FEDERAL COURT OF AUSTRALIA

Seafolly Pty Ltd v Madden (No 5) [2014] FCA 1413

THE COURT ORDERS THAT:

1.    The respondent pay 85% of the applicant’s costs of the proceeding.

2.    The costs of the respondent’s interlocutory application filed on 26 February 2013 be costs in the cause.

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

REASONS FOR JUDGMENT

1    This proceeding has a long history in the Court. It was commenced in 2010 by the applicant (“Seafolly”) after the respondent, Ms Leah Madden, had posted material on her personal Facebook page in which she, in substance, alleged that Seafolly had copied some of her swimwear designs which were marketed under the White Sands label. She also alleged that an employee of Seafolly had been sent to a private showing and had taken photographs of White Sands costumes with a view to them being copied by Seafolly.

2    Seafolly responded by issuing two press releases in which it branded Ms Madden’s allegations as malicious.

3    Seafolly’s further amended statement of claim pleaded causes of action:

    For misleading and deceptive conduct under ss 52 and 53(a) of the former Trade Practices Act 1974 (Cth);

    In injurious falsehood; and

    For copyright infringement.

4    Ms Madden cross-claimed against Seafolly. Her claims were for defamation and misleading and deceptive conduct arising from the allegation by Seafolly that she had made her postings with the malicious intent of damaging the company.

5    At first instance I upheld Seafolly’s trade practices claims but rejected its other causes of action alleging injurious falsehood and copyright infringement. I made declarations that Ms Madden had engaged in misleading and deceptive conduct and that she had made false representations relating to the provenance of the designs of various items of swimwear. I awarded damages of $25,000 to Seafolly and granted an injunction restraining any republication by Ms Madden of her claims of copying.

6    I dismissed Ms Madden’s cross-claims.

7    The orders made included orders that Ms Madden pay Seafolly’s costs of its application and that she should pay Seafolly’s costs of defending her cross-claims.

8    After these orders had been pronounced Ms Madden sought a variation of them in the light of a Calderbank offer which she had made prior to trial. In the alternative she sought an apportionment of the costs order against her to reflect the fact that Seafolly had not made good its causes of action in injurious falsehood and under the Copyright Act 1968 (Cth). I rejected both of these claims: see Seafolly Pty Ltd v Madden (No 2) (2013) 99 IPR 539.

9    Ms Madden then filed an appeal against all of my orders. Whilst the appeal was pending Seafolly made an application for a lump sum costs order pursuant to Rule 40.02(b) of the Federal Court Rules 2011 (Cth) (“the Rules”).

10    Ms Madden paid the damages which I had awarded to Seafolly but applied to the Court for an order, pursuant to Rules 41.03 and 41.11 of the Rules, that the enforcement of the costs orders made against her be stayed pending the hearing and determination of the appeal.

11    I granted Ms Madden’s stay application subject to undertakings and adjourned Seafolly’s application pending the hearing and determination of the appeal: see Seafolly Pty Ltd v Madden (No 3) [2013] FCA 316.

12    The Full Court allowed Ms Madden’s appeal in part. It upheld Seafolly’s claims under ss 52 and 53(a) of the Trade Practices Act but made some variations to the terms of the declarations which I had made in relation to those causes of action. It reduced the damages award from $25,000 to $20,000. The Full Court upheld Ms Madden’s cross-claim that Seafolly had engaged in conduct that was misleading and deceptive contrary to s 52 of the Trade Practices Act by attributing to her the malicious intention of damaging Seafolly. It dismissed her appeal against my rejection of her defamation claim: see Madden v Seafolly Pty Ltd (2014) 313 ALR 1.

13    The Full Court subsequently made orders to give effect to its reasons: see Madden v Seafolly Pty Ltd (No 2) [2014] FCAFC 49. Orders 4 and 5 read:

“4.    The proceedings be remitted to the primary judge for the purpose of making orders as to the damages to which the appellant is entitled on her cross-claim and as to the costs of the proceedings including the cross-claim.

5.    The appellant pay 85% of the respondent’s costs of the appeal provided that there be no order for costs in respect of the submissions the subject of the order made on 24 March 2014.”

14    Upon remittal I determined to award Ms Madden $40,000 in damages to which I found she was entitled on her cross-claim under ss 52 and 82(1) of the Trade Practices Act: see Seafolly Pty Ltd v Madden (No 4) [2014] FCA 980. At the same time I directed that the parties confer and advise the Court as to whether they wished to make oral or written submissions relating to all outstanding costs issues. They opted to make written submissions.

15    In dealing with those submissions I bear in mind the Full Court’s observation in Madden (No 2) at [10] that the discretionary considerations which I took into account in ordering that Ms Madden pay the costs of the application and cross-claim had changed “substantially” as a result of the appeal and that, accordingly, a fresh exercise of discretion was necessary.

16    Ms Madden’s principal submission was that, as a result of the Full Court’s decision, she was entitled to an order that Seafolly pay all of her costs of and incidental to the proceeding. In the alternative, she argued that she was entitled to 90% of the costs of her cross-claim and 75% of the costs of Seafolly’s claim. She sought payment of her costs on an indemnity basis after 21 October 2011 because Seafolly had rejected her Calderbank offer.

17    Ms Madden’s principal submission was made on the premise that, when the proceeding was considered as a whole, she had been the more successful party. This assessment was justified by a comparison of the relief awarded to the parties and by comparing which party had the greater success in relation to the “issues that were in play.”

18    Her alternative argument was founded on what was said to be a reasonable apportionment derived from “an issue-by-issue analysis”.

19    Seafolly contended that Ms Madden should be ordered to pay 85% of its costs of the proceeding.

20    This percentage was drawn from the Full Court’s assessment of the extent of Ms Madden’s costs liability on the appeal. Seafolly argued that Ms Madden had had no more success ultimately in the trial proceeding than she had had in the appeal.

21    There was also a dispute between the parties relating to the costs of Seafolly’s application for a lump sum costs order and Ms Madden’s application for a stay.

22    Ms Madden contended that Seafolly’s application for a lump sum costs order should be dismissed with costs. Seafolly argued that it would be premature to dispose of its application. It foreshadowed the possibility of pursuing it after my determination of the principal costs issue.

23    Both parties claimed to be entitled to the costs of Ms Madden’s stay application.

PRINCIPLES

24    In Seafolly Pty Ltd (No 2) I set out the principles which guide the exercise of the Court’s discretion in awarding costs generally and also in cases where apportionment is sought and Calderbank offers have been made. I do not repeat what I there said. I have, however, had regard to those principles in dealing with the competing costs claims which have now been made.

CONSIDERATION

Costs of the trial

25    Once the outcome of the trial was known I determined that the usual order for costs should be made in favour of Seafolly. In doing so I was mindful of Seafolly’s mixed success in prosecuting its claims and its complete success in defending Ms Madden’s cross-claim.

26    Ms Madden had limited success on her appeal. The Full Court found that she had not acted maliciously when she made false and misleading allegations against Seafolly and some of its staff. As a result the Full Court allowed the appeal in part, set aside my costs order and remitted the matter for an assessment of damages on the cross-claim.

27    In the Full Court Ms Madden had sought to challenge all the adverse findings which had been made against her at first instance. For the most part she was unsuccessful in this endeavour. This led the Full Court to observe that:

“… while Ms Madden did have some success on appeal, most of the substantive issues that were argued as to her liability were resolved adversely to her. Those issues took up the vast bulk of the submissions and hearing of the appeal and Ms Madden vigorously pressed them. Had she confined her case on appeal to the issues on which she succeeded the position would have been different. Having raised multiple, complex issues on which she failed, we are of the opinion that Ms Madden should pay 85% of the costs of the appeal.”

See: Madden (No 2) [2014] FCAFC 49 at [12].

28    The “multiple, complex issues” on which Ms Madden failed were those which arose in the context of Seafolly’s Trade Practices Act claims against her and her claim to have been defamed by Seafolly.

29    The position, following the Full Court’s decision, is that:

    Seafolly has succeeded in its claims under ss 52 and 53(a) of the Trade Practices Act and obtained declaratory relief, injunctive relief and $20,000 in damages;

    Seafolly’s copyright infringement and injurious falsehood claims both failed;

    Ms Madden succeeded in her cross-claim against Seafolly for breach of s 52 of the Trade Practices Act and obtained declaratory relief and $40,000 in damages; and

    Ms Madden failed in her cross-claim against Seafolly for defamation.

30    In these circumstances both Seafolly and Ms Madden claimed to have been the more successful party.

31    Seafolly did so on the basis that it had been substantially successful in vindicating its reputation and that of its employees whom it had been alleged were involved in the copying of White Sands designs.

32    Ms Madden, on the other hand, emphasised monetary aspects of the case. She had received twice the quantum of damages which had been awarded to Seafolly and Seafolly had only received $20,000 despite having mounted a claim for $2,250,000.

33    Assessments of comparative success in litigation defy mathematical precision. Normally, an assessment based on a comparison of the number of causes of action on which each party succeeded or a comparison of the monetary amounts awarded on a claim and counter-claim, whilst being potentially relevant, will be too simplistic to be determinative. Greater assistance is likely to be afforded by an appreciation of the issues which the parties put at the forefront of their cases at trial. This will be apparent from the conduct of the trial and, in particular, the opening and closing submissions. Depending on the manner in which the trial proceeds guidance may also be provided by the amount of time devoted to evidence called to advance or resist particular claims. Any such analysis must, of course, take into account the possibility that the same evidence may have a bearing on multiple issues and the further possibility that there may be little dispute about the facts but substantial disagreement about the legal issues to which they give rise.

34    Ms Madden argued that the two most significant and contested issues at trial were whether or not she had acted with malice and the quantum of damages to which each party was entitled.

35    I do not accept these submissions. The principal issue raised by Seafolly was whether Ms Madden’s allegations of copying and underhand conduct by Seafolly and its employees were false, misleading and deceptive and, if so, what relief was appropriate. Although Seafolly made a significant ambit claim for damages, it tempered that claim during opening submissions and made it clear that its central concern was the vindication of its reputation and that of the employees against whom allegations had been made and the prevention of the repetition of the allegations. Damages for Ms Madden’s contravention of s 52 of the Trade Practices Act were assessed at $20,000 under s 82 of that Act. The injunctions were granted because of an apprehension that Ms Madden might, in future, repeat her allegations and the view that the public interest would be advanced if consumers of swimwear were not to be misled into thinking that Seafolly garments had been copied from another designer’s range. A declaration was made for a number of reasons one of which was the marking of the Court’s disapproval of Ms Madden’s conduct.

36    The findings relating to Ms Madden’s liability for contraventions of ss 52 and 53(a) of the Trade Practices Act were left undisturbed by the Full Court. Apart from some minor modifications to the terms of the declarations and the reduction of the award of damages from $25,000 to $20,000, the relief granted at trial also remained undisturbed.

37    The two causes of action on which Seafolly failed occupied comparatively little time at the hearing and did not extend it. As I observed in Seafolly Pty Ltd (No 2) at 546:

“As the authorities demonstrate apportionment may be appropriate where the pursuit by a party of discrete issues adds substantially to the length of a trial and to the other party’s costs of preparation for trial. This was not such a case. Each of the causes of action on which Seafolly relied were founded on substantially the same factual material. The reason Seafolly failed on two of those issues was the absence of evidence to establish that it suffered economic loss. No witnesses were called to give evidence which related exclusively to the issues on which Seafolly failed. The trial took no longer than it would have done had Seafolly not sought to pursue claims for injurious falsehood and under the Copyright Act.” (Emphasis in original).

38    The issue of whether or not Ms Madden’s conduct was malicious did not loom large in Seafolly’s case. It was not necessary for it to establish malice for the purpose of making good its claims under ss 52 and 53(a) of the Trade Practices Act. Malice was, however, a necessary element of the tort of injurious falsehood but Seafolly’s pursuit of this claim did not, as I have already recorded, add to the length of the trial.

39    Nor did malice figure prominently as an issue on the cross-claim. The central question which was debated was whether or not Seafolly had a good defence for having defamed Ms Madden in its two press releases. The time devoted to argument (both written and oral) on this issue at trial far exceeded the time taken to deal with Ms Madden’s cross-claim under s 52 of the Trade Practices Act. This disparity was reflected in the reasons for decision: see Seafolly Pty Ltd v Madden at 366-370. In this section of the reasons only two short paragraphs were devoted to the s 52 issue on which Ms Madden succeeded on appeal.

40    I do not consider that Ms Madden can be regarded as the more successful party in the proceeding, notwithstanding her limited success on appeal. This is so whether her position is considered having regard to the overall result achieved by her or on an issue by issue analysis.

41    I have given fresh consideration to whether apportionment might be appropriate having regard to the Full Court’s decision. Having done so I remain of the view that this is not a case in which apportionment should be attempted. The “malice” point on which Ms Madden was successful on appeal arose out of the same factual substratum on which her unsuccessful defamation claim was based.

42    To the limited extent that the issue impinged on the claims made by Seafolly it arose substantially from the same factual foundation which was relied on by each party to support its or her principal claims.

43    Ms Madden’s limited success on appeal was substantially confined to the upholding of her claim that Seafolly had contravened s 52 of the Trade Practices Act by alleging that she had acted maliciously in publishing her allegations that Seafolly had copied her designs. This led me to consider the possibility of making separate costs orders in relation to the claim and the cross-claim. I have concluded that it is not appropriate to do so, largely because of the fact that the claim and the cross-claim were prosecuted, to a significant extent, on the basis of the same evidence. I note that the Full Court was not disposed to distinguish between the issues arising from the claim and the cross-claim when dealing with the costs of the appeal.

44    I am conscious of the Full Court’s view that the discretionary considerations which had influenced my earlier costs orders had changed “substantially” following the appeal. Ms Madden had succeeded in establishing one of her causes of action and damages were to be assessed. It was, as a result, necessary for the discretion to be re-exercised. The Full Court was not in a position to do so because it was not sufficiently familiar with the manner in which the trial had been conducted and it could not anticipate the outcome of the assessment of damages. I accept Seafolly’s submission that the appropriate order is that Ms Madden should pay 85% of its costs of the proceeding at first instance. For the reasons given I regard this percentage as being a fair reflection of the relative success of the parties (after the Full Court’s decision) on the significant issues which they agitated at trial. As it happens this is the same percentage as that adopted by the Full Court when assessing costs on the appeal. It would appear that most of the submissions on appeal concentrated on the same issues on which Ms Madden had been unsuccessful at trial and remained unsuccessful after the appeal. A similar proportion of time was devoted to these issues at trial.

45    I do not consider that any costs should be awarded against Seafolly on an indemnity basis. I note, that, although Ms Madden relied on the same Calderbank offer when argument relating to costs was heard following trial, she did not then seek indemnity costs. Rather, she applied for her costs on a party-party basis from the date of the rejection of her offer.

46    I set out the terms of Ms Madden’s Calderbank offer in my reasons in Seafolly Pty Ltd (No 2) at 541. In that judgment I explained my reasons for holding that Seafolly’s rejection of Ms Madden’s offer did not justify variation to the normal costs order: see at 542-544. I have reviewed those reasons having regard to the state of the proceeding following the Full Court’s decision. Following the appeal Ms Madden’s cross-claim, in so far as it alleged contravention by Seafolly of s 52 of the Trade Practices Act, was upheld and I subsequently awarded her $40,000 in damages arising from that contravention.

47    Relevantly, one of the terms of Ms Madden’s Calderbank offer was that she would withdraw her cross-claim and Seafolly would pay her the costs of that claim until 28 September 2011. It was on that day that Seafolly filed its amended defence to the cross-claim. Had Seafolly accepted that offer it would not have been found liable for the s 52 contravention or incurred the award of damages. It would, however, have been liable for Ms Madden’s costs of her cross-claim (including her unsuccessful claim for defamation). The precise quantum of those costs is not known. Ms Madden estimated them to be in the order of $45,000. As a result, no direct comparison can be made with the $40,000 damages award.

48    I am, however, prepared to assume, in Ms Madden’s favour, that Seafolly may have secured some net benefit in relation to the cross-claim had it accepted her offer. I also accept that Ms Madden was vindicated to the extent that the Court found that she had not acted maliciously in the manner alleged by Seafolly.

49    Despite this I remain of the view that, having regard to the terms of Ms Madden’s offer as a whole and the ultimate outcome of the proceeding, it cannot be said that Seafolly’s rejection of the offer was either imprudent or unreasonable.

50    This is because, had it accepted the offer, Seafolly would have been required to withdraw its claims against her under ss 52 and 53(a) of the Trade Practices Act. There would have been no public acknowledgement that her allegations were untrue and contravened the provisions of that Act. The terms of the settlement were not to remain confidential. It would, as a result, have been open to Ms Madden subsequently to have asserted that Seafolly had withdrawn its claims against her and Seafolly would not have had the benefit of the favourable declarations which it obtained. Those declarations, as already observed, provided public vindication of the reputation of Seafolly and some of its employees.

The lump sum costs claim

51    Given the complexity of the issues which will arise in assessing costs in the light of the orders which I will now make, an arguable case for the fixing of a lump sum must exist.

52    Seafolly should not be precluded, at this stage, from pursuing its application. That application stands adjourned and may be brought on for hearing on appropriate notice to Ms Madden. No order in relation to that application is warranted at this time.

Costs of the stay application

53    It is true, as Seafolly contended, that it was, prima facie, entitled to the fruits of its victory at trial notwithstanding the pending appeal. In this sense Ms Madden was seeking an indulgence when she applied for a stay of my original costs order. Seafolly opposed her application. In the event I determined that discretionary considerations favoured the granting of a stay.

54    In these circumstances the appropriate order is that the costs of the application be costs in the cause.

Interest on judgment

55    Ms Madden sought an order pursuant to s 51A of the Federal Court of Australia Act 1976 (Cth), that Seafolly pay her interest on the damages awarded to her under her cross-claim from 2 September 2010 to 29 September 2014.

56    Judgment was entered on 12 September 2014.

57    Ms Madden’s application confronts at least two difficulties. The first is that my order, made on that day, invited the parties to make submission “relating to all outstanding costs issues.” It did not deal with interest on judgment. The second is that s 51A only contemplates the making of an order for the payment of interest until the date on which judgment is entered: see s 51A(1)(a). The Court’s power is conferred in broad terms. Its exercise is invoked by application. Unless good cause is shown the Court can order that judgment interest be paid on the whole or any part of a judgment sum and for the whole or any part of the period between the date on which the cause of action arose and the date on which judgment was entered. Alternatively the Court may order payment of a lump sum in lieu of any such interest. Seafolly has not had the opportunity to show cause why such an application (if and when made) should not be granted.

58    No order should be made for the payment of judgment interest.

Associate:

Dated:    23 December 2014