6.4 Consideration
146 The costs appeal concerns whether the primary judge erred in making indemnity costs orders in light of the offers made by Boss. Grounds 4 and 5 concern the exercise by the primary judge of the discretion conferred respectively by FCR 1.35 and s 43 of the Federal Court Act.
147 The appellants accept that the principles in House v The King [1936] HCA 40; (1936) 55 CLR 499 at 504 - 505 (Dixon, Evatt and McTiernan JJ) apply insofar as its arguments arise from grounds 4, 5 and 7 but contends that it does not apply insofar as ground 6 is concerned. As we note below, that proposition is consistent with authority.
148 In Anchorage Capital Partners Pty Ltd v ACPA Pty Ltd [2018] FCAFC 6; (2018) 259 FCR 514 (Nicholas, Yates, Beach JJ), the Full Court noted that in determining whether FCR 25.14(2) applies, it is not a question of whether to exercise a discretion to apply FCR 25.14(2), but whether it has any application to the facts of the case. There, as for ground 6 here, the question was whether the appellant's failure to accept the offer of compromise was unreasonable, which required an evaluative judgment to be made. In such circumstances, the trial judge will usually enjoy a distinct advantage which would not be set aside on appeal unless the appellate court is satisfied that there was material error, or it was of the clear opinion that the conclusion reached by the primary judge was wrong; Anchorage Capital at [224].
149 In relation to grounds 4, 5 and 7, it will not suffice for the purposes of an appeal from a discretionary judgment for this Court to conclude that it would have exercised the relevant discretion differently had it been in the position of the primary judge: House v The King at 504 - 505. There is a strong presumption in favour of the correctness of the decision appealed from in a discretionary judgment and the decision should be affirmed unless the appeal court is satisfied that it is clearly wrong; Samsung Electronics Company Ltd v Apple Inc and Another [2011] FCAFC 156; (2011) 217 FCR 238 at [39] (Dowsett, Foster and Yates JJ), citing Australian Coal and Shale Employees' Federation and Another v The Commonwealth and Others [1953] HCA 25; (1953) 94 CLR 621 at 627 (Kitto J) and Mallet v Mallet [1984] HCA 21; (1984) 156 CLR 605; at 634 (Wilson J).
150 Their Honours Dixon, Evatt and McTiernan JJ explained in House v The King at 505:
If the judge acts upon a wrong principle, if he allows extraneous or irrelevant matters to guide or affect him, if he mistakes the facts, if he does not take into account some material consideration, then his determination should be reviewed and the appellate court may exercise its own discretion in substitution for his if it has the materials for doing so. It may not appear how the primary judge has reached the result embodied in his order, but, if upon the facts it is unreasonable or plainly unjust, the appellate court may infer that in some way there has been a failure properly to exercise the discretion which the law reposes in the court of first instance. In such a case, although the nature of the error may not be discoverable, the exercise of the discretion is reviewed on the ground that a substantial wrong has in fact occurred. Unlike courts of criminal appeal, this court has not been given a special or particular power to review sentences imposed upon convicted persons. Its authority to do so belongs to it only in virtue of its general appellate power. But even with respect to the particular jurisdiction conferred on courts of criminal appeal, limitations upon the manner in which it will be exercised have been formulated.
151 It is convenient to consider the grounds of appeal separately as they apply to Offers 1, 3 and 4.
152 In relation to Offer 1, the appellants make three substantive submissions. First, that the primary judge ought to have found that it was not unreasonable for it to reject the offer (ground 7), secondly, the primary judge erred in concluding that offer 1 was a genuine offer in circumstances where it offered only a discontinuance (ground 6) and thirdly the primary judge erred in failing to take into account Boss' failure in or abandonment of significant parts of its case with the result that the awards of indemnity costs led to Boss being rewarded with indemnification of its costs despite the fact that large parts of its case were either abandoned or unsuccessful at trial (grounds 4 and 5). The appellants submit that at least a discount ought to have been made of the costs in respect of which the indemnity costs order was made, such as was made in Aristocrat Technologies Australia Pty Ltd v Konami Australia Pty Ltd (No 4) [2022] FCA 1501 (Nicholas J); see also Bryant, Gunns Ltd (In Liq) v Bluewood Industries Pty Ltd (No 2) [2020] FCA 1082 at [23] (Davies J).
153 In developing their first argument, which is based on ground 7, the appellants contend that the primary judge ought to have found that it was not unreasonable for it to reject Offer 1 because:
(a) the proceedings were at an early stage, with Trafalgar yet to provide its evidence in answer;
(b) assessed at the time, Boss' case was legally and factually complex and involving a large number of issues pleaded and witnesses giving evidence of events dating back to 2014 and 2015 in Australia and Norway;
(c) the offer "did not account for" significant issues on which Trafalgar ultimately succeeded or which were abandoned by Boss; and
(d) the offer merely offered discontinuance, which meant that it was not a genuine offer of compromise. This aspect of ground 7 overlaps with ground 6.
154 In relation to the appellants' contentions (a) and (b), it is plain from the primary judge's detailed and careful costs judgment that the primary judge took into account the stage of the proceedings and concluded that Trafalgar was on notice of the case it had to meet and, in the light of the evidence, ought to have known that the claims of the patent were vulnerable to revocation in light of that evidence. That conclusion was plainly open to him, especially given that Mr Ramunddal's and Mr Prior's evidence was neither particularly technical nor difficult to understand, as his Honour noted at [34] - [39] and [49] - [52]. By the time of Offer 1, Trafalgar had had this evidence for 11 weeks.
155 In relation to the argument in (c), FCR 25.14(2) provides that 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 indemnity costs after the date of the offer. The question of the reasonableness of the refusal to accept the offer is primarily to be determined from the date of the rejection, not looking at the ultimate conclusion of the proceeding, which is a circumstance that may be taken into account in considering the application of FCR 1.35. The question that matters most in this context is whether, given the information then available to the appellants, they should have known that their case was likely to fail; Anchorage Capital at [239]. The primary judge's reasoning, which we have summarised above at [141], addresses this question in detail. We do not consider that error has been demonstrated in that reasoning.
156 At the time of the offer, the primary judge found that the appellants were armed with the information necessary for it to assess that, unless the evidence of Mr Ramunddal and Mr Prior was rejected, the patent would likely be found to be invalid. They decided nonetheless to take a chance at a speculative attack on the evidence, contending that much of it was pure fabrication. On the face of their affidavits, the evidence was credible and potent. Such investigations as were produced in evidence by the appellants concerning the challenge to the veracity of the digital image of the Firestopit PDS leading to the contention that the image was staged and the evidence given by the witnesses was false were described by the primary judge as "fantastical".
157 The appellants' contention (d) is that the offer of discontinuance was not an offer at all. This argument is also the subject of ground 6. The point made is that by offering discontinuance, Offer 1 did not bring about a final resolution of the dispute and required, in substance, capitulation on the appellants' part.
158 His Honour found that the offer of discontinuance, instead of dismissal, did not render the refusal less unreasonable because his Honour could think of no rational basis for Boss to raise the same claims (of patent invalidity and wrongful threats or breaches of the ACL) having been the party that was originally sued (at [53]). The primary judge was satisfied that the offer raised a genuine compromise saying at [46]:
… By that offer, Boss signified its preparedness to give up its claim for damages arising out of Trafalgar's wrongful conduct in sending the letters in September 2018 (a claim which it will now pursue), and a not insignificant proportion of its costs, assessed on a party and party basis. It also signified its preparedness to give up its claim to revoke the patent. Had it accepted Offer 1, Trafalgar would have insulated itself from Boss's claim for damages; its costs burden would have been reduced; and it would have kept its patent. My conclusion that Offer 1 raised a genuine compromise is not gainsaid by the fact that the offer involved discontinuance of the claim and cross-claim.
159 In The Uniting Church v Takacs (No 2) [2008] NSWCA 172 (Hodgson JA, McColl JA agreeing), the Court of Appeal concluded that an offer by a defendant to settle a personal injury case for $20,000 plus costs, without admission of liability, was not a genuine offer of compromise having regard to the size of the offer, but "more of a procedural move" to trigger the costs consequences of the offer in the event that the defendant succeeded. The Court considered that it was not unreasonable to refuse the offer; at [13] - [15]. That is not to say that all low offers should be viewed as not amounting to a genuine offer of compromise. In each case, it will be a question of fact; Sagacious Legal Pty v Wesfarmers General Insurance Ltd [2011] FCAFC 53 at [137] - [139] (Besanko, Perram and Katzmann JJ).
160 In Brookfield Multiplex Limited v International Litigation Funding Partners Pte Ltd (No 4) [2009] FCA 803, Finkelstein J summarised the position in the case before him concerning the proposal of a "drop hands" or "walk away":
[12] The offer in this case may loosely be described, and in some cases has been described, as a "walk away" offer. A "walk away" offer may or may not constitute an offer for purposes of O 23 and Calderbank. The starting point is that "an offer which does not involve a real and genuine element of compromise, will not be taken into account in relation to costs": The Anderson Group Pty Ltd v Tynan Motors Pty Ltd (No 2) (2006) 67 NSWLR 706, 708; see also Hobartville Stud Pty Ltd v Union Insurance Co Ltd (1991) 25 NSWLR 358, 368 ("Compromise connotes that a party gives something away. A plaintiff with a strong case, or a plaintiff with a firm belief in the strength of its case, is perfectly entitled to discount its claim by only a dollar, but it does not in any real sense give anything away, and I do not think that it can claim to have placed itself in a more favourable position in relation to costs unless it does so").
[13] It is therefore necessary to determine whether the defendants' "walk away" offer was a genuine offer of compromise. One can easily envisage circumstances where a "walk away" offer must be regarded as a genuine offer of compromise. Take for example a case that has progressed for some time and the parties' costs are quite high. In that event an offer to walk away may, in a business sense, be a significant offer: see for example Commissioner of Taxation v Evenfont (No 2) (2009) 223 FLR 28 at [31].
[14] Conversely there are circumstances, and this case is an example, where an offer to walk away does not involve any real give and take. Here the offer was made some 12 days after the last appearance was filed, and some allowance must be made for the Christmas period when little work is done. I accept that up to the time of the offer the defendants had incurred some costs. But probably not a lot. Certainly the amount was not proved in evidence. On this view indemnity costs should not be awarded.
161 The Full Court in Sagacious at [130] adopted this summary as correct, accepting the further observations of Greenwood J in Clark v Commissioner of Taxation [2010] FCA 415; (2010) 222 FCR 102 at [90]:
[T]he notion that the applicants are giving up nothing of substance by offering to compromise on the footing that they will absorb the recoverable costs incurred to the date of the offer misunderstands the lay community's concerns about legal costs and therefore the concerns lay litigants hold about costs. Costs do not lie at the margins for litigants. They are real and of value. When a party elects as part of its offer to abandon a claim to recoverable costs (which in the circumstances must be taken to be a good claim) in the order of $123,000 or $153,000 or possibly $184,000, a real concession arises.
162 Offer 1 involved an offer that the appellants and respondents discontinue, respectively, the claim for patent infringement on the one hand and cross claim for invalidity, wrongful threats and breach of the ACL on the other and that the appellants pay 80% of the respondent's costs.
163 In Anchorage Capital, the primary judge considered the application of FCR 25.14(2) to the facts of that case, where the respondent to a claim for trade mark infringement offered a compromise whereby the claim and a cross-claim for the revocation of the trade mark be discontinued and the applicant pay 50% of the respondent's costs to date, which amounted to a discount of $285,000. The primary judge found that the costs element was not of relevance, because the best the respondent could achieve in relation to the applicant's claim was that it be dismissed with costs, and the amount of costs that it would eventually receive would in any event not be much more than $285,000. He found that the only element of compromise was the discontinuance of the cross-claim as a result of which the applicants would have been able to maintain their registrations. He recognised that it remained possible that the matter might be revisited in the future, but it was nonetheless the abandonment of something valuable.
164 On appeal, the Full Court disagreed, saying of the offer:
[242] …It required the appellant to pay a substantial portion of the respondents' costs but offered the appellant little in return for that payment. The mutual discontinuances proposed by the respondents would have permitted the respondents to bring a fresh proceeding for cancellation of the appellant's registered marks at any time in the future and without any contractual restraint upon their right to do so or their right to use the US ANCHORAGE names in Australia. The underlying commercial dispute would have been left entirely unresolved.
165 In our view, the position in the present case in relation to Offer 1 is similar to that in Anchorage. The costs offer may hardly be said to amount to a compromise in circumstances where typically party and party costs are significantly taxed and often end up amounting to about 66% of actual costs. The offer merely to discontinue the cross claim served to leave the validity of the patent at large, with no contractual obligation on the respondents not to bring fresh proceedings for cancellation. Whilst there was no evidence to say that Boss would resurrect its cross-claim alleging the invalidity of the patent, there was no legal impediment to Boss doing so. Whilst, for the reasons set out by the primary judge at [53], that might not have eventuated, we consider that those advising the appellants were entitled, if not obliged, to take that fact into account and to conclude that an offer merely to discontinue the proceedings may not quell the controversy between the parties. We respectfully consider that the primary judge erred in discounting the difference between the offer to discontinue the claim and the cross-claim and a dismissal of both.
166 In light of these matters, in our respectful view, the primary judge erred in concluding that it was unreasonable for the appellants to reject Offer 1. Even if they were armed with information indicating that they were not likely to succeed in their case, the appellants were entitled to regard the offer to discontinue as unsatisfactory and unlikely to resolve the commercial dispute. As a result, in our view, the appellants succeed in relation to grounds 6 and 7 of the appeal insofar as they concern Offer 1.
167 Trafalgar submitted to the primary judge that, if FCR 25.14(2) did not apply, Trafalgar should be awarded 90% of its costs of the infringement claim and that Boss should only be awarded 30% of its costs of the cross-claim. The primary judge said at [55]:
It is not necessary for me to address in any detail Trafalgar's contentions that, absent the application of r 25.14(2), it should be awarded 90% of its costs of the infringement claim and that Boss should only be awarded 30% of its costs of the cross-claim. I will simply note that, had I been persuaded that r 25.14(2) should be displaced in respect of the patent proceedings, I would not have awarded costs on this basis. In particular, I would not have been persuaded that Trafalgar should necessarily have an order for costs in its favour in respect of the infringement claim and I would not have been persuaded that Boss's costs of the cross-claim should be subject to the very deep discount that Trafalgar seeks.
168 In our view, the discount proposed by Trafalgar was manifestly excessive. In saying that, we are mindful of his Honour's observations concerning Trafalgar's case and the many factual issues it raised directed to establishing that Boss' evidence had been fabricated, that the infringement case formed a very small part of the patent proceeding and that much of the factual complexity attending the questions of claim validity would have been avoided and the hearing of the cross-claim considerably shortened, were it not for Trafalgar having raised such issues.
169 Nevertheless, given we have found that FCR 25.14(2) did not apply, it seems to us that it may be appropriate to apply some discount to the costs to be awarded to Trafalgar in the patent proceeding to take account of costs it incurred in respect of issues which were either abandoned by Boss or not pressed by it. In saying this, we are not to be taken as suggesting that a discount should be necessarily allowed. However, it seems to us given our conclusion in relation to the application of FCR 25.14(2), that the parties should be given an opportunity to make further submissions to the primary judge on that issue. In our opinion, it is an issue best considered by the primary judge who presided at the trial and who is in a far better position than we are to determine what discount (if any) is appropriate. We therefore propose to remit this issue to the primary judge for determination.
170 Offer 3 was made by Boss on 20 September 2019 in the first trade mark appeal and proposed that the appeal be discontinued, that Trafalgar withdraw the 784 application (for the registration of the word FIREBOX) and that Trafalgar pay 80% of Boss' party and party costs in the opposition before the Registrar, which at that date were $219,545.37.
171 In ground 4, Trafalgar contends that the primary judge erred by failing to invoke FCR 1.35 when considering the application of FCR 25.14(3) because of the fact that Boss had abandoned or failed in significant parts of its case when determining that FCR 25.14(3) should have application. Trafalgar refers to an aide-memoire in the form of annexure A to the Notice of Appeal, setting out grounds pleaded, the evidence relied upon and its assessment of the success or failure of the ground.
172 The question of the application of the discretion conferred by FCR 1.35 falls within House v The King. It is apparent that the primary judge took into account the abandoned grounds in considering FCR 1.35; see [68], [69]. His Honour was persuaded that the 30 August 2019 affidavit of Mr Prior was primarily directed to the use of the respective trade marks in issue, which was mainly relevant to proprietorship in the context of establishing first use, but which was also available for use in the context of the other grounds pleaded. We do not consider that the primary judge erred in the exercise of his discretion.
173 In ground 5, Trafalgar contends that the costs orders made did not meet the justice of the case or prevent injustice as between the parties when effecting the broad discretion as to the award of costs under ss 43(2) and (3) of the Federal Court Act. Trafalgar relies on the same basis for ground 5 as it does for ground 4. For the reasons we have given in relation to ground 4, we consider that Trafalgar must fail on this ground also.
174 None of grounds 6 and 7, nor the particulars to those grounds, make any reference to error arising from the primary judge's treatment of Offer 3. In its written submissions, Trafalgar repeats the criticism of the reasoning on the basis that the primary judge did not correctly treat the abandonment of grounds of appeal, apparently in the context of making an order under rule 14(3). This point was not developed in oral submissions. We are not satisfied that Trafalgar has demonstrated error on the part of the primary judge.
175 Offer 4 was made in the second trade mark appeal on 20 September 2019 and proposed that Trafalgar's appeal be dismissed and that Trafalgar pay 80% of Boss' party and party costs in the second trade mark appeal and 80% of Boss' scale costs in the opposition in respect of the 214 application (being Trafalgar's application for registration of the FYREBOX composite mark).
176 In ground 4, Trafalgar contends that the primary judge erred in failing to invoke FCR 1.35 to make an order inconsistent with the consequences of FCR 25.14(2) by reason of the abandonment by Boss of grounds of its appeal. However, this ground is incoherent in the context where it was Trafalgar who was the opponent to the registration of the trade mark. Moreover, the primary judge's reasons were directed to the question of whether or not it was unreasonable for Trafalgar to reject the offer, a point with which ground 4 does not engage. Similar observations may be made in relation to ground 5, which must also be dismissed insofar as it concerns Offer 4.
177 Ground 6 does not refer to Offer 4 and Trafalgar has made no written or oral submission relevant to its application.
178 In ground 7, Trafalgar contends that the primary judge erred in finding that the refusal to accept Offer 4 was unreasonable within FCR 25.14(2). In the particulars appended to the ground, Trafalgar asserts that the primary judge erred because, at the time Offer 4 was made, the pleadings in the second trade mark appeal had not closed. It submits that in the earlier proceedings Trafalgar had succeeded in its opposition to the mark. It also repeats its point about abandoned grounds, which must be rejected for the same reasons as identified above.
179 The primary judge addressed the first point at [74] - [76] where his Honour noted that the fate of the second trade mark appeal overlapped with that of the first insofar as it concerned a contest as to which of the parties had first used the FIREBOX or FYREBOX trade marks. In this regard, in [62] - [67], his Honour observed that the additional evidence of Mr Prior and Mr Falkiner had a significant bearing on the question of use, and that this evidence had been supplied to Trafalgar by the time that Offer 4 had been made. His Honour found that this evidence was sufficient to dispose of Trafalgar's claim to proprietorship and there was nothing on the face of those affidavits to suggest that they were not to be accepted. In those circumstances, amongst others, the primary judge found that it was a forensic decision on the part of Trafalgar to challenge the veracity of this evidence. Whilst it was entitled to do so, his Honour was not persuaded that it rendered as reasonable the decision of Trafalgar to refuse the offer.
180 We see no error in his Honour's reasoning in this regard. Ground 7 must also be dismissed.