FEDERAL COURT OF AUSTRALIA

Futuretronics.com.au Pty Limited v Graphix Labels Pty Ltd (No 3)

[2008] FCA 896

COSTS – multiple causes of action – successful on only some causes of action – whether separate orders should be made – issues sufficiently separate and distinct – separate orders made – application of one-third off rule in O 62, r 36A Federal Court Rules – copyright litigation appropriately commenced in Federal Court – indemnity costs – conduct of unsuccessful respondent – did not add substantially to length of trial – indemnity costs – whether unsuccessful applicant should have known main claim had no chance of success – costs awarded on party and party basis.  

Federal Court Rules O 62 r 36A

Australian Performing Right Association Ltd v Metro on George Pty Ltd (2004) 64 IPR 57 referred to

Australasian Performing Right Association Ltd v Pashalidis [2000] FCA 1815 referred to

Axe Australasia Pty Ltd v Australume Pty Ltd (No 2) [2006] FCA 844 followed

Colgate-Palmolive v Cussons (1993) 46 FCR 225 referred to

Fasold v Roberts (unreported, Sackville J, 11 September 1997 MG942 of 1992 referred to

Fountain Selected Meats (Sales) Pty Ltd v International Produce Merchants Pty Ltd (1988) 81 ALR 397 followed

Futuretronics.com.au Pty Limited v Graphix Labels Pty Ltd [2007] FCA 1621 referred to

Futuretronics.com.au Pty Limited v Graphix Labels Pty Ltd (No 2) [2008] FCA 746 referred to

LED Builders Pty Ltd v Hope (1994) 53 FCR 10 referred to

FUTURETRONICS.COM.AU PTY LIMITED ACN 006 327 386 v GRAPHIX LABELS PTY LTD ACN 005 771 773 and JOHN ATTA

VID 1237 of 2006

BESANKO J

12 jUNE 2008

ADELAIDE (BY VIDEOCONFERENCE WITH MELBOURNE)

THE COURT ORDERS THAT:

1.                  Subject to orders 2 and 3 below, the applicant pay the respondents’ costs of the proceeding.

2.                  The respondents pay the applicant’s costs of the infringement of copyright claim in relation to the artworks and the breach of implied term claim in relation to the artworks and the provisions of O 62 r 36A(1) do not apply in relation to this order.

3.                  The applicant pay two-thirds of the respondents’ costs of the submissions (including written submissions) as to the appropriate orders as to costs.

4.                  Pursuant to O 52, r 15(1)(a)(iii) of the Federal Court Rules the time for filing and serving any notice of appeal from the orders made in this proceeding be extended for a period of 21 days from today’s date.

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

REASONS FOR ORDERS AS TO COSTS

1                     This is a proceeding in the Court. A Judge of the Court made an order that issues of liability be determined separately from and prior to issues of quantum. After a trial dealing with issues of liability, I made the following orders, relevantly, on 22 November 2007:

“THE COURT DECLARES THAT:

1.         The applicant is the owner of copyright in the artworks.

2.         By the production and distribution of the brochure to the parties listed below the first respondent has infringed the applicant’s copyright in the artworks in breach of s 36 of the Copyright Act 1968 (Cth):

(i)         Mr David Bartlett and Mr Boyd Dainton of Audion Australia on or about 10 October 2006;

(ii)        Mr Peter Batt of Fosh Australia in October 2006;

(iii)       Mr Waldo Latowski of Griffin Technology on 12 October 2006

3.         The second respondent authorised the first respondent’s said infringement of the applicant’s copyright in the artworks in breach of s 36 of the Copyright Act 1968 (Cth).

4.         It was an implied term of the agreement between the applicant and the first respondent (“the agreement”) that the artworks would be used by the first respondent for the purpose of fulfilling orders and for no other purpose (“the implied term”).

5.         The first respondent breached the implied term by providing samples of skins bearing some of the artworks to persons including one Ian Bagnall of Powermove Distribution Pty Ltd without the authorisation of the applicant.

THE COURT ORDERS THAT:

…

12.       Save for the applicant’s claim for damages for the said infringement of copyright and for the said breach of the implied term, the application herein otherwise be dismissed.”

2                     After a trial as to issues of quantum I made the following orders, relevantly, on 27 May 2008:

“THE COURT ORDERS THAT:

1.         For the infringement of copyright there be judgment in favour of the applicant against the respondents in the sum of $10,010.00.

2.         For breach of the implied term there be judgment in favour of the applicant against the first respondent in the additional sum of $10.00.”

3                     I must now deal with the question of costs.

4                     As I understood it, the applicant submitted that the respondents should pay its costs of the proceedings assessed on an indemnity basis. The respondents submitted that two orders should be made. First, an order should be made that the applicant pay the respondents’ costs of and incidental to the proceedings up to and including 22 November 2007 on an indemnity basis. Secondly, an order should be made that the applicant pay the respondents’ costs of and incidental to the proceeding from 23 November 2007 onwards on a party-party basis.

Should separate orders be made?

5                     The first question is whether an order should be made that one of the parties receives the whole of the costs of the proceedings, or whether different orders should be made with respect to different issues reflecting the success of the respective parties in relation to those issues. No doubt in circumstances where one party to proceedings has been largely successful the Court will examine the facts carefully before making a separate order as to costs in favour of the party which has been largely unsuccessful with respect to those issues in relation to which it has been successful. The respondents have been largely successful, but the issues in relation to which the applicant has been successful were sufficiently separate and distinct to warrant a separate order for costs.

6                     The applicant made a number of claims against the respondents. Those claims are outlined in my liability reasons: Futuretronics.com.au Pty Limited v Graphix Labels Pty Ltd [2007] FCA 1621. The applicant was unsuccessful as to the majority of its claims. It was unsuccessful as to what it presented as the main claim, namely, that there was an implied term in a contract between it and Graphix Labels Pty Ltd which prevented Graphix Labels from manufacturing and selling skins. The applicant submitted that one order as to costs should be made and it should be an order in its favour. The problem for the applicant is that if it is appropriate to make only one order as to costs, and that order should be in favour of the successful party, or the party who has been largely successful, then neither party has been wholly successful, and it is the respondents who have been largely successful. The respondents have been largely successful in that they have resisted the majority of the applicant’s claims including what was the main claim advanced by the applicant. The applicant’s counsel attempted to argue that in terms of witnesses and their evidence, the case and the costs associated with it would have been the same, or more or less the same, even if it had not pursued the claims upon which it was unsuccessful. He also submitted that the applicant had been successful as to some claims and unsuccessful as to others. The applicant’s attempts to characterise the proceedings in that way must fail because the fact is that the applicant failed on its main claim and the bulk of its other claims. My reasons for reaching that conclusion are apparent from my liability reasons and require no further elaboration.

7                     For their part, the respondents submitted that the success or benefit ultimately achieved by the applicant in pursuing the proceedings, as reflected in my orders, was slight, whereas the costs were substantial. The success or benefit was submitted to be so slight that when regard is had to the undertakings as to the artworks offered by the respondent at the outset, the success or benefit achieved by the applicant should be ignored. As I understood the submission, it was that in practical terms the respondents have been successful. It follows, so it was submitted, that an order for costs should be made in their favour albeit the costs should be assessed on different bases for different periods.

8                     In my opinion, the respondents’ submission should be rejected for two reasons. First, the applicant has succeeded in its claim for infringement of copyright in relation to the artworks and for breach of an implied term in relation to samples containing the artworks. In relation to the first-mentioned claim, the applicant has received an award of damages including additional damages which, although modest, were based partly on a finding that the infringement was flagrant. Secondly, the undertakings proffered by the respondents to the applicant not to use the artworks were made with a denial of liability and did not include any indication that the respondents would pay damages or consent to an order for the assessment of damages. The applicant pointed out to the respondents in correspondence that they had not explained the basis upon which they denied liability for infringement of copyright. The denial of liability was maintained in the defence and indeed it was maintained until the fifth day of trial. I was told that the reason for the denial was that the respondents were not satisfied that the artworks were original works, but even if the reason for the denial is relevant, the particular reason was not conveyed to the applicant in their correspondence or in the defence in a way that may have reduced costs. It may be that the important fact is not that the respondents did not offer to pay damages or consent to an assessment of damages but, rather, the fact that ultimately the applicant received an award of damages.

9                     In my opinion, the principal submission of each party should be rejected. In my opinion the applicant should be paid its costs of the infringement of copyright claim in relation to the artworks and in relation to the breach of implied term claim in relation to the artworks. In my opinion, the respondents should otherwise receive their costs of the proceedings. Those conclusions leave two submissions to be considered in relation to the applicant’s infringement of copyright claim in relation to the artworks and breach of implied term in relation to the artworks, and one submission in relation to the respondents’ costs in terms of the balance of the proceedings.

The applicant’s costs in relation to the infringement of copyright claim and breach of implied term claim

10                  Two submissions were made in relation to these costs. One by the respondents and the other by the applicant.

11                  The respondents submitted that the one-third off rule in O 62, r 36A of the Federal Court Rules should be applied. That rule provides, relevantly:

“36A(1)           When a party is awarded judgment for less than $100,000 on a claim (not including a cross-claim) for a money sum or damages any costs ordered to be paid, including disbursements, will be reduced by one-third of the amount otherwise allowable under this Order unless the Court or a Judge otherwise orders.

        (2)           If the Court or a Judge is of the opinion that a proceeding (including a cross-claim for a money sum or damages) brought in this Court could more suitably have been brought in another Court or in a Tribunal and so declares, then any costs to be paid, including disbursements, will be reduced by one-third of the amount otherwise allowable under this Order.

        (3)           This rule does not apply to a proceeding under the Admiralty Act 1988.”

12                  For a number of years this Court has taken the view that copyright litigation is appropriately commenced in this Court even if the monetary claim is small. I refer to LED Builders Pty Ltd v Hope (1994) 53 FCR 10, Fasold v Roberts (unreported, Sackville J, 11 September 1997 MG942 of 1992), Australasian Performing Right Association Ltd v Pashalidis [2000] FCA 1815 and Australian Performing Right Association Ltd v Metro on George Pty Ltd (2004) 64 IPR 57.

13                  I see no reason not to apply that principle in this case.  Accordingly, I will order that the costs ordered to be paid, including disbursements, not be reduced by one-third under O 62 r 36A(1), for the nature of the claim being one appropriately brought in the Federal Court is “good reason” to depart from that rule:  Axe Australasia Pty Ltd v Australume Pty Ltd (No 2) [2006] FCA 844 at [6] per Finkelstein J.  It also follows that there is no scope for the application of O 62 r 36A(2).

14                  The applicant’s submission was that the aforesaid costs should be assessed on an indemnity basis because the respondents’ conduct was unreasonable. The respondents conceded liability on the copyright claim on the fifth day of trial so that any submission that costs should be assessed on an indemnity basis because of an unreasonable denial of liability cannot go beyond that time.

15                  The circumstances in which an unsuccessful party may be ordered to pay costs on a basis other than a party and party basis have been considered in a number of authorities.

16                  In Fountain Selected Meats (Sales) Pty Ltd v International Produce Merchants Pty Ltd (1988) 81 ALR 397, Woodward J said (at 401):

“I believe that it is appropriate to consider awarding ‘solicitor and client’ or ‘indemnity’ costs whenever it appears that an action has been commenced or continued in circumstances where the applicant, properly advised, should have known that he had no chance of success. In such cases the action must be presumed to have been commenced or continued for some ulterior motive, or because of some wilful disregard of the known facts or the clearly established law. Such cases are, fortunately, rare. But when they occur, the Court will need to consider how it should exercise its unfettered discretion.”

17                  The matter was also discussed by Shepherd J in Colgate-Palmolive v Cussons (1993) 46 FCR 225. Shepherd J set out six principles or guidelines at 232-234 and I refer to those principles or guidelines. The discretion is a broad one and must be exercised according to the particular circumstances of the case. I have considered the submissions and I have had regard to the matters identified in my reasons as to damages: Futuretronics.com.au Pty Limited v Graphix Labels Pty Ltd (No 2) [2008] FCA 746 at [24]-[30]. I am not persuaded that the respondents’ conduct was of such a nature as to justify an award of costs on an indemnity basis. The applicant was put to proof in relation to its claim for infringement of copyright, but that did not add to the length of the trial in any substantial way.

The respondents’ costs of the proceedings save and except for the separate order made in favour of the applicant

18                  The respondents submitted that their costs should be assessed on an indemnity basis because in relation to the main claim the applicant, properly advised, should have known that it had no chance of success. The difficulties associated with the main claim should have been apparent to the applicant, but I am not prepared to go as far as the respondents asked me to go. Although of lesser significance, it is also relevant to take into account the fact that there were other claims made by the applicant in respect of which it was unsuccessful and I did not understand the respondents to suggest that the applicant, properly advised, should have known that it had no chance of success with respect to these claims. I will not make an order that the respondents’ costs be assessed on an indemnity basis.

19                  As far as the costs of the costs submissions including the written submissions are concerned, I think an order that the applicant pay two-thirds of the respondents’ costs of those submissions fairly reflects the submissions made by each party including the orders sought and orders I will make.

Orders

1.                  Subject to orders 2 and 3 below, the applicant pay the respondents’ costs of the proceeding.

2.                  The respondents pay the applicant’s costs of the infringement of copyright claim in relation to the artworks and the breach of implied term claim in relation to the artworks and the provisions of O 62 r 36A(1) do not apply in relation to this order.

3.                  The applicant pay two-thirds of the respondents’ costs of the submissions (including written submissions) as to the appropriate orders as to costs.

4.                  Pursuant to O 52, r 15(1)(a)(iii) of the Federal Court Rules the time for filing and serving any notice of appeal from the orders made in this proceeding be extended for a period of 21 days from today’s date.

Associate:

Dated:         12 June 2008