FEDERAL COURT OF AUSTRALIA

Kardas v Kalliakoudis [2008] FCA 1913

COSTS –breach of trademark – respondentagrees to permanent injunction but not an account of profits – costs not agreed – whether costs should be paid by respondent – factorsto be taken into account

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

Champagne View Pty Ltd v Shearwater Resort Management Pty Ltd [2000] VSC 214

Fordyce v Fordham [2006] NSWCA 274

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

Melbourne University Publishing v Williamson [2005] FCA 1910

O’Neill v Mann [2000] FCA 1680

The Minister for Immigration and Ethnic Affairs of the Commonwealth of Australia; Ex parte Lai Qin, Re (1997) 186 CLR 622

DIMITRIOS KARDAS v PETER KALLIAKOUDIS and NICK MISSAILIDIS

VID 410 of 2008

FINKELSTEIN J

16 DECEMBER 2008

MELBOURNE

THE COURT ORDERS THAT:

1.                  The applicant have leave to discontinue the proceeding against the second respondent.

2.                  The second respondent pay the applicant’s costs fixed in the amount of $15,000.

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

The text of entered orders can be located using eSearch on the Court’s website.

REASONS FOR JUDGMENT

1                     The applicant, Mr Kardas, is the owner of the trademarks “SPACEDANCE MYKONOSXPERIENCE” and “SPACEDANCE MYKONOS EXPERIENCE”.  The marks are registered under the Trade Marks Act 1995 (Cth) in relation to entertainment activities.  Mr Kardas uses the marks to promote dance parties, which offer a unique style of modern Greek music, to the Greek community.  The respondents are Mr Kardas’ competitors.  They promoted three dance parties (held on 24 and 31 May 2008 at the Alluva night club and on 8 June 2008 at the Billboard night club) by reference to the marks.  Mr Kardas commenced this action to restrain the respondents’ alleged trademark infringement and to recover damages or an account of profits. 

2                     On 6 June 2008 I made an interim order restraining the respondents from promoting any dance party by reference to the word “MYKONOSXPERIENCE” (or a similar word).  At that time the first respondent, Mr Kalliakoudis, was represented by a legal adviser but the second respondent, Mr Missailidis, appeared in person. 

3                     By agreement of the parties the action was referred to a mediation which took place on 25 June 2008.  At the mediation Mr Kalliakoudis agreed to submit to a permanent injunction restraining him from promoting any dance party by reference to the word “MYKONOSXPERIENCE” (or a similar word).  Accordingly, on 28 July 2008, formal orders were made disposing of the proceeding against Mr Kalliakoudis. 

4                     The action against Mr Missailidis did not settle.  He consented to the imposition of a permanent injunction (in the same terms as the injunction imposed on Mr Kalliakoudis) but no agreement could be reach with respect to the account of profits claim.  Accordingly, I ordered that Mr Missailidis’ accountant file an affidavit setting out the profits Mr Missailidis derived from the three dance parties held in May and June 2008.  That affidavit was filed on 27 August 2008.  The accountant, Mr Sianas, deposed that Mr Missailidis had: (a) lost $1,284 on each Alluva event; and (b) made a profit of $500 on the Billboard event.  Mr Kardas asserts that the accountant’s calculations are deficient in a number of critical respects.  

5                     The action ultimately settled when the parties returned to court on 3 October 2008 for directions.  It was agreed that Mr Kardas would discontinue his action against Mr Missailidis without any prejudice to any claim for costs.  It was agreed that the costs would be determined by me. 

6                     Mr Kardas asks that I fix the costs rather than ordering that they be taxed.  Mr Kardas filed a schedule showing his total costs in the actions to be $65,363.77.  However, he seeks only $45,500 in costs.  This amount represents 70% of his total costs and, according to Mr Kardas, is a proper estimate of his costs if taxed on a party-party basis.  A better rule of thumb is that taxed costs usually amount to 60% of total costs. 

7                     There is no doubt I can make an order for costs notwithstanding that an action has not gone to trial.  In Australian Securities Commission v Aust‑Home Investments Limited (1993) 44 FCR 194, 201 Hill J set out the following principles to be applied when the court is asked to make an order for costs but there has been no trial on the merits: 

(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.

(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 proceeding 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.  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.

(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.

(5)        Where the proceedings terminate after interlocutory relief has been granted, the Court may take into account the fact that interlocutory relief has been granted.

(citations omitted)  

8                     The issue was also considered in Re the Minister for Immigration and Ethnic Affairs of the Commonwealth of Australia; Ex parte Lai Qin (1997) 186 CLR 622.  There McHugh J said (at 624):

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.

And later (at 625):

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.

…

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.

9                     In Gribbles Pathology Pty Ltd v Health Insurance Commission (1997) 80 FCR 284, 287 I suggested that “in the absence of a hearing on the merits it is difficult to see how any order, other than an order that each party bear its own costs, can be made except in special circumstances”.  In Champagne View Pty Ltd v Shearwater Resort Management Pty Ltd [2000] VSC 214, [47] Gillard J suggested that my requirement for “special circumstances” was too strict.  He went on to say that “[e]ach case must depend upon its own circumstances”.  I agree with that approach.

10                  There is an underlying policy reflected in the rules of the Federal Court (and most other superior courts) that a discontinuing party should be liable for the other party’s costs unless the court otherwise orders.  But, it does not necessarily follow that a defendant should have his costs merely because a plaintiff wishes to discontinue his action.  In O’Neill v Mann [2000] FCA 1680, Finn J observed (at [13]):

But so various can be the reasons for, and circumstances of, discontinuance that that policy cannot safely be said to have hardened into a “usual rule” … The conduct of the parties in the matter and the reasons for the discontinuance can bear heavily on the exercise of the discretion as to costs. 

See also Fordyce v Fordham [2006] NSWCA 274. 

11                  Returning to the case at hand, one can start with the proposition that on the facts, which were not in dispute, Mr Kardas’ case for an injunction was strong.  This does not mean that Mr Kardas should have his costs.  Mr Missailidis says he was not aware that Mr Kardas was the owner of the marks.  He only became aware of the claim on 6 June 2008 (when Mr Kardas’ solicitors called him and advised him that he must attend court immediately).  Mr Missailidis asserts that if Mr Kardas (or his solicitors) had contacted him before commencing the action and told him to stop using the marks he would have done so immediately.  He says this contention is confirmed by his conduct:  immediately after discovering that Mr Kardas was the owner of the marks Mr Missailidis agreed to: (a) submit to a permanent injunction; and (b) undertake corrective adverting. 

12                  Accordingly, Mr Missailidis says that Mr Kardas should not get his costs.  He relies on Melbourne University Publishing v Williamson [2005] FCA 1910.  In that case Heerey J (at [4]) declined to make a costs order in favour of a successful plaintiff because the plaintiff had served his application without prior notice, and without first writing a letter of demand: 

[I]t is a widespread and salutary practice in all forms of civil litigation for a prospective plaintiff to write a letter of demand, for the very reason that a prospective defendant can take advice and, if there is no defence, save the substantial costs that would be involved even for a brief undefended application like the present …

13                  Further, Mr Missailidis made an offer to compromise the action brought against him.  On 26 June 2008 Mr Missailidis offered to pay Mr Kardas $7,500 in full settlement of his claim.  At that time Mr Kardas’ costs totalled $37,800.  According to the conventional approach one half of those costs (being $18,900) would be attributed to the action against Mr Missailidis (with the other half being attributable to the action against Mr Kalliakoudis).  When taxed on a party-party basis, the costs attributable to the action against Mr Missailidis would have been approximately $11,340.  

14                  Mr Kardas also made offers of settlement.  Each offer was to discontinue the action if he received payment of a specific amount.  The first offer, made on 3 July 2008, asked for payment of $19,250.  At that point Mr Kardas’ total costs were about $40,354.  The second offer, made on 13 August 2008, sought payment of $27,500.  By then Mr Kardas’ total costs were around $54,100.  The final offer, made on 23 September 2008, requested payment of $20,000.  At that stage Mr Kardas’ total costs had reached $58,000.   

15                  I have some sympathy for Mr Missailidis.  He quickly agreed to stop using the registered marks.  Moreover, I suspect that if he had prior notice that Mr Kardas was the registered owner of the marks it is likely that Mr Missailidis would have given undertakings not to use the marks thus making the claim for injunctive relief unnecessary.  This does not, however, change the fact that Mr Kardas’ rights had clearly been infringed and he had a good claim to protect those rights.  The usual rule is that costs normally follow the event.  I do not accept that, in this case, the successful party should be deprived of his costs simply because he failed to write a letter of demand. 

16                  Mr Kardas’ total costs to date are $65,363.  Of that amount approximately $18,900 is attributable to the action against Mr Kalliakoudis.  The balance, when discounted by 40%, results in a rough and ready estimate of party-party costs of approximately $27,878.  I do not believe that Mr Kardas should have this entire sum.  While his pursuant of the action was reasonable, it was always going to be the case that the claim for an account of profits was likely to produce a small return in relative terms.  In my view, parties should be discouraged from prosecuting, in a superior court, a money claim which on any view will be disproportionate to the costs of pursuing the action.  I think it is therefore appropriate to reduce the costs to $15,000, being the party-party costs attributable to the claim against Mr Missailidis until 28 July 2008 (the date the injunction was granted) plus additional costs incurred by Mr Kardas over a relatively short period to consider his position.

Associate:

Dated:         16 December 2008