On 12 February 2016, I handed down judgment in these proceedings: Jewelsnloo Pty Ltd v Sengos (No 2) [2016] NSWSC 61.
I directed the parties to deliver submissions on the costs orders that should be made. These reasons deal with the issue of costs.
In the principal judgment, I made an order in favour of the plaintiff against the first, fourth and fifth defendants that they be restrained from passing off their products or business as the products or business of the plaintiff. I otherwise dismissed the plaintiff's claims against those defendants.
The plaintiff commenced these proceedings on 20 December 2012. On that date, the duty judge granted an interlocutory injunction in favour of the plaintiff against the first, fourth and fifth defendants, effective until 30 January 2013, which prevented those defendants from passing their goods off as being the goods of the plaintiff. On 30 January 2013, the earlier interlocutory injunction was extended until further order. The defendants were permitted to continue to sell a small amount of stock that they held.
Although I have made a permanent order restraining the first, fourth and fifth defendants from passing their goods off as the goods of the plaintiff, that order has done nothing more than continue the earlier interlocutory injunctions on a permanent basis.
It must be said that the first, fourth and fifth defendants did contest the entitlement of the plaintiff to a permanent injunction, but only on the basis of certain arguments of principle as to why the plaintiff was not entitled to a permanent injunction.
In relation to the plaintiff's passing off cause of action, apart from seeking what was in effect a continuation of the interlocutory injunction on a permanent basis, the plaintiff did not attempt to prove any loss, nor did it seek an account of profits from the defendants. The apparent reason for that was that the plaintiff did not suffer any loss, and the evidence suggested that the profit made by the defendants was trivial, being only $9,824.
Jewelsnloo Pty Ltd v Sengos [2016] NSWSC 535 | Case summary | Zoe
The real dispute on the passing off cause of action was whether the plaintiff was entitled to a substantial amount of exemplary damages. The plaintiff failed in that claim.
The plaintiff also failed against the first, fourth and fifth defendants in relation to the balance of its claim against them. That claim alleged various forms of misleading and deceptive conduct, primarily by the first defendant. The amount of damages claimed by the plaintiff was well below the amount of $500,000, which under Uniform Civil Procedure Rules 2005 (NSW) r 42.34, is the minimum amount of damages that a plaintiff must ordinarily recover, before an order for costs will be made in the plaintiff's favour, except in cases where the court is satisfied that the commencement and continuation of the proceedings was warranted.
The plaintiff's claim against the second and third defendants failed completely. The plaintiff had sought an order against those defendants that they repay the plaintiff an amount of $210,000, which was the purchase price for the business that those defendants sold to the plaintiff. The plaintiff had alleged a number of forms of misleading and deceptive conduct against those defendants.
The first, fourth and fifth defendants relied in their submissions upon an order made by White J on 6 May 2014, when his Honour dismissed a notice of motion filed by the first and fourth defendants on 8 May 2014, in which those defendants had sought security for costs from the plaintiff. (I have checked the court's file and cannot explain why White J appears to have made the order on a date before the notice of motion was filed). The order made was in the following terms:
On the undertaking given by Mr Julian Kenneth Facer to the first and fourth defendants to be personally responsible for the payment of any costs that the plaintiff might be ordered to pay the first or fourth defendants, order that the notice of motion of the first and fourth defendants filed on 8 May 2014 be dismissed.
The first and fourth defendants are entitled to enforce that undertaking against Mr Facer, in respect of all orders for costs that are made against the plaintiff in these proceedings. It is sufficiently clear that the fifth defendant will have incurred no costs that were not also necessarily incurred by the first and fourth defendants, as all three defendants had identical interests, that the effect of any order made against Mr Facer personally will be that he will have to pay all of the costs that the plaintiff is ordered to pay to the three defendants.
The submission as to costs made by the first, fourth and fifth defendants is essentially that the amount of costs involved in the application for a permanent injunction against them to restrain passing off was a trivial component of the dispute, and that substantially the whole of the costs were incurred in relation to the issues in respect of which the plaintiff failed. Those defendants also argue, correctly in my view, that the length of the hearing was substantially and unnecessarily protracted, because of the manner in which the plaintiff conducted its case.
I accept the defendants' submission that most of the costs of the claim by the plaintiff against them related to issues other than the passing off claim. However, even though there was no real substance to the dispute concerning passing off, those defendants did not concede at an early time that the plaintiff was entitled to a permanent injunction. Those defendants put the plaintiff to proof that it was entitled to a permanent injunction. Though that is true, the consequences must be tempered by the consideration that the plaintiff pursued a failed claim for exemplary damages against those defendants, and that course created the need for the defendants to put the plaintiff to proof of its passing off claim.
The plaintiff submits that the first, fourth and fifth defendants should be ordered to pay the plaintiff's costs on the ordinary basis.
I reject that submission. In my view, it is reasonably possible to make a fair allowance for the plaintiff's costs of pursuing its claim for a permanent injunction, as to which the first, fourth and fifth defendants should bear the plaintiff's costs. The plaintiff should be ordered to pay the first, fourth and fifth defendants' costs of the balance of the issues.
In my view, the proper course is to order the plaintiff to pay 75% of the costs of the first, fourth and fifth defendants on the ordinary basis. That is a more practical and convenient course than to make separate costs orders for and against the parties in relation to separate issues.
I have reduced the amount of costs payable to the first, fourth, and fifth defendants by 25%, because I am satisfied that that is an appropriate amount to allow for the plaintiff's costs of seeking the original interlocutory relief, as well as proving that the defendants had committed the tort of passing off, and its entitlement to a permanent injunction. An argument could be made that a reduction of 25% is excessive, but it appears to me that a substantial amount of costs would have been incurred by the plaintiff in relation to the original interlocutory applications, as Mr Facer's original affidavit dealt substantially with that aspect of the plaintiff's case.
An order should also be made against Mr Facer personally, that he be liable to pay to the first and fourth defendants the amount of costs that the plaintiff has been, or will be ordered to pay those defendants.
The second and third defendants seek an order against the plaintiff that it pay those defendants' costs on the ordinary basis until 28 November 2013, and on the indemnity basis thereafter.
The second and third defendants' application is based upon a Calderbank offer made by their solicitors by letter written to the solicitors for the plaintiff on 28 November 2013. The offer was:
The Second and Third Defendant (sic) pay to the Plaintiff (or as they direct) the sum of $110,000 inclusive of interest and costs. Such amount payable within 28 days.
The letter explained that the offer had been apportioned as an offer of a sum of $60,000, and an additional $50,000 as a contribution towards costs. (The letter observed that the hearings in December 2012 and January 2013 did not involve the second and third defendants, and that no injunctive relief was sought against them).
It was a term of the offer that the parties enter into a separate deed of settlement, which would include appropriate releases, confidentiality "and other appropriate terms".
The offer provided that each party would pay its own legal costs, and that the proceedings against the second and third defendants would be discontinued with no order as to costs, as soon as possible, after the signing of the deed of settlement, and the payment of the amount offered.
The offer was stated to be open for 30 days from the date of the letter.
The letter was marked "without prejudice save as to costs", and the final paragraph contained a statement that it was made in accordance with the principles set out in Calderbank v Calderbank [1975] 3 All ER 333.
As mentioned, these proceedings were commenced by the plaintiff on 20 December 2012, by the filing of the plaintiff's summons. The initial statement of claim was filed on 21 February 2013, and an amended statement of claim was filed on 24 July 2013. All parties' defences to that pleading had been filed by 30 August 2013. Apparently, an unsuccessful mediation took place on 8 November 2013. (After the Calderbank offer was made, the plaintiff further amended its statement of claim on 10 December 2013, but the second and third defendants were not, of course, aware of the plaintiff's intention to amend its claim further).
By the date the Calderbank offer was made, Mr Facer had sworn affidavits on 20 December 2012, 30 January 2013 and 20 May 2013. The second defendant's primary affidavit, which was served on behalf of both the second and third defendants, was sworn on 3 November 2013.
Accordingly, by the date the Calderbank offer was made, the pleadings appeared to be closed, the primary affidavits of the plaintiff and the second and third defendants had been served, and a mediation had occurred.
As the plaintiff's claim against the second and third defendants has been dismissed, those defendants were clearly much more successful in the proceedings than they would have been if the plaintiff had accepted their Calderbank offer. In my view, the offer to pay $110,000 to the plaintiff, at that relatively early stage of the proceedings, was a genuine offer of compromise. The period of 30 days that was given to the plaintiff in which to accept the offer was reasonable in the circumstances. In its submissions, the plaintiff did not challenge this conclusion.
The plaintiff submitted, however, that the second and third defendants have failed to demonstrate that the rejection of the offer by the plaintiff was unreasonable.
First, the plaintiff submits that it was reasonable for the plaintiff not to accept the offer, because the offer did not set out the weaknesses in the case of the plaintiff that the second and third defendants asserted existed. The plaintiff acknowledged that the offer was made shortly after mediation, but said that further evidence had been served, and further pleadings filed, after the offer was made.
In my view, for a letter of offer to be a valid Calderbank offer, it will not always be necessary for the party who makes the offer to set out in detail the reasons why the other party's claim is likely to fail. Each case will depend upon its own facts. There may be cases where the flaws in the other party's case are not readily apparent, and in such a case, it may be reasonable for the other party to decline to accept the offer, without the reasons for its probable failure being pointed out. However, in the present case, the pleadings had closed, apparently, and the evidence had been served. The plaintiff's case was a misleading and deceptive case. It should have been possible for the plaintiff to make its own judgment about the strength of its case, based upon that material. Furthermore, in my view, the court is entitled to place some weight on the probability that the second and third defendants pointed out the difficulties in the plaintiff's case during the mediation.
Obviously, the fact that further pleadings were filed, and additional evidence served, after the plaintiff failed to accept the second and third defendants' offer is irrelevant to the issue of whether it was unreasonable for the plaintiff not to accept the offer.
Then, the plaintiff submits that the second and third defendants' offer was ineffective, as it required the plaintiff to enter into a separate deed of settlement that would include appropriate releases, confidentiality and other appropriate terms. In my view, it is standard practice, and not unreasonable, for the second and third defendants to request a deed of release and confidentiality, particularly as they were offering a discontinuance of the plaintiff's claim, rather than its dismissal. In the context, the reference to "other appropriate terms" did not in my view suggest that the second and third defendants intended to negotiate any additional, complex terms. The reference is only to the usual terms found in standard settlement deeds. If the plaintiff had been in any doubt about what the second and third defendants required, it could easily have made an enquiry.
Finally, the plaintiff submits that it was reasonable not to accept the second and third defendants' offer because that "may have left the plaintiff in an undefined situation of some uncertainty vis-a-vis the continued conduct of its case against the first defendant". The plaintiff did not explain the basis of this somewhat nebulous submission. In any event, if the plaintiff decided to reject a reasonable Calderbank offer made by the second and third defendants, in order to bolster its forensic prospects against the other defendants, and it did so at its own peril as to costs.
The second and third defendants have made out their claim for an order that the plaintiff should pay their costs on the indemnity basis after 28 November 2013.
I therefore make the following orders:
1. The following costs orders are made without affecting any costs orders previously made in these proceedings.
2. The plaintiff is ordered to pay 75% of the first, fourth and fifth defendants' costs of the proceedings on the ordinary basis.
3. Mr Julian Kenneth Facer is ordered to personally pay to the first, fourth and fifth defendants, all of the costs that the plaintiff is ordered to pay those defendants under the costs orders referred to in orders (1) and (2) above.
4. Order the plaintiff to pay the second and third defendants' costs up to 28 November 2013 on the ordinary basis, and thereafter on the indemnity basis.
5. Any exhibits and subpoenaed documents that remain in the custody of the court may be returned forthwith to be held in accordance with the Rules.
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Decision last updated: 09 May 2016