FEDERAL COURT OF AUSTRALIA

Aussie Red Equipment Pty Ltd v Antsent Pty Ltd [2001] FCA 1641

COSTS – power to order costs under s 43 of the Federal Court of Australia Act 1976 (Cth) – whether respondents should be ordered to pay the applicants’ costs – where proceedings resolved by consent save for the issue of costs – where consent orders not expressed to be ‘without any admissions to liability’ – where final consent orders closely reflected relief initially sort by the applicants – where respondents failed to follow directions.

Australian Securities Commission v Aust-Home Investments Limited (1993) 44 FCR 194

referred to

Re the Minister for Immigration and Ethnic Affairs of the Commonwealth of Australia;

Ex parte Lai Qin (1997) 186 CLR 622 referred to

ONE.TEL Ltd v Deputy Commissioner of Taxation [2000] FCA 270 referred to

Aussie Red Equipment Pty Ltd (ACN 003 224 020) and Aqua Fortis Australia Pty Ltd (ACN 080 526 601) v antsent Pty Ltd (ACN 003 751 344) AND Steven Daryl Power

N 1366 of 2000

MOORE J

22 NOVEMBER 2001

SYDNEY

THE COURT ORDERS THAT:

1.         The first and second respondent pay the applicants’ costs in the sum of $10,000.

Note:    Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.

REASONS FOR JUDGMENT

Introduction

1                     On 20 December 2000 the applicants commenced proceedings in this Court against Antsent Pty Ltd (“the first respondent”) and the director of the first respondent responsible for its day to day activities, Mr Steven Power (“the second respondent”). The statement of claim alleged that the respondents had breached the Trade Practices Act 1974 (Cth) (“TP Act”), engaged in passing off and infringed the applicants’ registered trade mark. Without the matter proceeding to hearing, the parties reached agreement on the substantive issues raised in the application and on 20 June 2001 consent orders were entered which effectively disposed of the matter. However, the issue of costs as between the applicants and the respondents remains unresolved.

History of the proceedings

2                     The following appears not to be in issue.  The applicants specialise in providing and marketing cleaning services, in particular a high pressure water cleaning system designed for hard surfaces which is registered under the “AQUA FORTIS” mark. In June 1998, the first respondent purchased a machine equipped with that cleaning system from the second applicant and obtained from the second applicant a letter authorising the use of “Aqua Fortis Cleaning Capture System, Brisbane” as a business name in Queensland. On 6 June 1999, the first applicant licensed the first respondent to use the “AQUA FORTIS” mark until such time as the license agreement expired or was terminated. The agreement was terminated by the first applicant on 28 February 2001, however, the first respondent continued to trade using the “AQUA FORTIS” mark in signage and advertising, on its internet website and in its registered business names.

3                     On 22 November, solicitors acting for the applicants wrote to the second respondent informing him that, by continuing to use the AQUA FORTIS mark, the first respondent was infringing trade mark, breaching s 52 and  53 of the TP Actand engaging in passing off. The letter also advised the second respondent that, having been knowingly concerned in and a party to the first respondent’s conduct, he may also be liable for any pecuniary penalties under the TP Act.  The applicants’ solicitor advised the respondents that unless an undertaking was given to the effect that the first respondent would cease using and trading under the AQUA FORTIS mark by 1 December 2000, proceedings would be commenced against the respondents. On 5 December 2000, the second respondent advised the applicants’ solicitor by telephone that the undertaking sought would not be given. These proceedings were subsequently commenced on 20 December 2000.

4                     The proceedings first came before the Court for directions on 20 February 2001. At that time, because of difficulties in locating the second respondent, only the first respondent had been served with the application and statement of claim. There was no appearance for the first respondent. Orders were made that the first respondent file and serve a notice of appearance by 27 February 2001 and file and serve a defence by 6 March 2001. The matter was then stood over for further directions on 20 March 2001. The applicants’ solicitors were directed by me to arrange for service of those orders on the first respondent.

5                     On 7 March 2001, the second respondent was served with the application, statement of claim and the orders of 20 February 2001. The matter came before the Court for directions for a second time on 20 March 2001. There was no appearance on behalf of either of the respondents and the orders from the first directions hearing had not been complied with by the first respondent.  Orders were made in substantially the same form as the short minutes of order handed up by the applicants. Those orders were as follows:

“The Court orders that:

1.      The Applicant have leave to file and serve any amended application joining Melbourne Information Technologies Australia Pty Ltd within 7 days.

2.      The Second Respondent file and serve any defences on or before 3 April 2001.

3.      The Applicants file and serve any replies on or before 17 April 2001.

4.      The Applicants file and serve any notice of motion seeking judgment in these proceedings on or before 24 April 2001 together with any supporting affidavits.

5.      Liberty to apply on 2 days’ notice.

6.      The Applicants be granted leave to effect service of documents, including these directions on the Second Respondent in the following manner:

                        (a) by fax to (07) 3869 1833;

                        (b) by email at steve@aquacapture.com.au; and

                        (c) by post to 76 Barclay Street, Deagon, Queensland.

7.      These proceedings be stood over for further directions on 30 May at 9.30am.”

At that directions hearing the applicants also informally undertook to write to the respondents explaining to them that, if no appearance was entered by them, judgment and costs may be awarded against them and informing them of the likely amount of such costs.

6                     The respondents took no action to comply with the Court’s orders and the applicants consequently filed a notice of motion for judgment and two supporting affidavits on 24 April 2001. Those documents were served on the respondents. Four additional affidavits of service were prepared but never filed because the hearing of the applicants’ notice of motion did not eventuate.  On 26 April 2001, the second respondent contacted the applicants’ solicitor and over the next two days discussions took place. Following those discussions the applicants’ solicitor on 1 May 2001 sent to the second respondent, both by fax and by express post, a “without prejudice” letter containing an offer to resolve the proceedings. The letter gave the respondents until 12pm on 18 May to reply. If the respondents accepted the terms of the offer, the applicants undertook to discontinue the proceedings on the basis that there would be no order as to costs. On the same day, the second respondent contacted the applicant’s solicitor by telephone to expressly reject the offer. There was no further contact between the parties until the 30 May 2001 when the applicants’ notice of motion, and the matter generally, were listed for directions before me.

7                     On that day the second respondent appeared in person on behalf of himself and the first respondent (leave was given for the second respondent to appear for the corporation).  The applicants claim that, as they had not heard from the second respondent after his rejection of the offer, they did not expect him to appear and as such the applicants’ solicitors prepared for an ex parte hearing of the application for summary judgment and briefed counsel to appear. The hearing of the application did not proceed and instead the matter was stood over for further directions on 20 June 2001 in order to enable the respondents to obtain legal advice. The costs of the directions hearing of 30 May 2001 were reserved.

8                     The respondents then instructed Julian Harrison of the firm Gill & Lane to act on their behalf. Discussions between the parties’ solicitors commenced and shortly thereafter the parties agreed on short minutes of order resolving the matter, save for the issue of costs. The Court made orders in accordance with those short minutes on 20 June 2001, which were entered on the same day. The orders provided as follows:

“By consent the Court orders  that:

1.      TheFirst and Second Respondents, their servants and agents and each of them be restrained from infringing trade mark registration No. 759,103 (“the Trade Mark).

2.      The First and Second Respondents, their servants and agents and each of them be restrained from, in trade or commerce in Australia, advertising promoting, offering to supply or supplying any cleaning services under or by reference to any business name, company name, domain name or any trade mark consisting of or including the AQUA FORTIS Marks (as that term is defined in paragraph five of the Statement of Claim filed in these proceedings) or any of them or any other words substantially identical to and deceptively similar to any of the AQUA FORTIS Marks.

3.      Subject to order 4 herein, within seven days, the Respondents deliver up on oath to the Applicants for destruction all signage, brochures, business cards and other advertising or promotional material in the possession, custody or control of the First and/or Second Respondent or either of them which refer to any business name, domain name or any trade mark consisting of or including the Aqua Fortis Marks or any of them or any of the AQUA FORTIS Marks.

4.      All signage appearing on any trailer or vehicle or equipment operated by the First and/or Second Respondent in the conduct of any cleaning business containing any reference to the AQUA FORTIS Marks be obliterated by the respondents within seven days.

5.      The First and Second Respondents, within 7 days, deliver to the Applicants’ solicitors signed Forms 5 – Notice of Cessation of Business Name for the following business names:

                        (a) AQUA FORTIS QUEENSLAND – BN16925439

                        (b) AQUA FORTIS SUNSHINE COAST – BN16925440

                        (c) AQUA FORTIS GOLD COAST – BN16925427

(d) AQUA FORTIS CLEAN AND CAPTURE BRISBANE –

            BN7153510

6.      The First Respondent, within seven days, deliver to the Applicants’ solicitors duly executed authorisation to terminate a .com.au domain name licence form for the domain name “aquafortis.com.au” and take any other steps necessary to terminate the .com.au domain name licence for the domain name “aquafortis.com.au” and delete it from the Aunic Registry and from the .com.auDNS.

7.      If the First Respondent fails to comply with paragraph 6 hereof, the Third Respondent through its division, Internet Names Worldwide, terminate the licence for “aquafortis.com.au” and delete that domain name from the Aunic Registry and from the .com.auDNS.

8.      If the First and Second Respondent do not comply with paragraph 5, a Registrar of the Federal Court will sign Notice of Cessation of Business Name forms in respect of the business names set out in paragraph 5 above, on behalf of the Respondents.

9.      The First and Second Respondents, within seven days, take all necessary steps to remove all references to the AQUA FORTIS Marks or any of them or any words substantially identical or deceptively similar to any of the AQUA FORTIS Marks from the web site located at “aquacapture.com.au”.

10.  As between the Applicants and First and Second Respondent, costs be reserved.

11.  As between the Applicants and the Third Respondent, each party pay its own costs.

12.  Leave be granted to enter orders forthwith.”

Submissions on costs

9                     The applicants submitted that, in the ordinary course of events, the unsuccessful party to litigation must pay the costs of the successful party. It was submitted that the applicants substantially succeeded in the proceedings because the consent orders of 20 June 2001 were substantially the same as the orders sought by the applicants at the outset of the proceedings and included orders which required the respondents to take steps similar to those sought by way of undertaking in the letter sent to the first respondent on 22 November 2000.  The consent orders were not made on the basis that there were no admissions about liability.  In all the circumstances, the applicants submitted that it is appropriate for the first and second respondents to pay, on an indemnity basis, the applicants’ costs:

(a)    of forwarding and serving documents to the first and second respondents up until the date the first and second respondents were legally represented.

(b)   of the preparation for the application for judgment including the costs of preparing the notice of motion and supporting affidavits.

(c)    incurred since the offer was made to the first and second respondents on 1 May 2001 which was rejected on that day.

The applicants submitted that the respondents should be ordered to pay the remainder of the applicants’ costs on a party/party basis. Reliance was placed on the general conduct of the first and second respondent throughout the proceedings, which the applicants submitted was indicative of a deliberate choice to ignore the processes of the Court. In particular, the applicants noted that the first and second respondents failed to enter appearances, declined to attend the first two directions hearings and failed to comply with the orders given at those hearings to file a defence. Furthermore, it was submitted that the first and second respondents only elected to involve themselves in the proceedings when summary judgment was imminent, by which time the applicants had been put to the maximum cost.

10                  The second respondent submitted that, upon commencement of the proceedings, he informed Mr Rowan, a director of the second applicant, and the applicants’ solicitors that the first respondent was prepared to accede to all the applicants’ demands with one exception. The second respondent claimed that he was not prepared to relinquish the business name “Aqua Fortis Clean and Capture System Brisbane” because it was his view that he had paid for and been given authorisation to use that name. The second respondent submitted that he ultimately agreed to the consent orders on behalf of himself and the first respondent for commercial expediency and not because he considered himself under any legal obligation to do so.

Relevant legal principles

11                  Section 43 of the Federal Court of Australia Act 1976 (Cth) confers on the Court a broad discretionary power to order that a party pay the costs of another party, though the power must be exercised judicially. In matters such as this one, where the substantive issues raised by the proceedings have been resolved without a hearing on the merits, it will rarely be appropriate for a Court to determine the merits of the dispute solely for the purpose of deciding any outstanding issue of costs, (see: Australian Securities Commission v Aust-Home Investments Limited (1993) 44 FCR 194). In that matter, after a review of the relevant authorities, Hill J identified five propositions emerging from the case law.  Only the first four propositions are presently relevant, they are as follows:

“(1)     Where neither party desires to proceed with litigation the court should be ready to facilitate the conclusion of the proceedings by making a cost order: Stratford and the SEQEB case.

(2)       It will rarely, if ever, be appropriate, where there has been no trial on the merits, for a court determining how the costs of the proceedings should be borne to endeavour to determine for itself the case on the merits or, as it might be put, to determine the outcome of a hypothetical trial: Stratford. This will particularly be the case where a trial on the merits would involve complex factual matters where credit could be an issue.

(3)       In determining the question of costs it would be appropriate, however, for the Court to determine whether the applicant acted reasonably in commencing the proceedings and whether the respondent acted reasonably in defending them (SEQEB).

(4)       In a particular case it might be appropriate for the Court in its discretion to consider the conduct of a respondent prior to the commencement of the proceedings where such conduct may have precipitated the litigation: cf Sunday Times Newspaper Co Ltd v McIntosh (1933) 33 SR (NSW) 371.

(5)       …”

These propositions, as Cooper J commented in Australian Securities Commission v Berona Investments Pty Ltd (1995) 18 ACSR 772 at 774, represent a guide rather than an exhaustive list of the matters which may be taken into consideration in the exercise of the discretion to order costs under s 43. More recently, in Re the Minister for Immigration and Ethnic Affairs of the Commonwealth of Australia; Ex parte Lai Qin (1997) 186 CLR 622, McHugh J made the following comments about the discretion to order costs in matters resolved without a hearing on the merits:

“In most jurisdictions today, the power to order costs is a discretionary power. Ordinarily, the power is exercised after a hearing on the merits and as a general rule the successful party is entitled to his or her costs. Success in the action or on particular issues is the fact that usually controls the exercise of the discretion. A successful party is prima facie entitled to a costs order. When there has been no hearing on the merits, however, a court is necessarily deprived of the factor that usually determines whether or how it will make a costs order.

In an appropriate case, a court will make an order for costs even when there has been no hearing on the merits and the moving party no longer wishes to proceed with the action. The court cannot try a hypothetical action between the parties. To do so would burden the parties with the costs of a litigated action which by settlement or extra-curial action they had avoided. In some cases, however, the court may be able to conclude that one of the parties has acted so unreasonably that the other party should obtain the costs of the action. …

Moreover, in some cases a judge may feel confident that, although both parties have acted reasonably, one party was almost certain to have succeeded if the matter had been fully tried. This is perhaps the best explanation of the unreported decision of Pincus J in The South East Queensland Electricity Board v Australian Telecommunications Commission where his Honour ordered the respondent to pay 80 per cent of the applicant's taxed costs even though his Honour found that both parties had acted reasonably in respect of the litigation. But such cases are likely to be rare.

If it appears that both parties have acted reasonably in commencing and defending the proceedings and the conduct of the parties continued to be reasonable until the litigation was settled or its further prosecution became futile, the proper exercise of the cost discretion will usually mean that the court will make no order as to the cost of the proceedings. This approach has been adopted in a large number of cases.”

12                  A survey of cases where these broad principles have been applied reveals that, although the particular facts and circumstances of each case are of paramount importance, frequently the determining factor is the reasonableness of the parties’ conduct, (see for example Gribbles Pathology Pty Ltd v Health Insurance Commission (1997) 80 FCR 284, Reddy v Hughes (1996) 37 IPR 413 and Emerald Properties Pty Ltd v Chan Unreported, Heerey J, 15 December 1993). Another important consideration will often be the circumstances under which the substantive issues in the proceedings were resolved. In ONE.TEL Ltd v Deputy Commissioner of Taxation [2000] FCA 270, Burchett J made the following observations:

“In my opinion, it is important to draw a distinction between cases in which one party, after litigating for some time, effectively surrenders to the other, and cases where some supervening event or settlement so removes or modifies the subject of the dispute that, although it could not be said that one side has simply won, no issue remains between the parties except that of costs.  In the former type of case, there will commonly be lacking any basis for an exercise of the Court’s discretion otherwise than by an award of costs to the successful party.  It is the latter type of case which more often creates problems, since there may be difficulty in discerning a clear reason why one party, rather than the other, should bear the costs.”

Conclusions

13                  The difficulty I confront in dealing with this issue of costs, is that the respondents agreed to the relief sought by the applicants without, as part of that agreement, addressing the question of costs.  It is not uncommon for a party to negotiate a settlement of this character but, in so doing, reach agreement about costs.  Such an agreement to settle the matter might also be expressed to be without any admission of liability, though that is not the case in this matter.  In my opinion some recognition needs to be given to the apparent success of the applicants in the proceedings, though some allowance paid for the fact that the applicants have not established their claims in contested proceedings. 

14                  The solicitor for the applicants has given evidence that his clients’ costs would be, on a party/party basis, approximately $24,000.  That assessment was not challenged by way of cross-examination, though the evidence addressed the question of costs at a fairly general level.  There is also evidence which indicates that on 1 May 2001 the applicants were prepared to discontinue the proceedings with each party bearing their own costs if the respondents agreed, effectively, to relinquish any rights to continue to use the marks and stop related business activity using the contentious names.  Also on 29 June 2001 the applicants were prepared to compromise the costs on the basis that the respondents paid within twenty-eight days $16,000 and an order requiring that payment was made by the Court.  That latter offer was rejected by the solicitors then acting for the respondents on the footing that the costs said to have been actually incurred, namely $31,923.18, were viewed as “astound(ing)”.  As noted earlier, the second respondent gave evidence that he agreed to settle the matter on the terms he did for commercial reasons and not because he believed he had a legal obligation to do so.  He also gave evidence that shortly after the proceedings commenced he informed the principal of the applicants and their solicitors that he would consent to certain of their claims but would not concede that he should not continue to use the name “Aqua Fortis Clean and Capture System Brisbane.”

15                  In my opinion the appropriate balance to be struck between the concession implicit in the respondents consenting to the orders that were made and the fact that the applicants’ claims were never tested, is to order that the respondents pay $10,000 by way of costs to the applicants.  In making this order, I take account of the fact that the respondents failed to comply with directions and, it appears, delayed in making a decision to settle the matter. However, I am not satisfied I should award indemnity costs in relation to any aspect of the costs ordered.  Accordingly, I order that the respondents pay to the applicants $10,000 by way of costs and that the respondents be jointly and severally liable for those costs.

Associate:

Dated:              22 November 2001