FEDERAL COURT OF AUSTRALIA

Australian Postal Corporation v Digital Post Australia Pty Ltd (No 3) [2012] FCA 1049

THE COURT ORDERS THAT:

1.    The application for a variation of Order 2 of the Court’s Orders of 17 August 2012 is dismissed;

2.    The respondents pay the applicant’s costs of the application referred to in paragraph 1 above.

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

REASONS FOR JUDGMENT

1    On 17 August 2012, the Court published its reasons for judgment in the substantive application in this proceeding; see Australian Postal Corporation v Digital Post Australia Pty Ltd (No 2) [2012] FCA 862 (‘the substantive judgment’). In the substantive judgment, the Court dismissed the claims of the applicant (‘Australia Post’) for trade mark infringement, breach of the Australian Consumer Law (‘ACL’) and passing off. The successful respondents now seek an order for their costs to be paid on an indemnity basis. Australia Post opposes the making of any such order and says that the existing costs order should not be varied.

background

2    On 15 March 2012, King & Wood Mallesons (‘KWM’), solicitors acting on behalf of Australia Post, sent a letter addressed to the first respondent, Digital Post Australia, (‘DPA’) requiring it to:

    cease the use of certain domain names;

    refrain from using the names “Digital Post Australia”, “Digital Post” or “Post” in any permutation in connection with its proposed digital mail service; and

    refrain from representations or suggestions that DPA or the joint venture [with the other respondents] or DPA’s product is “official” or capable of being associated with Australia Post in any way;

3    KWM informed DPA that failure to comply with the above demands would result in litigation.

4    On 21 March 2012, solicitors acting on behalf of DPA (‘Middletons’) sent a detailed response to KWM setting out why it considered Australia Post’s claims to lack merit. Middletons advised that the proposed proceeding would be vigorously defended.

5    On 27 March 2012, Australia Post filed and served the substantive application in the proceeding. It named DPA as the first respondent. It also named Computershare Limited (‘Computershare’) and Salmat Limited (‘Salmat’) as respondents. As explained at para [15] of the substantive judgment, DPA is a joint venture between Computershare, Salmat and an American corporation called Zumbox Inc.

6    By letter dated 29 March 2012, Middletons wrote to KWM on behalf of Computershare and Salmat saying that those companies are the parent companies of shareholders in DPA but do not provide the proposed digital mail service in their own right. The letter expressed the surprise of Computershare and Salmat at being joined as parties to the proceeding. It asserted that no previous claim had been made against Computershare and Salmat and that no genuine steps had been taken to resolve any dispute with them. It contended that the Application and Statement of Claim raised no cause of action against them. The letter concluded as follows:

We are instructed to invite [Australia Post] to discontinue the proceedings against [Computershare and Salmat] by 4pm Friday 30 March 2012. If the proceedings are discontinued against [Computershare and Salmat] by this time, no application will be made for an award of costs to [Computershare and Salmat]. If the proceedings are not discontinued against [Computershare and Salmat] they will seek to raise the matters set out in this letter with his Honour [Middleton J] at the interlocutory hearing and will refer to this letter on the question of costs, which our Clients will seek on an indemnity basis.

7    On 30 March 2012, KWM responded saying that its letter of demand had been sent to Computershare and Salmat in addition to DPA and therefore the companies had notice of the proceeding. The letter also said that representatives of Computershare and Salmat were intimately involved in DPA’s business. Given the relationships between DPA and the other respondents, KWM contended that:

It is entirely unrealistic to expect our client not to have commenced proceedings against all of these entities to ensure that its rights are fully protected.

8    Based on the allegation that the trade mark DIGITAL POST AUSTRALIA is substantially identical with or deceptively similar to the Australia Post trade marks, Australia Post alleged infringing conduct by all respondents. Australia Post also alleged the making of false or misleading representations in breach of the ACL and/or passing off by all respondents.

9    On 4 April 2012, Middleton J refused Australia Post’s application for interlocutory relief; see Australian Postal Corporation v Digital Post Australia [2012] FCA 372. His Honour considered that the claims based on misleading or deceptive conduct were not strong on the evidence before him. However, at para [12] his Honour said:

At the end of the day it is a matter of judgment and impression based upon what is before the Court as to the content and context of the allegedly misleading or deceptive conduct.

On the issue of trade mark infringement, his Honour said at para [13]:

…this stands in a different category to the misleading or deceptive claim in relation to the “serious question to be tried” inquiry. I think this claim warrants more investigation; it cannot be said that it is not without merit or substance. However, I do not have to weigh up the exact merits or otherwise of this claim...it will ultimately be a matter of impression on which minds may differ as to whether there has been trade mark infringement under s 120(1).

10    On 18 April 2012, Middletons wrote to KWM. Part of the letter concerned the position of Salmat and Computershare and a reiteration of the reasons why those parties should not have been joined in the view of Middletons. The letter also sought that the proceeding against Computershare and Salmat be discontinued and that the ACL and passing off claims against all respondents be withdrawn in light of the interlocutory judgment. The invitation to do so was said to be open until 4.00 pm on 20 April 2012. The letter stated that the offer was put on the basis of the principles in Calderbank v Calderbank [1975] 3 All ER 333 and would be used in support of an application for indemnity costs, should it not be accepted and the respondents obtain a judgment equal to or more favourable than the offer.

11    On 19 April 2012, KWM responded saying that the letter of the previous day did not contain a valid Calderbank offer, as it was unreasonable in the circumstances to give Australia Post less than 48 hours to respond.

12    On 25 May 2012, Middletons sent KWM a letter which had attached to it a document entitled “Notice of Offer to Compromise”. The offer was made on the following terms:

1.    The parties agree to an order that the Claim and Cross-Claim be struck out with no order as to costs, such order to be made within 7 days of the acceptance of this Offer;

2.    The parties will sign an agreed statement that the proceeding has been discontinued without admission of liability;

3.    Each party will bear its own costs; and

4.    The terms of the settlement will remain confidential.

The accompanying correspondence explained why, in the view of Middletons, Australia Post’s application was bound to fail. The offer was expressed to be open for 14 days. It did not seek to distinguish the position of Computershare and Salmat from that of DPA.

Competing contentions

13    The respondents contend that Australia Post was on notice, at all material times, of key factual and legal matters on which its case would fail. They contend that Australia Post acted imprudently and unreasonably in refusing the three offers. The first offer was that made on 29 March 2012. The second offer was that made on 18 April 2012. The third offer was the formal offer made on 25 May 2012 under Part 25 of the Federal Court Rules (‘the Rules’).

14    Australia Post says that it did not act imprudently or unreasonably in failing to accept any of the three offers of compromise. It says that the first offer was made before the filing of a Defence and the first and second offers were made before the respondents had provided discovery. It also says that none of the three offers included explanations as to why the application would fail on the principle issue of deceptive similarity for the purposes of trade mark infringement. Finally, Australia Post says that the offers were ones to capitulate rather than to compromise. Australia Post also observes that, in the interlocutory judgment, Middleton J held that there was a “serious issue to be tried” on the issue of trade mark infringement and that the proceeding involved questions of fact, degree and impression requiring determination in light of the evidence as a whole.

the federal court rules

15    Part 25 of the Rules (headed “Offers to settle”) is designed to encourage litigants to settle proceedings, while preserving access to justice. Rule 25.01 provides:

(1)     A party may make an offer to compromise by serving a notice, in accordance with Form 45, on another party.

(2)     The notice must not be filed in the Court.

Rule 25.05 provides that an offer may be made at any time before judgment is given and more than one offer may be made. An offer may be open for a limited time, but the time must not be less than 14 days after the offer is made. Rule 25.14 is headed: “Costs where offer not accepted”. It provides in sub-rule 2 as follows:

If an offer is made by a respondent and an applicant unreasonably fails to accept the offer and the applicant’s proceeding is dismissed, the respondent is entitled to an order that the applicant pay the respondents costs:

(a)     before 11.00 am on the second business day after the offer was served – on a party and party basis; and

(b)     after the time mentioned in paragraph (a) – on an indemnity basis.

relevant principles

16    The parties agreed that the principles concerning whether an award of indemnity costs should be made are summarised in the helpful judgment of Gordon J in Facton Ltd (formerly known as G-Star Raw Denim KFT) v Seo [2011] FCA 344 at [55]. Her Honour restated the principles as follows:

1.    the Court’s power to award costs is contained in s 43 of the Federal Court of Australia Act 1976 (Cth). The Court has a wide discretion in the award of costs. It is, of course, a discretion which must be exercised judicially and in accordance with well established principles: Alpine Hardwoods (Aust) Pty Ltd v Hardys Pty Ltd (No 2) [2002] FCA 224; (2002) 190 ALR 121 at [8] – [10].

2.    the usual course is to order costs on a party and party basis; Colgate-Palmolive Company v Cussons Pty Limited [1993] FCA 536; (1993) 46 FCR 225 at 233 per Sheppard J;

3.    indemnity costs can properly be awarded where the circumstances of the case warrant the Court departing from the usual course of ordering costs on a party and party basis. Those circumstances have been variously described as “some special or unusual feature” and include “an imprudent refusal of an offer to compromise”: Alpine Hardwoods at [11] and the authorities there cited;

4.    Order 23 [of the former Rules] headed “Offer of Compromise and Payment into Court” provides a structure which encourages parties to make and consider fair and reasonable offers to settle proceedings: Alpine Hardwoods at [12] and the authorities cited. It is not however a code: Alpine Hardwoods at [18] and [19]. Parties are also able to rely upon the common law principles in relation to Calderbank letters: Calderbank v Calderbank [1975] 3 All ER 333. A Calderbank letter can be considered by the Court in deciding whether to make an order displacing the usual costs order even if O 23 of the Rules has not been followed: Alpine Hardwoods at [18] and the authorities cited;

5.    refusal of an offer which satisfied the requirements of a Calderbank letter does not itself warrant an order for indemnity costs: Alpine Hardwoods at [20], [21], [27] and [28]; Black v Lipovac (by his next friend Lipovac) (1998) 217 ALR 386 at [217]. The onus is on the offeror to show that the conduct of the offeree was unreasonable: Alpine Hardwoods at [21], [27] and [28]. The reasonableness of the conduct is viewed in light of the circumstances which existed at the time the offer was rejected;

6.    if, however, the central requirements of a Calderbank letter (that is clear, precise and certain: Perry v Comcare [2006] FCA 33; (2006) 150 FCR 319 at [55] – [57]) are not met, it does not mean that the offer cannot be considered by the Court in the exercise of its general costs discretion. Courts will be prepared to pay some regard to an offer of compromise which purports to be in accordance with the Rules but which for some reason is technically deficient if the terms of the offer are such as to leave the offeree in no reasonable doubt as to the nature and extent of what is being offered: Grbavac v Hart [1997] 1 VR 154 at 155. The offer must be certain: Duncan & Weller Pty Ltd v Mendelson [1989] VicRp 36; [1989] VR 386 at 401 and Grbavac at 155 and 160. It must be capable of acceptance which, if accepted, would have brought the dispute between the parties to an end: Grbavac at 164; and

7.    in determining whether an offer should have been rejected, a Court looks at the “reasonableness of the conduct of the offeree, [when] viewed in light of the circumstances which existed when the offer was rejected”: Black at [218]. It has also been described as whether the rejection of the offer was “imprudent” or “unreasonable” (Black at [52] and [216]) or “imprudent, reckless or unreasonable” United Salvage Pty Ltd v Louis Dreyfus Armateurs SNC [2006] FCA 1611 at [18].

17    The judgment in Facton predates the new Rules. The relevant rule for her Honour’s consideration was then Order 23. Unlike Order 25.14, Order 23 of the former Rules did not in its terms require an applicant to “unreasonably fail to accept an offer of compromise”. However, as is clear from her Honour’s judgment in Facton, the reasonableness of the conduct was a relevant issue even under the former Rules. As the Full Court said in Kooee Communications Pty Ltd v Primus Telecommunications (No 2) [2011] FCAFC 141 at [14] and [18], it is essential that an applicant act unreasonably in rejecting an offer of compromise for an award of indemnity costs to be made. Whether or not this is so, will be a question of fact to be determined in all the circumstances. However, the threshold for what constitutes unreasonable conduct is high; see for example Australian Health & Nutrition Association Ltd t/as Sanitarium Health Food Company v Irrewarra Estate Pty Ltd t/as Irrewarra Sourdough (No 2) [2012] FCA 892 at [10]. The Full Court in Australian Competition and Consumer Commission v Metcash Trading Ltd (No 2) [2012] FCAFC 55 at [21] rejected an application for indemnity costs on the basis that the appellant’s case “was not such that it was inevitable that it would lose”. The Court now turns to consider whether Australia Post acted unreasonably in rejecting each of the three offers.

i.     the March offer

18    The offer of 29 March 2012 was made on behalf of Computershare and Salmat only. It gave Australia Post less than 48 hours to consider whether it should withdraw the claims made against those respondents. The letter did not comply with Order 25 of Rules. Given the complexity of the issues involved in the proceeding, it was unreasonable for Australia Post to be given such a short period of time in which to consider whether or not to take the important step of withdrawing as against Computershare and Salmat. Given the very early stage of the proceeding, Australia Post did not have enough time to make an informed decision about the offer. Therefore, Australia Post’s refusal of the March offer was not unreasonable.

ii.    the April offer

19    It must first be acknowledged that the offer of 18 April 2012 did not involve the withdrawal of any claim by Australia Post with respect to trade mark infringement, but only with respect to the ACL and passing off claims. It did not comply with Order 25 of the Rules. Insofar as the question of costs was concerned, it was only relevant to Computershare and Salmat. As Counsel for Australia Post submitted in written submissions, there is no evidence that the costs incurred by Computershare and Salmat separately from those incurred by DPA were material after the interlocutory hearing before Middleton J.

20    In addition, insofar as DPA was concerned, the offer did not involve any form of compromise. It sought that Australia Post capitulate in respect of its ACL and passing off claims and in respect of the other respondents that it completely withdraw its claims. This was not a true offer of compromise. In any event, assuming that a true offer of compromise was made, its refusal by Australia Post was not unreasonable. At all stages, the claim against DPA was primarily focused on the trade mark infringement issue. As is clear from the substantive judgment, the ACL and passing off issues were secondary in nature. Further, the offer was expressed to expire two days after it was made on 18 April 2012. This was not sufficient time to consider whether to take the significant step of discontinuing the ACL and passing off claims against DPA as well as the ACL, passing off and trade mark infringement claims against Computershare and Salmat. Furthermore, nothing in the interlocutory judgment suggested that Australia Post’s claims were manifestly hopeless or bound to fail at trial.

iii.     the May offer

21    This offer was made in accordance with Part 25 of the Rules. I do not consider that Australia Post acted unreasonably in rejecting it. As Middleton J made plain in the interlocutory judgment, the issue of trade mark infringement was always going to be a matter of impression for the trial judge. In the substantive judgment, the Court took a particular view about whether DPA’s trade mark was deceptively similar to that of Australia Post. On issues involving matters of judgment and impression, it is difficult to conclude that a particular view of the evidence is necessarily the one which will ultimately be held at trial. Different eyes see different things. The Court does not consider that Australia Post’s case was bound to fail. Australia Post raised an arguable case which was rejected on a mature consideration of the principles and the evidence as a whole. However, it was not a claim which was obviously without merit or substance. In those circumstances, Australia Post’s rejection of the May offer was not unreasonable.

orderS

22    In light of the foregoing, it is appropriate to order as follows:

1.    The application for a variation of Order 2 of the Court’s Orders of 17 August 2012 is dismissed.

2.    The respondents pay the applicant’s costs of the application referred to in paragraph 1 above.

Associate:

Dated:    27 September 2012