Austin, Nichols & Co Inc v Lodestar Anstalt

THE COURT 1 On 21 February 2012 we allowed the appeal in this matter (which, itself, was an appeal from a decision of the delegate of the Registrar of Trade Marks) and ordered that a trade mark owned by the respondent be removed from the Register of Trade Marks after a prolonged period of non-use: Austin, Nichols & Co Inc v Lodestar Anstalt [2012] FCAFC 8. We also ordered that the respondent pay the appellants' costs. Neither in submissions nor at the time judgment was pronounced did the appellants seek any additional costs order but, on 27 March 2012, nearly five weeks later, the appellants applied to the Court under r 39.04 of the Federal Court Rules 2011 ("the Rules") for a variation of the costs order to enable it to recover the costs of the proceeding below (in part on an indemnity basis) and to have the entire costs of the appeal paid on an indemnity basis. The application for indemnity costs is based on an offer of compromise served in the proceeding at first instance. 2 The parties were ordered to file their evidence and to put on written submissions. 3 The appellants now seek three additional orders in the following terms: (1) The respondent pay the appellants' costs of the action at first instance; and (2) Pursuant to rule 25.14(3) the respondent pay the costs of the action at first instance and the appeal: (a) before 11.00 am on 6 August 2010 - on a party and party basis; and (a) after 11.00 am on 6 August 2010 - on an indemnity basis; and (3) All amounts paid by the appellants in respect of security for the respondent's costs, together with any interest thereon, be released to the appellants. 4 The respondent opposes the making of all additional orders except for the order seeking the release of the security. 5 The following issues arise on this application: (a) Should the order be varied at all, having regard to the delay in seeking its variation? (b) Should the order be extended to cover the costs of the proceeding at first instance? (c) If the order for costs is varied, should the appellants only recover part of their costs on the appeal (as the respondent now argues)? (d) On what basis should costs be awarded?

Should the order be varied at all? 6 The Court clearly has the power to vary the orders. Rule 39.04 permits the Court to vary (or set aside) a judgment or order before it has been entered without the constraints imposed on the Court when the judgment or order has been entered. The orders have not been entered. Still, the power is to be exercised sparingly, indeed cautiously, having regard to the public interest in the finality of litigation: Wentworth v Woollahra Municipal Council (1982) 149 CLR 672; Autodesk Inc v Dyason (No 2) (1993) 176 CLR 300; Aktas v Westpac Banking Corporation Ltd and Another (No 2) (2010) 241 CLR 570 ("Aktas"). The Full Court discussed the exercise of the power at some length in admittedly different circumstances in Dib Group Pty Ltd v Coolabah Tree Aust-Wide Pty Ltd [2011] FCAFC 57 at [77]-[84]. 7 We have concluded that the order should be varied so as to order that the appellants have the costs of the action at first instance and of the application for leave to appeal but (the question of security of costs aside) not otherwise.

Should the order be extended to cover the costs of the proceeding at first instance? 8 The power of the Court to award costs is conferred by s 43 of the Federal Court of Australia Act 1976 (Cth). It gives the Court a complete discretion as to whether and when to award costs, what form the order should take and against whom it should be made. Ordinarily, however, if an appeal succeeds, the Court will order the respondent to pay the costs of both the appeal and the trial: Ruddock v Vadarlis (No 2) (2001) 115 FCR 229 at [16]. 9 In his decision on costs the primary judge ordered that the respondent pay the appellants' costs on the issues of standing and the obstacles to the use of the trade mark but that the appellants pay the costs of the respondent on the issue of discretion: Austin, Nichols & Co Inc v Lodestar Anstalt (No 2) [2011] FCA 450. As the Full Court found that the primary judge's discretion miscarried and, on exercising the discretion for itself, came to the opposite conclusion, there is no sound reason why the respondent should not pay all the appellants' costs at first instance. 10 The respondent contends that this Court has never been seized of an appeal against a relevant costs order. That is not so. It is true that at the time the notice of appeal was filed (on 9 March 2011), pursuant to the leave of the Court, the primary judge had not yet delivered his judgment on costs. At that time his Honour's decision on that question was reserved and judgment was not pronounced until 6 May 2011. (That is why the leave application was necessary.) It is also true that the appellant did not formally amend its notice of appeal to appeal those orders. But the notice of appeal sought orders for costs of the appeal, the application for leave to appeal and the proceeding below. It was only through inadvertence that the Court did not expressly deal with the costs below or of the leave application. In those circumstances, it would be quite unjust not to deal with those issues now that our oversight has been brought to our attention. Doubtless, the oversight occurred because the appellants made no submissions on the question of costs. Although it would have been helpful if the submissions at least referred to the orders sought, it is not surprising that the appellants did not advance any argument in support of their application for the costs below, having regard to the ordinary practice of the Court. The respondent advanced no argument to the contrary, which might have been expected in the circumstances were there indeed anything to be said. 11 There is no reason why the ordinary practice should not be followed in this case. The appellants should have the costs of the proceeding below. 12 On 8 March 2011 leave to appeal was granted but the costs of that application reserved. The appellants, having succeeded on the appeal, should also recover the costs of the leave application. We would have thought that the costs order we have already made would have incorporated the costs of the leave application but to avoid any further argument we will make an order to that effect now. 13 The respondent argues, however, that any order for the costs of the trial must exclude costs orders reserved or made in interlocutory applications in the proceeding below. It advances no reason why this exception should be made and we are unable to discern one. These are matters that the respondent should have agitated during the hearing of the appeal, knowing, as it must be taken to have done, that the appellants sought the costs of the proceeding below. 14 The Court's orders should therefore incorporate orders for the costs of the application for leave to appeal and of the proceeding at first instance.

Should the appellants only recover part of their costs on the appeal? 15 The respondent submits that the costs of the appeal should be apportioned 50-50 because the appellants did not succeed on all their arguments. We note that in the proceeding below the respondent argued strenuously against the apportioning of costs on this basis, filing 24 pages of submissions in support of its argument. The respondent failed to persuade the primary judge, who noted that the issues before him were distilled into three separate issues. The entire appeal, however, was concerned with one issue - the exercise of the discretion to refuse to remove the respondent's mark conferred by s 101(3) of the Trade Marks Act 1995 (Cth). Although not all the appellants' arguments were successful, we do not think that this is sufficient reason to vary the order we have made.

On what basis should costs be awarded? 16 The application for indemnity costs is based on an offer of compromise made some three and a half weeks before the first instance hearing started. 17 The offer was accompanied by a letter foreshadowing an application for indemnity costs if it were not accepted and the appellants obtained judgment in terms not less favourable than the terms of the offer. The letter began with this recital: We refer to the decision made by the High Court of Australia in Health World Ltd v Shin-Sun Australia Pty Ltd [2010] HCA 13. It is our view that the effect of this decision is that your client has no prospect of successfully defending this appeal. We consider that your client's further defence of this matter will simply incur unnecessary costs for both parties. 18 The High Court's decision was concerned with the question of standing. This was the issue upon which the appellants failed before the delegate. 19 The offer was made pursuant to O 23 r 3 of the former Rules and was in the following form: The Applicants offer to compromise these proceedings in the following manner: (1) The parties will consent to final orders in the terms of the attached consent short minutes of order. (2) The Respondent agrees not to pursue and to release the Applicants from all liability in respect of the award of costs in Order 3 of the Orders made on 4 November 2009. (3) This offer is made jointly by the Applicants and is capable of acceptance only as against all of the Applicants. (4) This offer will remain open for a period of 14 days beginning on the day after it is made. (5) This offer is made under Order 23 of the Rules. 20 Order 3 of the orders made on 4 November 2009 was an order that the appellants pay the respondent's costs of the latter's application for security for costs, taxed on a party and party basis. 21 The attached short minutes of order contained proposed orders allowing the appeal from the decision of the delegate, setting aside the delegate's decision, ordering the removal of the respondent's registered trade mark and providing that there be no order as to costs. 22 The offer followed to the letter the prescription in O 23 r 3(2). Order 23 r 11(4) provided: If: (a) an offer is made by an applicant and not accepted by the respondent; and (b) the applicant obtains judgment on the claim to which the offer relates not less favourable than the terms of the offer; then, unless the Court otherwise orders, the applicant is entitled to an order against the respondent for costs incurred in respect of the claim: (c) up to and including the day the offer was made - taxed on a party and party basis; and (d) after that day - taxed on an indemnity basis. 23 The rule creates a presumption in favour of indemnity costs from the date the offer is made: Futuretronics.com.au Pty Ltd v Graphix Labels Pty Ltd [2009] FCAFC 40 ("Futuretronics") at [10]. It is for the respondent to show why the order should not be made. The Court has generally taken the view that exceptional circumstances will be required before the Court will make a different order. 24 The offer can fairly be described as a "walk away" offer. Nevertheless, in offering to forgo costs, the appellants were offering to make a genuine compromise. Cf Sagacious Legal Pty Ltd v Wesfarmers General Insurance Ltd (2011) 16 ANZ Insurance Cases 61-885; [2011] FCAFC 53 at [129]-[144]. The proceeding began in this Court in June 2009 and, although no evidence was adduced as to the costs actually incurred, it may fairly be inferred that by the time the offer was made they were substantial. There had been a number of interlocutory hearings and extensive affidavit evidence had been filed. Mr Philp, the respondent's solicitor, said that the bulk of costs had been incurred by then. The respondent called evidence to show that its costs were in the vicinity of $125,000. 25 The prima facie entitlement to indemnity costs continues to apply now that the orders made at first instance have been set aside: IMF (Australia) Ltd v Meadow Springs Fairway Resort Ltd (In Liquidation) (No 2) [2009] FCAFC 69 ("IMF") at [36]. The respondent submitted that its position was neither unreasonable nor imprudent. The evidence was that the decision to reject the appellants' offer was made having regard to the following circumstances: (a) the Offer being based and argued for solely on the Health World decision (as appears on the face of Mallesons 4 August 2011 letter to me); (b) its ignoring, at the least, the number of remaining arguments the Respondent was properly running (and entitled to continue to run) particularly on discretion; (c) its ignoring of the evidence in the other issues long put on by the Respondent; (d) nothing new was given to me by Mallesons to rebut that evidence (the Appellants' evidence had long since closed); (e) the Appellants' offer required the removal of the WILD GEESE mark which in my instructions was a valuable piece of intellectual property; (f) the offer required the Respondent to bear all of its then substantial costs and waive the costs awarded to it by Lindgren J's 4 November 2009 Orders (a point I depose to below). 26 But it is not enough to displace the prima facie entitlement for the respondent to show that its conduct was reasonable: Futuretronics at [11]. As Logan J observed in Granitgard Pty Ltd ACN 007 427 590 v Termicide Pest Control Pty Ltd ACN 093 837 337 (No 6) [2010] FCA 381 at [32], referring to the terms of O 23 r 11(6), which deals with respondents' offers of compromise but which are relevantly identical: To treat that language as doing no more than requiring the Court to consider whether the rejection of the offer of compromise was imprudent or unreasonable would not just be to give a non-literal meaning to that language but to ignore it. 27 The matters upon which the respondent relies are neither individually nor collectively sufficient to displace the prima facie entitlement. 28 Were it not for the unexplained and inexplicable delay in making the application we would therefore be disposed to make the order the appellants seek with respect to the costs of the hearing below. There is, however, no evidence of any offer to compromise the appeal. 29 In Digga Australia Pty Ltd v Norm Engineering Pty Ltd (No 2) [2008] FCAFC 76 a Full Court awarded indemnity costs in an appeal because of an offer of compromise made in the trial, though not renewed on the appeal. In IMF, where the same question arose, a differently constituted Full Court emphasised (at [34]-[36]) that an appeal is a different proceeding from a trial and a claim in the original jurisdiction is different from a claim in the appellate jurisdiction. The Court held that once a proceeding in which an offer of compromise made under the Rules has been disposed of, the offer of compromise should be regarded as spent except in so far as it is necessary to consider it in the context of an application for the costs of the proceeding below. No reference is made in the judgment to Digga. No doubt the Court's attention was not drawn to it. In Danaris Pty Ltd v J & M United Pty Ltd (No 2) [2011] FCA 281 at [13] Jagot J accepted a submission that the two judgments were reconcilable if the Full Court's reasons in IMF were read to apply only in circumstances where an offer of compromise and its potential costs consequences have been determined in the primary proceeding. But the critical factor for the Full Court in IMF was the disposition of the primary proceeding, not the determination of the offer of compromise. The question whether an offer of compromise made in the primary proceeding operates so as to trigger the presumption in favour of indemnity costs not only in that proceeding but also in an appeal (the point considered in IMF) does not appear to have been raised or argued, let alone considered, in Digga. 30 The trigger under the rule for the presumption in favour of indemnity costs is that the party who made the offer obtains judgment on "the claim to which the offer relates not less favourable than the terms of the offer" (emphasis added). The judgment on the claim to which the appellants' offer relates is the judgment made on the claim in the proceeding below. It does not include the appeal. As the Full Court acknowledged in IMF, however, that does not mean that the offer made during the proceeding below is not relevant to the exercise of the Court's discretion in relation to the costs of the appeal. It just means that the presumption in favour of indemnity costs is not engaged. 31 The judgment of the Full Court in IMF is in line with the approach taken by the NSW Court of Appeal, where a failure to renew the offer or to make one in the appeal proceeding is regarded as sufficient to deprive the party seeking the special order of the benefit of the presumption. See, for example, Baresic v Slingshot Holdings Pty Limited and Anor (No 2) [2005] NSWCA 160 at [18]-[22]; Monie v Commonwealth of Australia (No 2) [2008] NSWCA 15 per Beazley JA at [4], Mason P agreeing at [1]. And, as the Full Court said in IMF, it is the better view. In an appeal the respondent has the benefit of a judgment in its favour. The starting point is therefore different from the position at first instance. 32 Thus, for the reasons given by the Full Court in IMF, the offer of compromise does not apply to the appeal. There is, then, no presumption in favour of indemnity costs on the appeal. In this case, the mere fact that the offer was made below is insufficient to persuade us to depart from the usual order or, indeed, to vary our judgment in this respect. 33 In any event, the problem for the appellants is that no application for a special costs order was made or foreshadowed in submissions during the hearing of the appeal or (despite the attendance of experienced counsel to take judgment) at the time the orders were pronounced. No explanation has been given for the delay in making the application or in indicating that the application might be made. As we observed earlier in these reasons, the exercise of the power is not only discretionary, but exceptional. The omission of the Court to deal with the orders sought is one thing. The omission of a party to make an application for a different order is quite another. In Aktas the High Court refused to vary its costs orders in comparable circumstances. A similar position was taken by the Full Court in Preston Erection Pty Ltd v Speedy Gantry Hire Pty Ltd [1999] FCA 122. See also Visscher v Teekay Shipping (Australia) Pty Limited (No 2) [2011] FCA 278 at [28]-[30] where Katzmann J declined to award indemnity costs on a respondent's offer of compromise where there had been delay in asking for them. For the reasons given in those cases, the application for indemnity costs should be refused.

Costs 34 The only remaining matter is who should pay the costs of this application. Neither party made any submissions on the question. In view of the outcome, it seems to us that the proper order is that each party pay its own costs. I certify that the preceding thirty-four (34) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justices Jacobson, Yates and Katzmann.