Yarra Valley Dairy Pty Ltd v Lemnos Foods Pty Ltd

REASONS FOR JUDGMENT 1 An application for indemnity costs was brought by the respondents in these proceedings and arises from a decision of this Court handed down on 10 December 2010: Yarra Valley Dairy Pty Ltd v Lemnos Foods Pty Ltd [2010] FCA 1367. 2 The applicant had brought proceedings for infringement of its registered trade mark PERSIAN FETTA. The applicant also brought actions for passing off and misleading and deceptive conduct. The respondents denied the applicant's allegations, and further cross-claimed that the trade mark was invalid. The respondents' cross-claim was ultimately successful, and the claims of the applicant failed. In light of this the Court ordered cancellation of the registration of the PERSIAN FETTA trade mark. 3 The respondents now seek an order under O 23 r 11(6) of the Federal Court Rules ('the Rules') that the applicant pay the respondents' costs of the proceedings on a party and party basis until 11 am on 23 July 2009 and on an indemnity basis thereafter. Alternatively, the respondents seek such an order for indemnity costs under common law principles, but with effect from 5 pm on 6 August 2009. 4 In seeking such orders the respondents rely on two offers of compromise sent by facsimile to the applicant on 22 July 2009. It is important to note at this stage that the respondents also sent a confirmation copy of the 22 July 2009 offers by regular pre-paid post. The applicant disputes the effective service of such offers on this date, and the failure to keep the offer open for the required time, arguments I shall deal with below. Without quoting verbatim the text of the offers, they proposed that the respondents would forego their legal costs incurred to that date and pay the applicant the sum of $2,000 if the applicant agreed to withdraw its infringement claim and cancel the PERSIAN FETTA trade mark. 5 The respondents' argument supporting an indemnity costs order is that because the Court's judgment of 10 December 2010 was a better result for the respondents than the terms of the offers of compromise, the costs of the respondents to be paid by the applicant should be taxed, from expiry of the offers of compromise, on an indemnity basis. 6 First, I shall deal with the Rules. 7 Rule 11(6) of O 23 states: (6) If: (a) an offer is made by a respondent and not accepted by the applicant; and (b) the respondent obtains an order or judgment on the claim to which the offer relates as favourable to the respondent, or more favourable to the respondent, than the terms of the offer; then, unless the court otherwise orders: (c) the respondent is entitled to an order that the applicant pay the respondent's costs in respect of the claim incurred up to 11 am on the day after the day the offer was made, taxed on a party and party basis; and (d) the respondent is entitled to an order that the applicant pay the respondent's costs in respect of the claim incurred after that time, taxed on an indemnity basis. 8 The respondents contend, correctly, that where a judgment is as or more favourable to a respondent than the terms of the respondent's offer, a rebuttable presumption arises in favour of indemnity costs under O 23 r 11(6), and it is then incumbent on the applicant to establish why the prima facie position as to indemnity costs under that rule should not operate against it: see Futuretronics.com.au Pty Ltd v Graphix Labels Pty Ltd [2009] FCAFC 40 per Tamberlin, Finn and Sundberg JJ; and IFTC Broking Services Ltd v Commissioner of Taxation (2010) 268 ALR 1 per Stone, Edmonds and Jagot JJ. 9 Further, the Full Court of this Court has made it clear that in such circumstances the recipient of the offer of compromise bears the burden of establishing an "exceptional" case to rebut the presumption: see Futuretronics; IFTC and Vawdrey Australia Pty Ltd v Krueger Transport Equipment Pty Ltd (2009) 261 ALR 269. 10 The applicant does not dispute that the judgment received in these proceedings was less favourable to it than the offers of compromise. As both offers were dated 22 July 2009 and remained open for a period of 14 days, the respondents contend that both offers expired on 6 August 2009. Neither offer was accepted by the applicant, either within the stipulated time or at all. 11 The respondents have submitted that due to numerous factual matters which the applicant and its legal advisors were well aware of prior to issuing of proceedings and well prior to the expiry of the offers of compromise, there are no apparent features of the applicant's objection to an order for indemnity costs which would render it sufficiently exceptional so as to rebut the presumption outlined in O 23 r 11(6). 12 The applicant's objection to an order for indemnity costs under O 23 r 11(6) relies, chiefly, on two grounds: first, that the offers were invalid under the Rules, and secondly, that even if the Court finds the offers to have been validly made, the circumstances of this case are of an exceptional nature with the effect that the Court should exercise its discretion not to award indemnity costs. 13 The applicant contends that the application for indemnity costs should fail because the respondents' offers did not satisfy the requirements of O 23. In particular the applicant contends that as the offers were sent to the applicant by facsimile, they were not served properly due to the applicant having not submitted itself to acceptance of service by facsimile, as it had not filed a notice under O 7 r 7 to the effect that documents in the proceedings may be served by facsimile. As a result, the applicant argues pursuant to O 7 r 4(1)(b) and r 4(3)(a) that the date of effective service of the offers should be a date being seven days after the confirmation letter was sent, thus a date no earlier than 29 July 2009. 14 Order 23 r 5(3) states: An offer may be expressed to be limited as to the time that it is to be open to be accepted, but the time expressed must not be less than 14 days beginning on the day after it is made. 15 In the case of both offers they stated that "this offer will remain open for a period of 14 days from the date of this notice", that is, 14 days from 22 July 2009, or until 6 August 2009, or 5 August 2009, as argued by the applicant. 16 The applicant submits that as the effective service date of the offers, pursuant to the relevant rules, was 29 July 2009, and the offers must have been left open for no less than 14 days (that is, until at least 13 August 2009), the fact that the respondents' offers expired on 5 August 2009 renders them invalid O 23 offers. 17 In answer to the applicant's submissions as to the invalidity of the offers of compromise, the respondents contend that by the date the offers were made both parties had mutually, though not formally under the rules, adopted and accepted the practice of service by facsimile. Indeed, the respondents served their Defence and Cross-Claim by facsimile on 30 June 2009 and the applicant served its Reply and Defence to Cross-Claim by facsimile on 13 July 2009. 18 The respondents refer to the applicant's submissions as to the formal invalidity of the offers as purely technical and pedantic with no disclosure of prejudice or lack of fairness to the applicant. I agree. I accept that it was the parties' practice in the proceedings to serve documents by facsimile, despite no formal recognition of this being made under the Rules. No evidence has been led by the applicant to indicate that it or its solicitors disregarded the offers because they took the view they were not properly served or incorrectly nominated a time to accept. I accept that the offers of compromise were effectively served on and received by the applicant on 22 July 2006, and whilst the offers did not remain open for the required time, this was only one day difference taking service to be by facsimile, deemed to be on 23 July 2009. 19 However, even if the offers did not strictly comply with the Rules, I have a discretion to award indemnity costs in any event. I see no reason, as a matter of principle, for not proceeding to treat this application as if O 23 r 11(6) was complied with putting aside the technical defects, where the offers did in fact come to the notice of the applicant. I propose to proceed as if O 23 did apply, even if for the technical reasons raised by the applicant it did not strictly apply. Therefore, I proceed on the basis that the presumption in favour of indemnity costs applies. 20 I must now assess whether the applicant has successfully argued that this is a case whereby its exceptional nature rebuts the presumption of awarding indemnity costs. 21 The respondents assert that the applicant should have accepted the offers, as a consequence of the factual matters known to it at the time of the offers, because the applicant should have known that the trade mark registration was invalid. The respondents also submit that there are no apparent features of this case to render it exceptional such that O 23 r 11(6) ought not apply. 22 The applicant relies on the following factors, which I summarise, in its contention that this case is exceptional: It was relying on a registered trade mark, which was examined and scrutinised by the Trade Marks Office at the time of application for the registration; The grounds of attack made against the registration by the respondents in this application were the same as those considered, and rejected, by the Trade Marks Office; The trade mark registration had been on the register for a period of approximately 10 years and had been extensively used by the applicant; Much of the material facts referred to in the respondents' submissions were placed before the Trade Marks Office in its initial positive examination of the application for registration; It was reasonable for the applicant to assume that its significant use and promotion of the trade mark after its filing date was relevant in terms of s 41(5) of the Trade Marks Act 1995 (Cth); If indemnity costs are awarded in this case it will place an unfair burden on owners of registered trade mark rights in seeking to enforce those rights. 23 The last point was not pressed in oral submissions as a matter of significant weight or importance. 24 Further, the applicant relies on the decision of Kenny J, of this Court, in Nutrientwater Pty Ltd v Baco Pty Ltd (No 2) [2010] FCA 304 in arguing that the respondents' offers were not serious offers of compromise and were made only for the purpose of engaging O 23. 25 I do not find the circumstances raised by the applicant rebut the presumption to award indemnity costs. 26 I accept that the trade mark had been through a rigorous examination process in relation to the very grounds that were raised by the respondents, that this process led to a decision of the Trade Marks Office to register the trade mark PERSIAN FETTA, and that the trade mark had been extensively used by the applicant prior to the commencement of proceedings. These facts alone, however, would not render the applicant's circumstances "exceptional". 27 When proceedings were brought in this Court, the parties needed to consider their respective positions. The original decision of the Trade Marks Office to register the trade mark, in circumstances where the applicant had relied on that decision for a lengthy period of time, some 10 years, and, up until that decision, owned an intellectual property right of some value, were but background circumstances. Once the respondents had presented their case in these proceedings, the applicant needed to consider its position, knowing the consequences of not complying with the offers of compromise. This is always a risk to litigation, and the object of an offer of compromise regime is to encourage parties to properly consider their positions in the context of that litigation. 28 Most of the factual matters which I accepted and relied upon in the formation of my reasons for judgment, the applicant was well aware of at the time of issuing proceedings and consequently at the time the offers were made. Throughout the course of proceedings, however, and throughout the hearing of the matter, some factual matters required evidence to be presented to the Court and that evidence required some testing. However, it was the applicant, upon not accepting the offers of compromise, who took the risk of an adverse decision. 29 It may be that the extent of the compromise is a relevant consideration in determining whether there should be a departure from the prima facie position in O 23 r 11(6) or whether the rejection of the compromise offers was unreasonable. 30 An offer of compromise, properly so called does exist where a party is prepared to pay some money (albeit small) and otherwise the parties 'walk away': see Granitgard Pty Ltd v Termicide Pest Control Pty Ltd (No 6) [2010] FCA 381 at [22] and [23], where reference was made to the decision of Finkelstein J in Brookfield Multiplex Ltd v International Litigation Funding Partners Pte Ltd (No 4) [2009] FCA 803; and the decision of Greenwood J in Uniline Australia Ltd v SBriggs Pty Ltd (No 2) (2009) 82 IPR 56. In addition, in these proceedings, it is important to remember that the respondents, by way of cross-claim, wanted positive relief by way of rectification. The respondents were offering not to press the litigation any further (which would involve associated costs and management time on the part of the applicant), if the applicant agreed to rectification. I accept that by this time, having regard to the history of the applicant's use of the trade mark, to accept the offers would have been a great step for the applicant. However, I see no basis to conclude that the offer was not a genuine attempt to bring the proceedings to an end in the way in which the public policy of O 23 r 11(6) encourages. 31 In my view, the offers of compromise, in their extent and nature, were appropriate, and the applicant has not demonstrated that the prima facie position should not remain in favour of granting indemnity costs. 32 Further, to the extent relevant to my application of O 23, I consider that it was imprudent and unreasonable for the applicant to reject the offers of compromise. 33 The fact that an applicant is unsuccessful in the litigation is a factor to be taken into account when assessing the reasonableness of the applicant's rejection of the offer: see Seven Network Ltd v News Ltd (2007) 244 ALR 374 at [65] per Sackville J. In the present circumstances, where the applicant was relevantly on notice at all material times of the key factual and legal matters upon which it would lose its case, at least by the close of most of the evidence in October 2009, the applicant acted imprudently and unreasonably in refusing, and continuing to refuse, the respondent's offers of compromise. 34 I should indicate that the Full Court in Dukemaster Pty Ltd v Bluehive Pty Ltd [2003] FCAFC 1 stated, at [7]: The mere making of an offer of compromise and its non-acceptance, followed by a result more favourable to the offeror, does not automatically lead to an order for payment of costs on an indemnity basis… 35 Dukemaster was decided prior to the introduction of O 23 r 11(6), and does not apply to offers made under that rule. Nor does it apply, in my view, to these circumstances where I am treating the application as if the rule was applicable. 36 Nor do I consider that in the circumstances of this case the respondents had to otherwise provide a statement as to why they maintained that the application would fail, and the cross-claim would be successful. The applicant had ample time to consider whether it should proceed and defend the cross-claim. It is to be recalled that even after the offers of compromise the applicant proceeded to judgment and was unsuccessful. Whether or not the applicant's case from the outset could have been characterised as being without prospect of success, the result should have been anticipated at some point prior to trial. The important facts were known to the applicant, and whilst the applicant may have felt confident at the beginning of the case, it should have reassessed as the evidence was presented and the respondents presented their material to the Court. 37 I take the view that it is appropriate that indemnity costs be awarded and must now consider whether the period over which those costs are to be awarded should be as contended for by the respondents, or whether another period is more appropriate. 38 Remembering that I am not strictly applying O 23 r 11(6), but a general discretion in reliance upon that rule by analogy, I have some flexibility in this regard. There is no complete logical answer to this issue, but it seems to me that it was reasonable for the applicant to have time to consider the offers, and come to a proper view, once the main evidence which was relied upon was before the Court. As best as I am informed, this was by 23 October 2009. I think it is appropriate, taking into account the nature of the case and the historical background to the applicant's holding of the trade mark, to not award indemnity costs up to 23 October 2009 but to allow costs to that date on a party and party basis, and thereafter to award indemnity costs. 39 One other matter bears mentioning. The applicant requests a reduction of costs due to the length of the respondents' written submissions in what was a matter listed in the Court's Fast Track. I find the applicant's request for reduction baseless in circumstances where the applicant's submissions similarly traversed the Court's guidelines on length and where the parties did not seek to reduce the length of submissions. The written submissions saved court sitting time, and traversed a number of factual and legal issues raised by the applicant itself. I find no basis to reduce the costs otherwise payable to the successful party. I certify that the preceding thirty-nine (39) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Middleton.