Ugly Tribe Co Pty Ltd v Sikola [2001] VSC 189

Supreme Court of Victoria|2001-06-14|Before: HARPER, J

On 25 July 2000, the Court ordered that this proceeding be dismissed as against the first defendant. At the same time, the question of costs was reserved. It now comes before me for decision. The first defendant submits that he should be awarded costs on a full indemnity basis. The plaintiff submits that costs should be taxed as between party and party.

The proceeding commenced with the issue, on 5 June 2000, of an originating motion. The accompanying endorsement of claim alleges that the plaintiff was the agent of, and under contract to, the registered owners of certain trademarks. That contract obliged the plaintiff "to protect their [i.e. the registered owners'] intellectual property in the ... trade marked brand names". But, in breach of the plaintiff's "licence" and of the Trade Marks Act 1995, the first defendant had "either imported or purchased from other parties counterfeit items of clothing bearing the [relevant] trade marked brand names" and had sold that clothing.

Within seven days of the issue of the originating motion, the plaintiff served on the first defendant's solicitors:

(i) a draft statement of claim which named the plaintiff as the first plaintiff and two United States' companies (G.T.F.M. Inc. and LCN Apparel Inc.) as second and third plaintiffs respectively;

(ii) a copy of a draft affidavit, the proposed deponent of which was said to be a Mr. Jack Kranz, the Manager of the plaintiff's Department of Prevention and Loss;

(iii) an affidavit sworn on 7 July 2000 by Mr. Thomas O'Brien, the plaintiff's Managing Director.

This material provides some (but not necessarily conclusive) support for the following propositions:

(i) G.T.F.M. Inc. ("G.T.F.M.") is the registered owner of the trade marks "FUBU" and "FB". (ii) LCN Apparel Inc. ("LCN") is the registered owner of the trade marks "ESCO", "WILLIE ESCO" and "ESCOBAR". (iii) These trade marks are valuable. (iv) Pursuant to an agreement or agreements between G.T.F.M., LCN and the plaintiff, the plaintiff was licensed as the sole distributor of the goods in Victoria. (v) It is in the commercial interest of G.T.F.M., LCN and the plaintiff that the retail sale of goods bearing the relevant trade marks be restricted to certain retail outlets association with which would best maintain the "image" of the goods which those entities wish to promote. (vi) The first defendant sold goods carrying the trade marks. (vii) The first defendant effected these sales without the permission of any of the plaintiff, G.T.F.M. or LCN, and did so from premises of which those entities did not approve. (viii) By selling through his retail outlets, the first defendant was acting in a way which diminished the value to the plaintiff of the licence granted to it by the registered owners. (ix) The plaintiff had some basis for concluding that the goods being sold by the first defendant under the registered trade marks were not genuine.

On the basis of this factual matrix, the first defendant submits that the plaintiff has no arguable cause of action. More, the absence of a cause of action is so plain as to be obvious to the most incompetent of solicitors. In these circumstances, the first defendant submits that the commencement of this proceeding was, or was tantamount to, an abuse of process. Moreover, the plaintiff used heavy-handed tactics when it first confronted the first defendant at his store at the Ringwood Market. That confrontation took place on 28 April 2000. The proceeding was not commenced until 5 June 2000. The plaintiff and its advisers therefore had ample time within which to analyse their position. That it was unsustainable is demonstrated by their discontinuance immediately upon being confronted by the first defendant's stern proclamation of his inviolability. For these reasons, it is proper that costs be awarded in the first defendant's favour on an indemnity basis.

In general, the costs of and incidental to all matters in the Court is in the discretion of the Court, which has "full power to determine by whom and to what extent the costs are to be paid": Supreme Court Act 1986, s.24(1). At the same time, r.63.28 of the Rules of the Supreme Court provides that costs in a proceeding are, subject to Part 3 of r.63, to be taxed as between party and party, or as between solicitor and client, or on "such other basis as the Court may direct". Party and party costs include "all costs necessary or proper for the attainment of justice or for enforcing or defending the rights of the party whose costs are being taxed": r.63.29. Solicitor and client costs cover "all costs reasonably incurred and of reasonable amount": r.63.30. Costs shall be taxed as between party and party unless the Rules or an order of the Court provide otherwise: r.63.31.

In seeking costs on an indemnity basis, the first defendant is asking the Court to depart from its usual course: Spencer v. Dowling[1]. Special circumstances must be present to justify such a departure: Australian Electoral Commission v. Towney (No. 2)[2]. These include:

(i) The making of an allegation, known to be false, that the opposite party is guilty of fraud: Fountain Selected Meats (Sales) Pty. Ltd. v. International Produce Merchants Pty. Ltd. [1988] FCA 202; (1988) 81 A.L.R. 397.

(ii) The making of an irrelevant allegation of fraud: Thors v. Weekes (1989) 92 A.L.R. 131.

(iii) Conduct which causes loss of time to the Court and to other parties: Tetijo Holdings Pty. Ltd. v. Keeprite Australia Pty. Ltd. (unreported, Federal Court, French, J., 3 May 1991).

(iv) The commencement or continuation of proceedings for an ulterior motive: Ragata Developments Pty. Ltd. v. Westpac Banking Corporation (unreported, Federal Court, Davies, J., 5 March 1993).

(v) Conduct which amounts to a contempt of court: EMI Records Ltd. v. Ian Cameron Wallace Ltd. [1983] Ch. 59.

(vi) The commencement or continuation of proceedings in wilful disregard of known facts or clearly established law: J-Corp. Pty. Ltd. v. Australian Builders Labourers Federation Union of Workers (W.A.) Branch (No. 2) [1993] FCA 42; (1993) 46 I.R. 301.

(vii) The failure until after the commencement of the trial, and without explanation, to discover documents the timely discovery of which would have considerably shortened, and very possibly avoided, the trial: National Australia Bank v. Petit-Breuilh (No. 2) (unreported, [1990] VSC 395, 18 October 1999).

The categories of special circumstances are not closed: Tetijo Holdings, supra. The cases must not, therefore, be read "in an endeavour to establish a set of inflexible guidelines which should thereafter be determinative of the manner in which the Court's discretion is to be exercised [for this] would be to fetter the Court's discretion": National Australia Bank v. Petit-Breuilh, supra.

At the same time, the courts should, I think, be astute to avoid a wilderness of single instances. Even worse would be the creation of different regimes in different courts, especially as between the Federal Court and a State Supreme Court. This would encourage the undesirable practice of forum shopping, as well as the almost equally undesirable spectre of frequent post-trial applications for costs to be awarded on some special basis (i.e. on other than the usual party and party basis).

According to Winneke, P. in Spencer's case (at 147):

"It is well recognised that there is occurring an ever increasing gap between party/party costs and those actually incurred ... This ... has continued ... notwithstanding expressions of view by individual Judges that it is capable, in today's circumstances, of working injustice: see, for example, per Rogers, J. (as he then was) in Qantas Airways Ltd. v. Billingham Corp.[3] The practice is designed to reflect a compromise between the interests of successful and unsuccessful litigants. As Handley, JA. observed in Cachia v. Hanes[4] the practice is also adopted to provide an 'important spur to settlement'. Sheppard, J. in Colgate-Palmolive Co. v. Cussons Pty. Ltd. [1993] FCA 536; (1993) 46 F.C.R. 225 at 233 restated the practice and pointed out: 'This has been the settled practice for centuries in England. It is a practice which is entrenched in Australia. Either legislation ... or a decision of an intermediate court of appeal or of the High Court would be required to alter it'."

The compromise about which Winneke, P. spoke is perhaps justifiable on the basis that potential litigants must not be unnecessarily discouraged from bringing their disputes to the courts. After all success can seldom be guaranteed, if only because - where the facts are in dispute, as they generally are - it is seldom possible to predict with certainty what findings of fact will be made. In these circumstances, an honest plaintiff or defendant might be discouraged from bringing or defending a claim were an adverse result to be followed by an order that the losing party indemnify, or go close to providing an indemnity to, the successful party against the latter's costs.

The position changes where a litigant acts dishonestly in the litigation, or where the rights and privileges of a litigant are flouted or abused. Then, the rationale for refusing to order that the losing party indemnify an opposite party against that party's costs is less compelling. Indeed, costs are more frequently if not invariably awarded on an indemnity or like basis (such as that of solicitor/client) where findings of dishonesty or serious misconduct have been made against the party ordered to pay.

In the present case, the first defendant alleges that the plaintiff used heavy-handed tactics before the institution of the proceeding, and that the proceeding itself is so obviously and fatally flawed that the plaintiff must always have known that it was hopeless.

The evidence of heavy-handedness is thin. In an affidavit sworn on 18 September 2001, Mrs. Jennifer Sikola (the wife of the first defendant) deposed to a visit made to the Ringwood Market on 18 April 2000 by representatives of the plaintiff. If her account is true, then those representatives were not unduly polite. Mrs. Sikola says in her affidavit that she was "deeply upset by the aggressive behaviour" of the representatives. The affidavit, nevertheless, contains very little to substantiate the proposition that the conduct of the plaintiff was such as to warrant punishment.

The topic is further pursued in an affidavit sworn on 25 July 2000 by Julian Stephens, the solicitor for the first defendant. This speaks of the plaintiff's representatives as behaving "in a threatening manner"; but, again, it is short on detail. More particularly, Mr. Stephens' affidavit is not "confined to facts which the deponent is able to state of his own knowledge": r.43.03(1). Indeed, it does not even comply with paragraph (2) of that rule - a provision which allows, on an interlocutory application, a deponent to swear to statements of fact based on information and belief; but only if the grounds are set out.

In my opinion, the material before me does not make out a claim for indemnity costs on the basis of the high-handed behaviour of the plaintiff.

I accept that the plaintiff had no standing to bring proceedings based upon the relevant trade marks, or upon a cause of action in passing off. On the other hand, there was, it seems to me, a genuine dispute about the first defendant's entitlement to deal in the goods in question. Had the proceeding been initiated by the proprietors of the relevant trade marks, then it would not have been open to the first defendant to suggest that the proceeding was totally without merit.

It seems to me that I could only accede to the first defendant's application for costs on an indemnity basis were I satisfied that the plaintiff in fact appreciated the hopelessness of its position. There is no direct evidence that it did. The first defendant asked me to draw the necessary inference. I do not think that I can do so, although I have some sympathy with the first defendant's position. The courts are daily faced with examples of surprising ignorance. It seems to me at least as likely that this was the reason for the launching of this proceeding as the hypothesis that the plaintiff sought to gain an illegitimate advantage from doing so.

For these reasons, the application for indemnity costs is refused.

[1] [1996] VSC 51; [1997] 2 V.R. 127 at 147 per Winneke, P. and 163 per Callaway, JA

[2] (1994) 54 FCR 383 at 388, per Foster, J

[3] (unreported, NSW Supreme Court, 14 May 1987)

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