to the applicant’s prospects of success.  In particular, the respondent relied upon the following extract of the advice:

    [A]t this stage my opinion on my present instructions, is that such would be very difficult to bring [proceedings against the respondent] to a successful conclusion, and could well be unsuccessful.  The proceedings would, if undertaken, require very extensive evidence of reputation, perhaps even survey and expert evidence, by [the applicant], with the consequent expense.

13. In response to the respondent’s submissions and Ms Toal’s affidavit, the applicant filed an affidavit of Mr Jeffrey Keiles, sworn 11 November 2013, an affidavit of Mr Alan Hilton Karp, sworn 13 November 2013, and written submissions, dated 13 November 2013.

14. Mr Keiles’s affidavit annexed a further memorandum of advice, dated 27 September 2012, from the same Queen’s Counsel whose advice was annexed to Ms Toal’s affidavit.  The further memorandum of advice was given about a year after the first memorandum of advice, and after the respondent had in 2012 adopted the logo which was the subject of complaint in this proceeding.

15. Mr Karp’s affidavit annexed a letter dated 1 August 2011 which contained the instructions given to senior counsel in respect of the first memorandum of advice and the letter of instructions dated 12 September 2012 given in respect of the further memorandum of advice.

16. The 12 September letter of instructions referred to the respondent having adopted the new logo and stated that this had created confusion among the applicant’s customers.  The letter referred specifically to a letter written by the respondent on letterhead containing the respondent’s new logo, to Kaefer Integrated Services Pty Ltd (Kaefer), which, the applicant’s solicitors said, was a customer of the applicant.  The respondent’s letter to Kaefer said that the respondent was instituting a new system for supporting their client’s needs and gave details of a new bank account and new client billing account.  The letter also annexed a sample of the new form of statement and remittance advice the respondent intended to use.  The sample document contained the respondent’s new logo.

17. After having referred to the respondent’s letter to Kaefer , the applicant’s solicitors’ letter of instructions went on to say:

    As a consequence of this letter having been sent, our client has received calls from customers advising our client that they were confused as to where payments needed to be made to our client.

    In one case, a customer of our client Baker & Farrow Pty Ltd in fact made a payment of an amount due to our client into the account referred to in [the respondent’s] letters instead of into our client’s account.

    It is clear that the name and logo that [the respondent] have adopted are so close to our client’s, that our client’s customers are genuinely confused, leaving [the respondent] able to derive a commercial advantage from the name and reputation that our client has built up in the market.

    Our client is concerned that the confusion caused by the change of logo in the market place will continue, and could potentially cause our client to suffer further loss and damage.

18. The letter of instructions did not contain any copy of a sample of the applicant’s invoices or statements containing its logo.  The letter of instructions only contained a copy of the applicant’s logo in isolation.

19. The applicant’s solicitors sought advice from senior counsel as to whether the applicant had a potential cause of action against the respondent and, if so, what the cause of action would be, and their client’s prospects of success.

20. The further memorandum of advice from Queen’s Counsel contained advice to the effect that there were difficulties facing a trader in succeeding on a claim for misleading conduct based on the use of descriptive words in a trading name, and that a trader using a descriptive word in its trading name would need to adduce significant evidence to establish that the descriptive word had acquired a secondary meaning which identified the trader’s goods with the trader.  The memorandum then went on to state at [12]-[14]:

    However, the recent adoption of the Workwear Division Logo by Pacific Brands takes the case out of one involving merely the use of descriptive words.  The recent increase in instances of actual confusion seems very probably to have been caused by mistakes due to the similarity of the respective logos.  At least that is a fair inference.  The logos are intended to be distinctive of the respective parties.  The logos use similar colour ranges, emphasize the word “Workwear”, both use the word Group, and in the case of the Pacific Brands Divisional Logo, there is only reference to “A division of Pacific Brands” in (comparatively) very small print.

    In my opinion, by adopting the design, colouring and wording of the Pacific Brands Divisional Logo, Pacific Brands is acting, in trade and commerce, in a manner which is misleading or deceptive or likely to mislead or deceive, in contravention of ACL section 18, and is also passing itself and its goods off as or as connected with the business and goods of Workwear Industries Group.

    In my opinion, on the facts with which I am instructed and are known to me, subject to what I say below, Workwear Industries Group has a good arguable case with reasonable prospects of success to establish that Pacific Brands is acting, in trade and commerce, in a manner which is misleading or deceptive or likely to mislead or deceive, in contravention of ACL section 18, and is also passing itself and its goods off as or as connected with the business and goods of Workwear Industries Group.

21. However, the memorandum of advice went on to say at [17] and [18]:

    As I said previously, in the present case Workwear Industries Group, in any proceedings claiming misleading and deceptive conduct, passing off, or false attribution of business or product connection, would have to demonstrate by evidence that the reputation in its name including the word “workwear” was so strong that the name distinguished among its customers its business and products (work and protective clothing) exclusive of all others to such an extent that no other manufacturer and distributor of work and protective clothing could use “workwear” as part of its business or product name.  It would also be necessary for Workwear Industries Group to establish by evidence that the use by Pacific Brands Group of the words “Pacific Brands” in the name Pacific Brands Workwear Group did not sufficiently distinguish the Pacific Brands business and products from the Workwear Industries Group’s business and products in the relevant market, among the customers, wholesale and retail.  However, with the introduction of the Pacific Brands Divisional logo, those tasks are made substantially easier.

    Although the evidentiary onus on Workwear Industries Group in any proceedings claiming misleading and conduct, passing off, or false attribution of business of product connection would be substantial, even with the instances of actual deception which have occurred, in view of the new Pacific Brands Divisional Logo, Workwear Industries Group’s case, based on the similarity of the respective logos and the instances of actual confusion, is simpler as to its factual basis, and would not, in all probability, require survey evidence or extensive expert evidence.  (Original emphasis.)

22. Queen’s Counsel advised that the applicant had little option but to “bite the bullet” and issue a letter of demand threatening to commence legal proceedings.  Queen’s Counsel went on to state that he would be prepared to settle a letter of demand and an application and statement of claim if required.

    DID THE APPLICANT UNREASONABLY REFUSE THE OFFER OF 11 FEBRUARY 2013?

23. The respondent contended that the following factors were relevant in the exercise of the Court’s discretion to award indemnity costs from 11 February 2013.

24. First, the respondent contended that the offer made in its letter of 11 February 2013 was a genuine offer of compromise because it offered to forego its legal costs of the proceeding.  The respondent went on to contend that because the applicant had refused the offer, the applicant was now in a substantially worse position than had it accepted the offer, because it was now liable to meet the respondent’s costs of the proceeding in addition to its own costs.  On the evidence, the costs which the respondent was entitled to recover were likely to be in the order of $36,000.

25. Secondly, the respondent contended that by the time the offer was made, the respondent had provided the applicant with its draft fast track response to the applicant’s fast track statement, and so the applicant was familiar with the case which the respondent intended to run at trial.  Likewise, said the respondent, its contentions were also set out in the Calderbank letter of 11 February 2013.

26. In ignorance of the existence of the further memorandum of advice, the respondent also relied upon the initial memorandum of advice from Queen’s Counsel dated 12 August 2011, as having advised the applicant that the case would be “very difficult to bring to a successful conclusion”.

27. In resisting the respondent’s contention that it had unreasonably refused the offer of 11 February 2013, the applicant relied strongly on the fact that it had received the further memorandum of advice from Queen’s Counsel dated 12 September 2012. The applicant referred particularly to paras 12, 13 and 14 of the further memorandum of advice wherein senior counsel opined that, in his view, the respondent, by adopting the logo that it did, was engaging in misleading or deceptive conduct and that the applicant, subject to qualifications, had reasonable prospects of success of establishing that claim. (See, [20] above).

28. The question whether the applicant acted unreasonably in rejecting the offer of the respondent to walk away with each party bearing its own costs, must be assessed by reference to circumstances at the time that the offer was refused.

29. In my view, the mere fact that in commencing a proceeding a party had relied upon advice from a senior counsel will not be determinative of the question of whether an offer of compromise made during the course of the litigation, is reasonably refused or not.

30. The fact of having received and relied upon advice from senior counsel can be a factor in the determination of the reasonableness of the conduct of a party refusing an offer.  However, the weight to be accorded to that factor must be assessed by reference to the circumstances relating to the advice.  Those circumstances may include the interval between when the advice was given and when the offer was refused, the nature and content of the instructions given to senior counsel for the purposes of providing the advice, the extent to which senior counsel has considered the matters the subject of the advice, and the extent to which consideration was given to matters upon which the decision of the Court was based.  Of course, there may well be other relevant circumstances.

31. The September 2012 further memorandum of advice is not as clearly expressed as it could have been. There is some incongruity between the unqualified nature of the view expressed by senior counsel in para 13 of that advice, and the qualified view expressed in para 14, when read with para 17 and para 18 of the advice. (See, [21] above). Therefore, in assessing the proper effect of the advice, one cannot view para 13 of the advice in isolation. Regard must also be had to para 14 and to the qualifications therein, in assessing senior counsel’s view that the applicant had a “good arguable case with reasonable prospects of success”. The tenor of the qualifications is to the effect that the applicant would need to establish a secondary meaning in the word “workwear” in relation to its business and goods, and, also, that the evidentiary onus on the applicant at trial would be “substantial, even with the instances of actual deception which have occurred”. In this regard, it should be observed that at the trial, the applicant made no attempt, in light of overwhelming evidence to the contrary, to establish a secondary meaning in the word “workwear” in respect of its goods.

32. Further, senior counsel was not asked to address the question of the source and extent of confusion arising from the get up of the invoices furnished by each of the applicant and respondent.  This became an important issue at the trial.

33. Nevertheless, in my view, for the following reasons, some weight, but not a great deal of weight, should be accorded to the fact that the applicant had received and relied upon the further memorandum of advice from Queen’s Counsel.  The memorandum of advice was obtained about two months before the commencement of the proceeding and about four months before the refusal of the offer.  The issues between the parties had not changed substantially in that period.  There was, therefore, some degree of proximity between the date of the giving of the advice and the refusal of the offer.  Also, the further memorandum of advice does disclose that Queen’s Counsel was of the view that the fact that the respondent had adopted the logo would make the task of establishing a claim in misleading or deceptive conduct easier.  Further, Queen’s Counsel had expressed some enthusiasm for the commencement of the proceeding by offering to settle a letter of demand and the pleadings, if necessary.

34. There are, however, other considerations which are also relevant in determining the reasonableness of the applicant’s conduct in refusing the respondent’s offer.

35. First, the offer was an offer to walk away which, although it is to be treated as a compromise offer in respect of legal costs, was not a particularly attractive offer.

1. Secondly, whilst the aspects of the law associated with the use of descriptive words in a trading name referred to by the respondent in its fast track response and its letter of 11 February 2013, were relied on at trial, there were significant aspects of its defence at trial which were not referred to in the fast track response or the letter.  One such aspect was the distinction the respondent drew between the use of the applicant’s logo “Workwear Industries Group” and the different and distinctive logos which were used by the applicant to market and sell its goods.  The respondent relied upon this distinction in its contentions, which were ultimately accepted by the Court, in respect of the knowledge that would be attributed to an ordinary or reasonable consumer of the applicant’s goods.  Also, the fast track response and the 11 February letter did not deal with the source and extent of confusion arising from the get up of the respective invoices used by each of the applicant and the respondent, which was also a significant issue in the trial.

2. In light of the foregoing considerations, and although the decision has not been an easy one, I am of the view that the applicant’s refusal of the respondent’s offer to walk away from the proceeding on the basis that each party bear its own costs, was not unreasonably refused.  I will, therefore, not order that the applicant pay the respondent’s costs on an indemnity basis from 11 February 2013.

3. It follows that I will order that the applicant is to pay the respondent’s costs of the application commenced on 5 December 2012, on a party and party basis.

I certify that the preceding thirty‑eight (38) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Siopis.

Associate:

Dated:       23 December 2013