FEDERAL COURT OF AUSTRALIA

CGM Investments Pty Ltd v Chelliah (No 3) [2003] FCA 405

COSTS – indemnity – when granted – apportionment – method of apportionment – costs not ordered against unsuccessful party

Federal Court Rules O 29

American Tobacco Company v Guest [1892] 1 Ch 630 referred to

Baulderstone Hornibrook Pty Ltd v Qantas Airways Ltd [2003] FCA 325 followed

Hughes v Western Australian Cricket Association (Inc) [1986] ATPR 48,134 cited

Inn Leisure Industries Pty Ltd v D F McCloy Pty Ltd (No 2) (1991) 28 FCR 172 cited

J-Corp Pty Ltd v Australian Builders Labourers Federated Union of Workers, Western Australian Branch (No 2) (1993) 46 IR 301 followed

Lever Brothers Limited v Masbro’ Equitable Pioneers Society Limited (1911) 105 LT 948 cited

Ruddock v Vadarlis (No 2) (2001) 115 FCR 229 followed

CGM INVESTMENTS PTY LIMITED, A WHISTLE & CO (1979) PTY LIMITED and A WHISTLE & CO PTY LIMITED v CHARLES CHELLIAH, MULSANNE HOLDINGS PTY LTD, WALLERA PTY LTD, NARENDRA JAIN and

NANDINI PATEL

V 378 of 2002

FINKELSTEIN J

6 MAY 2003

MELBOURNE

THE COURT ORDERS THAT:

1.      The third, fourth and fifth respondents pay eighty per cent (80%) of the applicants’ costs of the application against these respondents, such costs to be taxed on a party and party basis.

2.      The applicants pay the third, fourth and fifth respondents’ costs thrown away after 26 September 2002 by reason of its abandonment of the allegation that the respondents were estopped from contending that the franchise agreement made on 21 August 1984 was still in force.

3.      The applicants and the first and second respondents bear their own costs in relation to the applicants’ claim against these respondents and in relation to the cross-claim brought by these respondents against the applicants.

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

REASONS FOR JUDGMENT

1                     This judgment relates only to costs.  The principal dispute in the case concerned the currency of a franchise agreement.  Under the agreement the Wallera respondents were entitled to use the “Electrodry” trade marks and were granted the right to conduct a particular carpet cleaning business which uses an exothermic chemical process.  The applicants asserted, and the Wallera respondents denied, that the agreement had come to an end.  The applicants initially relied only on an alleged oral agreement to establish the termination of the franchise agreement; additional grounds were later added including abandonment, repudiation and estoppel. 

2                     On the hearing of preliminary questions formulated pursuant to O 29 of the rules, I found that the franchise had been abandoned.  I rejected the allegation that there had been an oral agreement to discharge the franchise.  It was unnecessary to determine whether the applicants might have succeeded on other grounds.  Following the determination of the preliminary questions, the Wallera respondents consented to final orders restraining them from using the trade marks and from operating the carpet cleaning business.  Initially the respondents had raised certain defences to the applicants’ claim, apart from those based on the franchise agreement, but these were dropped. 

3                     The applicants now seek the costs of the action.  The application against the Wallera respondents raises two controversial issues.  The first is the basis upon which costs should be assessed.  The applicants ask for the assessment to be on an indemnity basis in respect of those costs incurred after 30 August 2002 or, alternatively, after 3 March 2003.  The second controversial issue is raised by the Wallera respondents.  These respondents accept that the usual rule that costs follow the event should not be applied in this case.  They submit that (a) the applicants should pay the Wallera respondents’ costs up to and including 11 September 2002; (b) the applicants and the Wallera respondents should bear their own costs incurred between 12 September and 20 September 2002; (c) the Wallera respondents should pay the applicants’ costs incurred between 21 September and 25 September 2002; (d) the applicants should pay the Wallera respondents’ costs incurred between 26 September 2002 and 12 December 2002; and (e) the Wallera respondents should pay the applicants’ costs incurred between 13 December 2002 and 14 March 2003.  To understand this submission it is necessary to identify the events which occurred on particular dates.  On 11 September 2002, the applicants filed their principal affidavits in support of their claim that the franchise had been terminated by oral agreement.  On 20 September 2002, the applicants served amended particulars which, for the first time, raised the claim of abandonment.  The trial of the preliminary issues was held on 25 September 2002; however, not all the issues could be dealt with, as the applicants had not filed evidence to support their estoppel argument.  Consequently, the hearing on the estoppel issue was stood over until 12 December 2002.  However, shortly before the hearing, the applicants advised that the estoppel issue would not be pressed. 

4                     In effect, the Wallera respondents submit that there should be an apportionment of costs.  The apportionment should be between, on the one hand, those costs which relate to the applicants’ claim that the franchise had been terminated by oral agreement (a claim which was unsuccessful) and the costs incurred in dealing with the abandonment claim (on which the applicants were successful).  In effect, the Wallera respondents say that the applicants should not have their costs for the issue on which they were unsuccessful, and that the Wallera respondents should be paid their costs for contesting that issue.  I should mention that the applicants accept that they must pay the Wallera respondents’ costs incurred between 26 September and 12 December 2002 in relation to the estoppel issue, as costs thrown away.

5                     There is some substance to the Wallera respondents’ contentions.  Ordinarily, costs follow the event “in the absence of special circumstances justifying some other order”:  Ruddock v Vadarlis (No 2) (2001) 115 FCR 229, 234.  My own view, however, is that the circumstances in which a judge may depart from the ordinary rule should not be so confined: Baulderstone Hornibrook Pty Ltd v Qantas Airways Ltd [2003] FCA 325 at [4].  I accept that as a general proposition, a court should not deprive a party of his costs simply because he has failed on a certain issue.  However, if that party has failed on an issue which is quite distinct from the issues on which he has succeeded, so that an apportionment of costs can easily be made, a departure from the usual rule will often be justified.  See by way of example Hughes v Western Australian Cricket Association (Inc) [1986] ATPR 48,134 and Inn Leisure Industries Pty Ltd v D F McCloy Pty Ltd (No 2) (1991) 28 FCR 172. 

6                     In this case the Wallera respondents’ suggested method of apportionment is unsupportable (save for the costs thrown away which the applicants concede should be paid by them) because while abandonment was not initially identified as an issue, it was always open on the facts and would inevitably have been considered by the trial judge. 

7                     This raises the question as to how the apportionment should be made.  In J-Corp Pty Ltd v Australian Builders Labourers Federated Union of Workers, Western Australian Branch (No 2) (1993) 46 IR 301, 302-303, French J said that “[m]athematical precision is illusory and any apportionment must be a matter of …impression and discretion”.  Adopting a somewhat rough and ready method of apportionment, I would reduce the applicants costs by 20 per cent.  Such an order will reflect the time expended in dealing with the issues on which the applicants were not successful as well as the paperwork generated by that issue.  It will also produce a result that is both fair and reasonable.

8                     I now turn to consider whether the applicants should have their costs on an indemnity basis.  The applicants seek a special order on the basis that the Wallera respondents rejected two offers to resolve the dispute which were more favourable to them than the relief which was ultimately obtained.  The first offer was made on 30 August 2002.  However, this offer was not addressed solely to the Wallera respondents.  It was also made to the Chelliah respondents.  The offer was therefore incapable of acceptance by the Wallera respondents alone.  Moreover, as the Chelliah respondents declined to accept the offer, the offer could not be accepted by the Wallera respondents.  Accordingly, on the question of costs, this offer must be ignored. 

9                     The second offer was made on 3 March 2003.  For reasons that will become immediately apparent, I need not set out its terms save in one aspect.  The offer was made in the following context.  I handed down my decision on the preliminary questions on 14 February 2003.  The Wallera respondents indicated that they wished to appeal my decision.  I informed the parties that I would nevertheless determine the outstanding issues in the case.  It was at this stage that the second offer was made and it related to the outstanding issues.  The offer was not accepted.  The rejection of the offer was not unreasonable, as it required the parties to mutually release each other from any claim they may have arising out of the proceeding.  If the release were to be given, the Wallera respondents would have lost their right to appeal.  The Wallera respondents should not be subjected to a special costs order because they wished to pursue their appeal.

10                  In the result I will make orders to the effect that the applicants receive from the Wallera respondents eighty per cent of their costs and that the applicants will pay the Wallera respondents costs thrown away by reason of them having abandoned the estoppel issue.

11                  The applicants also seek indemnity costs in respect of their claim against the Chelliah respondents.  Lengthy written submissions have been filed explaining why such an order should be made.  I am not inclined to accede to their application.  To the contrary, I am of opinion that the proper order to make in relation to the applicants’ claims against the Chelliah respondents is that each side should bear their own costs.

12                  It is clear that the Chelliah respondents did not intend any wrongdoing.  They treated with the Wallera respondents in good faith when negotiating the acquisition of the Melbourne franchise.  They were not to know that the Wallera respondents did not have title to the Melbourne franchise and could not, therefore, assign any rights to the Chelliah respondents. In due course the Chelliah respondents recognised that their ability to conduct the franchise and use the trade mark was dependent upon Wallera’s title.  It was for this reason that the Chelliah respondents left it to the Wallera respondents to establish that title.  In the end, of course, the Wallera respondents failed to substantiate their claim.  A declaration was consequently made that the Chelliah respondents had acquired no interest in the franchise.  It inevitably followed that their cross-claim was also dismissed.  A court, however, will not always order an unsuccessful party to pay the costs of an action.  In American Tobacco Company v Guest [1892] 1 Ch 630 Sterling J refused to order costs against a retail trader who had innocently purchased goods which turned out to infringe a trademark.    See also Lever Brothers Limited v Masbro’ Equitable Pioneers Society Limited (1911) 105 LT 948.  A similar order will be made in this case.

Associate:

Dated:              6 May 2003