Fonterra Brands (Australia) Pty Ltd v Bega Cheese Ltd

2 The plaintiffs contend that the appropriate orders as to costs are:

(a) Subject to paragraphs (c), (d) and (e) below, the Plaintiffs are to pay the Defendant's costs of and incidental to the Plaintiffs' claim (including reserved costs).

(b) Subject to paragraph (e) below, the Defendant is to pay the Plaintiffs' costs of and incidental to the Defendant's counterclaim (including reserved costs).

(c) The Defendant is to pay the Plaintiffs' costs of and incidental to proceeding S ECI 2019 00404 (including reserved costs).

(d) Subject to paragraph (e) below, the Defendant is to pay the Plaintiffs' costs of and incidental to the matters pleaded in paragraphs 27 to 29 of the Fifth Further Amended Statement of Claim (including reserved costs).

(e) Neither party is entitled to recover common costs, which cannot be exclusively attributed to the claim or counterclaim.[2]

3 The plaintiffs submit that (e) of their proposed order relates only to those costs which are not able to be directly attributed to either the claim or the counterclaim. Items of costs which are capable of being divided as between the claim and counterclaim are caught by (a) and (b) of the proposed order.[3]

4 The defendant (Bega) submits that the Court should order that the plaintiffs and the defendant bear their own costs up to and including the trial.[4] The defendant submits that it should receive its costs of and incidental to the preparation of all written submissions on a standard basis by reason of the plaintiffs' failure to accept an open offer of settlement which was made on 25 March 2020.[5]

5 In its reply submissions filed on 9 March 2021 Bega submitted in the alternative that the Court should order:

(a) Fonterra pay Bega's reasonable costs of and incidental to Fonterra's claim (excluding costs associated with unnecessary or duplicated work, and any costs that cannot be exclusively attributed to the claim); and

(b) Bega pay Fonterra's reasonable costs of and incidental to Bega's counterclaim (excluding costs associated with unnecessary or duplicated work, and any costs that cannot be exclusively attributed to the counterclaim).

6 During the hearing on 11 March 2021 Ms Teo, who appeared for Bega, submitted that the Court should order the plaintiffs to pay Bega any costs which cannot be attributed to either the claim or the counterclaim.

7 The Court has a broad discretion in determining the question of costs. Pursuant to s 24(1) of the Supreme Court Act 1986 the Court has power to determine by whom and to what extent the costs are to be paid. The usual order as to costs is that costs follow the event, resulting in an award of costs to the successful party on a standard basis.[6] Where the plaintiff's claim and the defendant's counterclaim have been dismissed, the effect of the usual order is that:

(i) the plaintiff pay the defendant's costs of the claim on a standard basis to be taxed in default of agreement; and

(ii) the defendant pay the plaintiff's costs of the counterclaim on a standard basis to be taxed in default of agreement.[7]

8 The plaintiffs' claim has been dismissed. There is no justification for departing from the usual order that costs should follow the event. Likewise, Bega's counterclaim having been dismissed, there is no justification for departing from the usual order that costs should follow the event. I shall order the plaintiffs to pay Bega's costs of the claim and Bega to pay the plaintiffs' costs of the counterclaim.

9 The plaintiffs submit that neither party should recover costs which cannot be directly attributed to either the claim or the counterclaim. Bega submits that it is entitled to those costs by reason of its successful defence of the plaintiffs' claim.

10 In Yunghanns v Colquhoun-Denvers,[8] the Court of Appeal observed that the issue of where liability for common costs should fall 'is not necessarily straightforward nor does it admit of a single fair answer'.[9]

11 The trial was heard on 39 days. The hearing and determination of Bega's counterclaim occupied significantly more Court time than the hearing and determination of the plaintiffs' claim. This is reflected in the written submissions filed by the parties. The submissions filed in respect of the counterclaim were substantially longer than those filed in respect of the claim. The disparity between the size of the claim and the counterclaim is also reflected in the Court's judgment. Eighty-two pages deal with the claim and the remaining 175 pages deal with the counterclaim. Further, as noted in [385] of the judgment, as a result of the Court's findings it was unnecessary to address three issues which occupied many hearing days and hundreds of pages of evidence and submissions:

(i) alleged differential treatment of the Bega brand compared to Mainland/Perfect Italiano (said by Bega to constitute a breach of the no undue preference term);

(ii) alleged inadequate ATL advertising/NPD; and

(iii) alleged failure of the plaintiffs to position Bega as a premium brand.[10]

12 The usual order is that the party recovering the costs of the claim should recover common costs.[11] The application of the usual order would result in the plaintiffs being liable to pay Bega any costs which are not capable of being attributed to either the claim or counterclaim. However, a departure from the usual rule is warranted in the present case due to the significant disparity between the size of the claim and the counterclaim. Liability for costs which cannot be directly attributed to the claim or counterclaim should take into account the plaintiffs' successful defence of the counterclaim which occupied significantly more Court time than the claim. The plaintiffs and Bega will be ordered to bear their own costs in respect of costs which cannot be directly attributed to the claim or counterclaim.

13 I reject Bega's submission that it should recover the costs of its written closing submissions in respect of both the claim and counterclaim by reason of the plaintiffs' failure to accept an offer of settlement made on 25 March 2020. The offer of settlement was contained in a proposed minute of consent order. Paragraphs [1] to [3] of the minute of consent order proposed the following orders:

1. A declaration that clause 3 of each TMLA is invalid as an unreasonable restraint of trade to the extent that it restricts Bega from using the Trade Marks on any products other than:

(a) the Products; and

(b) Chilled Dairy Products.

1. A declaration that the obligations imposed upon Fonterra by clause 6.1(a) of each TMLA are satisfied if:

(a) in the retail sector, when Fonterra:

(i) invests a minimum of 4.5% of Net Sales Revenue in A&P Spend to market and promote the Products; and

(ii) spends a minimum of 50% of the A&P Spend referred to in paragraph 2(a)(i) on Above the Line in each calendar year of the Term, with the balance spent on Below the Line;

(b) in the food service sector:

(i) when Fonterra sells, promotes and markets all products from the full range of Cheese Products that are commonly sold in the food service sector; and

(ii) sales of the Cheese Products grow at a minimum percentage in line with growth of sales in Fonterra's food service sector.

1. A declaration that Fonterra's obligation to market Bega Cheese as a premium product as required by point 2 of Schedule 2 of each TMLA is satisfied if and only if:

(a) Fonterra markets the Bega Branded Products in such a manner that the consumer's likely response to the Products is to consider them as 'a trustworthy brand', 'tastes great', 'is an Australian brand' and 'is a brand worth paying more for';

(b) the position of the consumer's responses of brand associations for Bega Branded Products is verified at least six monthly by quantitatively testing a minimum of 300 consumers who have purchased the cheese category in the past 12 months; and

(c) the quantitative testing referred to in paragraph 3(b) above will be conducted by a recognised independent market research company applying a standard methodology.

14 Paragraph [1] of the proposed orders is inconsistent with the Court's conclusion at [232] of the judgment that, on the plaintiffs' construction of clause 3.2, the clause is not invalid at common law as an unreasonable restraint of trade.

15 Paragraph [2] of the proposed order is inconsistent with the Court's conclusion:

(a) that the plaintiffs are not required to engage in ATL advertising [309];

(b) that the plaintiffs are free to determine how to deploy funds available for advertising and promotion [347]; and

(c) clause 6.1 does not require the plaintiffs to promote and develop sales of branded products in the foodservice sector [349].

16 Paragraph [3] is inconsistent with the Court's conclusion that the plaintiffs complied with the 'premium product principle' [428].

17 I accept Bega's submission that the proposed variations to the TMLAs in Annexure 1 of the consent order would have resulted in a better outcome for the plaintiffs than is contained in the judgment in respect of the plaintiffs' claim. Under the proposed clause 3.1A the plaintiffs would be granted a sole and exclusive licence to use the Trade Marks 'in the Territory on Chilled Dairy Products on condition that the Chilled Dairy Products are being sold in at least one of Coles or Woolworths on an ongoing basis'.

18 'Chilled Dairy Products' is defined as 'yogurt, cheese (not included in Products), cream and products that are chilled and made from cow's milk'.

19 The effect of clause 3.1A is to grant the plaintiffs a sole and exclusive licence to use the Trade Marks on Chilled Dairy Products falling outside the definition of Products in the TMLAs. This would be a better outcome for the plaintiffs than the Court's finding that the licence granted to the plaintiffs by clause 3.2 of the TMLAs is confined to Products as defined. Notwithstanding this, I do not consider that it was unreasonable for the plaintiffs not to accept the offer contained in the proposed minute of consent order. In order to gain the benefit of the variation to the TMLAs arising from the proposed clause 3.1A, the plaintiffs were required to agree to paragraphs [1] to [3] of the proposed order. It was not unreasonable for the plaintiffs to have declined to do so.

20 Bega is entitled to recover the costs of preparing written closing submissions on the claim. Otherwise, it is not entitled to recover the costs of preparing written closing submissions on the counterclaim.

21 The plaintiffs also seek an order that Bega pay their costs of and incidental to proceeding S ECI 2019 00404, including reserved costs. This proceeding was commenced by the plaintiffs to restrain Bega from terminating the TMLAs based on the breach notice it issued in respect of the 'Provenance Claim'. Robson J granted an injunction by consent. Pursuant to orders made by Robson J on 21 February 2019 proceeding S ECI 2019 00404 was consolidated with the current proceeding.

22 The plaintiffs are entitled to the costs of and incidental to proceeding S ECI 2019 00404 on a standard basis, to be taxed in default of agreement. The plaintiffs have succeeded in their claim that Bega was not entitled to terminate the TMLAs pursuant to the breach notice dated 29 October 2018. That notice alleged a breach of clause 7.3 of the TMLAs based on conduct alleged to have been in breach of s 29(1)(k) of the Australian Consumer Law. The Court has rejected Bega's contention that the plaintiffs breached s 29(1)(k) [642].

23 I do not consider that it is necessary to make the additional orders sought by the plaintiffs that the defendant pay their costs of and incidental to the matters pleaded in paragraphs [27] to [29] of the Fifth Further Amended Statement of Claim. The matters pleaded in paragraphs [27] to [29] were fully ventilated by the plaintiffs in defending Bega's counterclaim alleging breach of s 29(1)(k) of the Australian Consumer Law. The plaintiffs' successful defence of that claim is covered by the orders I propose to make in the plaintiffs' favour in respect of the counterclaim.

24 If the parties cannot reach agreement on the quantum of the costs, the result will be a lengthy and expensive taxation. Their respective costs liability will ultimately be a matter for the Costs Court. To assist the parties in the application of the costs orders in respect of the claim and counterclaim, I consider it is appropriate to record my views as to how I envisage the orders will operate in respect of the written and oral evidence presented at trial. To the extent this may assist the parties to reach an agreement as to the quantum of costs and narrow the scope of any dispute for taxation, I consider this approach to be consistent with the object in s 9(1)(d) of the Civil Procedure Act 2010 of promoting the efficient use of judicial and administrative resources.

25 In Smith v Madden,[12] in respect of a proceeding involving both a claim and a counterclaim, Dixon J made the following observations regarding the potential for dividing a single item of costs as between the claim and the counterclaim:

But, although there can be no apportionment of items of costs between the two parts of the cause, it may be necessary to divide an item of costs in two parts. This will occur when there is a single charge for work but a severable part of that work relates to the claim and the other severable part of the work relates to the counterclaim. It will then be necessary to divide the single charge in accordance with the two classes of work it covers.[13]

26 The plaintiffs and Bega accept that they have each incurred items of costs capable of division as between the claim and counterclaim. For example, the plaintiffs acknowledge:

Aspects of the evidence of Messrs Simonovski, Dhu, McNamara and Hampson related to the claim but the overwhelming majority of their evidence concerned the counterclaim. Further, although the majority of the written and oral evidence of Don O'Sullivan and Ross Honeywill related to the counterclaim, significant aspects of their written evidence also related to the claim.[14]

27 I accept that the costs incurred in preparing witness statements may be divided as between claim and counterclaim. Under the orders I propose to make I envisage that the plaintiffs would not be entitled to costs relating to the preparation of witness statements insofar as those statements include evidence which relates solely to the claim. To the extent that the statements contain evidence relevant to the counterclaim, the plaintiffs will be entitled to recover the costs of preparing the witness statements. Insofar as Bega's witness statements contain evidence relevant to its successful defence of the plaintiffs' claim, I envisage that it will be entitled to recover the costs of preparing the statements. To the extent that the statements contain evidence relevant to the counterclaim, I envisage that Bega will not be entitled to recover the costs of preparing the witness statements.

28 As regards the oral testimony, save for Messrs Sloan, Mallinson and Waugh (in respect of the plaintiffs' rectification claim), the probative evidence of all other witnesses called by the plaintiffs related solely to the counterclaim. I do not envisage that the costs attributable to oral evidence of the following witnesses would be divided as between the claim and counterclaim: Kiril Simonovski, Jeff Dhu, Michael Kalma, Chris Andara, Anna Ventrice, David Mellor, Don O'Sullivan, Daniel Williams and Darryn Hockley. In the judgment, I have had regard to the evidence of these nine witnesses solely for the purpose of upholding the plaintiffs' defence of the counterclaim. I envisage that the Court's order that Bega pay the plaintiffs' costs of the counterclaim will result in Bega paying the plaintiffs' costs relating to the oral evidence of the nine witnesses referred to above. I envisage that Bega's liability would not be reduced by reference to the time taken in cross examination of the witnesses eliciting evidence (none of which I considered relevant) in respect of the plaintiffs' claim.

29 Further, I do not envisage that the costs attributable to the oral evidence of eleven witnesses called by Bega[15] would be divided as between the claim and counterclaim. I have placed no weight on the evidence of these eleven witnesses for the purpose of upholding Bega's defence to the plaintiffs' claim. I do not envisage that any part of the costs attributable to the oral evidence of these eleven witnesses would be recovered by Bega in respect of the claim. I envisage that the costs attributable to the oral evidence of Barry Irvin would be recoverable by Bega in respect of the claim.

1. The plaintiffs' claim is dismissed.

2. The defendant's counterclaim is dismissed.

3. The plaintiffs pay the defendant's costs of the plaintiffs' claim, including reserved costs, on a standard basis to be taxed in default of agreement.

4. The defendant pay the plaintiffs' costs of the defendant's counterclaim, including reserved costs, on a standard basis to be taxed in default of agreement.

5. The defendant pay the plaintiffs' costs of proceeding S ECI 2019 00404, including reserved costs, on a standard basis to be taxed in default of agreement.

6. There be no order in respect of any costs which cannot be directly attributed to the claim or counterclaim.

[1] Luxmore Pty Ltd v Hydedale Pty Ltd [2008] VSCA 212; (2008) 20 VR 481, 484.

[2] Plaintiffs, 'Fonterra's Submissions on Costs', 3 March 2021, [2].

[3] See Smith v Madden [1946] HCA 19; (1946) 73 CLR 129, 136.

[4] Defendant, 'Bega's Submissions on Costs', 3 March 2021, [8].

[6] Supreme Court (General Civil Procedure) Rules 2015 (Vic) r 63.31.

[7] Smith v Madden [1946] HCA 19; (1946) 73 CLR 129, 133-4; Yunghanns v Colquhoun-Denvers [2021] VSCA 15, [102].

[8] [2021] VSCA 15.

[10] Fonterra Brands (Australia) Pty Ltd v Bega Cheese Ltd [2021] VSC 75, [385].

[11] Smith v Madden [1946] HCA 19; (1946) 73 CLR 129, 133.

[12] [1946] HCA 19; (1946) 73 CLR 129.

[14] Plaintiffs, 'Fonterra's Submissions on Costs', 3 March 2021, n 12.

[15] Adam McNamara (M&P); Michael Hampson (M&P); Aidan Coleman (M&P); Shaun Mangan (Foodservice); Lukasz Klekowski (Cheese quality); Leigh Norrie (Cheese quality); Sally Carter (Cheese quality); Ross Honeywill (marketing); Peter Field (advertising); Murray Johnston (retail); Michael Potter (accounting).