FEDERAL COURT OF AUSTRALIA

Sydney Markets Limited v Sydney Flower Market Pty Limited [2002] FCA 283

COSTS – offer of compromise made by successful party prior to hearing – whether offer was a true offer of compromise – whether refusal of offer was unreasonable – whether successful party was entitled to an order that its costs be paid on an indemnity basis

Dr Martens Australia Pty Ltd v Figgins Holdings Pty Ltd (No 2) [2000] FCA 602 applied

Calderbank v Calderbank [1975] 3 WLR 586 referred to

Multicon Engineering Pty Ltd v Federal Airports Corporation (1996) 138 ALR 425 cited

Australian Competition & Consumer Commission v Amcor Printing Papers Group Ltd [2000] FCA 163 applied

Hobartville Stud Pty Ltd v Union Insurance Co Ltd (1991) 25 NSWLR 358 applied

Australian Competition & Consumer Commission v Universal Music Australia Pty Ltd (No 2) [2002] FCA 192 referred to

McKerlie v State of NSW (No 2) [2000] NSWSC 1159 referred to

SYDNEY MARKETS LIMITED v SYDNEY FLOWER MARKET PTY LIMITED

N 178 OF 2000

HELY J

19 MARCH 2002

SYDNEY

THE COURT ORDERS THAT:

1.                  Subject to Order 2, the applicant pay the respondent’s costs of the proceedings (other than the issues raised by pars 30 – 45 of the defence).

2.                  The cross-claimant pay any costs incurred by the cross-respondent as a result of it replying to an issue that was raised in the cross-claim that was not raised by the application instituted by the applicant against the respondent.

3.                  Costs be assessed on a party/party basis.

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

REASONS FOR JUDGMENT

1                     These proceedings concerned claims by both applicant and respondent to the exclusive use of the name “Sydney Flower Market”.  On 22 February 2002 I published reasons for my conclusion that neither party had established that the conduct of its business by the other under that name involved a contravention of s 52 of the Trade Practices Act 1974 (Cth).  That conclusion was subject to a qualification in relation to web sites established by the parties.  I found that cross injunctions should be granted so as to require appropriate disclosures or disclaimers on those web sites in order to avoid the public being misled by the similarity in the domain names which the parties had chosen.  The proceedings were stood over to enable appropriate orders to be formulated in this respect.  Orders have now been made (in terms which have been recorded) giving effect to my findings in that respect.

2                     That leaves outstanding the question of costs.  Mr McDougall QC, counsel for the respondent, contends that the applicant should pay the respondent’s costs of the application, but that the cross-claimant should pay any costs incurred by the cross-respondent as a result of it replying to an issue raised in the cross-claim that was not raised in the application instituted by the applicant against the respondent.  The applicant’s position is that the appropriate order is that each party should bear its own costs of the proceedings, subject to the qualification that the costs order which I made on 23 April 2001 (dealing with costs thrown away by an adjournment of the proceedings) should stand.

3                     Whilst it is true that the respondent did not need to bring a cross-claim in order to defend its use of the name, and to resist the relief sought by the applicant, the cross-claim was largely defensive inasmuch as the evidence adduced in support of the cross-claim was directly relevant to whether the applicant was entitled to the relief which it sought.  If and insofar as any material brought forward by the respondent does not satisfy that description, then the applicant’s position is protected in that regard by the form of orders which Mr McDougall proposes.

4                     It is also true that on 17 February 1998 lawyers acting for the respondent forwarded a letter of demand to the applicant which, amongst other things, requested the applicant to cease using the name “Sydney Flower Market”.  However, it was not that letter which was the catalyst for these proceedings.  On 14 December 1999 lawyers acting for the applicant forwarded a letter of demand to the respondent.  Proceedings were instituted by the applicant on 6 March 2000 after the respondent declined to comply with that demand.

5                     In my view, the respondent ought to be regarded as the successful party in the proceedings such that it should receive its costs of the proceedings except to the extent that the cross-claim raised an issue that was not raised in the application instituted by the applicant.  Neither party identified any such issue, but I propose an order in those terms in case it should emerge that there was one.  There is one qualification which I would make to that finding.  Paragraphs 30 – 45 of the amended defence as filed on 29 August 2001 asserted that the applicant was estopped by its conduct from obtaining the relief which it sought.  The respondent failed in that defence for the reasons given in pars 139 – 142 of my earlier judgment.  In substance, the estoppel defence failed because I did not accept Mr Stevens’ evidence which was crucial to that defence.

6                     I am conscious of authorities which establish that a court should not be too ready to disallow costs simply because a party has failed upon an issue, unless it be quite a separate and distinct issue from the issue in respect of which it succeeded or unless there be some element of unreasonableness or inappropriate conduct in relation to that issue.  See, eg. Dr Martens Australia Pty Limited v Figgins Holdings Pty Ltd (No 2) [2000] FCA 602 at [54].

7                     However, it seems to me that the estoppel defence falls within the qualification to the general principle.  Having regard to matters referred to in par 66 of my earlier judgment, reliance on the estoppel defence by the respondent was both unreasonable and inappropriate and the respondent should not receive its costs of that issue.

Offer of compromise

8                     On 20 December 2000 the respondent’s solicitors wrote a letter marked “without prejudice save as to costs” to the applicant’s solicitors.  By that time the principal affidavits ultimately relied upon by the parties had been filed and served, although some evidence only emerged after that date.  The letter commenced with the following observation:

“The evidence filed on behalf of both parties, makes it clear that it was only as a result of (the respondent) commencing its business under the name ‘Sydney Flower Market’ that (the applicant) has recently decided to market its flower market under the name ‘Sydney Flower Market’.  No evidence has been filed to date that establishes that (the applicant) has established as pleaded, a long and valuable reputation as the ‘Sydney Flower Market’ throughout Sydney and New South Wales.  Accordingly, we have formed the considered view that your client’s application will fail.”

That statement substantially accords with the findings which I made in pars 110 – 117 of my earlier judgment.

9                     The letter then referred to the possibility that the Court would order that neither party is entitled to the exclusive use of the name “Sydney Flower Market”, and there was a real risk that at a final hearing the result will be, in effect, a “draw”.  For that reason the following offer of compromise was made:

“1.       the applicant discontinue its application against the respondent;

2.                  the applicant pay the respondent’s costs of defending the application on a party/party basis as agreed or in default of agreement as assessed;

3.                  the cross-claimant will discontinue its cross-claim against the cross-respondent;

4.                  the cross-claimant will pay any costs incurred by the cross-respondent as a result of it replying to an issue raised in the cross-claim that was not raised in the application instituted by the applicant against the respondent, on a party/party basis as agreed or in default of agreement as assessed;

5.                  the respondent will place a disclaimer on the first page of its website operated under the name “www.sydneyflowermarket.com.au” to the following effect:

                                    ‘This website and Sydney Flower Market Pty Limited are not licensed, authorised or in any way associated with Sydney Markets Limited or its website operated under the domain names www.sydneyflowermarket.com, www.sydneyflowermarket.net, www.sydneyflowermarket.net.au and www.sydneyflowermarket.org.’;

6.                  the applicant will place a disclaimer on the first page of its website operated under the domain names ‘www.sydneyflowermarket.com’, ‘www.sydneyflowermarket.net’, ‘www.sydneyflowermarket.net.au’ and ‘www.sydneyflowermarket.org’ to the following effect:

                        ‘This website and Sydney Markets Limited are not licensed, authorised or associated in any way with Sydney Flower Market Pty Limited or its website operated under the domain name www.sydneyflowermarket.com.au’.”

10                  On 16 January 2001 the respondent’s solicitors sent a further letter similarly marked “without prejudice save as to costs” which was as follows:

“Dear Partners

We refer to our client’s offer of compromise to settle these proceedings dated 20 December 2000 (‘our client’s offer’).

We are instructed to advise that if your client decides to accept our client’s offer, our client would be prepared, for an appropriate amount of consideration, to sell your client the business ‘Sydney Flower Market’ or its business name ‘Sydney Flower Market’ on the following alternative basis:

1.                  Our client will sell your client the business ‘Sydney Flower Market’.  The ‘business’ of our client for the purpose of this offer is to [sic] defined to include:

(a)               its business and company names;

(b)               its domain name ‘www.sydneyflowermarket.com.au’; and

(c)                the goodwill associated with the business name ‘Sydney Flower Market’ that our client has developed (at considerable expense) over the last four years.

            Our client would retain its retail stores and those stores thereafter trade under a different business name.

2.                  Alternatively, our client will continue to operate its retail business of ‘Sydney Flower Market’ which includes sales through its retail stores, its internet site ‘www.sydneyflowermarket.com.au’ and the telephone.  It will provide an undertaking to your client that it will not at any stage operate a wholesale store or market under the name ‘Sydney Flower Market’.

We confirm that the above alternate offers are only open to be accepted, upon your client accepting our client’s offer of compromise dated 20 December 2000.

Please note that this offer is not in any way intended to affect our client’s offer of compromise dated 20 December 2000.  Our client’s offer of 20 December 2000 is open to be accepted by your client without consideration to this offer.”

11                  On 29 January 2001 the applicant’s solicitors responded to those letters rejecting the offers contained in them.  The applicant’s letter proposed terms of settlement which included the respondent abandoning use of the name “Sydney Flower Market” in return for a payment of $50,000 by way of compensation for the costs to be incurred by the respondent in changing its company name and cancelling its various registrations and associated costs, with the proceedings being dismissed with no order as to costs.

12                  By letter dated 28 November 2001 the respondent’s solicitors substantially repeated the offer made in the letter of 20 December 2000, although this letter did not make reference to disclaimers to be published on each party’s web sites.  The response sent by the applicant’s solicitors on 30 November 2001 make it clear that the applicant would not agree to any settlement which did not involve surrender by the respondent of the name “Sydney Flower Market”.

13                  In those circumstances, the respondent submits that the circumstances bring the application within the scope of the principles enunciated in Calderbank v Calderbank [1975] 3 WLR 586 and Multicon Engineering Pty Ltd v Federal Airports Corporation (1996) 138 ALR 425 at 440-441, 451, entitling it to an award of indemnity costs from the time of rejection of the 20 December 2000 offer.

14                  In Multicon Engineering Pty Ltd v Federal Airports Corporation (supra) Rolfe J stated (at 451) the following principle in relation to an application for indemnity costs where an offer of compromise had been made:

“In my opinion the proper approach to take to an offer of compromise, whether made under the Rules or pursuant to a Calderbank letter, is that there should be a prima facie presumption in the event of the offer not being accepted and in the event of the recipient of the offer not receiving a result more favourable than the offer, that the party rejecting the offer should pay the costs of the other party on an indemnity basis from the date of making the offer.  I proceed on the basis that the unreasonableness was the failure by the offeree to accept the offer, which unreasonableness is demonstrated, prima facie, by the ultimate result.”

15                  The offer of compromise made in the letter of 20 December 1999 (assuming, for the moment, that it was an offer of a compromise) substantially accords with the ultimate result of the proceedings.  The applicant did not do better as a result of its continued prosecution of those proceedings than the compromise which the respondent proposed.  It is true that the cross injunctions which I ultimately ordered in relation to the web sites were more expansive than those proposed in the letter, but, in the scale of things, the web sites were a comparatively minor matter, and the applicant’s declared position that any compromise was dependent upon the surrender by the respondent of the name "Sydney Flower Market” made negotiation on the detail of the disclaimers pointless.

16                  The authorities in this Court would not support the conclusion that there is any presumption that costs should be ordered on any indemnity basis if the party in receipt of a Calderbank offer does not accept the offer or achieve a result more favourable than the offer.  In Australian Competition & Consumer Commission v Amcor Printing Papers Group Ltd [2000] FCA 163 Sackville J referred to an “imprudent refusal of an offer to compromise” as being a basis on which costs might be awarded on an indemnity basis.  At par 9 his Honour said:

“The authorities in this Court have accepted that the rejection of a Calderbank offer (in the sense of an offer to settle specifically made with a view to being used, if not accepted, in relation to a costs application) does not of itself justify an order for costs on an indemnity basis if the offeree fails to secure a more favourable outcome in the proceeding: John S Hayes & Associates Pty Ltd v Kimberley-Clark Australia Pty Limited (1994) 52 FCR 201 at 206, per Hill J.  The significance to be attached to a Calderbank offer depends on its terms and the circumstances of the litigation, including the time at which the offer is made and the understanding of the parties as to the strengths and weaknesses of their respective cases: Flemington Properties Pty Ltd v Raine & Horne Commercial Pty Ltd (Lehane J, 11 February 1998, unreported), at 3.”

17                  The decision of Sackville J is consistent with the decision of Goldberg J in Dr Martens (supra).  In that case his Honour said at [17]:

“Thus, whenever a Calderbank offer is made, and is enlivened by a result more favourable to the offeror and less favourable to the offeree, it is necessary to look at all the surrounding circumstances and not simply the fact that an offer was made and rejected and the offeree has achieved a less favourable result than the offer.  It is necessary to look at the genuineness of the offer, whether it was realistic, the point of time at which it was made and that whether, in all the circumstances, it was such a reasonable offer as required the offeree to give careful consideration to it.  If, in all the circumstances, it was unreasonable for the offeree to reject the offer and not accept it then there are strong grounds for the Court ordering indemnity costs on the basis of the offeror has made a fair and reasonable attempt to resolve the proceeding and has given the offeree the opportunity at a relevant point of time in the proceeding to consider the reasonableness of the offer.  The Full Court (Neaves, Ryan and Lee JJ) underscored this approach in Donnelly v Edelsten (1994) 121 ALR 333 where it said at 345:

            ‘The foundation for the order is the need for the costs order to do equity where a party who has succeeded in the proceeding has made a reasonable attempt to terminate the proceeding by an offer of compromise shown to have been a fair offer in all the circumstances and to have provided appropriate opportunity for the offeree to consider and deal with the offer.’”

18                  The communication of a prediction as to the likely outcome of litigation, coupled with a proposal to dispose of the proceedings on that basis, may not provide a sufficient foundation for an order for costs on an indemnity basis, unless the proposal contained sufficient elements of compromise as to make it unreasonable for the party to whom the offer was made not to accept it.

19                  As Giles J observed in Hobartville Stud Pty Ltd v Union Insurance Co Ltd (1991) 25 NSWLR 358 at 368 compromise connotes that a party gives something away.  In Australian Competition & Consumer Commission v Universal Music Australia Pty Ltd (No 2) [2002] FCA 192, Hill J at [61] referred to the decision of Dunford J in McKerlie v State of NSW (No 2) [2000] NSWSC 1159 to the effect that an offer to settle a case by dismissing it with no order as to costs did not carry with it the consequences of a Calderbank letter, as an offer in relation only to costs was not really a genuine offer of compromise.

20                  In the present case the proposal was that the applicant should give up its claim and pay the respondent’s costs in relation to that claim.  The only element of compromise was that the respondent would give up its cross-claim and pay any costs that were solely referable to it.

21                  In the course of submissions prior to my earlier judgment, Mr McDougall QC described the cross-claim as substantially defensive in character.  He was correct in characterising the cross-claim in that way.  On that basis the “compromise” was, in substance, a proposal that the applicant should face up to the fact that it would not succeed in its claim, it should discontinue the claim, and pay the respondent’s costs up to the point of discontinuance.

22                  If my earlier judgment is correct, the applicant’s continued prosecution of the proceedings in the face of the correspondence to which I have referred reflected an erroneous assessment on the part of the applicant or its advisers as to the strength of the applicant’s case.  An award of party/party costs in favour of the respondent is the consequence of that erroneous assessment.

23                  But I am not satisfied that the applicant’s continued prosecution of the proceedings, in the face of the proposal which was put, was so egregious as to warrant an order for payment of costs on an indemnity basis.  The substance of what was offered to the applicant was capitulation, rather than compromise.  Whilst the applicant’s claim failed, it cannot be said that it was so obviously without merit as to make it unreasonable for the applicant to proceed notwithstanding the offer which was made.

24                  A fair result is that the applicant should pay the respondent’s costs of the proceedings (other than the issues raised by pars 30 – 45 of the defence), but that the cross-claimant should pay any costs incurred by the cross-respondent as a result if it replying to an issue raised in the cross-claim that was not raised by the application instituted by the applicant against the respondent.  I decline to make any order that costs should be assessed on an indemnity basis.

Associate:

Dated:              19 March 2002