FEDERAL COURT OF AUSTRALIA

Australian Health & Nutrition Association Limited trading as Sanitarium Health Food Company v Irrewarra Estate Pty Limited trading as Irrewarra Sourdough (No 2) [2012] FCA 892

THE COURT ORDERS THAT:

1.    Subject to order 2 below, the applicant pay the respondents’ costs of the proceeding as agreed or taxed.

2.    The respondent pay the applicant’s costs of and in connection of the costs hearing on 17 August 2012 as agreed or taxed.

Note:    Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

REASONS FOR JUDGMENT

1    On 8 June 2012 I dismissed the application of the applicant alleging that the first to third respondents had infringed a registered trademark, “GRANOLA”, of which the applicant is an authorised user (Australian Health & Nutrition Association Limited trading as Sanitarium Health Food Company v Irrewarra Estate Pty Limited trading as Irrewarra Sourdough [2012] FCA 592). The remaining issue is costs. The first to third respondents seek an order for costs on an indemnity basis having regard to two offers of compromise. The applicant’s position is that the usual order for costs should be made against it.

2    The proceeding was commenced in August 2010 at which time the previous version of the Federal Court Rules applied. On 9 December 2010 the first to third respondents made an offer of compromise pursuant to O 23 r 11(6) of the Federal Court Rules (in the form they then existed). The offer of compromise was to the effect that the application be dismissed and there be no order as to costs. According to the first to third respondents they had incurred by that time some $123,000 in costs as a result of extensive correspondence and consequential research undertaken since the applicant first alleged trademark infringement in 2007. On 3 February 2012 the first to third respondents issued a further offer in the form of a Calderbank letter (Calderbank v Calderbank [1975] 3 All ER 333; [1976] Fam 93). This offer was more complex and provided for entry into a non-exclusive licence in respect of the disputed trademark, certain undertakings about use and for the applicant to pay 50% of the first to third respondents’ costs on the usual basis. Neither offer was accepted. As a result of my decision published on 8 June 2012 the first to third respondents achieved a better result than both offers in that the application was dismissed and the applicant accepts that it should at least be subject to the usual costs order.

3    The first issue between the parties is the application of the Federal Court Rules (the old Rules). The Federal Court Rules 2011 (the new Rules) commenced on 1 August 2011. By r 1.04(2) of the new Rules those rules “apply to a step in a proceeding that was started before 1 August 2011, if the step is taken on or after 1 August 2011”. However, r 1.04(3) provides that “the Court may order that the Federal Court Rules as in force immediately before 1 August 2011 apply, with or without modification, to a step mentioned in subrule (2)”. On this basis the first to third respondents submitted that such an order should be made so that the old Rules apply.

4    The first to third respondents also submitted that I should apply the principles in IFTC Broking Services Limited v Commissioner of Taxation (2010) 268 ALR 1; [2010] FCAFC 31 (IFTC Broking) which dealt with the operation of O 23 r 11(6). That rule provided for an indemnity costs order “unless the Court otherwise orders”. At [9] in IFTC Broking it was said that this rule creates a presumption in favour of indemnity costs which the unsuccessful party must rebut and the fact that the unsuccessful party acted reasonably in rejecting the offer of compromise is not of itself a sufficient reason to rebut the presumption.

5    The first to third respondents also referred to Yarrabee Chicken Company Pty Ltd v Steggles Limited (No 3) [2011] FCA 993 (Yarrabee Chicken) in which I made an order to the effect that the old Rules applied to a costs application. As stated at [8] of the reasons for judgment, however, this was done after consultation with the parties and without any demurral from this course of action.

6    The applicant submitted that there was no reason for the new Rules to be displaced and that r 25.14 of the new Rules provides for indemnity costs only where an applicant has “unreasonably” failed to accept an offer of compromise. The applicant relied on the decision in Kooee Communications Pty Ltd v Primus Telecommunications Pty Ltd (No 2) [2011] FCAFC 141 (Kooee Communications) in which it was said at [18] that the position under the old Rules and the new Rules was “effectively the same” so that there was no reason to make an order displacing any part of the new Rules.

7    IFTC Broking was an unusual case. The substantive appeal was an appeal against an order for costs (IFTC Broking Services Limited v Commissioner of Taxation [2010] FCAFC 22). Accordingly, the offer of compromise in that proceeding itself related to the subject matter of the appeal, being costs. In any event it is apparent from [12] of IFTC Broking that the reasonableness of a refusal to accept an offer of compromise is relevant to the discretion even though it was there said that it was not “of itself” sufficient to displace the consequence of indemnity costs. Reasonableness or otherwise, accordingly, was always a substantial consideration under the old Rules, as recognised in Kooee Communications at [18].

8    Insofar as there are any issues of principle involved it is apparent that IFTC Broking was decided before the new Rules came into force. Kooee Communications was decided after the new Rules came into force in circumstances similar to the present case. I am not persuaded that it is appropriate to make an order for the old Rules to apply to this costs application. Judgment was delivered in this matter on 8 June 2012. The first to third respondents have applied for indemnity costs in circumstances where the new Rules have been in force for more than a year. In contrast, in Yarrabee Chicken the new Rules had been in force for about three weeks and both substantive judgments to which the offer of compromise in that case related had also been delivered before the new Rules commenced.

9    The problem with the application for indemnity costs is that it fails to recognise three important circumstances. First, despite the first to third respondents’ strong view at all times that they were not using the word “granola” as a trademark, this was ultimately a matter to be determined on the whole of the evidence and inevitably involved questions of fact, degree and impression. The applicant was unsuccessful but it cannot be assumed that it was in any way unreasonable for the applicant to take the proceeding on the basis of its registered “GRANOLA” trademark. Second, the offer of compromise made on 9 December 2010, although it involved no order as to costs, effectively would have resulted in capitulation by the applicant to the position of the first to third respondents that their use of “granola” was not use as a trademark. Third, the evidence shows ongoing communications between the parties at various times in the dispute in an attempt to ascertain whether there was some way in which the interests of both the applicant and the first to third respondents could be accommodated. In short, it was not unreasonable of the applicant not to accept the offer of compromise of 9 December 2010. Insofar as the offer of 3 February 2012 is concerned the circumstances weigh in favour of the applicant even more substantially. That offer was part of an ongoing series of discussions between the parties with a view to resolving the dispute in the context of the grant of some form of licence.

10    Although I accept that offers on the basis that there be no order as to costs are capable of rendering a refusal to accept the offer as unreasonable, each case must depend upon its own facts. As the applicant submitted, this is not a case where the applicants’ position was so untenable that it would have been unreasonable for the applicant to reject any offer. At the time and in the circumstances in which the offers were made, including the continuing attempts by the parties to find a compromise based on some form of licence, I am not persuaded that the applicant’s failure to accept the offers can be characterised as unreasonable or that there is any other fact or matter which would warrant the making of an indemnity costs order.

11    For these reasons, the usual order as to costs should be made in respect of the proceedings generally. The first to third respondents also accepted, as is appropriate, that if they were unsuccessful in their application for indemnity costs they should pay the applicant’s costs of that application on the usual basis. I make orders accordingly.

Associate:

Dated:    22 August 2012