British American Tobacco Australasia Limited v Taleb

JUDGE: DODDS-STREETON J DATE: 18 JULY 2013 PLACE: MELBOURNE

Introduction 1 On 18 July 2013 I made the orders set out above, for the reasons that follow. 2 The background to this application is set out in British American Tobacco Australasia Ltd v Taleb (No 1) [2012] FCA 1065; British American Tobacco Australasia Ltd v Taleb (No 2) [2013] FCA 34; and British American Tobacco Australasia Ltd v Taleb (No 3) [2013] FCA 80. 3 Briefly, the applicant alleged that the seventh respondent and seven other traders infringed its Winfield Trade Marks (as defined in British American Tobacco Australasia Ltd v Taleb (No 3) [2013] FCA 80) registered in relation to various tobacco products by, inter alia, selling counterfeit Winfield cigarettes. 4 On 6 February 2013, the applicant obtained summary judgment against the seventh respondent, who was ordered to pay: (1) the applicant's costs of the proceeding to date insofar as they relate to the seventh respondent (see order 8); and (2) the applicant's damages, or an account of profits, for infringement of the Winfield Trade Marks, together with interest (see order 6). 5 The applicant elected to seek damages of $500 from the seventh respondent and costs in a lump sum. The applicant's interlocutory application dated 14 May 2013, sought the following orders: (1) pursuant to r 40.02 of the Federal Court Rules 2011 (Cth) ("Federal Court Rules"), the seventh respondent pay the applicant's costs in a lump sum of $47,745.03 forthwith; and (2) the seventh respondent pay damages to the applicant in the amount of $500 forthwith. 6 The applicant relied on affidavits previously filed in the proceeding and on the following additional affidavits: (1) the affidavit of Peter Trimbos sworn 14 May 2013; (2) the eighth affidavit of Daniel Roland Plane sworn 14 May 2013; and (3) the ninth affidavit of Daniel Roland Plane sworn 15 May 2013.

The applicant's evidence 7 Peter Trimbos, a costs lawyer experienced in costing commercial litigation, deposed to his compliance with Practice Note CM7 of the Federal Court Rules. 8 Mr Trimbos assessed the costs that the applicant would recover from the seventh respondent on a party and party basis. 9 Mr Trimbos observed that in the three interlocutory applications in the proceeding (in which the seventh respondent was unsuccessful) costs were either reserved or ordered against her. 10 Mr Trimbos apportioned the general costs of all court documents, correspondence and disbursements by attributing one-eighth to the seventh respondent when all eight respondents were involved in the proceeding and attributing half to the seventh respondent when she was one of only two respondents who remained in the proceeding. Mr Trimbos concluded that the seventh respondent's share of such costs amounted to $12,749.89. 11 Mr Trimbos also reviewed other costs, including the timesheet entries and hourly rates of the applicant's counsel, lawyers and other personnel. He allowed a 20% loading for skill, care and responsibility but reduced the costs by 15% to allow for the solicitor and client nature of the work. That resulted in a total amount of professional fees (excluding GST) of $31,523.70. 12 Mr Trimbos estimated the proportion of total disbursements (excluding GST) attributable to the seventh respondent at $10,721.33. 13 Therefore, Mr Trimbos estimated the total costs recoverable against the seventh respondent on a party and party taxation at $42,245.03. 14 Daniel Plane, by his affidavit sworn on 14 May 2013, deposed that the applicant had not received delivery up from the seventh respondent of specified goods and documents pursuant to the orders made on 6 February 2013. Mr Plane deposed to the additional work he, another lawyer and counsel for the applicant had undertaken in relation to the present application, together with the Federal Court filing fee totalling $8,037.70 (excluding GST). 15 By his affidavit sworn 15 May 2013, Mr Plane also deposed to the service of the present application and the supporting affidavits and submissions on the seventh respondent. 16 The application and the affidavits of Mr Trimbos and Mr Plane sworn 14 May 2013 were served on the seventh respondent on 14 May 2013 by sending them by registered post to the seventh respondent's last known business address. The seventh respondent was previously served with material including copies of Ms Michael's affidavit sworn 3 December 2012 and Mr Plane's affidavit sworn 5 December 2012 in connection with the application for summary judgment. The seventh respondent was aware of the orders made by the Court on 6 February 2013 pursuant to which she swore an affidavit on 21 March 2013. 17 The seventh respondent did not appear at the hearing of the application and filed no submissions.

Relevant legislation and legal principles 18 Section 43(2) of the Federal Court of Australia Act 1976 (Cth) ("the Act") confers a discretion to award costs. The discretion is unfettered but must be exercised judicially. 19 Rule 40.02 of the Federal Court Rules states: A party or a person who is entitled to costs may apply to the Court for an order that costs: … (b) be awarded in a lump sum, instead of, or in addition to, any taxed costs; or (c) be determined otherwise than by taxation. … 20 In Dunstan v Human Rights and Equal Opportunity Commission (No 3) [2006] FCA 916, Mansfield J observed at [23] that: There is no particular characteristic of a case which must exist before a gross sum costs order can be made … It is a power which may be exercised whenever the circumstances of the case warrant it … 21 His Honour stated that relevant factors included "whether the delay, expense and inconvenience of taxing costs in the normal manner would be unduly protracted or expensive" and whether, given the liable party's capacity to pay costs, an additional taxation cost would impose a significant burden on the party who obtained the order but for costs could not be expected to recover them. 22 In Bitek Pty Ltd v iConnect Pty Ltd (2012) 290 ALR 288; [2012] FCA 506, Kenny J noted that the award of a lump sum for costs is not limited to cases of large, complex or protracted litigation. Her Honour recognised that it was nevertheless relevant that the liable parties in that case had wasted the applicant's time and resources by failing to respond to communications, the institution of the proceeding and court orders. Further, the liable parties were unlikely to co-operate in further court processes, their business was relatively small and the proposed costs order could be significant. Kenny J concluded that it was appropriate to make a lump sum costs order to avoid a further waste of time and money that may not readily be recouped. 23 Her Honour observed that the starting point in fixing costs in a lump sum was the charges rendered by the applicant's solicitor, which she adjusted to take account of the appropriateness of the costs incurred, the conduct of the proceeding and its outcome. Kenny J stated that the amount awarded should be proportionate to the nature and complexity of the case and the approach taken to fixing the lump sum must be logical, fair and reasonable. 24 Kenny J stated that the court is not required to undertake a detailed examination of the kind appropriate to a taxation of costs which would defeat the purpose of fixing costs in a lump sum.

Consideration 25 In the present case, I was persuaded that it was appropriate to fix costs in a lump sum. 26 As the applicant submitted, the history of the proceeding was relatively short. It commenced on 7 September 2012 and summary judgment was granted against the seventh respondent less than five months later (including the Christmas period) on 6 February 2013. Although the proceeding involved several contested applications, the applicant was successful in all of them. The applicant successfully sought orders for substituted service. The applicant also successfully resisted the seventh respondent's application to transfer the proceeding to New South Wales and succeeded in its summary judgment application. As a result, the proceeding (and the costs associated with it) could be readily assessed without balancing competing claims for costs. 27 The award of a lump sum for costs avoided further expense and possibly substantial delay. It spared the applicant from preparing a detailed bill of costs pursuing a taxation (which would involve costs consultant's and solicitors' fees) and a Registrar's assessment. 28 The seventh respondent's conduct in the litigation also favoured an award of costs in a lump sum. 29 First, the applicant experienced difficultly in serving the originating process on the seventh respondent and the person in attendance at her business premises was uncooperative. 30 Secondly, the seventh respondent unsuccessfully applied, after considerable delay and on scanty grounds, to transfer the proceeding to New South Wales shortly before the scheduled hearing of the applicant's application for summary judgment. 31 Thirdly, the seventh respondent resisted the applicant's summary judgment application largely on the basis of bare denials given through her lawyer, rather substantial evidence. 32 Fourthly, when the seventh respondent's lawyer ceased to act, she failed to file a notice of address for service in accordance with r 4.05(2) of the Federal Court Rules. 33 Fifthly, the seventh respondent's compliance with the orders made on 6 February 2013 was somewhat cursory and did not provide sufficient detail to readily resolve the proceeding. 34 By the orders made on 6 February 2013, the seventh respondent was required to make delivery up on oath and to provide disclosure of her suppliers of counterfeit Winfield products. By her affidavit sworn on 21 March 2013, the seventh respondent deposed that she purchased Winfield products from three sources, including the applicant. The seventh respondent asserted that she was unable to locate any paperwork in relation to her purchases but provided no details of any of the searches she had conducted. The seventh respondent made a bare assertion that her Winfield products (as at 21 March 2013) were genuine, as she had "checked". 35 The seventh respondent's conduct in the litigation thus consistently and unnecessarily increased the costs incurred by the applicant. 36 The award of a lump sum for the applicant's costs was consistent with the overarching purpose set out in s 37M of the Act as it facilitated the timely, inexpensive and efficient conclusion of the proceeding. 37 The lump sum amount of $47,745.03, claimed by the applicant, comprised: (a) the costs of the proceeding (excluding the present application) of $42,245.03 comprising solicitors' fees and disbursements (court filing fees, counsel's fees and process server's fees), as deposed by Mr Trimbos; and (b) the costs of the present application of $5,500 comprising solicitors' fees and disbursements (court filing fees and counsel's fees), as deposed by Mr Plane. 38 I was satisfied that Mr Trimbos was appropriately qualified and experienced. His assumptions and methodology were reasonable and the scope of his review was appropriate. Mr Trimbos reviewed the court documents filed by the applicant (including affidavits), the hourly rates and time entries of the applicant's solicitors, fee slips for the applicant's counsel and the disbursements. He reduced the total costs and disbursements incurred by the applicant appropriately to reflect the amount that would be allowed on a party and party taxation. Mr Trimbos' assumptions were balanced and in my view fair. The amount of $42,245.03 represented an appropriate discount of the applicant's relevant total solicitor and client costs and disbursements. 39 Mr Plane, special counsel with the applicant's solicitors, who had the primary conduct of the matter, estimated the costs of the present application (including court filing and counsel's fees) at $8,037.70. The claimed amount of $5,500 represented a discount of approximately 30% to reflect the costs likely to be allowed on a party and party basis.

Conclusion 40 In the light of the above, a lump sum of $47,745.03 for costs was in my opinion fair, reasonable and proportionate to the nature and complexity of the matter, which involved a specialist area of law and detailed factual and expert evidence.

damages 41 The applicant sought a nominal award of damages ($500) for infringement of its trade marks. 42 The applicant relied on: (1) the findings set out in British American Tobacco Australasia Limited v Taleb (No 3) [2013] FCA 80 and the declaration made on 6 February 2013; (2) the affidavit of Alissia Therese Michael sworn 3 December 2012; (3) the affidavit of Daniel Roland Plane sworn 16 January 2012; and (4) the admissions made in the affidavit of Zhi Liu sworn 21 March 2013. 43 The applicant relied on the seventh respondent's sale on 15 July 2011 of three packets of counterfeit Winfield cigarettes which I found (on the basis of the applicant's expert evidence) to be notably different in various significant characteristics from genuine Winfìeld tobacco products.

Legislation, rules and principles 44 It is well established that the owner of a registered trade mark is entitled to at least nominal damages for infringement. The authors of Kerly's Law of Trade Marks and Trade Names (15th ed, 2011, Sweet & Maxwell) state at [20-135]: The natural consequence of an infringement, even though it be made in complete ignorance of the claimant's rights, is that the infringer must pay at least nominal damages ... 45 The main principles applicable to the assessment of damages for trade mark infringement were summarised in the applicant's written submissions broadly as follows: (1) Damages are only compensatory and aim to put the applicant in the same position it would have been in had the wrong had not occurred. (2) While damages should be assessed liberally, the applicant bears the burden of proof. (3) Where the applicant has licensed its right, its damages are the lost royalty. (4) The fact that the respondent could have competed lawfully is irrelevant. (5) An applicant who has exploited its right by making its own sales may claim the lost profit on the respondent's sales which the applicant would otherwise have made, and lost profit on the applicant's own sales representing the fact that it was required to reduce its prices due to the infringement. (6) Further, the authors of Kerly's Law of Trade Marks and Trade Names note at [20-142] that damages may also recognise injury occasioned by "where spurious goods are so inferior to the genuine as to injure the trade reputation of the claimant …". (7) Some authorities indicate that damages may be awarded on the basis that the infringing sale of counterfeit items tends to diminish the reputation of, and devalue, the genuine product.

Consideration 46 The evidence indicated that (as at mid-2011) the seventh respondent's stock of Winfield products included counterfeit Winfield products and that the salesperson who warned the applicant's investigator to "be careful, hide it" was aware of their counterfeit nature. 47 The seventh respondent's failure to give details of, or to retain paperwork reflecting, her purchases of Winfield products from at least two suppliers other than the applicant made it impossible to determine the probable source of the counterfeit products or to ascertain the extent of her infringing conduct. 48 The seventh respondent's estimate that she sold five to eight cartons of cigarettes per week, approximately 20% of which were Winfield products, while not supported by any material, was suggested by the applicant to equate to approximately 390-624 cartons of cigarettes sold between the date of the trap purchase on 15 July 2011 and the date of summary judgment on 6 February 2013. On that basis, the applicant submitted that a maximum of about 124 cartons (20% of the total estimated number) would have been Winfield products. 49 Notwithstanding the seventh respondent's denials, I have found that she sold counterfeit Winfield products. I accepted that, as the applicant submitted, the trap purchase cigarettes were not, on the balance of probabilities, the only counterfeit Winfield products dealt with by the seventh respondent. The inability to ascertain an accurate number is attributable to the seventh respondent's scant details and failure to keep records of her dealings in counterfeit Winfield products. Although the precise number of counterfeit Winfield products sold by the seventh respondent could not be determined, it was reasonable to infer that they totalled several dozen cartons.

Conclusion 50 In such circumstances, I was satisfied that the seventh respondent's conduct in selling counterfeit Winfield products (which, as they did not conform to the applicant's specification, could if sold by brand create consumer dissatisfaction) caused damage to the applicant. Nominal damages of $500 were in my view appropriate to compensate the applicant. I certify that the preceding fifty (50) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Dodds-Streeton.