FIGGINS' APPLICATION FOR INDEMNITY COSTS
9 On 6 June 1997 Figgins' solicitors wrote a letter to the applicants' solicitors which was marked "Without prejudice save as to the question of costs". In the letter the following offer by Figgins was proposed:
· Payment of $5,000 on execution of terms of settlement (although they contended that their client had made a loss from the sale of the shoe in question);
· Each party bear their own costs including reserved costs and waive any entitlement to recover costs under previous costs orders;
· Within sixty days of acceptance of the offer withdrawal of any remaining stocks of the "ah! SOUL" Butt Head Black Leather shoe from the market;
· Consent to injunctions restraining the relevant respondents from, generally, selling or advertising footwear under or by reference to the trade marks "docs", "Docs" or "Dr Martens" or any trade marks substantially identical with or deceptively similar to those trade marks and from representing that any of their footwear was associated with or had the approval of the applicants.
The letter stated that if the applicants failed to obtain a judgment more favourable than the terms of the offer, Figgins would seek an order for costs on a solicitor and own client basis or alternatively on a party and party basis from the date of the offer. That offer was rejected and on 1 July 1997 Figgins' solicitors wrote a further letter "Without prejudice save as to the question of costs" in which the following offer was made:
· Payment of $40,000 inclusive of damages and costs;
· Waiver of the entitlement to earlier costs orders in their favour;
· No press release relating to the settlement if achieved;
· A form of acknowledgment and undertakings was propounded which acknowledged the second applicant's R Griggs & Co Ltd's ownership in Australia of the proprietary rights and goodwill in the distinctive features of the Z welt footwear. The relevant respondents undertook not to manufacture, advertise or sell any footwear having each of the distinctive features relied upon by the applicants or manufacture or sell any footwear under or by reference to specified trade marks or represent that they or any of Figgins' footwear had the sponsorship or approval of the applicants;
· A form of consent order to injunctions generally in these terms was also propounded.
The letter stated that if the applicants did no better at trial than the terms of the offer, Figgins would rely upon the letter on the question of costs. Figgins relies upon this letter as a Calderbank letter as that term is now understood: Calderbank v Calderbank [1976] Fam 93 at 106.
10 On 8 July 1997 the applicants' solicitors wrote a letter to Figgins' solicitors in which:
· Figgins' letter was rejected;
· A form of press release was proposed;
· The applicants said they were prepared to accept $90,000 inclusive of all claims and costs;
· A form of acknowledgment, undertakings and consent orders was propounded in a form different from the form proposed by Figgins.
11 On 14 July 1997 Figgins' solicitors wrote to the applicants' solicitors informing them that the applicants' proposal was unacceptable.
12 Figgins submitted that in the light of these circumstances an order for indemnity costs should be made in its favour in the following terms:
"The Applicants pay the respondents' costs incurred after 1 July 1997 on the basis that such costs are to include all costs except insofar as they are of an unreasonable amount or were unreasonably incurred so that, subject to such exceptions, the Respondents will be completely indemnified by the Applicants for their costs."
13 Figgins submitted that although the relevant Federal Court Rules provided for the recovery of costs on a party and party basis: O 62 rr12, 19 and 31, the Court has routinely departed from this usual or ordinary basis where the justice of the particular case required it or some special or unusual feature arose: Re Wilcox; Ex parte Venture Industries Pty Ltd (1997) 72 FCR 151 at 158 per Cooper and Merkel JJ.
14 Figgins relied upon the principles or guidelines distilled out of the authorities by Sheppard J in Colgate‑Palmolive Company v Cussons Pty Ltd (1993) 46 FCR 225 at 232‑234. His Honour observed that the settled practice of the Court was to order the payment of costs on a party and party basis and that the Court ought not usually make an order on some other basis unless the circumstances of the case warranted the Court departing from the usual course. Relevantly for present purposes his Honour included "an imprudent refusal of an offer to compromise" in some of the circumstances which have been thought to warrant the exercise of the discretion.
15 There is no rigid demarcation between the circumstances in which the usual order as to party and party costs is made and the circumstances in which it is appropriate to award indemnity costs. As was pointed out by Hill J in John S Hayes & Associates Pty Ltd v Kimberly‑Clark Australia Pty Ltd (1994) 52 FCR 201 at 203:
"… care must be taken not to circumscribe the discretion by reference to closed categories. It is not a necessary condition of the power to award costs that a collateral purpose be shown. The categories warranting the exercise of the discretion are not closed: Colgate‑Palmolive at 233; Tetijo Holdings Pty Ltd v Keeprite Australia Pty Ltd (unreported, Federal Court, 3 May 1991) per French J at p 8; Ragata Developments Pty Ltd v Westpac Banking Corporation (unreported, Federal Court, 5 March 1993) per Davies J at p 6. In each case it will be necessary to look at the particular facts and circumstances to see whether an exercise of discretion to order costs on an indemnity basis is warranted."
16 It does not automatically follow that the making of an offer of compromise or settlement, whether by way of a Calderbank letter of offer or otherwise, and its non‑acceptance followed by a result less favourable to the offeree than that contained in the offer, will lead to an order for the payment of costs on an indemnity basis: John S Hayes & Associates Pty Ltd v Kimberly‑Clark Australia Pty Ltd (supra) at 205‑206; MGICA (1992) Pty Ltd v Kenny & Good Pty Ltd (No 2) (1996) 70 FCR 236 at 240. As Lehane J observed in Flemington Properties Pty Ltd v Raine & Horne Commercial Pty Ltd (unreported, 11 February 1998, at 2‑3):
"Underlying that line of authority [concerning the effect to be given to Calderbank offers] is, undoubtedly, a policy of the law in favour of the sensible compromise of disputes. That policy is promoted if a party who rejects a realistic offer of compromise risks an order for indemnity costs if it refuses the offer and ultimately obtains a result no better than that which it would have got by accepting the offer.
Its promotion, however, does not in my view require that an applicant who receives any offer and rejects it be at risk of an order for payment of indemnity costs should the applicant ultimately fail to obtain any relief because it fails to make good the cause of action on which it relies. There is, after all, a policy also against deterring parties from pursuing claims to which they reasonably believe themselves entitled. A case - particularly a complex commercial case - in which there is room for substantial argument, and opposing views, about issues going to liability is by no means uncommon. Nor is it uncommon in such a case that an applicant, if it makes good the elements of its cause of action going to liability, will be entitled to substantial damages. The Calderbank policy by no means necessarily requires, in such a case, that the applicant, if ultimately unsuccessful, be required to pay indemnity costs because it rejected an offer of a small fraction of the amount of which it claims. It may be - perhaps is likely to be - otherwise where the offer is a commercially realistic one made upon a sensible and informed assessment of the prospects and risks of the litigation on each side."
17 Thus, whenever a Calderbank offer is made, and is enlivened by a result more favourable to the offeror and less favourable to the offeree, it is necessary to look at all the surrounding circumstances and not simply the fact that an offer was made and rejected and the offeree has achieved a less favourable result than the offer. It is necessary to look at the genuineness of the offer, whether it was realistic, the point of time at which it was made and that whether, in all the circumstances, it was such a reasonable offer as required the offeree to give careful consideration to it. If, in all the circumstances, it was unreasonable for the offeree to reject the offer and not accept it then there are strong grounds for the Court ordering indemnity costs on the basis that the offeror has made a fair and reasonable attempt to resolve the proceeding and has given the offeree the opportunity at a relevant point of time in the proceeding to consider the reasonableness of the offer. The Full Court (Neaves, Ryan and Lee JJ) underscored this approach in Donnelly v Edelsten (1994) 121 ALR 333 where it said at 345:
"The foundation for the order is the need for the costs order to do equity where a party who has succeeded in the proceeding has made a reasonable attempt to terminate the proceeding by an offer of compromise shown to have been a fair offer in all the circumstances and to have provided appropriate opportunity for the offeree to consider and deal with the offer."
18 Figgins submitted that its second offer of compromise made on 1 July 1997 was genuine, realistic and fair and made at a time when the applicants had ample opportunity to assess the relevant strengths and weaknesses of each party's case and to deal with the offer. Figgins submitted that the rejection of the second offer was unreasonable and that it would be inequitable for Figgins to suffer the costs burden which will follow if its costs are taxed on a party and party basis.
19 The applicants submitted that Figgins' application for costs to be paid on an indemnity basis should be refused for the following reasons:
· The considerations relevant to Calderbank offers are not apt where the applicants' claims do not involve a monetary sum as the sole relief claimed in the proceeding;
· The procedure set out in the Federal Court Rules as to offers of compromise was not followed;
· The offer made was inclusive of costs which precluded the offer being considered in the exercise of discretion as to costs;
· The terms of the offer were uncertain because there was no basis upon which the applicants could calculate the component that related to costs, the component that related to damages and the methodology of the calculation of any profits made by Figgins by reason of the sale of the entire range of footwear the subject of the offer of compromise;
· The money sum offered was inadequate given the number of pairs of footwear sold by Figgins which was sought to be made the subject of the offer of compromise.
20 I do not accept the submission that the considerations relevant to Calderbank offers are not apt in circumstances where the claims do not involve a monetary sum as the sole relief. The principle identified in Calderbank v Calderbank (supra) is not so limited and none of the subsequent cases which have considered the principle have sought so to limit it. It is always a question of fact whether a Calderbank offer is constructed in such a way as to constitute a reasonable basis for compromising or settling a proceeding. If it is in a form which is apt to make a sensible and reasonable offer which covers the relief and orders sought by the applicant whether by way of offer of money, undertakings as to conduct or consent to forms of proposed orders, there is no reason why the applicant should not be required to give it proper consideration for the purpose of the application of the Calderbank principle.
21 It is true that the procedure set out in O 23 relating to offers of compromise was not followed but I do not consider that to be of any relevance having regard to the nature of the offer made by Figgins and its suitability for consideration as a Calderbank offer.
22 However the suitability of an offer for consideration as a Calderbank offer depends upon whether it is appropriate to make an offer inclusive of all money claims and costs. In Smallacombe v Lockyer Investment Co Pty Ltd (1993) 42 FCR 97 at 102, Spender J refused to have regard to an offer inclusive of claim and costs for the purpose of considering whether the Calderbank principle should apply. His Honour said at 101‑102:
"However, I am satisfied that I should not have regard to the making of an offer which is, in effect, an all‑up offer. The letter of 21 May 1991 is not a Calderbank letter nor is it a letter of the kind considered in Messiter v Hutchinson, nor is it in any way analogous to a 'payment in'.
It requires an applicant to assess two components: the likely value of the claim and the likely party and party costs to date as they would tax. It is not analogous to the offer considered in any of the cases, and Mr Doyle, counsel for the respondent, has been unable to cite a case where an all‑up offer of settlement of claim, that is, one including costs, has been considered.
To give effect to such an offer would tend against lean litigation. Not all firms conduct litigation so that the costs recoverable on taxation in similar litigation is the same or of the same order. To accept the all‑up offer as a relevant consideration on costs would, over time, reward the firm whose costs were 'padded' although still recoverable on a party and party basis, and disadvantage those firms who conducted litigation with tight efficiency."
Spender J (at 102) was:
"firmly of the view that an 'open' offer ought to be an offer to settle the claim and that an 'all‑up' offer of 'claim plus costs' ought not to be a relevant consideration on the question of costs and does not fall to be considered in the same way as a Calderbank letter".
His Honour took the view that such an offer would not promote the finality of the litigation but rather would fragment it. As was pointed out by Spender J the difficulty with such an offer is that it does not compartmentalise that part of the offer directed to the recovery of an amount claimed by the applicant.
23 The view expressed by Spender J was followed by Moore J in Hanave Pty Ltd v LFOT Pty Limited (unreported, 11 November 1998). His Honour observed that Spender J's reasons were compelling and he could see no reason to depart from Spender J's approach. I am inclined to the same view.
24 If the purpose of a Calderbank letter is to offer to bring litigation to an end it should be couched in such terms as enable the offeree to make a carefully considered comparison between the offer made and the ultimate relief it is seeking in all its aspects. An offer inclusive of costs confuses this issue as it puts the offeree in a position of not being able to determine the appropriate amount to attribute to the money sum it is seeking. Although an estimate can be made of what the offeree's taxed party and party costs might be at the time of the offer, the offeree is not being offered the opportunity to have those costs assessed by taxation in default of agreement, in addition to being made an offer to settle its claim. As a matter of principle, if a party is to be put at risk of losing its costs, even if ultimately successful, by not accepting an offer made to settle or compromise the proceeding at a point of time prior to trial, that risk should only be imposed if the party is given the opportunity, at the time of the offer, to obtain its taxed costs to date in addition to the offer made, knowing that it has been able to make a careful comparative assessment of the value of the offer as against the ultimate relief sought to be obtained.
25 Even if I had determined that an offer inclusive of claim and costs was appropriate to consider by reference to the Calderbank principle, I would not have reached the conclusion that it was imprudent or unreasonable for the applicants to reject the Figgins offer having regard to the issues which arose as to the terms of the consent orders proposed by Figgins and the amount of money it offered.
26 In the course of submissions, comparisons were made between the offer made by Figgins on 1 July 1997 and the counter‑offer made by the applicants on 8 July 1997. Not only was there a difference between the money payments proposed, $40,000 as against $90,000, there was also a difference in the form of injunctive relief proposed. Figgins was prepared to consent to injunctions, in general terms, restraining it from manufacturing, selling or advertising:
"any footwear having a majority or all of the distinctive features listed at Annexure A hereto and illustrated at Annexure B hereto so as to pass off or enable to be passed off any footwear of the First Respondent as and for footwear of any or all of the Applicants".
The applicants propounded a form of order restraining Figgins from manufacturing, selling or advertising:
"any footwear having some or all of the distinctive features listed at Annexure A hereto and illustrated at Annexure B hereto so as to be substantially identical with or deceptively similar to Dr Martens Footwear".
The relevant orders sought in the further amended application which had been amended on 21 November 1997 sought an order that Figgins be restrained from:
"from manufacturing, … advertising … offering for sale … footwear which has the same or substantially the same get up as the Z Welt Footwear defined in the Third Amended Statement of Claim …"
Figgins submitted that the form of injunction to which it was prepared to consent was essentially the same as in the application. The applicants submitted that the form of injunction proposed by Figgins was more limited as it only essentially restrained passing off where the footwear had a majority of the distinctive features which was more limited than the injunction which they had sought in the amended application and in their proposed form of consent orders.
27 It is not necessary for me to decide whether one form of order is more appropriate than the other or whether the relief sought in the amended application was appropriate. I am not determining whether the applicants should be ordered to pay Figgins' costs on an indemnity basis by way of punishment but rather, whether Figgins made such a reasonable attempt to resolve the proceeding that it is just in all the circumstances that it should be awarded its costs on an indemnity basis. Although the difference between the wording proposed by the applicants and Figgins was small it was sufficiently different to result in the applicants not being prepared to accept Figgins' form of order. The difference was significant because it opened up an area which had the potential for further disputes. Although the applicants' form of proposed order was not apt for an injunction based upon passing off or a contravention of s 52 considerations, it being based upon terminology more relevant to trade mark infringement, it is not for me to determine whether the applicants were unreasonable in propounding the form of order they did. The issue is whether it was imprudent for the applicants to refuse Figgins' offer of consent injunctions. It was important for the applicants to obtain certainty as to what was covered by the injunctions and the consent orders offered did not give them that certainty. Taken in conjunction with the other matters that had arisen in relation to the offer I do not consider that it was imprudent for Figgins to reject the offer made insofar as it related to the terms of the injunctions sought.
28 Figgins submitted that the monetary component of the proposed settlement was significant as the main thrust of the applicants' case was for relief in the nature of declaratory and injunctive relief. In this respect Figgins pointed to the press release which the applicants proposed. I do not consider that I should disregard the significance of the relief sought by way of damages or, at the applicants' option, an account of profits. There was some issue as to the quantity of alleged infringing footwear at the time the Figgins offer was made but it is not necessary to resolve that issue as the relevant question is whether the applicants' rejection of the offer was imprudent or unreasonable. There was the potential for a significant claim for damages or an account of profits if the applicants succeeded and on 1 July 1997, because of the costs which the applicants had incurred to that date, the offer made no allowance for any amount for damages or profits if the offer was applied first in payment of the applicants' costs. To the extent to which Figgins made an allowance for a component of damages or profits in the offer, it reduced the contribution towards Figgins' costs to something substantially less than half its costs.
29 Having regard to the fact that the offer of $40,000 was an all‑in offer inclusive of claim and costs I do not consider it was imprudent, from a money point of view, to reject that offer having regard to the fact that, according to the applicants on 8 July 1997, their costs at that time were well in excess of $90,000. It is not to the point that they were prepared to accept $90,000 which contained no component of damages but only components of costs. The point is rather whether the rejection of the $40,000 was unreasonable and imprudent. In my view it was not.
30 Figgins submitted that its 1 July 1997 offer was commercially realistic as it gave the applicants the commercial protection that they wanted, that it was made in a timely manner and that they were able to assess the relevant strengths and weaknesses of each side's case. The offer may have been commercially realistic but, for the reasons to which I have referred, it was not imprudent or unreasonable for the applicants to reject the offer.
31 In an early submission Figgins submitted that the proceeding was at best speculative and in the nature of a test case but that submission did not appear to be pressed. I do not regard it as an appropriate characterisation of the case to say that it was speculative or a test case. There were specific allegations raised against the Figgins respondents and there were serious issues of fact and legal principle to be resolved as is demonstrated by my earlier Reasons for Judgment.
32 In conclusion, for the reasons to which I have referred I do not consider it appropriate in determining whether an order for indemnity costs should be made, to take into account a Calderbank offer which makes an all‑in offer inclusive of money claims and costs. Even if I am wrong in this respect I take into account the quantum offered and the fact that, on the applicants' calculations, the offer had no component for damages or an account of profits. I also take into account the concerns the applicants had as to the form of injunctive relief which they were seeking and which was being consented to, which was unacceptable to the applicants. I do not consider that in all the circumstances it was imprudent and unreasonable for the applicants to reject the Figgins' offer on 1 July 1997. The applicants should pay Figgins' costs on a party and party basis.