FEDERAL COURT OF AUSTRALIA

Edutainments Pty Ltd v JMC Pty Ltd [2003] FCA 1253

COSTS – indemnity costs – trade mark dispute over computer generated characters - offer of compromise – only costs remained in dispute – inappropriate in circumstances for parties to proceed to hearing without advising the Court that costs only issue in dispute - whether applicant’s refusal to settle imprudent and unreasonable in all of the circumstances

Australian Securities Commission v Aust‑Home Investments Limited (1993) 44 FCR 194 referred to

Black v Lipovac [1998] FCA 699 (FC) referred to

Coshott v Learoyd [1999] FCA 276 referred to

Edutainments Pty Ltd v JMC Pty Ltd [2003] FCA 923 referred to

Gribbles Pathology Pty Ltd v Health Insurance Commission (1997) 80 FCR 284 cited

Re Minister for Immigration and Ethnic Affairs; Ex parte Lai Qin (1997) 143 ACR 1 cited

South East Queensland Electricity Board v Australian Telecommunications Commission (unreported, Pincus J, 10 February 1989) cited

Yates Property Corporation Pty Ltd v Boland (2000) 179 ALR 664 referred to

EDUTAINMENTS PTY LTD (ACN 074 008 978) v JMC PTY LTD (ACN 003 572 012)

N 1387 of 2002

BRANSON J

7 NOVEMBER 2003

CANBERRA (HEARD IN SYDNEY)

THE COURT ORDERS THAT:

The applicant pay the respondent’s costs on the following bases:

(a)          the costs incurred up to and including 6 February 2003 as taxed on a party and party basis; and

(b)          the costs incurred after 6 February 2003 in a sum to be ascertained on the basis that the respondent is to be indemnified by the applicant for its costs except insofar as its costs were in an unreasonable amount or were unreasonably incurred.

REASONS FOR JUDGMENT

introduction

1                     On 4 September 2003 I published reasons for judgment in this matter (see Edutainments Pty Ltd v JMC Pty Ltd [2003] FCA 923) and pronounced orders that the application be dismissed and the applicant pay the respondent’s costs.  The respondent has moved the Court for an order that its costs incurred after 4 February 2003 be paid on an indemnity basis.  It places reliance on an exchange of letters between the parties’ respective solicitors between 30 January and 4 February 2003.

2                     I do not consider it necessary to set out again the facts which gave rise to this proceeding.  These reasons should be read together with the reasons for judgment published on 4 September 2003. 

3                     For the reasons set out below I have reached the conclusion that the respondent is entitled to an order that a significant portion of its costs be paid by the applicant on an indemnity basis.

background

4                     It is necessary to refer to the content of the letters on which the respondent relies. 

5                     By letter dated 30 January 2003 the respondent’s solicitors advised that they were instructed to make the following offer:

‘1.        Our client undertakes not to advertise its services in association with the small animated logo depicted in its advertisement, or any logo substantially similar to that logo, a copy of which is annexure “A” to the Short Minutes of Order made 9 January 2003, being the first animated logo.

2.                  Our client undertakes not to advertise its services in association with the small animated logo depicted in its advertisement, a copy of which is annexure “B” to the Short Minutes of Order made 9 January 2003, being the second animated logo.

3.                  Proceedings be dismissed.

4.                  No order for costs.’

6                     The applicant, by letter also dated 30 January 2003, made a counter‑offer which differed from the respondent’s offer only in that it required the respondent to pay the applicant’s costs as taxed or agreed.  Paragraphs 1‑3 of the counter‑offer were relevantly in identical terms to paragraphs 1‑3 of the respondent’s offer.

7                     By letter dated 31 January 2003 the respondent’s solicitors replied, stating, amongst other things that:

‘As your client’s claim for costs appears to be the only remaining issue in dispute, that application can be made on 5 February 2003 and orders in accordance with paragraphs 1-3 above may be made by consent.  If your client does not accept this proposed course of action and intends to proceed with hearing on all matters, please inform us immediately as it will be necessary for us to continue with preparing our affidavits in reply.’

The reference in the letter dated 31 January 2003 to ‘paragraphs 1-3 above’ was to paragraphs 1‑3 of the counter‑offer previously made by the applicant.

8                     By letter dated 3 February 2003 the applicant’s solicitors referred to the letter dated 31 January 2003 and sought clarification as follows:

‘Please confirm whether you are prepared to offer undertakings 1‑3 in open court, with the court to adjudicate as to costs.’

9                     The response to the above letter, which is dated 4 February 2003, reads as follows:

‘Our offer of 31 January 2003 is hereby withdrawn and the offer made 30 January 2003 is open for acceptance.

If that offer is not accepted we suggest agreeing on consent directions for the Directions Hearing on 5 February 2003.’

10                  By letter, also dated 4 February 2003, the applicant’s solicitors wrote:

‘ We refer to your letter dated 4 February 2003.

The “offer” you refer to as withdrawn was ambiguous and in the absence of clarification sought in our letter dated 3 February 2003, we do not accept your letter of 31 January 2003 constituted a proper offer.

We note your advice that the offer contained in your letter dated 30 January 2003 is reinstated.  Our response remains the counter offer set out in our letter dated 30 January 2003.

We note your suggestion that we agree directions by consent.  We will shortly provide you with proposed directions for consideration.

Finally, we understand the directions hearing is listed for 6 February 2003 rather than 5 February 2003 as stated in your letter.’

11                  On 6 February 2003 short minutes of order were offered to the Court by consent.  Orders were made in accordance with the short minutes of order.  The orders provided for the matter to proceed on pleadings; set a time table for pleadings, discovery, inspection; and provided for the filing of all evidence in chief in affidavit form.

12                  At a further directions hearing held on 28 April 2003, I authorised my associate to list the matter for a two day hearing.  On 10 May 2003 pre‑trial directions became operative.  The hearing took place on 24 and 25 June 2003.  As mentioned above, on 4 September 2003 I ordered that the application be dismissed with costs.

first written submission

13                  The respondent, in seeking an order that its costs be paid in part on an indemnity basis, contended that it ‘twice made a very reasonable offer, offering the applicant all that it could reasonably hope to obtain from the litigation other than payment of the applicant’s party/party costs’.  It characterised the applicant’s stance as ‘imprudent and unreasonable’.

14                  The applicant responded that, in effect, its case was not devoid of merit and that ‘some doubt attended the offer and counter‑offer process’.  It drew attention particularly to the paragraph from the letter of 31 January 2003 reproduced in [7] above.  The applicant submitted that:

‘It was prudent and reasonable, albeit ultimately unsuccessful, to continue the proceedings.  There was a reasonable prospect of achieving that which was offered, but with costs.  It does not follow that indemnity costs should be awarded if, in the outcome, the applicant did not succeed.’

second written submissions

15                  I was concerned to learn from the parties’ written submissions on costs that this matter had proceeded to hearing notwithstanding that the parties has resolved all issues in dispute between them except for the question of costs.  The Court has made it clear on many occasions that it will make an order for costs even where there has been no hearing on the merits (see, for example, Australian Securities Commission v Aust‑Home Investments Limited (1993) 44 FCR 194; Yates Property Corporation Pty Ltd v Boland [2000] FCA 1106; (2000) 179 ALR 664).  It is true that the order made will often be that each party bear its own costs (see Re Minister for Immigration and Ethnic Affairs; Ex parte Lai Qin (1997) 143 ACR 1; Gribbles Pathology Pty Ltd v Health Insurance Commission (1997) 80 FCR 284) but that will not necessarily be the case (South East Queensland Electricity Board v Australian Telecommunications Commission (unreported, Pincus J, 10 February 1989).  It is an inappropriate use of scarce public resources for a hearing of a matter on the merits to proceed simply to resolve a dispute between the parties with respect to the payment of pre‑hearing costs.

16                  By its further submissions on costs the applicant argued that although the respondent’s letter of 31 January 2003 ‘alluded’ to the parties looking to the Court to make an order for costs, it was reasonable and prudent for the respondent to seek clarification of the meaning of the letter.  The applicant submitted that it was therefore unreasonable for the respondent to withdraw the offer contained in the letter of 31 January 2003 which ‘[t]he applicant had no opportunity to accept or reject’.  The applicant further submitted that its case was arguable and it had ‘a reasonable prospect of success and of recovering its costs’.

17                  The respondent by its further submissions, submitted that:

‘… had the matter been brought before the Court in February 2003 for determination of costs, there was no realistic likelihood of a costs order being made in favour of the applicant.  The only reasonably likely results on costs were either an order in favour of the respondent, or at best (from the applicant’s viewpoint) an order that each party pay its own costs.’

The respondent contended that, for this reason, the applicant acted imprudently and unreasonably in refusing the respondent’s ‘twice made offers which included the offer that each party bear its own costs’.

consideration

18                  I turn first to consider the strength of the applicant’s case.  As the respondent acknowledges, it cannot be said to have had no prospects of success.  On 9 January 2003, on the applicant giving the usual undertaking as to damages, the Duty Judge restrained the respondent until further order from advertising its services in association with the animated logos referred to in the respondent’s letter of 30 January 2003 (see [5] above).  However, it is accepted that, in doing so, the Duty Judge remarked that she was ‘not convinced that the respondent’s logos are deceptively similar to that of the applicant’.  The Duty Judge by so remarking may be assumed to have been cautioning the applicant concerning the strength of its case.  In the event the applicant’s case failed on the very issue that had been raised by the Duty Judge in early January 2003, namely the degree of similarity between the two logos.

19                  In my view, the offer put forward by the respondent by the letter of 30 January 2003 was a reasonable offer.  The short time frame within which it was expressed to be open to be accepted apparently caused no difficulty to the applicant.  The applicant rejected the offer by making the counter‑offer contained in the letter also dated 30 January 2003.

20                  It remains unclear to me why the applicant considered that it needed to clarify the meaning of the offer contained in the letter of 31 January 2003.  It is also unclear to me why the respondent withdrew that offer upon receiving the request for clarification.  I accept that the written correspondence is, in all probability, an incomplete record of the exchanges between the solicitors for the parties.  I further accept that a measure of frustration and irritation may have been felt at the relevant time by one, if not both, sides.  However, the responsibilities of the solicitors for the parties to their respective clients, and to the Court, were such that in the circumstances outlined above, they should have ensured that the merits of the respective offers were evaluated, at least by them, dispassionately and their respective clients advised accordingly.

21                  For present purposes, however, the offer contained in the letter of 31 January 2003 can be disregarded.  When it was withdrawn the original offer contained in the letter of 30 January 2003 was revived.  That offer was by letter dated 4 February 2003 again rejected by a renewal of the counter‑offer. 

22                  In my view it was imprudent of the applicant not to accept the offer originally made by letter dated 30 January 2003 and subsequently renewed.  However, in my view, it was more than just imprudent.  The applicant had the carriage of the proceeding.  By the end of January 2003 the respondent had made it clear that it was, on pragmatic grounds, willing to give undertakings to protect the interests of the applicant the subject of the proceeding.  The applicant does not suggest that the undertakings proposed were of themselves inadequate or otherwise inappropriate.  Yet the applicant chose to proceed to a full hearing to resolve what had, because of the offer of undertakings, become merely a dispute as to whether the respondent should pay the applicant’s costs or each party should bear its own costs.  It should, in my view, be firmly stated that it will rarely, if ever, be appropriate to proceed to a hearing of a matter on the merits to resolve a dispute of this nature.

23                  The Court should have been informed at the directions hearing held on 6 February 2003 that the only outstanding issue in dispute between the parties related to the payment of costs.  The Court could then have explored with the parties options for resolving the outstanding dispute short of a full hearing on the merits of the applicant’s case as pleaded.

24                  However, a hearing and determination on the merits of the applicant’s case as pleaded has now occurred.  The outcome confirms that the applicant acted unreasonably in all of the circumstances in twice rejecting the offer contained in the letter of 30 January 2003 (see Black v Lipovac [1998] FCA 699 (FC) and Coshott v Learoyd [1999] FCA 276).

25                  In addition to the orders made on 4 September 2003 it will be ordered that the applicant is to pay the respondent’s costs incurred up to and including 6 February 2003 as taxed on a party and party basis and thereafter in a sum to be ascertained on the basis that the respondent is to be indemnified by the applicant for its costs except insofar as its costs were in an unreasonable amount or were unreasonably incurred.

Associate:

Dated:              7 November 2003