Dr August Wolff GmbH & Co. KG Arzneimittel v Combe International Ltd

Principles 4 The relevant principles are well-known and are not in dispute. Under s 43 of the Federal Court of Australia Act 1976 (Cth), costs are in the discretion of the court. The discretion is broad but is to be exercised judicially. The fundamental purpose of the discretion is to compensate the successful party, not to punish the unsuccessful party. 5 In general, a successful party will obtain an order for costs in its favour. However, a successful party who has failed on certain issues may not only be deprived of the costs of those issues but may be ordered to pay the other party's costs of them. If the apportionment of costs is appropriate, the object is not mathematical precision but a result that best reflects the interests of justice in the overall circumstances of the case. See EMI Songs Australia Pty Ltd v Larrikin Music Publishing Pty Ltd [2011] FCAFC 92 at [9]. 6 However, the mere fact that a court does not accept all of a successful party's arguments does not make it appropriate to deal with costs on an issue by issue basis: The State of Victoria v Sportsbet Pty Ltd (No 2) [2012] FCAFC 174 at [8]. A court will be reluctant to adopt an approach of apportioning costs between different issues depending on success or failure on those issues where it is likely to be difficult, if not impossible, to allocate items of costs between the different issues. See Marmax Investments Pty Ltd v RPR Maintenance Pty Ltd (No 2) [2015] FCAFC 155 at [16] citing Cretazzo v Lombardi (1975) 13 SASR 4 at 16; and Chevron Australia Holdings Pty Ltd v Commissioner of Taxation (No 5) [2015] FCA 1310 at [15]. 7 The court's preference, wherever practicable and appropriate, is to make a lump-sum costs order so as to finalise costs and avoid potentially expensive and lengthy taxation hearings: Costs Practice Note (GPN-COSTS) at [3.3]; Paciocco v Australia and New Zealand Banking Group Ltd (No 2) [2017] FCAFC 146; 253 FCR 403 at [16]. The guiding principle is to reduce delay and cost when quantifying costs: Costs Practice Note at [3.1]; Paciocco at [16]. 8 As observed by Gleeson J in Hislop v Paltar Petroleum Ltd (No 4) [2017] FCA 1632 at [7]: Specification of a lump sum is not the result of a process of taxation or assessment of costs; the sum can only be fixed broadly having regard to the information before the Court; the approach taken to estimate costs must be logical, fair and reasonable: Harrison v Schipp [2002] NSWCA 213; 54 NSWLR 738 at [22]. The task is one of estimation or assessment and not of arithmetic: Bayley & Associates Pty Ltd v DBR Australia Pty Ltd [2014] FCA 346 at [17(e)]. The sum of costs fixed should be proportionate to the nature, including the complexity, of the case: [Bitek Pty Ltd v IConnect Pty Ltd [2012] FCA 506; 290 ALR 288] at [18]. 9 It was observed by Tracey J in Seafolly Pty Ltd v Madden (No 6) [2015] FCA 1369 (at [38]) that: The authorities establish that a discount should be applied to actual costs incurred by the party seeking a gross sum order. The discount is intended to take account, not only of the inevitable reduction in the amount awarded as a result of a taxation on a party/party basis, but also to recognise that no such taxation has occurred and that any estimate of its outcome is just that and that a further allowance may be necessary in order to ensure fairness to the party against whom the order is made.

Material on costs 10 The Costs Practice Note (at [4.10]) provides that in cases where a lump-sum costs procedure is to take place, the costs applicant should file an affidavit in support of the lump-sum claim in accordance with a timetable set by the judge. The affidavit is referred to as a costs summary. The costs summary "must be clear, concise and direct" and it should not contain submissions on the law, the intention of the procedure being "to streamline and expedite the determination or resolution of the quantum of costs question": Costs Practice Note at [4.11]. In large or complex cases - which, to the parties' benefit, I assume this case to be - it should be no more than 10 pages: Costs Practice Note at [4.12]. 11 The costs respondent may file an affidavit responding to the matters raised in the costs summary. The costs response "must be clear, concise and direct and briefly summarise the categories of any dispute arising in respect of the costs summary" and it should not contain submissions on the law. In large or complex cases it should be no more than 8 pages. See Costs Practice Note at [4.13]-[4.14]. 12 At the request of the parties, I made orders providing a timetable for Dr Wolff to file and serve an affidavit in support of lump-sum costs together with its submissions and proposed orders as to costs and a paginated bundle of supporting material, and for Combe to file and serve any affidavit evidence in response together with its submissions and proposed orders. Provision was also made for Dr Wolff to file submissions in reply. It was also provided that all submissions were to be no longer than five pages. 13 Dr Wolff filed a 9 page affidavit of Ms Sylvia Fernadez, Dr Wolff's solicitor principally responsible for the proceeding. Ms Fernandez is a partner of the firm of solicitors instructed by Dr Wolff, and the only partner to have claimed time in the matter. Dr Wolff then filed a further short affidavit of Ms Fernandez with some supporting material, its purpose being to explain and correct some apparent discrepancies in the bundle of costs material that had been filed and served on Combe. 14 Combe filed an affidavit of Ms Young. Ms Young describes herself as "a barrister and solicitor of the Supreme Court of Victoria" and a professional costs consultant. Her short affidavit annexes an expert report by her and various other material. Her affidavit on its own is 4 pages, her report 9 pages of closely spaced type and more than 300 pages of supporting material. 15 For reasons that I am unable to fathom, that material includes copies of my reasons for judgment in the principal proceeding, Ms Fernandez's affidavits, Dr Wolff's submissions on costs, the nearly 200 page paginated bundle of documents that Dr Wolff had filed and served in support its lump-sum costs claim and the Court's Expert Evidence Practice Note (GPN-EXPT) - all documents readily available to me and the parties. 16 The expert report includes submissions on the law. It also states that Ms Young has read the Costs Practice Note. Since the Costs Practice Note states that the costs response should be clear, concise and direct, no more than eight pages and that it should not contain submissions on the law, it is not apparent that Ms Young absorbed what she read. Perhaps she was told by someone that she should include the annexed material. 17 Dr Wolff filed a short affidavit with some materials in reply to some of the points raised by Ms Young. 18 The approach taken by Combe to the lump-sum costs award is not in accordance with the Costs Practice Note. Combe has burdened the Court with duplicate documents and duplicated submissions, and it has not observed the requirements for a costs summary. Moreover, as will be seen, the approach of Ms Young was to analyse each entry in all of the detailed invoices which reflect Dr Wolff's solicitor and client costs and assess whether or not or to what extent the entry would in her opinion be allowed on taxation of a party and party bill of costs. Such an approach - with regard to prolixity, duplication and analysis - undermines and threatens to destroy the purpose and advantage of a lump-sum procedure. It is to be deprecated. The irony in the opinion stated by Ms Young that Dr Wolff has claimed costs in respect of work "not fairly and reasonably incurred" - which I will come to - is patent.

A reduction for issues lost? 19 Combe submits that the amount payable should be discounted to reflect the following issues that Dr Wolff unsuccessfully contested: similarity of goods for the purpose of s 44; the admissibility of exhibits LL-1 and LL-2; the admissibility of survey evidence; and Combe's reputation in VAGISIL. 20 Combe adduced a substantial amount of material, at what can be assumed to be significant costs, on the question of the reputation of VAGISIL. The detailed affidavit evidence of Messrs Norman, De Lima and Pidgeon was substantially addressed to that question. A significant proportion of the parties' oral submissions concerned the reputation of VAGISIL - estimated by Combe to amount to 20%, although that estimate is challenged by Dr Wolff. 21 Combe also refers to the 50 paragraphs of the reasons for judgment taken up dealing with the admissibility of some of the evidence on reputation, and the time taken up during the hearing in argument on the objections to that evidence. However, I do not regard those matters as significant. The number of paragraphs in the judgment reflects the work that had to be done in deciding and explaining the admissibility of the evidence, but it does not reflect in a proportionate sense on the amount of work taken up in trial, or indeed in the case as a whole, on those issues. 22 Combe submits that in light of the evidence, and the Court's findings, it was not reasonable for Dr Wolff to contest the issue of reputation, and points out that Dr Wolff had also failed on that issue before IP Australia. Combe refers to Black & Decker Inc v GMCA Pty Ltd (No 3) [2008] FCA 932 at [35] in that regard. 23 Significantly, Black & Decker, in dealing with the reasonableness of a party's conduct in litigation, was dealing with a claim for indemnity costs on the basis of conduct leading to loss of a trial date and failure to admit facts that was described by Heerey J as "a deliberate unwillingness to get to the real issues in dispute". On any view, Dr Wolff's conduct in putting in issue the reputation of VAGISIL is not unreasonable in that sense. Moreover, evidence of the reputation of VAGISIL was in any event necessary for Combe's s 60 defence, even if reputation had not been formally contested by Dr Wolff. That is because Combe was required to establish that "because of the reputation [that VAGISAL] … had acquired … in Australia, … the use of [the VAGISAN mark] … would be likely to deceive or cause confusion". That meant that Combe had to prove the extent and nature of the reputation in VAGISIL. Dr Wolff was within its rights to put Combe to the proof on that, and to test the evidence. 24 In the circumstances, I regard it as inappropriate to give any discount in respect of Dr Wolff's loss on the issue of reputation in VAGISIL. 25 The other issues identified by Combe (recorded at [19] above) did not take up particularly significant time in the case and also do not call for a discount. 26 There is insufficient basis to disturb the default position that the costs should follow the event, being the ultimate result in the case as reflecting substantial success in favour of Dr Wolff. Dr Wolff should therefore have its costs of suit on a party and party basis.

The lump-sum costs: proceeding before IP Australia 27 As indicated, the parties agree that Dr Wolff should have its costs of the proceeding before the delegate of the Registrar of Trade Marks. They also agree that the sum of those costs as prescribed under regulation 21.13 and Sch 8 of the Trade Marks Regulation 1995 (Cth) is $3,485.00. There should be an order accordingly.

The lump-sum costs: principal proceeding 28 Dr Wolff seeks costs in the principal proceeding in a lump-sum of $340,945.12 (after deductions). Prior to deductions, which I will come to, the total costs of $412,865.85 are made up of solicitor costs of $215,905.00 plus disbursements of $196,960.85 actually paid by Dr Wolff. 29 The disbursements are made up as follows: Barristers' fees $142,706.25 Filing fees, transcripts, document management, translation and miscellany $35,913.00 Expert witness, travel to and from Germany and accommodation $8,971.85 Dr Wolff's officer instructing at the hearing, travel to and from Germany and accommodation $9,369.74 TOTAL $196,960.85

30 The above figures are sworn to by Ms Fernandez as having been charged and paid. On the basis of more than 26 years' experience in commercial litigation in New South Wales, including a number of intellectual property disputes, Ms Fernandez says that in her experience of assessments of her clients' costs ordered on a party and party basis, her clients have, on average, obtained determinations which have allowed approximately 75% of their solicitor and client costs and 100% of their disbursements. 31 On the basis of that evidence, Dr Wolff applies a 25% deduction to the solicitor costs. Dr Wolff then applies a further deduction of 5% to the so reduced solicitor costs and the disbursements because the costs are being determined on a lump-sum basis in lieu of assessment so as to ensure account is taken for contingencies that would be relevant in any formal costs assessment. 32 Applying those deductions, one arrives at the figure of $340,945.12. 33 Combe contends that the lump-sum figure should be $183,400 which includes the costs of the proceeding before the delegate of the Registrar of Trade Marks. Since I have dealt with that amount separately, the figure contended for by Combe is approximately $180,000. 34 Combe arrives at that figure in three steps. First, in reliance on the expert report of Ms Young it submits that the estimated party and party costs and disbursements that would be recoverable on taxation would be $283,129.67. Secondly, its discounts that amount by 20% to avoid unfairness by reason of there being no taxation, arriving at a figure of approximately $229,291.67. Thirdly, it discounts that by a further 20% to account for the issues on which Dr Wolff failed. 35 Since I have already rejected the contention that there should be a discount in respect of the issues on which Dr Wolff failed at trial, the second 20% discount should fall away. The competing figures are thus, in round terms, $340,000 contended for by Dr Wolff and $230,000 contended for by Combe - a difference of $110,000. 36 Ms Young was instructed to prepare an estimate of recoverable party and party costs. In order to do that, as I have said, she reviewed each item in the detailed invoices provided by Ms Fernandez and determined whether the amounts charged were, in her view, "fair and reasonable" in the sense of being likely to be allowed on taxation. 37 Ms Young is said to have considered a number of factors, including the narrations in the invoices, the nature of the case, the amount of evidence and the nature of the evidence, the relevant costs scale, the allocation of work between solicitors, the hourly rates of solicitors and counsel, and the nature and quantum of the disbursements. 38 Ms Young expresses the view that the solicitors' fees claimed by Dr Wolff included charges in respect of work that was not fairly and reasonably incurred. She identifies 16 categories of such work including excessive correspondence and amending draft letters/emails, excessive attendances on the client and witnesses, excessive attendances on and correspondence with counsel, excessive reading of documents and correspondence, attendances by multiple solicitors at court/conferences, excessive time in preparation of documents, and so on. Ms Young then applies deductions to the solicitors' fees under various headings and as allocated to different solicitors. 39 For example, Ms Young reduced Ms Fernadez's claimed hours from 39 to 11.7, which is to say less than one third of the hours Ms Fernandez spent on the matter even though she was the only partner to claim time in the matter. She also reduced Mr Garland's time from 254 hours to 160.7 hours, a reduction of nearly 40%. Mr Garland spent more time in the matter than any other solicitor at the firm representing Dr Wolff. He is Special Counsel of more than 10 years' experience and apparently had the essential carriage of the matter under the supervision of Ms Fernandez. Ms Young undertook a similar process of precise reductions for each of the other seven lawyers and graduates who claimed time in the matter. 40 Ms Young also applies deductions to barristers fees on the basis of what she says would be likely to be made on taxation under various headings including advice as to procedural issues, excessive preparation for hearing, excessive telephone conferences and correspondence, excessive research and so on. Dr Wolff's solicitors briefed two junior barristers, and no silk. Ms Young deducted nearly 20% from the junior barristers' fees. 41 In the process of applying the deductions referred to in the preceding paragraphs, Ms Young did not identify any particular instance of what she described as work that was not fairly and reasonably incurred. Thus, she undertook a detailed process of assessment approximating a costs assessment as for taxation and expresses a concluding opinion as to the recoverable party and party costs, but does not do so in such a way as to reveal the basis for her opinion; her opinion is stated at a level of generality such that it is nearly impossible to scrutinise - it is devoid of identifiable factual underpinning. 42 It is submitted on behalf of Combe that Ms Young "enumerates" the work that was not fairly and reasonably incurred "at a level of detail appropriate for a lump-sum costs application". However, the difficulty with Ms Young's approach is that if she is to express an expert opinion, as she purports to do, then that opinion must not only be wholly or substantially based on her specialised knowledge based on her training, study or experience (s 79(1) of the Evidence Act 1995 (Cth)), but her report must identify the assumptions and material facts on which each opinion expressed in the report is based and the reasons for such opinion. This much is made clear in the Expert Evidence Practice Note, which Ms Young states in her report to have read, understood and complied with. 43 The short point is that I have no way of evaluating whether or to what extent the deductions made by Ms Young are justifiable. Similarly, Ms Fernandez is not able to respond to any of the criticisms made of the work of her and her team because none is levelled with any specificity. 44 The factual, as opposed to opinion, statement by Ms Fernandez that in her experience in intellectual property matters her clients are awarded, on average, 75% of their solicitor and client costs on a party and party taxation is equally inscrutable. She does not say how many such matters there are and she does not give any details of them such as to enable an evaluation of whether they are in any way comparable. 45 I am left in the situation of knowing how much Dr Wolff actually spent, being able to see how that amount is distributed amongst different types of work and the different lawyers working on the case including on a percentage basis, and having Ms Fernandez's statement that she believes that all the work that was done was fairly and reasonably required for the proper conduct of the case. She also adequately answers the generalised criticism that there are excessive charges arising from multiple solicitors attending some conferences. Against that I have the opinion of Ms Young that much of the work was not fairly and reasonably required, but I have no way of evaluating that. 46 Doing the best I can, there are a few observations to be made. 47 First, there does not appear to be any basis upon which Dr Wolff can claim the travel and accommodation expenses of its officer who flew from Germany and attended at the hearing in order to instruct the solicitors. He was not a witness in the case. A represented party is not entitled on a party and party basis to recover out-of-pocket expenses for attending court. This is entirely consistent with long standing principle that costs are awarded by way of partial indemnity for professional costs actually incurred and were never intended to be comprehensive compensation for all of the out-of-pocket expenses incurred by a litigant Cachia v Hanes [1994] HCA 14; 179 CLR 403 at 410, 411 and 417; CGU Workers Compensation (Vic) Ltd v Rees [2003] VSCA 18; 6 VR 227 at [12]; Tyne v UBS AG (No 2) [2014] FCA 1228 at [22]-[23]. The sum of approximately $9,300 should accordingly be subtracted from what Dr Wolff claims, before other deductions are effected. The disbursements amount as reduced is therefore approximately $187,600. 48 Secondly, there does not appear to be any significant issue with regard to Dr Wolff claiming in respect of rates outside the Court's published scale of rates. There are minor queries here and there, in particular with regard to the timing of increases in rates, but there is nothing of any moment. Significantly, Ms Young accepts Mr Garland's rate as being appropriate and, as I have said, his was the bulk of the work on the case. To the extent that the rates charged were above the scale, that is taken care of in the deduction that I propose to make in order to reduce Dr Wolff's solicitor and client costs to party and party costs. 49 Thirdly, this case was complex, demanding and of significant importance to the parties. In observing the way in which the hearing was conducted, including the employment on behalf of Dr Wolff of two junior barristers as opposed to a specialist intellectual property senior counsel and a junior on the other side, I did not get the impression that Dr Wolff's solicitors or counsel were over-servicing the matter. 50 In the circumstances, I am satisfied that a fair and reasonable "broad brush" approach to assessing Dr Wolff's costs on a party and party basis is to adopt the methodology adopted by Ms Fernandez. That is to say, the actual solicitor costs should be reduced by 25% to reflect an approximation of the inevitable reduction of those costs that might be awarded on taxation on a party and party basis, and that those costs so reduced and the disbursements should be reduced by another 10% to recognise that no taxation has occurred and that any estimate of its outcome should be just and fair. 51 The amount to be awarded is therefore as follows: 75% of solicitors' charges of $215,905 $161,929 100% of disbursements being $187,660 $187,660 SUBTOTAL $349,589 90% thereof $315,000

The lump-sum costs: the costs dispute 52 Dr Wolff should have its costs of this costs application. It has conservatively estimated those to be $7,825. Ms Fernandez has explained that its actual costs are in excess of this as these costs were based on an estimate prior to all the work having been done. 53 Adopting the same approach as she did in relation to the costs of the principal proceeding, Ms Fernandez applies a 25% discount to the solicitors' portion and then a 5% discount to that and the barrister's portion, arriving at a figure of $6,525.31. 54 I am satisfied that that figure fairly compensates Dr Wolff whilst at the same time is fair to Combe and avoids any risk of Combe paying more than it would have to pay on taxation.

Conclusion 55 In the result, Dr Wolff should have its costs, which I have assessed on a lump-sum basis, as follows: $3,485.00 for the proceeding before the delegate of the Registrar of Trade Marks; $315,000 for the principal proceeding; and $6,525.31 for this costs application. I certify that the preceding fifty-five (55) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Stewart.