FEDERAL COURT OF AUSTRALIA

Anchorage Capital Partners Pty Limited v ACPA Pty Ltd (No 2) [2018] FCAFC 112

ORDERS

THE COURT ORDERS THAT:

1.    The appellant pay 70% of the respondents’ costs of:

(a)    the appeal (including the notice of contention); and

(b)    the cross-appeal,

to be taxed if not agreed.

Note:    Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

REASONS FOR JUDGMENT

THE COURT:

1    On 2 February 2018 we delivered our reasons for judgment in this matter (Anchorage Capital Partners Pty Ltd v ACPA Pty Ltd [2018] FCAFC 6, the “Appeal Reasons”). We directed the parties to file written submissions in relation to costs which they have now done.

2    The respondents seek an order under r 40.02 of the Federal Court Rules 2011 (“FCRs”) that the appellant pay the respondents’ costs of the appeal and cross-appeal on an indemnity basis. The respondents contend that the appellant unreasonably failed to accept the respondents’ offers to settle the appeal and cross-appeal in its letters to the appellant dated 22 July 2016 (“First Offer”) and 29 July 2016 (“Second Offer”). The respondents alternatively seek an order under r 40.01 of the FCRs that the appellant pay their costs of defending the appeal, and of the cross-appeal, on a party and party basis with no discount or apportionment.

3    The appellant, for its part, submits that its refusal to accept the offers was not unreasonable. It proposes orders that it pay the respondents’ costs on a party and party basis but discounted by 40% to reflect its success on particular issues in the proceeding.

4    For the reasons which follow, we do not accept that the appellant’s rejection of the First and Second Offers warrants an award of indemnity costs. We are not satisfied that it was unreasonable or imprudent for the appellant to reject those offers. Furthermore, in view of the extent of the issues upon which the appellant failed and the respondents succeeded, we think it is appropriate that the appellant pay 70% of the respondents’ costs of the appeal and cross-appeal.

Indemnity Costs

5    Section 43 of the Federal Court of Australia Act 1976 (Cth) confers a broad discretion on the Court to award costs in proceedings. In Re Wilcox; Ex parte Venture Industries Pty Ltd (No 2) (1996) 72 FCR 151, Black CJ at 152 stated the principles applicable to a claim for indemnity costs:

…it is well established that the starting point for any consideration of an application for indemnity costs is that in the ordinary case costs will follow the event and the Court will order the unsuccessful party to pay the costs of the successful party, on a party and party basis, a basis which will fall short of complete indemnity. Nevertheless, the Court has an absolute and unfettered jurisdiction in awarding costs, although the discretion must be exercised judicially. So indemnity costs may properly be awarded where there is some special or unusual feature in the case justifying the Court in exercising the discretion in that way.

6    A well-established circumstance justifying an award of indemnity costs is an imprudent refusal of an offer to compromise (Colgate-Palmolive Company v Cussons Pty Ltd (1993) 46 FCR 225 at 233 per Sheppard J). In such cases, a key question is whether the offeree’s refusal of the offer was “unreasonable” when viewed in light of the circumstances existing at the time the offer was rejected (Black v Lipovac & Ors (1998) 217 ALR 386 at 432 per Miles, Heerey and Madgwick JJ; CGU Insurance Ltd v Corrections Corporation of Australia Staff Superannuation Ltd [2008] FCAFC 173 at [75] per Moore, Finn and Jessup JJ).

7    The circumstances to be taken into account in determining whether rejection of an offer was “unreasonable” cannot be stated exhaustively but may include, for example:

(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

(f)    whether the offer foreshadowed an application for an indemnity costs in the event of the offeree rejecting it.

(Hazeldene’s Chicken Farm Pty Ltd v Victorian WorkCover Authority (No 2) (2005) 13 VR 435 at [25] per Warren CJ, Maxwell P and Harper AJA; Beling v Sixty International S.A. (No 2) [2015] FCA 355 at [25] per Mortimer J).

8    An unsuccessful party is not liable to pay indemnity costs merely because it received an offer to settle on terms more favourable than it achieved at trial and rejected that offer (CGU Insurance at [75]; Black at [217]-[218]). As we observed in the Appeal Reasons, albeit in the context of r 25.14(2) of the FCRs, assessment of the “unreasonableness” of an offeree’s refusal of a settlement offer is a broad-ranging inquiry that is not restricted to consideration of the extent or quantum of the compromise offered.

9    Turning to the present case, the respondents’ First Offer appeared in a letter dated 22 July 2016 from the respondents’ solicitors to the appellant’s solicitors, marked “without prejudice save as to costs”. The offer was in the following terms:

Our clients are prepared to explore settlement on the following terms:

1.    Our client pursues its Australian trade mark applications for ANCHORAGE (No 1624500), ANCHORAGE CAPITAL (No 1624502) and ANCHORAGE CAPITAL GROUP (No 1624503) (the Australian Marks) to registration;

2.    Your client agrees not to oppose or challenge the Australian Marks, and provides all necessary consents to allow them to proceed to grant;

3.    Your client assigns to Anchorage Capital Group LLC its trade registration for ANCHORAGE CAPITAL PARTNERS (No 1425921) at your client’s own expense;

4.    Your client agrees to change its name, and the name of its funds, at your client’s own expense, such that they do not include any of the following words (and your client agrees to immediately cease and forever refrain from using the following words in Australia or elsewhere, including to assign any trade mark applications or registrations for or including of Australia to Anchorage Capital Group LLC) ANCHORAGE, ANCHORAGE CAPITAL, ANCHORAGE CAPITAL GROUP, ANCHORAGE CAPITAL PARTNERS [and 10 other phrases incorporating the word “Anchorage”]

5.    Your client pay our clients $2,300,000 on account of costs incurred at first instance. This sum represents our clients’ costs to date, with around a $1 million discount reflecting the benefit of resolution at this time and in recognition of your client changing its name.

6.    Your client pay our client $67,000 representing approximately 50% of their costs incurred to date in relation to the Appeal/Cross-Appeal; and

7.    Your client discontinues its Appeal and our clients discontinue their Cross-Appeal.

10    The letter went on to suggest that the above terms would need to be reduced into a formal written agreement. The offer was open for acceptance until 4pm on 28 July 2016.

11    On 27 July 2016, the appellant’s solicitors sent a letter to the respondents’ solicitors rejecting the First Offer and proposing a counter offer. In this letter, the appellant noted that the effect of the First Offer was to require the appellant to change its name and that this “was not an outcome which can follow in the proceedings, even if your clients are wholly successful”.

12    On 29 July 2016, the respondents’ solicitors, in a letter marked “without prejudice save as to costs”, proposed the Second Offer. This offer involved the parties settling the proceedings on the basis that they would both enjoy co-existing trade mark rights in “Anchorage”, “Anchorage Capital” and “Anchorage Capital Partners” in Australia, Hong Kong, Singapore and New Zealand and the appellant would pay $3 million in costs (said to be a discount of approximately $600,000 on the respondents’ actual costs) to the respondents. The offer was subject to the parties agreeing on contractual terms acceptable to the respondents. It was open for acceptance at 5pm the same day the letter was sent.

13    The respondents submit that the appellant’s rejection of these offers was unreasonable because each of them offered the appellant a better outcome than it obtained on appeal. In relation to the First Offer, they say the appellant was offered a substantial reduction in costs and the appellant did not achieve any better position in relation to its trade marks on appeal. In relation to the Second Offer, they say the appellant was offered a substantial costs reduction and, in view of the respondents’ success on their cross-appeal, the appellant is in a materially worse position vis-à-vis its trade marks following the appeal.

14    We should say at this point that we do not accept the respondents’ submission that the appellant would have been in a substantially better position in relation to costs had it accepted either the First or Second Offer instead of proceeding with the appeal. There is no evidence before us establishing that this is the case. The cost calculations in the respondents’ letters of 22 and 29 July 2016 have been performed on a solicitor/client basis and proceed on the assumption that the primary judge’s award of indemnity costs after 11pm on 18 June 2014 would not be overturned on appeal. As we observed at [233] and [240] of the Appeal Reasons, the proceeding as at 18 June 2014 was at a very preliminary stage. The parties had not given discovery, had not exchanged written evidence, and the trial in December 2014 and January and February 2015 had not commenced. It is apparent from the primary judge’s reasons that the appellant’s estoppel case (in respect of which an indemnity cost order remains) was limited to three purported acts of acquiescence and we do not accept that this issue is likely to account for a significant proportion of the respondents’ first instance costs. Given the appellant’s success in overturning the primary judge’s general indemnity costs award from 18 June 2014, we think it is unlikely that the appellant’s costs position following the appeal is any worse than it would have been had it accepted either of the respondents’ offers.

15    The respondents also submitted that the appellant’s refusal to accept the First and Second Offers should be assessed having regard to other contextual factors, including pre-litigation discussions between the parties, the respondents’ other settlement attempts and a statement by the appellant’s chairman, Mr Phil Cave, that he would take steps to change the appellant’s name if the appellant was unsuccessful in the proceeding. We do not think these factors have any real bearing on whether or not it was unreasonable for the appellant not to accept the particular terms of the First or Second Offers at the time those offers were made. The fact that the appellant’s chairman gave the evidence that he gave in late 2014 and the fact that there were pre-litigation discussions and other settlement approaches between the parties does not make it unreasonable for the appellant to reject the particular terms offered to it in July 2016.

16    In all the circumstances, we are not persuaded that it was unreasonable for the appellant to reject the First or Second Offers or that either of them involved any real compromise on the respondents’ part. On the contrary, the offers required the appellant to abandon their appeal, pay a larger sum of costs than they were ultimately ordered to pay, forego their rights in relation to the “Anchorage” marks overseas and grant to the respondents, or assist the respondents in obtaining, trade mark rights in Australia, Singapore, Hong Kong and New Zealand which they were not entitled to obtain as relief in the proceeding. We agree with the appellant’s submission that, in many respects, the appellant is in a better position following the appeal than it would have been had it accepted either offer.

17    Furthermore, it seems to us that, at the time the offers were received, at least some of the grounds of appeal relied upon by the appellant were more than reasonably arguable. This is certainly true of the appellant’s case that, in considering the question of ownership, the primary judge did not appear to have regard to the “turnaround proviso” when determining whether the second respondent was the first to use the registered marks (or other substantially identical marks) in Australia in respect of the registered services.

18    In the result, we are not satisfied that it was unreasonable for the appellant to refuse the respondents’ offers and the appellant’s rejection of them does not warrant an award of indemnity costs.

Party and Party Costs

19    The respondents alternatively seek their costs on a party and party basis. They contend that, given their overall success in the appeal and cross-appeal, it is not appropriate to apportion costs on the basis of particular issues in the proceeding (cf NV Sumatra Tobacco Trading v British American Tobacco Services [2011] FCA 1295 at [17]). The respondents also observe that the grounds raised in the notice of contention (upon which they were largely unsuccessful) occupied only a small portion of the appeal and overlapped with those addressed in the cross appeal (cf Sandvik Intellectual Property AB v Quarry Mining & Construction Equipment (No 2) [2017] FCAFC 158 at [12]). They submit that costs should not be apportioned or reduced in those circumstances.

20    The appellant, by contrast, observes that it was successful in its appeal against the primary judge’s indemnity cost order (grounds 19 to 23 of the amended notice of appeal) and that a significant number of other issues in the appeal and cross appeal were determined in the appellant’s favour. These included:

(a)    the second respondent’s infringement of the registered marks (grounds 11 to 15 of the amended notice of appeal);

(b)    the second respondent’s defences under ss 122(1)(a),(f) and (fa) (grounds 16 to 18 of the amended notice of appeal);

(c)    the second respondent’s defences under s 124 (ground 3(a) of the amended notice of appeal);

(d)    the respondents’ contention that s 88(1)(a) does not confer a discretion on the Court to cancel a trade mark registration (ground 1 of the notice of contention); and

(e)    the respondents’ contention that indemnity costs should be ordered on the basis of additional offers of compromise (ground 4 of the notice of contention and ground 5 of the notice of cross-appeal).

21    The appellant estimates that close to half of the parties’ written submissions and a significant proportion of the parties’ oral submissions addressed issues determined in the appellant’s favour.

22    As we have noted above, the Court has an absolute and unfettered jurisdiction in awarding costs, although the discretion must be exercised judicially. The Full Court recently observed in Idenix Pharmaceuticals LLC v Gilead Sciences Pty Ltd (No 2) [2018] FCAFC 7 at [3]:

Section 43 of the Federal Court of Australia Act 1976 (Cth) gives the Court a wide discretion in awarding costs. The exercise of the Court's discretion is not without principles or practices; it must be exercised judicially (Les Laboratoires Servier v Apotex Pty Ltd (2016) 247 FCR 61 at [305] per Bennett, Besanko and Beach JJ). The ordinary rule is that costs follow the event, although a successful party may be awarded less than its costs, or costs may be apportioned, based upon success on the issues (Firebird Global Master Fund II Ltd v Republic of Nauru (No 2) (2015) 327 ALR 192; [2015] HCA 53 at [6] per French CJ, Kiefel, Nettle and Gordon JJ; Les Laboratoires Servier at [297] to [298] and [303]).

23    We are of the view that the respondents should have most of their costs but that there should be a percentage reduction to take account of the issues upon which the respondents failed and the appellant succeeded. Our impression, having regard to the number and significance of these issues and the time devoted to them by the parties in oral and written submissions, is that a fair apportionment is to allow a reduction of 30% of the respondents’ costs of the appeal (including the notice of contention) and cross-appeal.

24    There will be orders accordingly.

Associate:

Dated:    16 July 2018