Truong Giang Corporation v Quach

1. The costs awarded pursuant to orders 21 and 22 of the orders made by the Court on 15 October 2015 be assessed: (a) up to 11.00am on 14 November 2014, on a party and party basis; and (b) from 11.00am on 14 November 2014: (i) on an indemnity basis insofar as they relate to the issues of liability; (ii) on a party and party basis insofar as they relate to other issues. Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

WIGNEY J: 1 In October 2015, Mr Tung Mau Quach, New Leaf Tea Co Pty Ltd (New Leaf) and Mr Christodoulos Alexandrou were found to have infringed a registered trade mark owned by Troung Giang Corporation (TG Corp). They were also found to have engaged in misleading and deceptive conduct and to have passed off tea sold by them as genuine "3 Ballerina Tea" associated with TG Corp. The Court made declarations and injunctions and ordered Mr Quach, New Leaf and Mr Alexandrou to pay damages to TG Corp. They were also ordered to pay TG Corp's costs, though the question of the basis upon which the costs were to be assessed was reserved. 2 TG Corp now seeks an order that its legal costs be assessed on an indemnity basis. That order is opposed by Mr Alexandrou. Mr Quach simply advised that he submits to the jurisdiction of the Court. 3 TG Corp submits that an award of indemnity costs is appropriate on two bases. 4 First, it submits that each of Mr Quach, New Leaf and Mr Alexandrou defended the proceedings on a false and unreasonable basis. It points to the fact that Mr Quach defended the proceedings on the basis that his dealings in the infringing tea were very limited and that the tea that he sold was sourced, via Mr Alexandrou, from TG Corp's Australian distributor and was therefore genuine. New Leaf denied any dealing in the infringing tea at all. Like Mr Quach, Mr Alexandrou also claimed that his dealings in the infringing tea were very limited and that the tea was genuine because he obtained it from TG Corp's Australian distributor. 5 TG Corp correctly submits that the evidence of both Mr Quach and Mr Alexandrou in support of their defences was comprehensively rejected by the Court. The Court found that both Mr Quach (on both on his own behalf and as the controlling mind of New Leaf) and Mr Alexandrou had far more extensive dealings in the infringing tea than they had disclosed or were prepared to admit. Their versions of events concerning how they came to deal with the infringing tea and their evidence that they did not know the tea was counterfeit, was emphatically rejected by the Court. Both Mr Quach and Mr Alexandrou were found to have given untruthful evidence. 6 TG Corp also relies on the Court's finding that both Mr Quach and Mr Alexandrou remained recalcitrant throughout the proceedings. Both failed to comply with discovery orders and a notice to produce documents relating to sales of the infringing products. 7 TG Corp contends that the conduct of each of Mr Quach, New Leaf and Mr Alexandrou in respect of the proceedings was unreasonable, glaring and contemptuous. It also prolonged the proceedings and resulted in a waste of time. 8 The second basis upon which TG Corp seeks indemnity costs is that it served offers of compromise on each of Mr Quach, New Leaf and Mr Alexandrou about three weeks before the trial. Those offers of compromise complied with Pt 25 of the Federal Court Rules 2011 (Cth) (the Rules). The effect of the offers was that TG Corp offered to settle the "liability aspects" of the proceedings on the basis that the declarations, injunctions and delivery-up orders sought by TG Corp in its originating application would be made and that TG Corp would accept 90 percent of its taxed costs insofar as the costs related to issues of liability. 9 By the time the offers of compromise were served, each of Mr Quach, New Leaf and Mr Alexandrou were not legally represented. The offers of compromise were served under cover of letters which explained the effect of the offers in fairly clear terms. The letters also explained, in clear terms, that if the offers were not accepted and TG Corp obtained a judgment on more favourable terms, TG Corp would be entitled to recover its costs in relation to the liability aspects of the proceedings on an indemnity basis. 10 There was no response to the offers of compromise. The offers were not accepted. None of Mr Quach, New Leaf or Mr Alexandrou made any contact with TG Corp's lawyers in relation to the offers. 11 The relevant principles in relation to the award of indemnity costs are well established. The Court has a broad discretion to order costs under s 43 of the Federal Court of Australia Act 1976 (Cth). Costs ordinarily follow the event and are awarded on a party - party basis unless there are particular or special circumstances which would warrant the Court making a special costs order, including an order that costs be assessed on an indemnity basis: Colgate-Palmolive Company v Cussons Pty Limited (1993) 46 FCR 225 (Colgate-Palmolive) at 232-234. 12 In Colgate-Palmolive, Sheppard J referred to some of the principles concerning indemnity costs and noted some instances or examples of circumstances which might warrant the exercise of the discretion to order indemnity costs. His Honour plainly did not intend the list to be exhaustive or determinative. The instances include: the making of allegations of fraud that are irrelevant or known to be false; misconduct that causes loss of time to the Court and the other parties; the conduct of proceedings with an ulterior motive or in wilful disregard of known facts or clearly established law; the undue prolongation of a case by groundless contentions; and an imprudent refusal of an offer of compromise (at 233). 13 Putting aside, for the moment, the non-acceptance of the offers of compromise, the circumstances of this case do not fall neatly into any of the instances referred to by Sheppard J. As already indicated, however, that does not matter. The categories of cases where an award of indemnity costs is appropriate is not closed. There could be no doubt that, in an appropriate case, indemnity costs could properly be awarded against a defendant or respondent who defended proceedings on a false and unreasonable basis and thereby exposed the plaintiff or applicant to unnecessary costs and delay. This, however, is not such a case. 14 Whilst it is true that the evidence led by Mr Quach and Mr Alexandrou in support of their defences was categorically rejected by the Court as untruthful or unreliable, that alone is not enough to warrant an order for indemnity costs, at least in the circumstances of this case. Were it otherwise, unsuccessful defendants or respondents would almost invariably face indemnity costs if their evidence was rejected. 15 The defences relied upon, and the evidence led, by Mr Quach, New Leaf and Mr Alexandrou did not, in the end, significantly prolong the trial. By the time of the trial, each was unrepresented. They did not seek to cross-examine any of TG Corp's witnesses. They did not file lengthy or prolix affidavits. Their oral evidence, including evidence during cross-examination, was short. So too were their submissions. Aside from the rejection of their evidence (and therefore the factual basis of their defences) and their failure to produce documents when required, Mr Quach and Mr Alexandrou did not conduct themselves inappropriately in the course of the hearing. 16 Some allowance must also be made for the position of Mr Quach, New Leaf and Mr Alexandrou as unrepresented litigants. In Bhagat v Royal & Sun Alliance Life Assurance Australia Ltd [2000] NSWSC 159, Hodgson CJ in Eq observed (at [13]): … I accept that a court does have to make allowances for the position of litigants in person, and to try to ensure that such a litigant does not lose out because of lack of expertise; although there is a limit to what the Court can do in that regard, while still remaining an impartial determinant of a dispute. The Court may in those circumstances refrain from making orders against litigants in person for conduct that might be considered as justifying orders for costs against represented litigants. By the same token, litigants in person can cause great hardship and expense to other parties, through making allegations and claims that lawyers would recognise as allegations and claims that could not reasonably or even properly be made, and through making proceedings much longer and much more expensive than they otherwise would be, by not focusing accurately on the real issues in the case. Conduct of that nature by legally represented parties would often lead to orders for indemnity costs. Litigants in person may escape the consequence of indemnity costs, but I do not think that the circumstance that a party is a litigant in person is a ground for displacing the ordinary result that costs follow the event. 17 Those observations have been referred to with approval on many occasions in this Court: Bhagat v Global Custodians Ltd [2002] FCA 223 at [57]-[60]; Ogawa v The University of Melbourne (No 2) [2004] FCA 1275. 18 It should be noted here, however, that Mr Quach, New Leaf and Mr Alexandrou were initially legally represented. Mr Alexandrou has effectively contended that he was never really legally represented and that he only spent very limited time with the lawyer who was representing Mr Quach and New Leaf. That contention is, to say the least, surprising given that a detailed Fast Track Response was prepared and filed by lawyers on Mr Alexandrou's behalf. Those lawyers also appeared for Mr Alexandrou at various directions hearings. 19 It is a relevant consideration that Mr Quach, New Leaf and Mr Alexandrou were initially legally represented. It was only as the final hearing approached that their lawyers ceased to act. The evidence suggests that this was because Mr Quach, New Leaf or Mr Alexandrou were either unable or unwilling to pay their lawyers' fees. In all the circumstances, some, but not significant, weight should be given to the fact that the respondents were unrepresented at the hearing. 20 It should also be noted in this context that, in opposing an indemnity costs order, Mr Alexandrou relies on an affidavit sworn by him. In that affidavit, Mr Alexandrou contends, amongst other things, that he did everything to comply with the legal process despite not having a legal representative, that he did not delay filing documents and "did not understand a lot of the [C]ourt process". Some weight is given to that evidence. That said, the impression gained from Mr Alexandrou's conduct during the course of the proceedings was that he was not as ignorant of the Court processes as his evidence would suggest. He well knew what the general effect of the allegations he was facing were. He appeared, at times, to feign ignorance. It also appeared that he had some, albeit perhaps limited, assistance or support throughout the hearing. That is certainly apparent from the affidavit that he has filed in opposition to the application for indemnity costs. 21 Some consideration should also be given to the fact that the recalcitrance of Mr Quach and Mr Alexandrou and their failure to comply with requirements to produce documents was taken into account in the award of additional damages under s 126(2) of the Trade Marks Act 1995 (Cth). That is not, however, a matter to which significant weight is given because an award of indemnity costs is not made to punish an unsuccessful party, but to compensate the successful party. It is nonetheless a relevant consideration. 22 In all the circumstances, the conduct of Mr Quach, New Leaf and Mr Alexandrou in unsuccessfully defending these proceedings does not warrant the award of indemnity costs. The mere fact that their evidence was rejected is not enough. Their failure to comply with discovery orders and notices to produce is a matter of some concern, but either considered alone or in combination with the rejection of their evidence, does not support an indemnity costs order. The hearing was not unreasonably prolonged by the actions of the respondents. 23 Different considerations arise in relation to the non-acceptance of the offers of compromise. 24 Rule 25.14(3) of the Rules provides as follows: If an offer is made by an applicant and not accepted by a respondent, and the applicant obtains a judgment that is more favourable than the terms of the offer, the applicant is entitled to an order that the respondent pay the applicant'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. 25 As has already been noted, Mr Quach, New Leaf and Mr Alexandrou did not accept the offers of compromise. The judgment obtained by TG Corp in relation to liability was more favourable than the terms of the offers, though only marginally so. The only aspect of the judgment more favourable to TG Corp was the order that their costs were to be paid. Under the terms of the offers, TG Corp was willing to accept 90 percent of its assessed costs. Nonetheless, strictly speaking, the judgment was more favourable. 26 The offers were also somewhat unusual in that they only related to the "liability aspects" of the proceedings. It was made clear in the covering letters that even if the offers were accepted, TG Corp would pursue its claims for pecuniary relief. No offer to settle that aspect of the matter was made. 27 That circumstance does not, however, disentitle TG Corp from relying on the non-acceptance of the offers of compromise. If the offers had been accepted, the proceedings may well have been somewhat shorter. The only issue would have been the quantification of compensatory damages and the award and assessment of any additional damages. That said, Mr Quach and Mr Alexandrou may still have given evidence and been subjected to cross-examination at the hearing. 28 In circumstances where Mr Quach, New Leaf and Mr Alexandrou did not accept the offers of compromise, TG Corp is "entitled" under r 25.14(3) of the Rules to an award of indemnity costs for the period after 11.00am on the second business day after the offers were served. 29 TG Corp accepts that the Court may exercise its discretion not to make such an order. Rule 1.35 of the Rules provides that the Court can make an order inconsistent with the Rules. The question, then, is whether there is any reason why the Court should exercise its discretion to make an order inconsistent with that to which TG Corp is otherwise entitled under r 25.14(3) of the Rules. 30 There would appear to be only two considerations that might warrant the Court making an order inconsistent with r 25.14(3) of the Rules. The first is the nature of the offer itself. It concerned only one aspect of the case and would not have resulted in the matter not proceeding to hearing, albeit that the hearing would potentially have been shorter. The only real compromise in the offer was a 10 percent discount in relation to costs. 31 The second consideration is that Mr Quach, New Leaf and Mr Alexandrou were unrepresented at the time that the offers were made. Given the somewhat unusual nature of the offers, it may have been difficult for a layperson to understand the nature of the offer and the implications of accepting or rejecting it. In his affidavit, Mr Alexandrou contends that he did not understand the offer. 32 In all the circumstances, these matters, considered individually or cumulatively, do not warrant an order inconsistent with the order to which TG Corp is otherwise entitled under r 25.14(3) of the Rules. 33 As for the nature of the offer itself, as has already been indicated, whilst the acceptance would not have entirely resolved the matter, it would have resolved a significant part of it. It is likely that any hearing on the pecuniary relief alone would have been shorter than the hearing that eventuated. Whilst the only aspect of the matter compromised was costs, and the offer was not particularly significant, it nonetheless reflected a bona fide and material offer. 34 As for the second matter, it must be accepted that the unrepresented status of the respondents is a relevant consideration. Despite Mr Alexandrou's evidence, however, it is not accepted that either Mr Quach or Mr Alexandrou would not have been able to understand the offer. It was explained in relatively clear terms in the covering letters. Both men were self-employed businessmen with some modicum of intelligence. It is not credible that they did not understand the terms or nature of the offer. Neither made any contact with TG Corp's lawyers to seek any clarification about the terms of the offer. They simply ignored it. In Mr Alexandrou's case, it would also appear that he has had some assistance available to him. That is demonstrated by, amongst other things, the clear, concise and articulate affidavit upon which he relies in opposition to the indemnity costs order. 35 In all the circumstances, an indemnity costs order in terms of r 25.14(3) of the Rules is warranted. The appropriate order is in the following terms: