Paige LLC v Sage and Paige Collective Pty Ltd

1. The respondent now seeks its costs and foreshadowed that were it successful, it would seek a special costs order. I ordered that each party file submissions and any evidence relied upon and that I would determine the matter on the papers.
2. The respondent seeks indemnity costs, based on various offers. These were:

(a) on 23 November 2023, a notice of offer to compromise in accordance with r 25.01 of the Federal Court Rules 2011 (FC Rules) under cover of a Calderbank letter (the first offers); and

(b) on 11 April 2025, a notice of offer to compromise under cover of a Calderbank letter (the second offers);

1. Each of the offers was a "walk away" offer, that the proceedings be dismissed with no order as to costs, and was open for 14 days.
2. In each case, no response to the offers was provided by the appellant's solicitors.
3. The question is whether indemnity costs should be now ordered, given that the outcome for the respondent was more favourable than that proposed in each of the offers (as the appellant is now liable for the respondent's costs).

1. It is uncontroversial that the relevant factors in determining whether a refusal to accept an offer was unreasonable are, as set out in Hazeldene's Chicken Farm Pty Ltd v Victorian WorkCover Authority (No 2) (2005) 13 VR 435; [2005] VSCA 298 at [25] (Warren CJ, Maxwell P and Harper AJA, cited in Anchorage Capital Partners Pty Limited v ACPA Pty Ltd (No 2) [2018] FCAFC 112 at [7] (Nicholas, Yates and Beach JJ):

a. the stage of the proceeding at which the offer was received;

b. the time allowed to the offeree to consider the offer;

c. the extent of the compromise offered;

d. the offeree's prospects of success, assessed as at the date of the offer;

e. the clarity with which the terms of the offer were expressed; and

1. whether the offer foreshadowed an application for an indemnity costs in the event of the offeree's rejecting it.

1. The point of contention here is whether the offers were reasonable, and whether, taking account of the respective stages of the proceedings and the contents of each offer, it was unreasonable to reject them.
2. No issue is taken with the compliance of the offers with the relevant provisions of the FC Rules.

The respondent's submissions on indemnity costs

1. The respondent seeks indemnity costs on the basis of the rejections of the offers. It pointed to the dates of the offer, and noted that the terms of each offer were clear, and foreshadowed an application for indemnity costs were it not accepted.
2. The respondent submitted that the offers reflected that the appellant's prospects of success were low, as reflected in the delegate's reasons, and each Calderbank letter set out the respondent's assessment of those prospects with reference to the grounds advanced before the delegate. It was submitted that the reasons for judgment were similar to those espoused by the delegate and that that factor tended towards a finding that it was not reasonable to take a different view. The dismissal of the appeal was, it was submitted, a likely outcome, even at the stage of the earlier of the two offers.
3. The respondent submitted that the terms of the offers were a genuine compromise on its part, and represented "a good deal for the Appellant". The fact that no response was given tends to suggest unreasonableness (Walsh v Walsh (No 2) [2013] NSWSC 1281 at [53] (Hallen J)).

1. The appellant relied on the fact that the offers were not, it says, reasonable, given that they were walk away offers in the context of an appeal which depended on "an impressionistic evaluation" (Verrocchi v Direct Chemist Outlet Pty Ltd (No 2) [2016] FCAFC 162 at [11] (Nicholas, Murphy and Beach JJ)), and so I would need to be satisfied that the appeal was "untenable or vexatious" in order to find that it was not reasonable to refuse the offer (Verrocchi at [10]). It was submitted that the appeal was not doomed at either time of the two tranches of offers, and the appeal was argued with different evidence (particularly in relation to collaborations) from that which was before the delegate. The appeal was one to be determined de novo and it was submitted that the evidence of brand collaborations was not before the delegate.
2. The appellant relied on the statement of the Full Court in JMC Pty Ltd v Commissioner of Taxation (Costs) [2023] FCAFC 95] (Bromwich, Thawley, and Hespe JJ) at [13]) where the Court said,

[i]t may be reasonable to reject an offer which amounts to something close to capitulation where the case is reasonably and properly arguable [and] unreasonable to reject a generous offer where the [offeree's] prospects are slim.

1. The appellant submitted that the rejection of the first offers was not unreasonable, given the early stage of the proceedings, and that the respondent was offering to forego party-party costs of the taxable portion of $10,000 "in exchange for what was otherwise complete capitulation on the Appellant's part". In relation to Walsh, the appellant noted that the passage cited was (with the appellant's emphasis added):

An offer that appears to be reasonable, that is simply allowed to lapse, with no response made to it at all, in my view, tends to suggest unreasonableness.

1. In other words, it was submitted, the lack of any response to an offer does not of itself suggest that rejection was unreasonable.
2. In relation to the second offers, the respondent's costs were then around $50,000 which, it was submitted, was a "relatively small" sum for Federal Court litigation. The appellant noted that the second offers' period for acceptance was at the time the parties were filing their opening submissions, the content of which, it was said, demonstrated that the appellant's claim was "far from unmeritorious".
3. The appellant seeks orders that the costs order be made on a party-party basis, and the costs of this application for indemnity costs be paid by the respondent, on the grounds that, if the appellant is successful in resisting indemnity costs, it has been put to unnecessary expense.

1. I agree with the appellant that the appeal was not unmeritorious and was not doomed to fail. The question of the effect of collaborations was novel and required close attention and argument, as is evident from the reasons for judgment. It falls therefore to determine whether, under the principles in Calderbank v Calderbank [1975] 3 All ER 333, or under the FC Rules, the refusal by the appellant of the offers was unreasonable.
2. Rules 25.14(1) and 25.14(2) of the FC Rules provide:

(1) If an offer is made by a respondent and not accepted by an applicant, and the applicant obtains a judgment that is less favourable than the terms of the offer:

(a) the applicant is not entitled to any costs after 11.00 am on the second business day after the offer was served; and

(b) the respondent is entitled to an order that the applicant pay the respondent's costs after that time on an indemnity basis.

(2) If an offer is made by a respondent and an applicant unreasonably fails to accept the offer and the applicant's proceeding is dismissed, the respondent is entitled to an order that the applicant pay the respondent's costs:

(a) before 11.00 am on the second business day after the offer was served - on a party and party basis; and

(b) after the time mentioned in paragraph (a) - on an indemnity basis.

1. The only difference between the outcomes where an offer to compromise under the FC Rules is rejected, and a Calderbank offer is rejected, is that there is no presumption in favour of indemnity costs in an offer to compromise; see Caporaso Pty Ltd v Mercato Centrale Australia Pty Ltd (Costs) [2025] FCAFC 29 at [25] (Katzmann, Wheelahan and Hespe JJ).
2. It is not contested that the outcome was "less favourable" to the appellant given that the costs incurred would include the costs of the hearing and preparation.
3. The appellant sought to characterise a "walk away" offer as being inherently unreasonable. I do not agree; see Sagacious Legal Pty Ltd v Wesfarmers General Insurance Ltd [2011] FCAFC 53 at [129]-[150] (Besanko, Perram and Katzmann JJ). Each case must be evaluated on its individual facts. It is true however that the first offers provided little benefit to the appellant; had the appellant accepted the first offers, they would have been deprived of the chance to evaluate the evidence in the proceedings and to have regard to the likelihood of success, with all of the respondent's evidence being filed after the date of the first offers. I do not regard the rejection of the first offers as unreasonable, as the respondent was not in a position properly to evaluate its chances of success at that point.
4. The second offers were served closer to the hearing, at a time when both parties' evidence had been served, the issues had narrowed (in the sense of one of the grounds before the delegate not being pursued by the appellant) and further evidentiary aspects identified (the impact of collabs on the question of deceptive similarity). The second offers, too, amounted to seeking "a capitulation" and offered nothing by way of, say, limiting the use of the respondent's marks (see for example Caporaso at [37]).
5. It seems to me that the refusal of the second offers by a failure to respond was, while possibly discourteous, not unreasonable. I regard the appellant's case as formulated and argued as being "reasonably and properly arguable" (see JMC Pty Ltd, above), and make the same comments as to the lack of any nuanced offer from the respondents. That is not to say that a "walk away" offer can never give rise to an order for indemnity costs; merely that rejection of such an offer is more likely to be found to be reasonable in cases where the prospects of success or failure are more clear-cut than the present.
6. As to costs of the application for costs; the appellant has been successful and should have its costs of this part of the hearing in the ordinary way.

1. The respondent's application for indemnity costs is dismissed with costs.
2. The costs of the appeal proceedings should be paid by the appellant on the ordinary basis, as agreed or taxed.

I certify that the preceding thirty-one (31) numbered paragraphs are a true copy of the Reasons for Judgment of the Honourable Justice Needham.