How should the question be resolved?
36 In my opinion, neither MIL's proposal nor Aldi's is appropriate.
37 I turn first to MIL's argument that Aldi should pay 60% of its total costs.
38 As Aldi put it, this proceeding was "first and foremost, about MIL's attempt to restrain the use by Aldi of product labelling and get-up on the basis of alleged similarities with MIL's moroccanoil range of products". The history of the dispute between the parties revealed in pre-trial correspondence and the development of the pleadings suggests that the second and third ACL claims were afterthoughts. Neither appeared in the first iteration of the pleadings. The second ACL claim was added some three months after the originating application was filed, the third, nearly a year later. MIL's predominant concerns were with the trade mark infringement claim and the related ACL/passing off claim, both of which were dismissed, with defending Aldi's cross-claim to keep its own marks on the register, and with getting its word mark registered.
39 Nevertheless, the second and third ACL claims were not insubstantial. As MIL submitted, Aldi's overview of the case failed to take into account the complexity of the evidence relied upon in relation to the matters upon which MIL succeeded. That included evidence from three industrial chemists, two called by MIL, one by Aldi. MIL is right, too, to point out that, although Aldi did have some success in its non-use claim, MIL did not contest a number of matters.
40 On the other hand, I do not accept that Aldi had no right to put MIL to proof about its reputation in Australia. While it is true that Aldi's own marketing manager conceded that the MIL Oil Treatment was the market leader in oil treatment products, she made no such concession about the other MIL products. Indeed, no such suggestion was put to her. Moreover, I do not consider Aldi was unreasonable to put MIL to proof on the extent of its reputation, even in the Oil Treatment.
41 Nor do I accept that the principal issue in the trade mark infringement action was the question of whether "Moroccan Argan Oil" was used as a trade mark. It was one of two principal issues. The other issue - whether the Aldi sign was deceptively similar to MIL's registered marks - was at least of equal importance. Aldi's argument that "Moroccan Argan Oil" was not a brand name but a description of the products was reasonably arguable and it was supported by expert evidence.
42 Even so, I am not persuaded by Aldi's argument that MIL should pay 70% of its total costs.
43 First, MIL was the applicant. While it did not win the whole of the infringement and consumer action, it did have some success.
44 Secondly, the proposition that each of the first ACL, the passing off, and the trade mark infringement claim was a significant piece of litigation cannot be accepted. The first ACL claim was identical to the passing off claim. MIL described it as "cognate with the first ACL claim". No more evidence was led on this question than on the first ACL claim. The only reason the passing off claim was pleaded was that, had it been successful, MIL might have been able to recover additional damages. None of the evidence or the argument, whether oral or in writing, however, was concerned with the assessment of damages, let alone additional damages. At the request of the parties, an order had been made deferring that question until after liability had been determined. Such submissions as there were on the passing off claim were brief.
45 Thirdly, Aldi's analysis is beguiling. There is no neat or necessary correlation between the number of words (or paragraphs) used in submissions and the costs incurred in developing them. Aldi's calculations based on the extent of the written submissions, number of witnesses, and hearing days fail to take into account either the different complexities of the various causes of action or the fact that several witnesses gave evidence relevant to more than one claim (including claims MIL both won and lost).
46 I now turn to consider Aldi's offers of settlement.
47 In oral argument Aldi frankly conceded that the power to award indemnity costs under the Rules was not enlivened. Nevertheless, it urged the Court to consider the offers in the exercise of its discretion. Shortly put, Aldi's point was that it was unreasonable for MIL to reject the offers because, for all practical purposes, they gave MIL "a win on [its] centrepiece claims" by requiring Aldi to stop selling and distributing the allegedly "infringing products" and left MIL to continue the opposition appeal unopposed. The unstated assumption behind the offers was that MIL had no real interest in, and nothing to gain from, pursuing the second and third ACL cases.
48 I do not doubt that an offer of compromise may be relevant to the exercise of the Court's discretion where the conditions under the Rules are not made out: see, for example, DSE (Holdings) Pty Limited v InterTAN Inc [2004] FCA 1251 at [11] (Allsop J); Grbavac v Hart [1997] 1 VR 154 at 155 (Winneke P) and at 165 (Hayne JA); Ruaro v Ferrari [2008] FCA 307 (Emmett J). Indeed, MIL reminded me of a judgment of my own in which I had made such an observation: Specsavers Pty Ltd v The Optical Superstore Pty Ltd (No 4) [2012] FCA 652 at [36]. The appeal from this case was dismissed and this observation was not criticised: Specsavers Pty Ltd v The Optical Superstore Pty Ltd (2012) 208 FCR 78.
49 It is true that, had MIL accepted Aldi's offers it would have avoided the costs of a trial and its principal concerns about Aldi's behaviour would have been addressed. Be that as it may, I am not disposed to award costs on an indemnity basis from 4 March 2016. Nor am I disposed to award costs to Aldi thereafter on the ordinary party and party basis, as Aldi submitted in the alternative.
50 First, in Les Laboratoires Servier v Apotex Pty Ltd (2016) 247 FCR 61 at [327] the Full Court noted that the primary judge was uncertain as to whether offers of compromise were more or less favourable to Apotex than the result in the case. In those circumstances, the Court held that the offers "could not reasonably be taken into account in Apotex's favour as a discretionary matter under s 43".
51 Here, it appears to be common ground that the overall result MIL achieved was not less favourable than the conjoined offers. Certainly, I am not satisfied that it was.
52 Secondly, Aldi's offer was an all or nothing one; the offer made in one proceeding could not be accepted unless the offer in the other was also accepted. Registration of the word mark, moroccanoil, the subject of the appeal, was doubtless a matter of importance to MIL. True it is, the offers envisaged that Aldi would not contest the appeal. That said, the offer made on the appeal did not include Aldi's consent to an order allowing the appeal and setting aside the decision of the delegate.
53 What is more, Aldi's characterisation of the effect of its offers did not tell the full story. The precise terms of the offer in the appeal were these:
1 Consent orders
(a) Aldi will consent to orders being made by the Court in the following terms:
(i) That Aldi is forthwith removed as a party to the proceedings pursuant to rule 9.08 of the Federal Court Rules 2011 (Cth).
(ii) That each party shall bear its own costs associated with the proceedings up to and including when Aldi is removed as a party to the proceedings.
2 Other terms
(a) This offer is made 'without admissions' by Aldi as to the validity of the trade mark the subject of Trade Mark Application No. 1463962. Aldi expressly reserves its right to challenge the validity of the trade mark in the event that Trade Mark Application No. 1463962 proceeds to registration and Aldi is subsequently sued for infringement of any such trade mark.
(b) This offer of compromise is only capable of acceptance together with acceptance of the terms of the Notice of Offer to Compromise in Proceedings NSD613 of 2015 which has been served at the same time as this offer.
(c) This offer of compromise is open to be accepted for 14 days after service of this offer of compromise.
This offer is inclusive of costs.
(Emphasis added.)
54 In other words, Aldi left open the prospect of future litigation over the word mark.
55 In the appeal MIL was not only successful; it also obtained an order for costs, both of the appeal and of the proceeding before the delegate. Yet Aldi's offer made no provision for the payment of any of MIL's costs. Putting aside the costs of the proceeding before the delegate, by the time the offer was made MIL would have incurred costs on the appeal. There is no evidence of the amount of those costs but at a minimum they would have included filing fees, counsel's advice, and costs associated with retaining Professor Zuckermann, a distinguished linguist and lexicographer. Professor Zuckermann's affidavit was affirmed on 1 April 2016 (after the date of the offers) but he was retained in October 2015 and formally instructed on 20 November 2015. Having regard to the work product, it is reasonable to assume that work began well before the offers were made and that his fees would have been significant.
56 Thirdly, the offer in the infringement and consumer action failed to address either the second ACL claim (in which MIL was substantially successful) or the third (in which it was totally successful). The new packaging Aldi proposed in its offer included the representations I found to be misleading or deceptive. The orders I made restrained Aldi from exhibiting, offering for sale, selling, supplying, advertising, and/or promoting eight of the 12 products the subject of the proceedings in conjunction with the representations I found to be false and/or misleading, whether in packaging, on labelling, or otherwise. Moreover, at the time the offers were made, MIL would have incurred some costs in connection with those claims. Aldi did not offer to compromise those claims in any way, whether by withdrawing its products from sale, offering to pay compensation or damages or covering MIL's costs or a proportion of them. The unstated assumption (that MIL had no real interest in pursuing those claims) appears to have been based on an inference derived from the history and background of the litigation. MIL's decision not to accept Aldi's offers suggests that the assumption was unfounded.
57 Fourthly, three months out from the hearing, MIL would undoubtedly have incurred substantial costs in prosecuting the trade mark infringement and first ACL/passing off claim. Yet, Aldi did not offer to pay those costs or to compromise them.
58 Having regard to all these matters, I am not satisfied that it was unreasonable or, for that matter, imprudent of MIL not to accept Aldi's offers.
59 It follows that all costs should be awarded on the ordinary basis. But who should pay them and in what proportions and by what measure, given the mixed success?
60 A percentage costs order based on the overall costs incurred is attractively simple. Aldi's approach, however, is overly simplistic. MIL's is largely opaque. MIL argued that "a large majority" of the costs of the first ACL and passing off claim was spent on MIL establishing reputation, which was also relevant to the s 41 cross-claim, and that minimal costs were spent on the trade mark infringement claim "because the trade marks had to be considered in respect of the s 41 case". But no evidence was adduced to support the argument.
61 In the absence of any evidence of the amounts spent by the parties on the prosecution of the unsuccessful claims, a percentage costs order based on the overall costs of the two proceedings might not be fair. On one view, the fairest way to determine costs is by reference to the success of the parties on the various causes of action. It is arguable that the circumstances of the present case make it reasonable that each party pay the costs of the other party on the causes of action in which it was unsuccessful - in other words, that MIL should pay Aldi's costs on the trade mark infringement claim but that Aldi should pay MIL's costs on the cross-claim (in addition to the costs of the appeal), perhaps with a modest discount to reflect Aldi's partial success on the part of the cross-claim seeking removal of the MIL marks for non-use.
62 But neither party contended for this outcome. Moreover, it is likely to add to the parties' costs. If there is another course that achieves a similar result without incurring additional costs it is to be preferred. In Thiess the Court of Appeal decided against an order that each party pay the costs of the other to the extent of the latter's success in the action and instead awarded the defendant one third of its costs on the basis that it had successfully defended two thirds of the claims brought against it. At 209 the Court remarked:
Approximate though this may be, it seems to us to be preferable to the alternative of apportioning costs according to the success of either party in relation to particular issues, which would produce a process of taxation that seems to be almost universally deplored.
63 While the parties here have opted to avoid taxation, the task of determining what costs are attributable to a particular cause of action is no easy matter. Considerations of economy and efficiency tell against the course I contemplated.
64 Consequently, I accept Aldi's submission that the Court should not "delve into the details on an 'issue by issue' approach". As Aldi submitted, such an approach "tends to distract from the principal task of determining entitlement to costs based on the end result of the litigation". In Les Laboratoires at [301], the Full Court acknowledged the breadth of the Court's discretion, noted the remarks of Toohey J in Hughes, but at the same time found at [306] that the primary judge erred by awarding costs on the basis of success as to issues rather than starting from the position that the successful party was entitled to its costs.
65 Ultimately, I have decided that, as MIL was partially successful in the infringement and consumer action and obtained relief against Aldi, it should recover costs in that proceeding as well as the appeal, but that the costs of the former should be substantially reduced in recognition of the extent to which it failed. Taking all relevant matters into account, I conclude that, in addition to the costs of the appeal, Aldi should pay 35% of MIL's costs of the infringement and consumer action. Such an award gives due weight to the primacy in the litigation of the infringement and first ACL/passing off cases but recognises MIL's success in the other two ACL cases. It also recognises that a good deal of the costs incurred by MIL in successfully fending off the s 41 arm of Aldi's cross-claim will be picked up by the costs order in the appeal. In other words, I expect that the costs associated with the retainer of Professor Zuckerman and in responding to the evidence of Ms Butler, Aldi's lexicographer, would be recovered in the costs of the appeal. Since the reputation of the registered marks was relevant to the issues under s 41(5) and (6) of the Trade Marks Act, I also expect that MIL's concerns about the costs associated with proving that matter would be largely, if not entirely, alleviated by that costs order.
66 Aldi proposed that I make orders for the filing and service of evidence to be placed before the Registrar. I decline to do so. The manner in which the matter proceeds from now on should be left to the Registrar. In the meantime, I urge the parties to try to resolve their dispute, with or without the Registrar's assistance.
67 There will be orders accordingly.
I certify that the preceding sixty-seven (67) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Katzmann.