Federal Court of Australia

Caporaso Pty Ltd v Mercato Centrale Australia Pty Ltd (Costs) [2025] FCAFC 29

ORDERS

THE COURT ORDERS THAT:

1.    Order 3(c) of the orders of the Court made on 6 December 2024 be varied by substituting the following order:

The question of whether the costs of the trial should be apportioned in the manner proposed by the appellant/cross-respondent or at all be remitted to the primary judge for determination.

2.    Both the costs of the trial and the costs of the appeal be awarded in a lump sum pursuant to r 40.02(b) of the Federal Court Rules 2011 (Cth).

THE COURT DIRECTS THAT:

3.    Pursuant to r 1.37 of the Federal Court Rules, a Registrar determine the amount of the lump sum(s) in such manner as he or she sees fit, including, if considered appropriate, on the papers and make all necessary orders to facilitate the determination.

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

REASONS FOR JUDGMENT

THE COURT

Introduction

1    The appellant (Caporaso) was the owner of three registered trade marks which incorporate the word “mercato”: a plain word mark consisting only of the word “mercato” (the Plain Word Mark), a fancy word mark, also consisting only of the word “mercato” in (the Fancy Word Mark), and a composite mark featuring a cartoon of a man dressed in red carrying shopping bags above the fancy word mark (the Red Man Logo Mark). The marks were registered for services in classes 29, 30, 35 and 43 of Sch 1 to the Trade Marks Regulations 1995 (Cth).

2    The respondent (Mercato Centrale) uses three unregistered trade marks, which also incorporate the word “mercato”: two word marks (MERCATO CENTRALE and IL MERCATO CENTRALE) and a composite mark consisting of an abstract drawing presumably intended to depict a market within a village or suburb and the words “il mercato centrale” in which the word “centrale” is dominant.

3    In December 2022 Caporaso brought proceedings in this Court against Mercato Centrale seeking declaratory, injunctive and pecuniary relief for infringement of the three registered trade marks and for passing off and breaches of the Australian Consumer Law. It also sought relief from Eddie Muto, a director of Mercato Centrale, but did not press that part of its case. Mercato Centrale denied the claims of infringement and cross-claimed against Caporaso seeking orders for rectification of the Register of Trade Marks by the cancellation of two of the Caporaso marks and a limitation on one of them.

4    Following a trial, the primary judge made orders, among other things, dismissing Caporaso’s originating application, holding that none of Mercato Centrale’s marks was deceptively similar to any of Caporaso’s three registered marks (order 1), upholding the cross-claim in part (order 2), and requiring an amendment to the description of services in class 43 (order 3).

5    Her Honour also ordered any party seeking a costs order to file and serve an affidavit on or before 12 March 2024 “specifying the order sought”. Mercato Centrale complied with that order. On 12 April 2024 her Honour made orders for the parties to file and serve submissions. The parties complied with those orders. The orders were never vacated. For some undisclosed reason, however, her Honour did not resolve the dispute.

6    In the meantime, Caporaso appealed and Mercato cross-appealed. The appeal was dismissed and the cross-appeal allowed: Caporaso Pty Ltd v Mercato Centrale Australia Pty Ltd [2024] FCAFC 156 (J). We also ordered that all of the primary judge’s orders except for order 1 be set aside and that orders be substituted allowing the cross-claim, rectifying the Register by cancelling the registration of the plain word mark “MERCATO”, and awarding the costs of the first instance proceeding (the trial) and the appeal to Mercato Centrale (orders 3(c) and 4). Nevertheless, we gave leave to the parties to seek a variation of the costs orders and both parties have taken advantage of that leave. This judgment is concerned with the resolution of the costs dispute. Familiarity with that judgment is assumed.

The positions of the parties

7    The successful party, Mercato Centrale, sought variations of both costs orders, proposing that orders 3(c) and 4 be vacated and that instead Caporaso be ordered to pay its costs of the proceeding below (the trial) on the ordinary (party and party) basis until 11am on 10 July 2023 and on an indemnity basis thereafter and the costs of the appeal and cross-appeal on the ordinary basis until 11am on 5 August 2024 and on an indemnity basis thereafter. It also asks that costs be paid as a lump sum.

8    On the other hand, the unsuccessful party, Caporaso, seeks orders that it pay only 50% of Mercato Centrale’s costs of the trial and 70% of Mercato Centrale’s costs of the appeal and cross-appeal, both on the ordinary basis. It expressed no view on its opponent’s application for a lump sum costs order.

9    None of the costs submissions filed by the parties in the trial were put before this Court, presumably because the parties accept that the question of the costs of the trial should now be determined on the basis of the outcome of the appeal.

The evidence

10    Only Mercato Centrale adduced evidence. In support of its application, it relies on an affidavit of Thomas Hoerner, special counsel in the law firm representing Caporaso, sworn on 13 December 2024. That evidence reveals the following matters.

11    On 6 July 2023, about three weeks before the commencement of the trial, Mercato Centrale, through its lawyers, sent an open letter to Caporaso, through its lawyers, in response to an open letter from Caporaso’s lawyers of 20 June 2023. Both letters contained offers to resolve the proceedings. The details of the Caporaso offer are not fully disclosed and do not matter for present purposes. What does matter is that in its letter to Caporaso, Mercato Centrale made an offer of compromise pursuant to r 25.01 of the Federal Court Rules 2011 (Cth) in the following terms:

1.    The Respondents will, within 7 days of acceptance of this Offer, provide a written undertaking to the Applicant to permanently refrain from using in the course of trade any trade mark containing the word MERCATO except where such marks contain all of the words IL MERCATO CENTRALE, and only in that sequence, without any truncation or abbreviation, and where each of the words IL and CENTRALE is at least as prominent and in at least the same size font as the word MERCATO.

2    The Respondents will agree to consent orders dismissing this proceeding, including the cross-claim, by consent and with no order as to costs.

This offer is inclusive of costs.

This offer of compromise is open to be accepted for 14 days after service of this offer of compromise.

This offer is made on an open basis

12    In the covering letter sent to Caporaso’s solicitors at the time the offer of compromised was served, Mercato Centrale submitted that it would be unreasonable for Caporaso to reject the offer (referred to as “the MCA Offer”) for “at least the following reasons”:

(a)    The MCA Offer includes a restriction on our client’s use of the word MERCATO that the Court is unlikely to grant.

(b)    The marks used, and intended to be used by the First Respondent, are not deceptively similar to or substantially identical with any of your client’s registered trade marks. There are significant differences between the parties’ respective marks including (at least) the words IL and CENTRALE in the First Respondent's marks. The only similarity is the common presence of the word MERCATO which is directly descriptive of the goods and services offered, or intended to be offered, by the First Respondent. Your client’s trade mark infringement case is likely to fail for this reason alone.

(c)    Your client’s registration of the plain word mark MERCATO (TM 1760112) is likely to be cancelled for its lack of capacity to distinguish (at least) because it is directly descriptive of at least some of the goods and services for which it registered.

(d)    Your client’s other registered trade marks are likely to be endorsed with the restriction sought by the Respondents because those registrations do not provide a monopoly over the use of the word MERCATO as your client asserts.

(e)    Your client’s passing off and Australian Consumer Law claims are likely to fail because the evidence does not support any relevant reputation in the trade mark MERCATO alone, either from 1972, as originally asserted, or from 2009, or from any other relevant date.

(f)    Your client’s passing off and Australian Consumer Law claims are likely to fail for the further reason that descriptive words will generally not support such claims. All traders are entitled to make use of such words and small differences between respective marks incorporating such words are generally sufficient to avoid liability.

(g)    Your client’s claim against the Second Respondent, Mr Muto, is entirely without foundation, unsupported by the evidence, and is likely to fail.

(h)    The MCA Offer allows your client’s trade mark registrations to remain on the register and without endorsement which is a better outcome for your client than it is likely to achieve at trial.

(i)    Our clients have expended very significant costs in defending this proceeding to date. If they are successful at trial, they are likely to obtain a costs order in relation to those costs. The MCA Offer foregoes those costs.

If your client does not accept the MCA Offer and your client obtains a judgment that is less favourable than the terms of the offer or your client’s application is dismissed our clients will apply to the Court for costs on an indemnity basis in accordance with r 25.14 of the Rules or, alternatively, the principles in Calderbank v Calderbank [1975] 3 All ER 333.

13    Mercato Centrale’s offer to compromise the appeal was on substantially the same terms. On 1 August 2024, about two weeks before they were listed for hearing, Mercato Centrale offered the same undertaking and indicated it would agree to consent orders dismissing the appeal and the cross-appeal by consent with no order as to costs. That offer, too, was open for acceptance for 14 days after service. In the covering email Mr Hoerner wrote:

The offer is a genuine compromise. The Appellant is unlikely to achieve a better outcome for the reasons set out in our written submissions on the appeal and cross-appeal.

14    The evidence does not disclose whether there was any response to either offer or whether Caporaso ever conveyed to Mercato Centrale its reasons for not accepting the offers. We infer from the absence of such evidence that there was none.

The relevant principles

15    Caporaso submits that “the modern approach to an order for costs is to assess success having regard to the outcome of particular issues in the proceedings”, citing Les Laboratoires Servier v Apotex Pty Ltd (2016) 247 FCR 61 at [300]–[301] (Bennett, Besanko and Beach JJ). Put in that way, the submission is apt to mislead. There is no rule or presumption to that effect. In Apotex the Full Court was merely observing in those paragraphs that a “practice has developed that where a party relies on grounds that are not established and where time has been expended and costs incurred as a consequence, that party, although it may ultimately be successful, might not recover all of its costs” (at [300]). But the Court added, this “may depend on whether evidence and argument can be separated” ([300]). Indeed, in Apotex itself the Full Court held that the primary judge had “acted upon a wrong principle in awarding costs on the basis of success as to issues”. At [306] the Full Court held that:

[T]he primary judge acted upon a wrong principle in awarding costs on the basis of success as to issues and not starting from the position that the successful party is entitled to its costs. Further, in considering the success and failure on individual issues, his Honour failed to consider the extent to which there was a common substratum of fact in respect of issues on which Apotex succeeded and failed. Moreover, his Honour awarded costs on the success of the issues raised without full consideration as to whether the raising of those issues was justified.

16    The ordinary principle is that costs follow the event. That said, s 43 of the Federal Court of Australia Act 1976 (Cth) (FCA Act) gives the Court a discretion to award costs which is not subject to any express limitations. The discretion is only confined to the extent that the subject matter, scope and purpose of the FCA Act indicates otherwise (Probiotec Ltd v University of Melbourne (2008) 166 FCR 30 at [47], [50]; Apotex at [305]) and by the obligation imposed by s 37M(3) of the FCA Act, namely, to exercise the power in the way that best facilitates the just resolution of disputes according to law and as quickly, inexpensively and efficiently as possible (the overarching purpose). Thus, while in general a successful party will be awarded its costs, it may be deprived of the costs of those issues and, in some cases may also be ordered to pay the other side’s costs: PKT Technologies Pty Ltd (formerly known as Fairlight.au Pty Ltd) v Peter Vogel Instruments Pty Ltd (No 2) [2020] FACFC 46 at [14]. In fact, s 43(3) expressly contemplates that, in the exercise of the discretion, the Court may order the parties to bear costs in specific proportions (s 43(3)(c)) and against a party even if the party is successful in the proceeding (s 43(3)(e)). The note to s 43 also directs attention, relevantly, to s 37N(4), which imposes an obligation on the Court to take account of any failure of a party to comply with its duty to conduct the proceeding in a way that is consistent with the overarching purpose.

17    Rule 25.14(2) of the Rules provides that:

If an offer is made by a respondent and an applicant unreasonably fails to accept the offer and the applicant’s proceeding is dismissed, the respondent is entitled to an order that the applicant pay the respondent’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.

18    Rule 25.14(3) provides that:

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.

19    It is apparent that to qualify for the entitlement conferred by r 25.14(2), the applicant’s failure to accept the offer must be unreasonable but r 25.14(3) imposes no such condition.

20    The purpose of these rules is to encourage the parties to compromise the litigation and to require them to give serious thought to the risk involved in not accepting an offer when “litigation is inescapably chancy”: IFTC Broking Services Ltd v Commissioner of Taxation [2010] FCAFC 31; 268 ALR 1 at [9] (Stone, Edmonds and Jagot JJ), citing Maitland Hospital v Fisher (No 2) (1992) 27 NSWLR 721 at 725.

21    The Court may, of course, make an order inconsistent with the Rules (r 1.35). As the Full Court said of the predecessor of r 25.14, however, “properly understood, the rule creates a presumption in favour of indemnity costs which the unsuccessful party must rebut” and a court may only depart from the presumptive position for proper reasons, which in general arise only in an exceptional case: IFTC Broking Services at [9] and the cases referred to there; Lodestar Anstalt v Campari America LLC (No 2) [2016] FCAFC 118 at [27] (Allsop CJ, Greenwood, Besanko, Nicholas and Katzmann JJ). Factors relevant to the question of unreasonableness include the stage of the proceeding when the offer was received; the time allowed for the offeree to consider the offer; the extent of the compromise; the offeree’s prospects of success assessed at the date of the offer; the clarity of the terms of the offer; and whether the offer foreshadowed an application for an indemnity costs order if it were rejected: Anchorage Capital Partners Pty Ltd v ACPA Pty Ltd (No 2) [2018] FCAFC 112 at [7] (Nicholas, Yates and Beach JJ). Circumstances found to be unreasonable have included where the moving party, properly advised, should have known that they had no chance of success or persists with a hopeless case: Australian Competition and Consumer Commission v Colgate-Palmolive Pty Ltd (No 5) [2021] FCA 246; 151 ACSR 26 at [10] (Wigney J). It is important to be alert to hindsight bias. As Goldberg J observed in Re Kingsheath Club of the Clubs Ltd (in liq) [2003] FCA 1589 at [5], with the benefit of hindsight, following full argument and the considered attention of experienced lawyers, it can be easy to conclude that an action had no chance of success.

22    Where, as here, “an offer of compromise is available for acceptance on a global basis”, the offer of compromise can only be considered under either r 25.14(2) or r 25.14(3): see TCT Group Pty Ltd v Polaris IP Pty Ltd (No 2) [2023] FCA 284 at [21] (Burley J).

23    The parties proceeded on the basis that that r 25.14 applies to the costs of both the trial and the appeal. Yet r 25.14 appears in Chapter 2 of the Rules, which pertains to proceedings in the original jurisdiction of the Court. It speaks of applicants and respondents, not parties. In contrast, the Uniform Civil Procedure Rules 2005 (NSW) and the Supreme Court (General Civil Procedure Rules) 2015 (Vic) both expressly provide for offers of compromise on appeal. In New South Wales, see rr 51.47 and 51.48. In Victoria, see r 26.12. Both the New South Wales and the Victorian rules provide for costs consequences that accommodate the different nature of appeals from proceedings in original jurisdiction, whereas Part 25 of the Federal Court Rules make no special provision for appeals. The term “appellant” is defined in the Dictionary as “a person who has filed a notice of appeal, under Chapter 4 of these Rules”. The combination of the location of the indemnity costs rule in Part 25 within Chapter 2, the reference to “applicant” rather than “appellant” in Part 25, and the omission from Part 25 of any reference to the particular costs consequences that may arise on an appeal, suggests that Part 25 applies to proceedings in the original jurisdiction and not appeals. On the other hand, we note that “applicant” is broadly defined in the Dictionary in Schedule 1 to mean “a party, other than a cross-claimant, claiming relief”, and “respondent” is defined to mean both a party, other than a cross-respondent, against whom relief is claimed, and a party to an appeal brought by an appellant. These textual indications may overcome the suggestion arising from the contextual indications. Other cases have proceeded on the basis that Part 25 applies to appeals, apparently without argument on the point: see, for example, The Agency Group Australia Ltd v H.A.S. Real Estate Pty Ltd (No 2) [2024] FCAFC 44 (Yates, Markovic and Kennett JJ). In the absence of argument on the question in the present case, we will address the submissions that were put, which also proceeded on the basis that r 25.14 applies to both the trial and the appeal and that, if it does not, the offers should be treated as Calderbank offers. As it happens, nothing turns on the point.

24    In contrast to r 25.14(2), under the former rule (O 23 r 11(6) of the Federal Court Rules 1979 (Cth)), there was no express requirement to prove that the conduct of the applicant in not accepting an offer of compromise was unreasonable. Although the reasonableness of the applicant’s conduct was a relevant consideration, the fact that an unsuccessful litigant acted reasonably in rejecting an offer of compromise was “not of itself a sufficient reason to displace the operation of the rule”: Futuretronics.com.au Pty Ltd v Graphix Labels Pty Ltd [2009] FCAFC 40 at [11] per Tamberlin, Finn and Sundberg JJ); IFTC Broking Services at [9]. The Explanatory Statement to the current Rules indicates that there was no intention to “substantially alter existing practice” and does not comment on this change. Moreover, in JMC Pty Ltd v Commissioner of Taxation (Costs) [2023] FCAFC 95 at [11], in which the current rule was operative, Bromwich, Thawley and Hespe JJ observed that that, in relation to whether an order ought to be made inconsistent with r 25.14(3), which, as we have already observed, does not contain an express requirement of unreasonableness, “merely establishing that the rejection of an offer was reasonable at the time of rejection is not necessarily sufficient”.

25    If the power conferred by r 25.14 is not enlivened and the respondent has notified the applicant that the offer should be treated as a Calderbank offer in those circumstances, the only substantive difference of any relevance is that there is no presumption in favour of an indemnity costs order. The party seeking the order still has to prove that the offer of compromise is a genuine offer of compromise (Herning v GWS Machinery Pty Ltd (No 2) [2005] NSWCA 375 at [4]–[5] (Handley, Beazley and Basten JJA) and that the rejection of the offer must be unreasonable. IFTC Broking Services at [12]. In IFTC Broking Services at [12], the Full Court said that “[i]n respect of a Calderbank offer, characterisation of the refusal to accept the offer as reasonable or not is significant, even potentially determinative”. On the other hand, it is “most unlikely that an order inconsistent with r 25.14 would be made where the rejection of an offer was not reasonable”: JMC Pty Ltd at [11].

The arguments

26    Both offers were made at a relatively late stage in the proceedings when both parties would have incurred substantial costs. They were clear in their terms. And they foreshadowed applications for indemnity costs if they were rejected. Caporaso did not argue that either offer was not made in accordance with the Rules. Nor did it argue that it was afforded insufficient time to consider the offers. Rather, it resisted an award of indemnity costs in each case on the bases that its failure to accept both offers was reasonable in the circumstances and that neither offer represented a genuine compromise.

27    In addition, Caporaso submitted that Mercato Centrale’s costs of the trial should be reduced because “a significant majority of the evidence and submissions at trial was dedicated to Mercato Centrale’s wholly unsuccessful cross-claims” (under s 41 of the Trade Marks Act 1995 (Cth) concerning distinctiveness and s 88(2)(c) concerning confusion) and, to the extent that it had some success on the s 58 ownership issue, the evidence of its witness, Richard Mee, was criticised by the primary judge and the determination of the issue turned upon a single exhibit.

28    Caporaso also submitted that the costs of the appeal should be reduced because Mercato Centrale cross-appealed on the confusion issue, but “did not ultimately press this aspect of the cross-appeal”.

The costs of the trial

29    It is convenient to begin with the offer of compromise.

30    Caporaso submitted that the offer did not represent a genuine compromise for the following reasons.

31    First, Caporaso contended that the offer was “in essence, a ‘walk away’ offer”, which amounted to Mercato Centrale abandoning its cross-claim without offering anything to Caporaso for its costs of defending the cross-claim.

32    Second, Caporaso contended that it was implicit in the offer that MERCATO CENTRALE was deceptively similar to MERCATO and Mercato Centrale should not use it. It follows, so the argument was put, that the offers “contemplated” that Caporaso would have “a degree of success”, which would have entitled it to costs without offering anything with respect to those costs.

33    Both contentions should be rejected.

34    The assessment of whether an offer is more favourable than the judgment is to be determined, by a broad, evaluative assessment of whether, as a matter of substance, the state of affairs produced by the offer is more favourable to the person who did not accept it than the result achieved by the judgment: Polaris at [21]. See, too, Stead v Fairfax Media Publications Pty Ltd (No 2) [2021] FCA 65; 386 ALR 237 at [26] (Lee J).

35    As to the first contention, it is not correct to describe the offer of compromise as a “walk away” offer but, even if it were, that does not necessarily mean that the offer of compromise is not genuine: Sagacious Legal Pty Ltd v Wesfarmers General Insurance Ltd [2011] FCAFC 53; (2011) 16 ANZ Ins Case ¶61-885 at [129]–[150] (Besanko, Perram and Katzmann JJ). On the other hand, an offer of compromise which provides little benefit to the offeree may be relevant to the question of whether the offeree’s failure to accept the offer was unreasonable. After all, “there are degrees of reasonableness which; amongst other things, must ordinarily be assessed by reference to the extent of the compromise which was offered”: JMC Pty Ltd at [13]. As the Full Court went on to observe in JMC Pty Ltd at [13], “[i]t may be reasonable to reject an offer which amounts to something close to capitulation where the case is reasonably and properly arguable [and] unreasonable to reject a generous offer where the [offeree’s] prospects are slim”.

36    As to the second contention, Mercato Centrale’s offer did not contain any implicit concession about liability; it was merely an offer to compromise the entire dispute.

37    The offer of compromise was more favourable to Caporaso than the judgment in this Court. Without doubt, the state of affairs produced by the offer was more favourable to it than the result it ultimately achieved. Mercato Centrale’s offer to confine the use of the word MERCATO was a better outcome than Caporaso achieved and that offer, together with its offer to forego its costs, which by the time the offer was made must have been substantial, was undoubtedly a genuine and not insignificant compromise.

38    Mercato Centrale submitted that Caporaso’s failure to accept the offer was unreasonable for the following reasons.

39    By the time the offer of compromise was made the parties had filed and served all the evidence they intended to adduce, a mediation had taken place about a month earlier, and the trial was imminent. By that stage, Caporaso either knew or should have known of the weaknesses of the claims it abandoned during the course of the trial; of the poor prospects of success of its infringement claims with respect to the fancy word mark and the Red Man Logo Mark; and of the likely success of the cross-claim especially insofar as it sought cancellation of the plain word mark under s 88(1) of the Trade Marks Act on the ground that Caporaso was not the owner of the mark (s 58), if not also because the application for registration of that mark was based on evidence or representations that Mr Caporaso admitted in his affidavit were false (s 62(b)).

40    Given the terms of Mercato Centrale’s offer, which did not involve removing the Plain Word Mark from the Register, the fact that not all the grounds of the cross-claim were successful is not to the point.

41    Nevertheless, as Caporaso pointed out, Mercato Centrale offered to undertake to use “mercato” only as part of the phrase “Il mercato centrale”, when this Court held, contrary to the primary judge, that both its word marks, MERCATO CENTRALE and IL MERCATO CENTRALE, were deceptively similar to Caporaso’s Plain Word Mark. The only reason Mercato Centrale ultimately succeeded so comprehensively is that its cross-appeal on the s 62(b) claim was upheld.

42    The primary judge agreed with obiter dicta in Colorado Group Ltd v Strandbags Group Pty Ltd [2006] FCA 160; 67 IPR 628 in which Finkelstein J said that a misrepresentation which procured the registration of a mark was, “as a matter of law”, “a misrepresentation about an irrelevant fact”. Her Honour went on to hold that s 62(b) was only concerned with “representations that are false in material particulars” and, although Mr Caporaso’s representations were admittedly false, they were not false in material particulars because the examiner should have concluded that the Plain Word Mark was inherently adapted to distinguish Caporaso’s goods in class 35 from the goods of other persons in the same class (at [224]–[229]). Thus, as Caporaso argued, the outcome of the proceedings ultimately turned on a construction of s 62(b) which the primary judge rejected, which had not previously been the subject of binding authority, and which we acknowledged in our reasons was a construction upon which reasonable minds might differ (see J[60]–[97]). Moreover, in the letter enclosing the trial offer, Mercato Centrale did not even mention its s 62(b) claim, let alone advance the argument which prevailed on the appeal. In those circumstances, we are not satisfied that it was unreasonable of Caporaso at the time to reject Mercato Centrale’s offer and, in the particular circumstances of this case, we would not therefore make the order Mercato Centrale sought.

43    The remaining question is whether, in the exercise of its discretion, the Court should reduce Mercato Centrale’s costs of the trial by 50% or at all for the reasons advanced by Caporaso.

44    Mercato Centrale quarrelled with Caporaso’s position, arguing that it fails to take account of its abandonment during the trial of all the claims against Mr Muto; all its claims for pecuniary relief, including the claims for additional and exemplary damages; all its claims in passing off and under the Australian Consumer Law (ACL) and some of its claims for trade mark infringement. Mercato Centrale also took issue with Caporaso’s contention that “a significant majority of the evidence and submissions at trial was dedicated to Mercato Centrale’s wholly unsuccessful cross-claims”, pointing out that much of the evidence at trial was directed to defending both the claims Caporaso abandoned and its own ultimately unsuccessful cross-claims. Mercato Centrale submitted that the evidence is “not easily separated” and the cost of preparing much of this evidence was necessary for Mercato Centrale’s defence of Caporaso’s passing off and ACL claims. Caporaso accepts none of this, insisting that the costs occasioned by the inclusion of the ACL and passing off claims “were negligible” and, in not pursuing the claims against , it was merely fulfilling its obligations under s 37N of the FCA Act. It argues that, in any event, all of Mr Caporaso’s evidence in relation to the ACL and passing off claims was necessary in response to the distinctiveness cross-claim.

45    We are unimpressed by the last argument. That said, we do not consider that we are in a position to fairly evaluate the merits of the competing arguments, particularly in the absence of any findings by the primary judge on the matters they raised. First, the appeal books do not include all the evidence that was adduced at trial to which the parties referred in their submissions and we have no familiarity with the evidence adduced on the failed cross-claims which is said to overlap with the issues on the appeal. Secondly, in order to conduct a proper evaluation it would be necessary to spend an inordinate amount of time reviewing all the material in the appeal books and the primary judge’s reasons on the failed cross-claims which formed no part of the appeal. Notwithstanding the passage of time since the trial judgment was published, the primary judge is in a much better position that we are to adjudicate the parties’ arguments. Accordingly we propose to remit to the primary judge for determination the question of whether Mercato Centrale’s costs of the trial should be reduced to the extent contended for by Caporaso or, for that matter, at all.

The costs of the appeal

46    As we mentioned earlier, substantially the same offer of compromise was made in the appeal, the only difference being the time at which the entitlement to indemnity costs would apply.

47    Consequentially, with one exception, the parties advanced the same arguments in relation to the offer to compromise the appeal. The exception is that Caporaso also submitted that the offer on the appeal did not represent a genuine compromise of the costs of the trial: This is how the argument was expressed:

[A]t the time of making the Appeal Offer, no orders had been made by the primary judge in respect of the costs of the trial. Having regard to the conduct of the trial and the extremely narrow success of [Mercato Centrale], and the significant costs wasted on the s 41 cross-claim, this was a case where it would have been appropriate for [Mercato Centrale], notwithstanding its limited success on the cross-claim, to bear a not insubstantial portion of [Caporaso’s] costs. As such, the Appeal Offer did not represent a ‘genuine compromise’ in respect of [Mercato Centrale]’s costs of the trial.

48    As Mercato Centrale submitted, it is wrong to describe its success at trial as “extremely narrow”. Caporaso’s appeal was dismissed in its entirety. And Mercato Centrale’s cross-appeal seeking cancellation of the registration of the Plain Word Mark was wholly successful. Whichever way one looks at it, the offer on the appeal was a genuine compromise.

49    Nevertheless, as Mercato Centrale’s success on the appeal was achieved only because of its success on the cross-appeal, which turned on the construction of s 62(b) of the Trade Mark Act, for the reasons given earlier in relation to the application for indemnity costs in the trial, we are not persuaded to make an indemnity costs order on the appeal. While it is true that, in contrast to the position at trial, at the time they received the offer on the appeal Caporaso had the benefit of Mercato Centrale’s argument, including detailed written submissions, we are of the view that it was not unreasonable for Caporaso to seek to defend the primary judge’s decision on this point.

50    Consequently the costs of both the trial and the appeal should be on a party and party basis.

51    We reject Caporaso’s submission that there should be a reduction in Mercato Centrale’s costs of the appeal because they included in their cross-appeal a challenge to the primary judge’s finding concerning the confusion issue, but “did not ultimately press this aspect of the cross-appeal”. This challenge was the subject of ground 1 of the appeal. Mercato Centrale informed Caporaso in their written submissions that they were not going to press that ground. Those submissions were served on Caporaso before Caporaso was required to address the matter either in writing or orally. Since the offer of compromise was served two weeks later, Caporaso had no reason to consider the matter.

52    Notwithstanding Caporaso’s partial success on the appeal, we are not disposed to reduce Mercato Centrale’s costs of the appeal. In real terms, Mercato Centrale was the successful party.

The application for a lump sum costs order

53    The Rules make provision for costs to be awarded in a lump sum instead of, or in addition to, taxed costs (see r 40.02, read with r 1.40) and, whenever it is practicable and appropriate, the Court’s preference is for the making of a lump-sum costs order (see Costs Practice Note (GPN-COSTS), cl 4.1). Caporaso made no submissions against Mercato Centrale’s application in this regard. And in large matters it is often the most inexpensive and efficient course to take. Accordingly, we will order that the costs of the trial and the appeal be awarded in a lump sum. Once the outstanding issue concerning the costs of the trial is resolved, there is no apparent reason why the question of the quantification of the lump sum should not be referred to a Registrar of the Court for determination. We will make orders to facilitate this course.

The appropriate orders

54    Rule 40.01 provides that, if an order is made that a party or person pay costs or be paid costs, without any further description of the costs, the costs are to be costs as between party and party. “Costs as between party and party” is defined in the Dictionary to mean “only the costs that have been fairly and reasonably incurred by the party in the conduct of the litigation”. Given the terms of the costs orders made on 6 December 2024 and r 40.01, and since we have declined to award indemnity costs with respect to the trial or the appeal, there is no need to vary those orders except to give effect to our decision to remit the question of whether the costs of the trial should be apportioned in the manner proposed by Caporaso or at all and to provide for the making and determination of the lump sum costs order.

Associate:

Dated:    21 March 2025